when the occ ii conference is? >> today >> in overtime >> i think short end of the curve. >> sarat >> i like delta. with energy prices coming down, demand high, and the stock's trading at a cheap multiple. >> msci. >> see you everybody in "the closing bell." "the exchange" starts right now. thank you very much, scott i'm kelly evans. stocks are rising as bond yields reverse lower, but wait, we're asking do rates actually matter to the stock market? one of our guests says yes and that will trigger a new bull market and michael santoli says it doesn't quite work like that and he's here to make his case meanwhile, why have market in the economy held up so well in spite of these hikes jefferies has a theory is it equals to 40% of gdp, but first, where did the huge morning rally

go take a look at these marks the dow was only up double digits a moment ago. 128 points and healthier half a percent for the s&p and the nasdaq, of course, is the leader today. it's up almost 1%. the two-year earlier touched its highest level since july 2007 before backing off and you heard weiss on another vote of confidence and the ten-year for its part about 392, the six-mark, the one-year those yields up 5% and we'll quickly check on the very short end and here you can see, if there's anything people are talking about these days, it's not bitcoin and have you heard about treasury direct and have we seen the start of a new bull market or not let's ask andres garcia ceo of morgan financial welcome to both of you >> andres, do we need yields to stop rising here what gives >> i think that the message has been clear from the fed for a little while now which is they're not going to cut interest rates

they're probably going to raise interest rates a little bit more and the disconnect was that the stock market thought that they were kidding, kind of wink-wink, at some point you will lower, and i think what we saw last week was the realization that they're not going to lower interest rates and i don't necessarily think that, hey, rateses have to go down for the market to recover, but it is part of the ingredient to see a new bull market for the fed to stop hiking interest rates. >> do you agree with that, brian? >> yes i think we have to have interest rates and equities decouple for there to be a meaningful rally in one or the another. i don't think we'll get a rally in both. if it stocks, stocks will actually fall off. i think i'm looking for de-coupling here and they told us that. we need to know if that's right if they've done too little or too much >> one more second on the decoupling i want to make sure i follow what do you mean by that >> if you look at the last year, we've had interest rates g started to wallow, and the rates

fall, so i think what has to happen here, over the last couple of weeks and it went back to 4% and it corrected off of its recent high, and that correlation as long as we're moving in unison, i think we haven't decided yet whether the fed has done too little or too much >> andres, quick word on that before i move on, do you agree that we haven't made up our mind yet? >> inflation data shows that that will not be a straight line in 2%. the stock market was optimistic as that being the base case. if that's not going to happen any time soon, it's hard to see the fed all of a sudden lower interest rates and that's the attachment between interest rates, inflation and the stock market, and i just don't see it yet for the stock market having the driver to go all-time highs in this type of environment. >> not only that, andres, do you think on tech specifically, and we had kathy wood talk about the rallies that they had in those techie stocks. you're looking at this totally the opposite and you think there's more room to fall in

that whole area, is that right >> yeah. you need new leadership for a new bull market to arise, and if you look at the market cap composition of the techie sectors, right, tech consumer services, they are still much higher than the representation of the earnings share of the s&p 500 until you see that gap close it's hard to get excited about the broad market sure, how much further do you think tech needs to drop then from here. >> look, there are two sides of the equation and one is the earnings side and the other is the market cap side. valuations still look very expensive versus historical standards so either earnings need to start riding again or valuation needs to come down either one will do the trick >> not to drill down who wants to be a millionaire style? just give me a ballpark here >> right i don't think we're going to re-test the october lows i think there's been a lot of repricing of valuation already

and there is some support there in the sense that the market's now agreeing with the fed. so there's not a lot of dislooks there, but in order to go up, right? that's the main point. the drivers of earnings need to be there and the allocation of new leadership has to emerge and we just haven't seen that. >> quick final word, brian as we turn the calendar mercifully to march was the january data just an aberration or not, what are you going to be watching in terms of yield take the ten-year yield breaking to the down side and i guess i'll ask this one question but i'm getting it from a lot of people on the street, should they go to treasurydirect and gobbling it up one year, 5% yield in here. >> lots of good questions in there. december 31st the tippeder was right about here, 3.9% and that tells you it will be in a range of low 3s to high 4s so there's no reason to say we're done with selling off here we can go to 4.50, i think that's totally in play

