Power Lunch - Stocks hit new record highs 9/11/22

Episode Date: September 11, 2025

D.A. Davidson downgrades Apple to Neutral and upgrades Nvidia to Buy. Stocks charge to new highs.  And how is the health of the housing market? It is all here on Power Lunch.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Thank you, Mike Santoli and Melissa Lee. Another day, another set of record highs for stocks, a tale of two tech titans and a glimmer of hope for home buyers. Welcome to Power Lunch. I'm Dominic Chu, and we've got an action-packed hour on deck for you. The Dow, the S&P, and the NASAC all hitting fresh record highs in today's session as investors seemingly shrug off this morning's inflation data. The 10-year treasury yield briefly, and I mean briefly, fell below 4% for the first time since April. our own Rick Santelli, not in Chicago, here in-house at CNBCHQ. For more on that story, we'll get his take on all of that.

Plus, a potential winner in the AI race. D.A. Davidson is bullish on NVIDIA, calling the chipmaker the heart of the AI trade, but downgrading Apple to neutral, saying it's getting laughed by the competition. We'll speak to the analyst behind two of the biggest calls on Wall Street today. And Home Sweet Home, Builder. Taylor Morrison up more than 15% in 2025 as mortgage rates dip to their lowest levels in a year. We're going to speak to the CEO of Taylor Morrison about that and so much more. But we begin with two of the biggest tech calls on Wall Street today.

Invida upgraded to buy from neutral at D.A. Davidson. The price target also raised to 210 bucks a share it was 190 before. DA Davidson's also downgrading Apple to a neutral rating from a prior buy. the price target there stays at 250 bucks a share. Let's now bring in the analyst behind both of those calls. Gil Luria is managing director at DA Davidson. covers a lot of ground in technology. Gil, thank you very much for being with us here on Power Lunch.

Let's go one by one and then we'll delve a little bit further into the discussion. Let's talk Nvidia first. This has been a consensus trade, I think, for quite some time now. Invita has been the poster child of AI. So what's behind the upgrade and why? exactly do it now after we've seen the kind of run that we've seen? Well, that's right. It has been a consensus, and it should be, but a couple of things have happened as far as we're concerned. A couple of things are converging. One is we are exceedingly

optimistic about the adoption of AI and the needs for AI compute. There's some worry about why isn't it implemented in organizations. We don't think that matters. We are bringing AI to the workplace. I sat in my car. during a commute and learned about government subsidies of chips from GROC. I was able to download a 400-page document and extract the piece of information I need. My neighbor, the lawyer, is not only replacing paralegals and associates, but she's now getting strategic advice from Chad GPT. So that's all happening.

But what's happened at the same time is people have tried to expand the AI trade away from Nvidia and Microsoft to a point where now Nvidia is the least expensive in the AI trade, they're only trading at 28 times next year's earnings. Oracle's trading at 15 times, at 50 times, I'm sorry, 50, on a much more questionable story. And yet, Nvidia is now trading at 28 times. Apple is trading at 28 times. Invita is going to grow earnings 30, 40%. Apple is going to grow earnings 10%. So between our optimism for AI and the fact that the AI traders rotated away from Nvidia, we think this is the time to focus back on Nvidia. All right.

So the risk reward set up, given that is going to be one that you're focusing on. And like you said, 50,500, that's nothing to shake a stick at there. All right. So, Gil, that's the one side. Let's take us through the AI argument for why Apple deserves to be downgraded to a neutral or hold type rating. We were so excited a year ago after a worldwide developer conference because Apple has the assets to be the leader in how consumers use AI. They have all our information. They have it secure. They have it organized. After Worldwide Developer Conference last June, they showed us a path

towards how they're going to help us do that. And here we are more than a year later, and they've executed on very small pieces of that. We wanted to give them one last chance with the iPhone announcement to show us that we were going to be using AI through the iPhone and using iPhone's capabilities to get more powerful AI solutions and they didn't deliver. What that means is we are at least a year away from them being able to deliver on those things. And in the meantime, again, it's trading at a premium. It's understandable that there's a premium in Apple. It's so defensive. we all know that five years from now, anybody that's using an Apple today will use an Apple, we'll use some sort of Apple device, will be on Apple services, we'll be buying more from Apple.