i think the friend of the yield curve, different story, right? when you're getting the 5% t-bills and the mono market funds and whatever you like, those are good yields and the fed doesn't know if it's 5, 5.25 or 5.5, or 6, 6.5 or 7 i think there's value and we should watch the back end for more signs of whether or not there's a growth story here or whether january was an aberration. >> thank you both. good stuff today kicked things off right. brian weinstein and andres gar garcia-amaya the shares are off their highs off 2.5% the giant is streaming in other countries. hbo max have been raising their prices, but in last month's earnings call, netflix's co-ceo says the company has the opportunity to add new subscribers where it doesn't have a lot of share according to "the wall street journal." could this cut boost revenues. let's ask laura martin at

needham. laura, the other question, are the price cuts coming here >> no. the price cuts aren't coming here, i don't think. it does tell you that netflix is having to resort at price to compete and their long-espoused theory that they have to compete is wrong there are local players or u.s. streaming players that are outcompeting them offshore so they're having to lower praise because that's the last option in order to drive sub growth >> what does that tell you is it usually we think of price cuts as a desperation move, for instance, tesla's price cuts can be seen as taking out competitors as the price of capital rises. how would you interpret this move by netflix? >> maybe, but every streaming competitor here has deep pockets and deeper than netflix. disney has sister subsidiaries from theme marks that are record high margins that are funding streaming losses similar with warner brothers we just saw yesterday a lot of these bigger companies

have streaming netflix can't put these guys out of business by lowering its price. these other companies are bigger than it. they can put netflix out of business and this is in terms of a kochcompetitive strategy >> warner brother, we'll get to that in a second and video games. what could be that consistent cash flow, generative asset for them. >> they would have to buy something because they're building games, but games is a money loser, too their single-line business which loses a lot of money so, you know, like they're also competing, by the way, with apple and amazon you can't actually win on price competition against apple and amazon because they're sisters and their core businesses are so big. >> so finally, and listen, i am not a huge netflix watcher, but i'm going to be watching the mahomes, this football thing i love it. if we look ahead to 2023 and we

say is the stock going to be generally benefiting from price, retention, you know, new series that are driving engagement and maybe even this price cut in other markets or are we going to be telling ourselves a different story in a couple of months' time >> so there's a new film coming out on the beginning of nike and how they bet on this guy named michael jordan and how they built the company on him that's what netflix is doing remember this huge documentary they had with the princes, the uk drama >> yep >> to align with the book. here they're doing that again. they had the obamas on and they're paying for celebrity it's a smart idea. they don't want to go into nfl rights and they'll pay the celebrity talents to do documentaries and it brings a lot fandom from the nfl to netflix. that's a smart idea because they have no sports and now they're in sports and that's a smart idea in a low-cost kind of way and it's also celebrity based and as you know from watching these youtube stars. these are human beings and

sometimes they make mistakes and it destroys your brand, meaning netflix if one of these guys does something bad so it's a risky strategy to depend on celebrities. >> you just make a movie about that you just go, great i'm kidding. let me put a period on it, believe that this year's estimates and valuations are too high for netflix let me turn over to warner brothers discovery are they the new disney? that's a new leap, but do you think david lazlov can pull it off? we have a world-class financial officer here, he bought it from at&t and they're not good with costs, in my opinion so i would say the strategy as espoused is good it is a disney strategy, franchise films and everything integrated and we'll bundle hbo with discovery, but we'll let