That makes it very defensive, but we can't get away from the fact that if revenue only grows low single digits, if earnings only grow high single digits, paying 28 times for that, when you can pay 28 times for Nvidia, which is growing so much faster, is very hard to explain. A year from now, if, If iPhone 17 incorporates a lot more AI capabilities, we can revisit. But that's outside the investment time horizon right now. All right. So that's the investment time horizon. And you laid out the case for what you would do or what you would need to see to be more

bullish on Apple. Is there anything, though, that can get investors excited in this kind of investment time horizon? Would there be incremental steps you could see in the coming quarters that would say, hey, you know what? Maybe we've got to change our thesis on Apple. If they do make some breakthroughs around allowing us to use Apple as an agentic device, as an assistant, then we would get more excited.

If we were to see that promise of, hey, Siri, can you book me a restaurant reservation near the concert with my sons so we can go celebrate their birthday? and she'd know all that and be able to execute on that, by the way, she just started talking back to me. If that was to happen in this next year, we would revisit. But until that does happen, we're going to wait for them to execute well on that front. They haven't shown us a sign that that's imminent. All right, and Gil, you made an allusion to it prior, the valuation. You also cover Oracle.

I'd be remiss given the moves we've seen in the last 48 hours if I didn't ask you about Oracle. Oracle is now hold rated for you. So it kind of takes over what NVIDIA was. What's the Oracle hold rating going to mean for the entire AI space in your coverage universe? Here's what you need to know about Oracle. Everybody got really excited because they added $317 billion to their backlog to the remaining performance obligations. Everybody got really excited about that. Only the next day, we found out that $300 billion of that was from Open AI.

So let me put that in context. Oracle added $400 billion of market cap based on a deal with a company that's only worth $300 billion, Open AI, that only has $12 billion of revenue right now, that's losing $50 billion this year. And by the way, Microsoft has right of first refusal to any compute from OpenAI. If Microsoft decides, you know what,

we'll just do all your compute. that contract with Oracle may be worthless. Open edge out there double, triple, quadruple booking compute capacity. So if that's all that Oracle was able to add and has added $400 billion of market cap, we're very weary of that. That's not the same thing as them adding business from any other customer or from a group of customers. That's just one customer that Microsoft has a right of first refusal on that doesn't have the capital to spend, certainly not $300 billion,

that's going to have to be $300,500 billion of revenue in five years to even justify spending this much. So we think we got very excited a couple of nights ago around Oracle, but once we realized that it was almost entirely open AI, that really changes what this means for the stock. All right, it's a hot debate for sure with Oracle and those valuations. Gil Loria, with the calls on Apple and Nvidia and Orleans, Oracle. Thank you very much. We'll see you soon, sir. Thank you. All right, we got some breaking news out of

Washington, D.C., the Treasury Department is releasing its monthly interest statement, and Megan Kisela is all over the story. She's got the details, Megan. Don, that's exactly right. This time, it was another big deficit month for the U.S. Treasury, the U.S. running a $345 billion deficit for the month of August. That compares with about $300 billion, expected among economists surveyed by Dow Jones. Now, on an adjusted basis, that accounts for standard calendar differences, month to month, it's a slightly better story, but still significant, a $257 billion deficit for August. Fiscal year to date so far, the U.S. is now running a $1.9 trillion deficit, almost exactly matching its pace from this time a year ago. And this report shows Treasury is both spending

and taking in more money than ever for the month of August. A huge portion of their spending is interest on the public debt. The U.S. has now spent $1.1 trillion so far this fiscal year on interest alone, that is an all-time high. And then finally, this report is our best look each month at tariff revenue coming in. Treasury took in $30 billion in customs duties in August. That encompasses a little more than just Trump's tariffs, but you can see the increase here since he took office. That's the most customs revenue ever taken in in a single month, that $30 billion. And so far this calendar year, so roughly since President Trump took office, the U.S. has now taken in $145 billion in customs duties. Dom.

All right, Megan Gisela with the latest there on the Treasury's statistics on tariff revenue. Thank you very much for that. Coming up next on the show, our exclusive interview with the CEO of Taylor Morrison, Holmes, we're going to ask her about mortgage rates, about housing demand, and so much more. And Warner Brothers Discovery, soaring on reports Paramount Skydance, is preparing a possible takeover bid. We've got that story and much more when Power Lunch returns after this commercial break. Welcome back to Power Lunch. Warner Brothers Discovery and Paramount both higher on reports of a potential deal.

Our Julia Borson has that big story, Julia. Okay, we have some technical difficulties with Julia Borson's feet, so we're going to get back to her, but we will now turn to the housing market, where for many aspiring homeowners, affordability is improving with 30-year mortgage rates hitting their lowest point this year. The window of opportunity is now widening out for potential home buyers. Diana Ollick is at the Zellman Housing Summit, and she has an exceptional. exclusive interview with the CEO of Taylor Morrison. Diana, I'll send things over to you.

Thanks, Dom. And Cheryl Palmer, thank you so much for joining us. It's always a pleasure to have you in person here. Thank you. I appreciate it. So everybody is talking about mortgage rates today. How could you not? And despite these two economic indicators this morning that were kind of on either ends of this spectrum, do you expect rates to come down further? And what is the magic rate for your buyers? Well, I'm excited that today I think we've seen FHA rates for the first. first time, I don't even know in how long, Diana, that are under 6%.

So that's great news. It's great news because it's the first time buyer that really is constrained from an affordability standpoint. And recognizing that as rates have come down under 6% for that first time buyer, the builders are able to help them even get to a better place. I think each consumer is a little different. I don't think there's a magic number, but as we're seeing conventional rates coming from the highs of eight to most recently seven to

just six and a quarter. It's really good news. It actually creates a good buying opportunity for the consumer today. Now, Taylor Morrison buyers, though, are not entry level. They're more of that lifestyle buyer, move up, second home, et cetera. So is it less about the mortgage rate for them and more about their confidence in the overall economy? Is that what's holding them back? I think it's a really fair question. And we do serve the first-time buyer. I'd say that's just under a third of our business. And you're right. The other two-thirds are the move-up and our what we call our resort lifestyle. And I think that's about confidence in the macro environment and all the data points that are being thrown at the consumer. Or I think the first-time buyer, it's an absolute.

Can we get them to an interest rate that allows them to close and get into their new home? But you don't do the buy-downs as much because you don't have to. We're seeing the big builders, the level of NAR's, the D.R. Horton's and the more entry-level do the buy-downs. Ivy's elements at 73% of builders were doing that, and that hits margins, right? It does hit margin. And last quarter, when we reported our second quarter, we did say that about 40% of our closings had one of those more aggressive incentives of a forward commitment, a buy-down. And you're right, everybody's getting something. But the more expensive incentives, I would say, are really primarily focused to the first-time buyer, but not exclusive, because obviously a more sophisticated consumer wants to make sure they get a competitive rate. marketplace. Now there's been some I wouldn't I won't say argument but convergence here at the summit about spec homes. You have some of the builders who are 100% in on spec homes. You have some who are not you are a little lower on the

spec home. Ivey put up a chart showing us back homes and that's obviously a riskier bet on spec but some say if you don't do spec right now which is of course building a home without a buyer that you're left holding the bag if you don't have enough supply when demand does come back. Where do you stand in this argument? Well, it's balancing act. I believe that the right answer is something in the middle. We know that the margin profile on inventory spec homes,

we've trained the consumer, is a little more challenged. And with our move-up and our resort lifestyle, these folks know what they want and they're willing to pay for it. And so for us, you'll never see us swing that pendulum all the way, one way or the other. Last quarter, we were about 70% inventory, so we have leaned in a little bit more to make sure that we have the inventory that the consumer's looking for. But I would say that the perfect blend for us is probably something closer to 60% spec, 40% to be built. Because once again, some consumers truly do want that choice, and we want to make sure it's there for them. Now, I feel like we're always talking about headwinds, so I want to ask you about two tailwinds.

Okay, I love that. Thank you. Number one is lumber prices strangely have been coming down really dramatically and also land prices have been coming down How is that going to help you going forward? It all helps for certain So lumber prices obviously what we're seeing today and this would actually be the case with land as well That will start coming through our P&L next year because the land prices today are stuff that we're just starting construction I mean a lot price excuse me lumber prices today are just you know houses we're about to start those will be be affected and those will get done either the end of the year or sometime early next year. But it's a significant help, especially when you think about the peaks we had 24 months ago.

Land, I don't know, Diane, if I would say prices have come down meaningfully. What I would say is we've had some capitulation that the sellers understand that things have changed. Prices have moderated for sure and in some markets come down. I think what we've seen most often is an agreement on structure and terms. And in some instances, we've absolutely gone back, almost in every instance, we've gone back and talked to our sellers to get prices that make sense. But it's a slow bleed, and the land that we're tying up today, closing on today, honestly, you won't see that come through the business until probably 2027. Okay, so things will look forward to that.