them be separate also. that's smart everything they're saying which is, like, a disney-esque commercial -- >> let's remember, john malone is on the board. we have world-class businessmen in this company now, running this company let's not underestimate that over a three-year frame and this year will be tumultuous as they build back that film and they have to execute. they have not been marvel and they need to be marvel for that $5 billion film budget. >> so as an investor, what do you think is the potential for valuation? again, how much do i have to wait i could be waiting through a recession and very high cost of capital, possibly some m & a >> yeah. i think it's too early we have a hold here. i think it's too early, and what they're saying is right and let's see how they execute when you build a film slate, you invest for three years the first dollar of revenue is three years later and that means your return on capital from a

free cash flow point of view or falling too early and see if they can execute that strategy >> netflix should buy that story. if he pulls it off that would be one of the greatest stories. laura martin from needham. norwegian up 40% this year, just about target, how will they stack up against walmart and we'll dig into occidental. we have the trade on all three names next plus what's helping the market fight off nearly 5 percentage point of rate hikes? dave zervos is here with his theer. if you think you know what it is tweet me at kelly@cnbc green off the highs and the nasdaq still leading the way with a 1% gain and 392 on the ten-year "the exchange" is back after this this is "thexc ehange" on cnbcgh the h

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welcome back it's another busy week for earnings 6% of the s&p and the dow component report, and we've got the ak, the story and the trade on three of them let's start with occi. the top s&p performer last year down 7% to start this year and it has the new berkshire stake pipa stephens is here and he's kkm financial founder and ceo and a cnbc contributor

pipa, welcome. what are you watching? >> occi has underperformed this year with the xle and the xop. although it feels luke expectations have been reset ahead of the quarter thanks to disappointing outlooks from peers. the most important thing to watch is the capital spending plan shareholders have been very clear with management teams that they want to see that discipline and it was higher than forecasted capex that brought down shares of peers like eog and devin earlier this quarter and where does occi come in on that a lot of that is thanks to cost inflation, but that means producers aren't getting more for the higher spend the health of the balance sheet at the end of last year given that occi has been fek uocused the anadarko acquisition and occi does pay a lower dividend than that of some of its peers do they decide to raise that do they introduce a buyback program? the complicating factor is the big stake from warren buffett's

berkshire hathaway and how does that factor into the returns program and how much of a headwind does that wind up being? berkshire hathaway is the larges largest sure holder of the common shares as of the end of last year. >> is it almost half of the company? if this weren't such a saga over the last couple years maybe people would be quicker to ride alongside berkshire here >> i think it's a great point. >> yes, to pippa's point, in the last one year it's up about 50%. investors have been doing the hokey pokey inside of growth and value, but what has been a theme that continues to connect with investors? it's energy. so if you look at a name like xnl and it's one-tenth the size of exxon and it's mostly double the s&p 500 and there is risk reward, and warren buffett, and i'm pretty sure warren has a

track record and that's a fortifying reason to own, but if you look at the chart here, it makes a ton of sense and support here at $55 and the ability of a short-term price target, kelly, 75 bucks. >> so is the hokey pokey a good thing? >> a lot of people have been trying to figure out growth value and nonetheless, energy, occi was almost left for dead and it's the comeback kid and i don't know if you have the music and l.l. cool j, don't call it a comek bah. it's been around for years >> pippa, stay there and we'll talk target. the opposite story here, they had a bad 2022 and a 13% gain to start this year. big question, is the consumer pulling back have they worked through the inventory glut do you like it >> i do like target. the retailers have been mixed and then the wake of walmart it's tough we're coming into earnings season and with high

expectations and they had a surprise last quarter to the down side. what i think you see is go back down a year. there is a fall from grace $210, and i think the consumer, the strength of the consumer will be revealed, and i think a lot of the lines that woe've see from other retailers has been priced in here and it seems very coiled and 210 is where it wants to back and fill and it is an old technical term that we like to use on the chicago merc an tile exchange for price and volume, kelly. >> if it goes back the other way, what levels would you be watching >> you have to look right where it's trading right now you could be aggressively selling puts and the implied volatility is higherthan usual so i think you have the opportunity to get paid a little bit as long as you want to own retail a lot of folks don't want to own retailers. much of the inflation story has been priced into retailers and this is the time to wade into the water.