Absolutely. taken. Right. Cheryl Palmer, CEO of Taylor Morrison, thanks so much for joining us. And we're going to have much more exclusive content from the Zellman-Houncing Summit in our Property Play newsletter and video podcast. You can see that all drop on Tuesday. Don't forget to sign up CNBC.com forward slash property play or use that little QR code. Don, back to you. All right. Thank you very much, Diana Oleg and Cheryl Palmer, CEO of Taylor Morrison as well. Up next on the show, the inflation situation. The Sticky CPI report clashing up against next week's expected rate cut from the Fed. Rick Santelli will join us right here in studio with his take coming up next.

All right, welcome back. We're watching the U.S. 30-year long bond yield following a big auction this afternoon. Rick Santelli, not at the CME group in Chicago, right here in Englewood, Cliffs, New Jersey at CMBCHQ is here with the bond report. Now, let's get to the 30-year first because it is the news of the afternoon. the grade that you have, and it was still pretty good. Yes, yes. Yesterday was an A-plus 10-year auction. The amount of leftovers that the dealer community ended up with was a historic low.

It was years since we've been at those percentages. However, today it was 10%, which means investors took 90%. And that's really aggressive, especially on a third year, especially on a reopening. And it underscores what the demand is for long-dated treasuries in the U.S. despite our deficits, despite our debt, despite the fact that politicians on both sides of the aisle don't seem to be aware of how these debt and deficit numbers aren't improving much.

Having said all that, France is worse. Okay, the UK is worse. So our G7 compadres, they have to issue as well. And investors are showing up at our auctions lately in a much more aggressive fashion than they had been. And I think that's a really good sign at a time where we need demand at our auctions. So it's interesting. You mentioned the demand in an historic level in terms of the dealer takedown for that 10-year auction yesterday. Smaller the better. The smaller the better.

It means the dealers didn't have to really do anything. Everybody else took the offering out there. And you'll never have a failed auction. I mean, your dealers always have to step up. They have to. That's the point of being a primary dealer. You have to participate in these auctions. The question I have is something along the lines of what you said. There is demand out there for our long-dated debt. Dealers are not having to take down as much of these offerings. as they have historically in the past. There is still a lot of bidding for every bonded auction out there. All of this, as we hear Megan Casella telling us about $1.1 trillion in interest paid on the debt that we have so far.

At some point, these things have to kind of maybe come to a bit of a head. Do they not? They do. And it matters even more incongruent. I still think equities have some runway. So let's frame this out. We have historic amount of servicing the debt, taking a big chunk of money out of the economy, right?

Could be going to other places that are much more efficient. And while that's going on, we still see records. The Dow is just cooking and grease today. So I think that there's aspects of the economy that are good, but I do think there is a reckoning. I think the notion of coupon clippers down the road, all those older Americans that have watched their 401k skyrocket and they're going out.

When you go out to restaurants, Dom, what's the majority of the patrons? Restaurants I go to, it's slightly older Americans. They have some money. They're spending it, and their 401Ks are juicy. But they better be careful because if you're too aggressive and you're 90-10 or 95-10 in terms of equities to fixed income or debt, you need to start getting back to some normal levels while the taking is still good. While equities are still good, you need to slowly make that transition.

All right. So if that's the case, though, you're making that transition into Treasury and income yielding securities, corporates and whatnot, that are now moving down and yield. So they are getting less of that income by moving that money away from some of their equity investments into those bonds. It's a capital preservation trade. Okay, so that's what you're saying, right? That it's a capital preservation trade. Now, if that were to be the case, would we need to see markedly lower interest rates in order for this risk asset rally to keep going on? Is it predicated on lower interest rates and lower hurdle rates.

Yeah, I wish I could say yes, but I'm one of these fixed income officiottos. I love the interest rate markets. And I just don't see the long end cooperating. I see that the short end is going to cooperate. I think even though the big news today is there's a big institutional investor out there in Forma Pimco, they're terrific. And it seems as though they've been on that steepening trade and they like it, but they're easing off on it a bit.

I think that's a common mentality in the marketplace. I'm not so sure I agree with it, though. So it's not going to be an easy transition, okay, because I do think that you've got to be careful, too. If you're investing on the interest rate side and you're an older American or retired, if you buy into a mutual fund and the price starts to go down in these securities,

mutual fund takes an immediate hit. If you buy a maturity you're comfortable with, a five-year, seven-year, a 10-year, well, you could hold it to maturity. You don't take any hit on price. All you have to do is be happy with the interest rate you are getting, clip that coupon twice a year, and take your equity profits and secure them like a few nuts before winter in the squirrel community.

A yield to maturity. There you go. All right. Rick Santelli, thank you very much. That was your bond report, everybody. Warner Bros. Discovery and Paramount, both higher on reports of a potential deal. We actually do have Julia Borson, with technical difficulties aside. Please take us through the story, Julia.

Yes, Dom. Well, the Wall Street Journal is reporting that Paramount Skydance is preparing a majority cash bid for all of Warner Brothers Discovery. That includes both its cable networks and movie studio division, as well at both parts of the company that the company, that Warner Brothers Discovery is intending to break up. Now, Paramount Skydance shares are up about 5% about this on this news. Warner Brothers Discovery shares now up about 23%. Now, Paramount Skydance told us no comment on this report. Warner Brothers Discovery tells us they have not received an offer yet. All of this comes ahead of Warner Discovery's planned split into two divisions,

streaming and studios, as well as the cable networks, and that is set to be complete next year. And it comes just weeks after the final closing of the Paramount Skydance merger. Just earlier today, Wells Fargo raised its price target on the stock to $14 based on the probability of M&A, saying the streaming and studios part of the business will be, be an attractive acquisition target to a range of potential buyers. They named Paramount Skydance, but they also said that Netflix would be the most compelling buyer.

We'll see if Paramount Skydance gets to it first. Shares now up about 26%, 26, 27%. Don, back over to you. It is the couple weeks of massive moves. Julia Borsden, thank you very much for that. Still ahead on the show, Out of Bounds. The president of the NCAA warning on the role of private equity as big money flows into college sports. The issue he says would be a bridge too far. Stay tuned. That story's coming up

when Power Lunch returns after this break. Welcome back to Power Lunch. We got some big macro reads this morning with two key data points. CPI came in a little hotter than expected for the month-over-month number. The year over a year was in line with expectations at 2.9%. Jobless claims came in well above expectations. 263,000 first-time jobless benefit claims versus 234, which was the estimate. And take a look at the markets right now. We hit record highs across the board for the averages. The S&P is up 50 points. The NASDAQ is up 150 points. And the Dow is up more than a percent itself. All new record highs. Our next guess has a couple of notes of caution from the tape as of late, but overall is not too concerned about where the market is right now. Here with

this onset is Straticus chief market strategist, Chris Verone. Chris, it's been a blistering run. But one that hasn't been filled with massive upside volatility, it's been kind of like that melt-up approach, incremental highs all the time in almost a straight line. Is now the time to keep that momentum going and play that momentum or to be a little bit more cautious about these sets of record highs? Well, listen, we know where we are dumb with the calendar. It's the middle of September. We know September's reputation is not being one of the strongest months. You know, internally the last week or so has been a bit lighter than we would have wanted to see. But But listen, at the end of the day, the Equalade S&Ps at new highs, the leadership is still very much banks, discretionary, industrials to a degree.

I think it's difficult to get too worried so long as that is the backdrop. What I'm interested is there may be some shifting macro wins when you look around the world. I mean, we should be paying attention. Copper broke out last night. Allsy dollars turning up. Is there some actual maybe global growth reacceleration in front of us here? Those were all, I mean, you look at the commodity currency type trades, right? You look at Australian dollar, the Canadian dollar, that sort of thing, those ones that are economically sensitive. They are all pointing to more positive momentum ahead for risk-type assets.

It's a consensus trade now at this point. Isn't that cause for concern in and of itself? I'm not sure we can call it a consensus trade when the material sector is 2% of the S&P. And, I mean, Aussie hasn't worked in two years, and you're just beginning to see these Chinese stocks break out. Niki, as we know, just broke out, Kaspi acting well. So I think we're still relatively early in the consensus embracing what seems to be a re-ignition of global growth here. And the question I would have, well, does that mean the Fed's going to cut into this? And if the Fed's cutting into some reignition of global growth, what does that mean as we look forward for rates?