>> all right we'll leave it there for target. don't miss out on an exclusive interview with target ceo brian cornell on "squawk box" at 7:00 p.m. eastern time. sometimes i like to call that the ceo indicator. norwegian still carrying 10% short interest and expected to report a loss. seema modi, you've got the story. what is the deal with norwegian? >> kelly, as you know, the story for travel has been one of strength and a positive view of the consumer that is willing to pay top dollar for a big trip and a big vacation royal caribbean ceo jason liberty joining usa few weeks ago where he said that pricing power would improve going into this year and that will be the question for norwegian which is much more skewed toward the luxury customer and how much e la lastisity is there, and how does it view the competition from the likes of marriott that debuted the ritz carlton yacht and these were smaller vessels that can

get into ports that larger ships can't and speaking to a number of travel agents and customers are very receptive to this idea and it does come down to their balance sheet. analysts have been cautioning that of the publicly listed cruise lines, norwegian has the most to do to bring down that debt and that will be a key topic. >> more so than carnival, seema? >> that's exactly right. they have 2 billion in maturities, i believe, coming in 2024 with the rebound in bookings as i give them more of an opportunity to bring down that debt and improve the balance sheet, clearly investors are thinking that will play out with the stock up over 30% this year. >> seema, thank you. a reminder, jeff, that the timing of the debt maturities is as important as anything else. this will be a major reset for a lot of names >> you're absolutely right, and i don't think this sink is going to ship. see what i did there, kelly? at the end of the day we were talking about carnival in q 4, where i like this space, i like

carnival they've had a wildly impressive year to date you'll never go broke taking profit i'm more of a profit-taker if you will and we look at a high-beta stock in norwegian and it's $7 billion in market cap. so think about this is a very small company and it has ability of high risk, high reward, and i think we'll be focused and seema brought up a great point and the business conditions. we want to understand their perspective is 2023 going to be as robust as it is and right now, right here we have to take a profit >> real quickly, i haven't heard so much chatter about vix and options and are you worried about a market positioning even on an up day like this >> i think a lot of emotions will continue to go back and forth and this is a market that is coiled and that the market will release that coral to the upside a lot of people who are underinvested and there are

folks that dive in with the six month treasurys and one-year treasurys i think they'll get caught short here because the consumer is still intact, kelly. >> jeff, thank you seema, thank you, as well. that does it for today's edition of "earnings exchange. will the labor force rely on skills or the college education with a.i as we head to break let's get a look at the dow heat map here. much easier when i'm this close to it. boeing leading the way, the whole industrials is up half a percent right now. two to one advancers versus decliners and on the flip side here, we have walmart down half a perct enand walmart down .75%. "the exchange" is back after this

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welcome back dow hanging on to 131-point gain the nasdaq leading the way up nearly 1%. let's get to tyler matheson for a cnbc news update. >> thank you very much good afternoon, everybody. the labor department opening up a child labor investigation into hearthside food solution, one of the largest food contractors in the country. that is according to reuters the company was one of several cited in a blockbuster new york times story this weekend about how some children who come into the country without an adult accompanying them wind up working in violation of child labor laws to make money to support themselves and their families back in their home countries. after hearing from defendant alex murdaugh, the jurors will be visiting the property where his wife and son were killed over prosecutor's objects agreed to the defense's motion for the

visit. >> lower mortgage rates in january contributed to an 8.1% increase in signed contracts on existing homes, but rates move back higher this past month and that is expected to slow sales down kelly, back to you. >> indeed. tyler, thanks. i'll see you soon. tyler matheson still ahead, training programs aimed at disrupting higher ed proved to tech, and sharon epperson brings us that story and we'll hear from one of thbiese ggt in the education space, sal khan right after this