What does it mean for dollar and so forth? All right. So as you take that macro kind of big picture and then kind of funnel it down to where you think, given those assumptions, we could see some of the juicier returns in the coming weeks and months. What setups look good to you? I think there's three things of importance here. I'd say number one, you're beginning to see some life get breathed into these copper stocks, whether it's Freeport or Rio or we've had valet turn, Cleveland Cliffs,

which is steel is actually turning here as well. So you're beginning to see some life there. I think that's notable. The second thing I would just say, it's important this resurgence in materials or commodities is not happening at the expense of the consumer. And we're not seeing that yet. Consumer discretionary continues to act well. I get more uncomfortable when discretionary is faltering at the expense of, say, materials or resources. And then maybe third, after a 8, 10, 12-week pause, all these power stocks are getting back in gear. You're seeing it with

CEG and Vistra, G.E. Vernova. Even the, what I would call AI adjacent names, Quanta, and the infrastructure stocks are seemingly getting back in gear here after a two, three-month pause. All right. So the AI power data center power trade is the pause that then refreshed. You know, listen, they took 12 weeks off. You had very good potent signals there yesterday. I think they're back in gear. All right. Chris Verone Stratius. Thank you very much. Thank you. All right. Now, coming up with the show, let's get over to Contessa Brewer for a CNBC news update. Good afternoon, Contessa. Dom, Vice President J.D. Vance reportedly will transfer Charlie Kirk's body on Air Force 2 to the conservative activist home state of Arizona.

Kirk's friends and family will also be on board, according to NBC News. Bance canceled plans today to attend New York City's 9-11 remembrance so that he could fly to Salt Lake City following yesterday's deadly shooting at Utah Valley University. Israeli Prime Minister Benjamin Netanyahu signed an agreement today to push forward a controversial West Bank settlement. It would cut across the occupied territory and erase the possibility of a Palestinian state. At the signing, Netanyahu once again rejected any idea of a two-state solution. And Belarus freed 52 prisoners today following an appeal from President Trump. He described the detainees as hostages and urged Belarusian President Alexander Lukashenko to release them. In return, the U.S. will ease sanctions on Belarus's national airline.

Dom, that's the news. I'll send it back to you. All right. Thank you very much, Contessa Brewer, for that. We've also got some breaking news on the search for Fed Chair, Jerome. Jerome Powell's replacement. And our Steve Leastman is here with those breaking details, Steve. We don't have a single name, Dom, but what you'll hear is we still have 11 names. A slate of them. What we learned from two Treasury sources is that Scott Best and the Treasury Secretary met this week with former Fed Governor's Larry Lindsay, Kevin Warsh, and former St. Louis Fed President James Bullard. However, he is waiting for the Fed blackout period to end, which, as you know, ends a week from this Friday, to speak with the sitting Fed officials who are among the 11 who are being talked about. His goal at the end of this process, I'm told by the sources, is to add one or two names to the three the president has already mentioned, known colloquially as the two Kevin's, Warsh and Hassett, as well as Chris Waller, the Federal Reserve Governor.

All 11 candidates, I am told, are still in play. Before I get to the next step, I want to point out how incredibly transparent they're being about this process. Very different from other administrations, even different from the first Trump administration. They're playing this out in public, letting us know who he's meaning with when he's going to. to meet with him. On the issue of the long article that the Treasury Secretary wrote last week, I was able to ask the officials, what did the Treasury Secretary mean when it came to the balance sheet? You could read that as saying he wanted the balance sheet to be wound down. He said he's looking, they said the Treasury is looking for a long-term organic reduction in the balance sheet.

Nothing fast. Secretary believes the balance sheet has declined must not be disrupted to financial markets or the economy. he favors a smaller Fed footprint overall on the economy. And if you have additional questions for Scott Besson, well, tomorrow morning he'll be on Squawk Box at 7 a.m. All right. So is that an exclusive? I think that's an exclusive. All right.

So this is a big deal. Just one quick point on this. Sure. As you talk about the organic wind down. Right. It's a weaning process, but how does that get executed? What actually leads to an organic kind of wind down? They're doing it now.

They're in some pace. They wound down the wall. wind down, they reduce the amount they're reducing it by. Look, the Fed is sitting on eight years of duration in its balance sheet. I'm pretty sure this Treasury Secretary who wants the 10 year to come down to help the economy and reduce how much we're doing. I don't think he wants that duration back on the market, but I think overall he has a desire for a smaller Federal Reserve with less of a footprint. I think one of the things that might be something to discuss is may have to go through Congress is how quickly can the Fed restart QE the next time? It may be something it's like,

you know what? Maybe we should have a few more plastic covers over the red button. So you open one, open it again, get two keys that you have to do, and then you can hit the red button. Maybe the Fed was not just a little fast to do it, but held its finger down on the button a little bit too long last time on the pandemic. All right. Steve Leesman with the latest there on the Fed. Thank you very much for that. All right. Power lunch is back after this. Keep it right here, guys. Crypto Watch is sponsored by Crypto.com. Crypto.com is America's premier crypto platform. Welcome back to Power Lunch.

While it seems almost certain the Fed is going to cut rates at its policy meeting next week, what could happen if the cuts are more aggressive, bigger than Wall Street expects? Joining us now is Jan Silagi, the CEO and founder of Reflexivity. Jan, we have a slight chance, maybe a less than 1 in 10 chance, of a 50 basis point, half percentage point cut. If that were to happen, that could juice things in certain parts of the market, but where specifically would that happen? Yeah, hi, thanks for having me.

So exactly as you say, I think that there are certain areas of the market, in particular the way we have done the analysis with reflexivity, places where it's a story of debt refinancing. So you have utilities, home builders, and reeds are probably the top three sectors that we're currently looking at. All right. Now, if reflexivity is using AI to kind of harness all of this data, the numbers take you to which parts of the market specifically? What three parts do you think would be bigger beneficiaries?

Yeah, so I think, for example, if you take something like the reeds, I think we're looking at companies like Simon Property, Prologis, Extra space storage, and so on. Companies that we already know have a lot of debt that they would love to refinance at lower rates and therefore give themselves just a better operational. operating environment. Similarly, if you look at home builders, although home builders have done quite a lot better this year, you're looking at things like D.R. Horton, Pulte Group, and so on, where, again, momentum is building, but with lower mortgage payments, you could see business for these companies improve quite a bit more. Okay. And then another part of the market as well that we've been focusing on that is rate sensitive is just how much smaller to mid-sized companies in America, small business owners rely on lower debt financing rates as well.

So could we see small caps have any kind of a power move if a hypothetical big rate cut were to happen? Undoubtedly, in fact, I would say that of all of these, this is probably one that conviction-wise we really feel strongly about in part because people often forget just how much more debt-dependent, loan dependent, in particular, these companies can be. And they tend to do well in an environment that becomes. becomes more promising from a macro point of view for the overall economy. And so, yes, things that are in that scope would be in particular interesting. Let's say, Russell, 2000 small caps

would be where we would say is the place to look first. All right. Jan Salagia, AI market data platform, reflexivity. Thank you very much. We'll see you again soon, sir. Thanks again. All right. Coming up on the show, in this era of big money in college sports, is there a place for private equity? We're going to hear from the president of the NCAA, Charlie Baker, who actually comes from a private equity background. What are his thoughts on PE and sports in college right after this? Welcome back to Power Lunch. We're entering a whole new age in the world of college sports

with the sky high annual revenues for some of the top tier universities and the seven-figure NIL deals. Many of the best college athletes are signing. Teams are now being forced to find new ways to access cash and finance these operations. And some insiders believe that we are on the verge of having college teams, selling stakes to private equity firms as a way to gain immediate capital access, but not everyone thinks it's a good idea. In fact, our own Alex Sherman was able to sit down with one-on-one chat with the president

of the NCAA, Charlie Baker, who actually believes that any private equity deal, that includes elements of operational control, may be, quote-unquote, a bridge too far. So joining us with the highlights is CNBC's Alex Sherman from CNBC Sport. He's also our tech and media reporter. talk to us about what exactly it means for private equity to be involved in amateur sports at the college level. Yeah, so Baker's comments stem from conversations he's had with the athletic directors, conference presidents and commissioners, who basically say to him, look, we're interested in getting outside cash,

but if there's a piece of this that's going to impose on our own operational control of the teams, that may be a non-starter for us because they realize that the incentives may not. line up, right? Certain athletic departments may want to promote lower revenue sports over higher revenue sports. Well, that may not jive with what a private equity firm wants. Take a listen to what Charlie Baker told me. The single biggest thing I would say, and this is what I hear when I talk to schools about it, is the amount of control that they would have to give up to take on that type of a partnership. It's really an ownership, right, is profound. And I think for many of them, that might be just a bridge too far, at least at this point in time.