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between shockingly high price tags and new technologies like a.i., many are questioning whether college is still worth it that's especially true for young people of color, but one school is looking to create an alternative path for those students to get the kind of jobs usually just reserved for college grads. senior personal finance correspondent sharon epperson is here with more sharon >> we visited a school in brooklyn that's certainly not a traditional trade school the marcy lab school is changing the way post-education is delivered, partnering the business community to prepare

black and brown adults for 60-year tech jobs. >> former teachers ruben albanna and markantonio, found many successful high school students struggled in college. >> what we learned was that college warrsn't serving our students they created marcy lab school for student of color the program focusses on giving students the skills they need to do the jobs they want even without a college degree their education includes classes, intern ships and job opportunities with support from j.p. morgan chase, tiger global, microsoft and other companies. >> spending years with our students has let them to see them as not only students who have a ton of potential, but can be true hiring pipelines for their organizations. >> devonte duncan had trouble getting his classes for his engineering degree and didn't want to take on more debt. >> college wasn't going to be

sustainable for me so i needed to find an alternative option. >> here students start their eight-hour day with meditation >> gently bring it back. >> journalling and setting goals. >> what does success look like what does it feel like for you >> free for student, the program started with a class of nine and now 67 are enrolled. they're learning engineering skills, coding and networking. >> there are a lot of laptops, a lot of monitors for coding and things to do, but it seems like there are also a lot of spaces to just get to know one another, just talk. >> marcy is very big on community. >> annika is finishing the program with a paid internship >> i'm doing a career where i can grow in terms of exponentially. >> now 24, dunk an is a software engineer at squarespace, making $140,000 a year. he completed the marcy program two years ago. >> not only were they teaching me how to code, they were

teaching me how to survive in corporate america and that's not something that you get at college. >> marcy grads earn an average salary of a little over $100,000, but say the community they've built is worth so much more >> an increasing number of companies have embraced the idea of skills-based hiring as the answer to obtaining the talent that they need, but tech jobs that require a four-year degree have actually increaseded. last year 57% of job postings for software developers and engineers required a bachelor's degree and that's up from 51% five years ago and that's according to data research firm learning glass institute. >> what an amazing story, first of all thank you for bringing that to us >> one of the things i ponder, sharon, as a liberal arts college grad, is there something to be said if ai replaces some of the programming jobs because it can literally generate programming language, should people have a broader skill set? i don't know what that skill set is, really or the opportunity to be more nimble in the workplace

if they need to? >> that's exactly what the marcy lab's philosophy is as well that you need to do more than just software engineering skills and coding skills and leadership development training and academics that are pre-rigorous and those are key to the overall development of the student and then attach that to paid internships and developing relationships and mentor ships throughout the year with the program so that the companies actually get to know the students that they're going to hire. >> smart look, you might as well call it liberal. that's fully rounded out he mentioned in the piece that it was free at that time is that still true and how long is that sustainable? >> it is free and it will continue to be free as long as they have the companies like j.p. morgan and tiger global there are a number of companies that are looking into doing it and they're supporting it by offering paid internship or by offering support for the classes and there's different levels of sponsorship, but they think it is a scalable proposition here,

that they could perhaps see thousands of students in new york city going through this program and maybe even create a small college atmosphere that brings in students from elsewhere. >> that's great. the price tag all the more important with resources sharon epperson. don't miss the equity and opportunity forum on april 4th to create a sounder economic future for all you can register for the virtual event at cnbcevents.com or scan the qr code. my next guest says traditional schooling is not traditional and apprenticeships set people up in the real world sebastian moon and sal khan ceo of the khan academy. i'll pick up what sharon and i were discussing, sebastian providing skills is one thing and helping people be sound, you know, communicators and without being able to say it, how do you provide those skills for long term success in the workplace?

>> it's very much doable the skill set is shifting a lot with artificial intelligence and so on, but with online trading tools, similar to what sal khan will talk about, we have reached millions of people and millions are getting the basic skills not just on software engineering and also leadership. >> do you worry, sebastian that here comes gbt and hey, create me a website that can write a newsletter and answer reader queries and it can do that without meet ing the people in the back office that is formally required. >> i am incredibly excited we are better off because we become more productive and help more people. just imagine what it will take to build google from scratch it took 25 years to build it and how amazing would it be for us

as a society if we were to innovate that fast. >> sal, it's good to have you back piggyback on what sebastian is saying and do you think education or kind of training will continue to evolve or is it already at the point at which it can equip people in a very efficient way for successful careers? >> i think it's got to evolv and it will evolve and the case study showed it's a great example of that, and i love how it shows that employers have a lot more power than they realize in seeing how these evolve traditional education will work for many folks and it's very expensive and inaccessible and there's a mismatch between what is taught, what is learned and what's actually useful for the job market, and so i think it's things like this especially if they become more mainstream, and especially if they become more portable where you can take a degree from this program and then go to graduate school or go to med school or whatever, and i

think this is the way it will go and we'll see a lot more blending of high school experiences and college experiences and it could be mainstream to get significant college credit while you're in high school usually for a low cost >> i've heard that from people who are just starting and she could be a sophomore walking in and sebastian, listen the pandemic showed us and you can offer online so at some point we have these outdated firms for a similar product that gives us access to an incredible breadth in programming >> it has to evolve rapidly. check gpt if you haven't played with it and it can basically do any homework assignment, and we have to ask the question, and are we teaching the right stuff in high school going forward because maybe it is wrong and then evolution will fuel the world of education and learning and it's not just high school

and college and it's people of my age who still have to learn the skills to stay current i think the future, half a day a week, train themselves and something new and interesting to stay on top of things. >> listen, we love doing that, as well. sal, give me a glimpse interest business model evolution and business model ideas that might result from everything that you guys are saying? >> i think the big thing as sebastian mentioned, homework is getting dated very fast, but what i think is exciting and these introduce the idea for a whole new modalities and it's not that far off where every student will have access to an artificial intelligence tutor. it will not write the essay for you, but it will write the essay with you and you can get immediate feedback and that will make you a better writer and whether the ai will code for you or write for you, we all know

the real talent is how you put the pieces together, how you actually solve real problems i remember when i was coming out of college in the late '90s and with a c.s. degree, and i don't know, those jobs will get outsourced to india. 20 years later, some of them did, but the high-level jobs stayed there and engineers are getting paid more than ever, and i think that you will see that the people who can keep abstracting themselves and use the tools well like sebastian is describing will be marketable for a long time to come. >> what would you add to that, sebastian especially for those thinking through the investment implications >> the other thing that's happening rateight now is it's going global it has a strong relationship with the middle east in egypt we have over 70,000 people and many of them are freelancers and they're bringing to the country more than $100 million in currency every year just based on education that wasn't available in egypt before it is a move to give every person on the planet, every ethnicity and every geography a

seat at the table and that's happening right now at this moment and it's super exciting. >> all right we'll leave it there gentlemen, thank you both for your time. appreciate it. sebastian thrun, sal khan, two heavy weights. we appreciate it. still ahead, is it a sector shift, is appreciation to blame and is it not as linear as investors like it to be? do rates actually matter to stocks mike santoli will tell us after this break

welcome back, everybody. check out the chart behind me. it shows the nasdaq composite versus the ten-year treasury yield since august 2020. while the ten-year has soared by se sevenfold the nasdaq is virtually flat it's up about 7% what gives how much do rates actually matter to stocks let's settle this once and for all and mike santoli, cnbc

markets commentator. >> i would not say interest rates don't matter to stocks, lifting the hurdle rates for investors and for companies to decide exactly what projects are worth doing creates more friction, i think, in the overall system so, yes, higher yields matter for valuation and for investor targets of their capital i think what i object to and have for a while is this idea that there's a fixed, precise relationship between the level of yields and the level of stocks or particularly big growth stocks because i think that was last year, it seemed like all you needed to know, right? is that yields were going up and the nasdaq was going down and on a tactical basis and on the shorter term timeframe people trade the correlations and they matter on some level, but what matters a lot more to me is the fact that massive downgrades and earnings expectations for those same big nasdaq stocks, since a year ago, meta earnings for this year, estimates down 35%, nvidia down 22%, google down 25%, and