What Baker did tell me, Dom, is that there may be certain projects that private equity could get involved in. For instance, let's say you wanted to build a new stadium or a new training facility. Well, those kind of have an end date. And actually, a school may want to turn over some operational control to a private equity firm that has some experience building something like that. So that may be a way where they could take outside cash. But this idea of sort of securitizing teams and selling a stake, that's something that I actually spoke with sports investor Mark Lazarie about. He told me we've gotten really close to something that kind of looks like that with derivative securities where we kind of buy a piece of the revenue for future revenue,

but no team wants to be the first team out of the gate. I asked Charlie Baker about that idea, too, this sort of securitizing of teams in terms of this revenue thing. He said, you know what, I haven't really heard that quite yet. So, like, he kind of punted on that question. but, you know, last we seem more bullish on that as a future idea. There's a lot to unpack there because it's like the Bowie bonds, right? You kind of secure it.

You sell away something. You get cash up front now and give away the future stream and the future and what happens there. The other one, too, which is interesting, it's almost like having revenue municipal bonds, right? If you're saying we're going to finance a new stadium operation or a gymnasium training facility operation, but then the money that spins off of that, we should get some kind of a return on that outlay. So all of that's big. The other question I had is aside from the sports thing, we heard Julia Borson ask us or tell us about this potential deal between Paramount and Warner Brothers Discovery.

Both stocks are moving massively on the news. What exactly would that look like? Could it even happen? Yeah, so even in the past 20 minutes, my colleague, Lillian Rizzo and I can confirm that the Wall Street Journal story is true. Paramount is, in fact, working on a bid. They have hired a bank, so this is fairly advanced from that standpoint. Warner Brothers Discovery has not seen a bit, as Julia reported. The idea here would be to get out ahead of Warner Brothers Discovery splitting their company into two,

which is something that they have said they plan on doing by mid next year. Once that spin happens, that would force Paramount Skydance to have to wait more than a year for tax reasons, where once the spin happens in order for that to be tax-free, they can't do a bit. So they'd have to get out in front of ahead of that. That's why they're doing this now. But look, what I'm told is that the Ellison family has grand ambitions for Paramount. And that probably goes beyond just owning Paramount, which is kind of a small fish in a big pond these days when you're including YouTube, Netflix, Amazon, Apple, in the media world. So if you did this deal, which would be a large deal, I mean, if you include the debt here, we're talking about a $60 billion deal.

That said, Larry Ellison just made a lot of money. He's just going to say. Just the other day from Oracle, $100 billion. So, you know, that money may be burning up his pocket right now. All right. So there's the deal on Paramount,

Skydance, and Warner Brothers Discovery. Alex Sherman, thank you very much. Thanks, though. Okay. To see Alex's full interview, by the way,

with NCAA President Charlie Baker, check out the CNBC Sport Newsletter. You can scan that QR code you see on your screen right there. And next week, Alex will speak with other top college commissioners at CNBC's game plan conference in L.A. just head over to cnbc.com slash sport to learn more about his newsletter and the game plan conference.

And as we head out to break, we want to highlight one of the most red stories on CNBC pro today. Bank of America is stepping to the sidelines on two of the world's biggest shipping companies. After President Trump's broad elimination of the de minimis shipping exemption, the firm is downgrading UPS to underperform from neutral and FedEx to a neutral from a prior buy, placing weaker expectations on the companies generally considered, as the bellwether of the U.S. and maybe even global economies. To read this story and many more, just head over to cnvc.com slash pro. Subscribers get all the access to the details there.

We'll be right back. All right. Welcome back to Power Lunch. Another story on cnvc.com caught my attention as well. Some of America's top financial services executives are starting to issue warnings about the economy, saying they're seeing signs of softening or weakening. A slew of CEOs have been weighing in ahead of next week's big fag decision and with the U.S. of labor statistics revising job numbers lower this week, one of the most concerning comments is from J.P. Morgan's CEO,

Jamie Diamond, telling our colleague Leslie Picker that he thinks that the economy is weakening at the CEO of Wells Fargo. Charlie Sharf said, quote, there is the big dichotomy between higher income and lower income consumers, which continues and is a real issue. So watch the economy. We're also watching Adobe this afternoon. Keep it right here.

The folks over at closing bell are watching it closely, and it starts right now.