that's what's going on is that we were extrapolating pandemic earnings and also discounting them back at a very low yield, granted, and that seemed to kind of create this environment where we thought nothing could go wrong at the top and now everything is working against those stocks on the way down >> i put up the poll on twitter. two-thirds of the people say they matter and i inelegantly raised the question in your defense. one-eighths said they don't matter and it depends on -- a couple of the responses were that it's not really cause and effect or that it's kind of the direction and not the level that matters. one even put up the formula for the equity risk premium which we always appreciate. to me, i would say, as an observer, it feels to me like the direction and the speed of change are the most important things, but caveat that. >> exactly look, when the nasdaq was going up 40% from the middle of 2020

for the end of 2021, the ten-year yield went from half a percent to 1.5% so they can go up together and we know that still at a very low level. i think that what happens is near the top of the market, when people are very euphoric they love these big platform companies that seem like they can grow when nobody else is growing. they tell themselves that it's justified to pay 30 times earnings forward for the nasdaq 100 because of the low there's a sort of crowd perception around it i'm not going to deny that discounted cash flows matter >> what i'm going to say is the market in real time is not some highly engineered machine for arriving at the correct present value for long-lived cash flows. >> then what is it good for? >> let me leave it with this, then is it true that the much higher level of rates now versus a couple of years ago you can't own high-duration stocks or zero-duration -- the same way that you would have the economics fundamentally change

and is that something that has kind of pulled the plug out of the think trade? >> i think what it's done is it's suppressed those valuations, and so there is a part of this that's in train, right? again, nasdaq 100 goes from 30 times earnings down to 20 last year maybe that's still too high. maybe we still have to worry -- to me, it's a little bit less. once the valuations go down to a certain level, tell me what next year's earnings are going to be and not so much, let's assume the earnings are going to be fixed and what are we discounting it back and what yield are we discounting it back also, a high nominal economy that's helped to create higher interest rates is just not advantaging those types of companies, right disinflation and technological, it's not about that. it's about the other cyclicals and values >> they're telling you something about, i guess, the liquidity environment. you have to phrase the question better than me, mike and then we'll do the poll again because now i'm not sure if i disagree on anything. >> yeah.

again, some of it's eye of the beholder and the market never shows its work as to why it's arriving at a specific price so we can keep arguing. >> we'll show the ten-year and the nasdaq thank you very much, mike santoli. for more on how rates are about to create a problem for small businesses could mean a wave of layoffs ahead. check out today's newsletter and log in on one easy step at cnbc.com/newsletter or the qr code on the screen >> it's the fed's own fault. more on that pvoti te rocaveak right after this to expand your infrastructure. but to make it powerful enough to connect your data wherever it is, you need cdw and netapp. cdw experts will work with you to understand your needs, then customize a netapp cloud services solution to integrate data management for all your clouds, helping you reduce spend, improve security, control data 24/7 and automatically detect anomalies. in the cloud, at least. netapp makes efficient cloud management possible. cdw makes it powerful.

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welcome back to "the exchange." we have saved the best for last. higher for longer growing louder after the hotter than expected january pce number could it be the fed's fault rate hikes don't pack the same punch they used to dave zervos at jefferies, great to see you again welcome. >> always good to be here. >> a week or so, remind me, how much feedback have you gotten that basically there's -- i've had the same thought by the way -- why is it we see the unprecedented steepness and these enormous rate hikes and yet nothing crazy has happened the worst thing that's happened is ftx is down and that's not related. your theory is all of the bad assets that would have triggered things like orange county's

bankruptcy in '94, those terrible mbs paper, it's on the fed's balance sheet. have they absorbed the junk out of the market? >> i wouldn't say the fed. the fed balance sheet was 9 the doctor -- $9 trillion. you have the uk and scanned nay via and other countries engaged in the purchase of in general long fixed income assets that's what quantitative easing was. drive long rates down, when you get to the zero, and we sat there and decided somehow, i'm not sure why, although i have my suspicions, it was a good idea to leave the big balance sheets in place and first raise rates and then sort of let them trickle off. what's happening now is because the inflation rate has been so aggressive and rates up so quickly, there's massive losses

on the balance sheets to the tune of multiple trillions of dollars when you add them up and those are losses that would have otherwise been in orange county or in an asset manager or bank proprietary trading desk in 1994 or long-term capital management or somewhere else and they're not. there's all these gains, which is the consumer locked in a low rate, corporate locked in low rate, anybody sitting with a 2 or 3% mortgage feels good about themselves but no profit sector loss that would normally be there because it's been absorbed by the i want to call them socialized law strurctures insid central banks. >> is this a bad thing the losses are real, but they get to carry them forward so they get -- the fed earns its way out of the losses. it doesn't really matter. i guess we can't say the taxpayer has to bear them right now. they have to bear them in some way distributed throughout the future if you were a central banker

would you be going wow, job well done or saying no, we should have shrank the balance sheet first, then done rate hikes and maybe we wouldn't have had to have done as many but maybe a lot worse fallout? >> so i think it's a really tough question, kelly. i think there's a lot -- some good and bad and you're right to focus on the good that we've got a more financially stable structure, but then you question what happens to sort of the fed's credibility or political credo going up in front of congress and having these large losses now it's getting net interest margin losses, permanent losses, up to 40 or $50 billion in losses because they're paying out more on reserves to banks than receiving on coupon income portfolio. politically that's not a great place for the fed to be. it has made a lot of money over the last decade plus, over a trillion dollars, but these market-to-market losses which you're right they don't have to take, seem like they're a bit

larger than that now and that's got a bit of a sting to it it sort of, to me, would argue for asset sales earlier, something i argued a lot for in the past or said i think it certainly made a lot of sense to me, but, you know, we're past that bridge, it's over, it's done, we are where we are, and i will say one thing, without getting too deep in the weeds, there are some central banks like the bank of england that cannot take a loss the taxpayer has to fund the negative capital positions of the bank of england. i think sweden has some rules. >> right. >> there are other countries that do it differently than us and that could be an interesting drag on things for now this is a tailwind for the u.s. and explains why the losses in fixed income haven't reverberated through the financial markets or economy as you might have thought. >> since i wrote a piece people said, you should check some of the banks to make sure, you

know, these aren't just -- i'll put that out there before you go and the last couple seconds we have, what do you think is going to happen at the next meeting, based on what you're saying do they have to keep jacking rates up a lot further than we anticipate >> i think they could bring the balance sheet into it if they want to stop and figure out ways to get this sort of balance sheet lower faster, but they've kind of -- that horse has left the barn and they're going to take the losses. i don't know that it's that beneficial what we're saying this idea that there's rate cuts coming in 2024, late 2023, probably are really a silly idea. maybe we have to go up higher 25 to 50. it's not 100 or 150, but the whole distribution to me has shifted when you start to think about this difference in the law structure. it was, for me, a pretty big revelation i was sort of done with rate hikes towards the end of the year, feeling confident that we were just going to sit for a while. now i think we might have to fine-tune it a little more aggressively to the upside

if anything, there's a fatter tail to even much higher rates i certainly never subscribe to the cut camp and thought that was a really silly idea, so i'm glad i got that, but i definitely have to ratchet up my thinking about where we could end up and how long we could end up there on the side. >> dave, couldn't think of a better way end to it today thank you so much for your time today and for joining us. >> always fun, kelly. >> dave zervos, chief market strategist at jefferies. that does it for "the exchange." "power lunch" is back after this good luck. td ameritrade, this is anna. hi anna, this position is all over the place, help! hey professor, subscriptions are down but that's only an estimated 15% of their valuation. do you think the market is overreacting? how'd you know that? the company profile tool, in thinkorswim®. yes, i love you!! please ignore that. td ameritrade.

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welcome to "power lunch. alongside kelly evans i'm tyler mathisen hope you're having a good monday new details on the failure of goldman sachs' consumer banking venture marcus and what it