purpose. >> my -- >> you didn't say anything about the housing stocks and you wouldn't do that. >> my final indicator. >> cybersecurity, crowdstrike, palo alto, fundamental t tailwinds. >> of course, "the exchange" begins right now. thank you very much, scott and welcome to "the exchange." i'm kelly evans and here's what's ahead and last quarter's concerns. we kick off the week and the quarter with bond yields kicking off right where we left off and surging higher, the ten-year treasury and its highest level since 2007. our market guests sees opportunities bonds right now because he still sees a recession ahead. should you step in front of this freight train, we'll discuss that coming up.

as another formerly high-flying ipo files for bankruptcy and it's preparing for its public offering and what the recent spate of lackluster ipos means for silicon valley and beyond and the bullish call on one housing name supposed lead well posi positioned if they're here to make his case. let's s let's start with the markets and dom chu. >> it's carnage for some more than others and consumer discretionary and the media telecom names are holding up relatively better which is why the nasdaq is outperforming just marginally higher by 0.1% and the composite 13,239 and where you're seeing the pressure is the dow drindustrials and s&p 5. the s&p 500 is down 23 points

and 4264. at one point today we were up 12 points on the day. down roughly 28 at the low and tilting towards at or near the lows of the session right now. so losing some steam in that broader measure of the overall kind of stock market. you want to talk about some of the confusing crosscurrents that are happening right now in the macro kind of side of things and the bigger picture trade. the difference between short-term and long term u.s. government bond yields has now less inverted itself and it's been steadily climbing higher and the highest levels you can go all of the way back to may of here and what's interesting here is it's the sell-off in the longer term side of the treasury market which is pushing those long-term yields up at a faster pace than the short-term ones. some don't think that's a very good story to tell when it comes to a steepening yield curve, but we'll see what happens. also, gold prices and higher interest rates, maybe more inflationary fears and gold would be doing better, but gold, no. it's at the lowest levels that we've seen and you have to go all of the way back to march

over here to see where gold prices and we are at the 200-day prices and it's a six-day losing streak for gold and the higher dollar values make it less attractive and one part of the market that we've talked about is maybe a risk trade or a risk aversion trade or a risk on type trade. bitcoin prices. now back above 28,000 and we had a trading range and we've broken above there to 28,000 and up 3% on the day so far and it is now back above the 200-day average price or just touched that above its 50. all kinds of interesting moves, kelly. there's no one thematic thread that you can weave through all of these. everything is in transition so the question becomes what does that tell us if everything is moving in directions that are maybe not seemingly related. i don't know if that signals a change in trend for the economy,

but it's certainly something some traders are watching, kell. >> i think all of these inflexion points are. thank you very much, dom chu. marks are on alert for any sign the fed might be backing away from the higher for longer mantra and the supervision michael barr is speaking on the economy. let's get out to steve liesman who gets out the headlines. steve? >> kelly, thanks. the fed's vice chair is saying that the key question is not whether the fed hikes again and how long the fed remains restrictive. full effects of tightening are yet to come. that's him weighing in on an important debate among fed officials and it's not done with the lags yet. he said the fed can proceed carefully at this point. the economy is showing more resilience than he expected. he sees a higher probability now that the fed can avoid a large increase -- can avoid large increases in the unemployment rate and the degree of job losses you might usually see with the amount of policy tightening that they've had recently. he says they're making progress

bringing labor supply and demand back into balancing and he expects the gdp to moderate below potential for next year with some softening in the labor market and it's important, he says, for the fed to monitor and how tightening is affecting bank credit and he says core loan growth is stagnant in banks of all sizes and financial stability risk can be a threat to achieving the dual mandate, he says and the monetary policy cannot be indifferent, kelly to financial stability risk. kelly, i'm hearing very gently and subtly perhaps, speaking out at the fed that maybe that last rate hike doesn't need to take place and replace that for remaining higher for longer and i don't hear anybody coming out of that particular part of the mantra, but i do, between john williams last week and michael barr today i'm not hearing a whole lot of support for the second rate hike of the year. >> steve, right.

maybe november. stay with us and the latest economic report this morning did u.s. manufacturing decline soften somewhat last month. so are we turning a corner? our next guest doesn't think so saying incoming data will challenge the soft landing and he still expects a mild recession next year. joining us now is jay bryce chief economist at wells fargo and cnbc's rick santelli. of all days, rick, the perfect time to have you here and rick santelli in on this discussion, as well. welcome. what do you make of the ism report this morning? it was a little better. >> it was a little better, kelly. >> it was good to see it didn't decline anymore and we are still in terms of the headline still in negative territory there, and maybe the best manufacturing sector right now is roughly flat. >> what is your larger concern about the economy? >> so i think the larger concern, kelly is we're going to continue to see, i'll call it a passive tightening of monetary policy as we go forward. our guess is the fed is probably

done and they go one more rate hike and i think what's more important is we continue to see the inflation rate come down, and so what happens is the real interest rate will just passively continue to rise here and that exerts real headwinds on real economic growth and i'm just concerned that the economy is operating a little bit above potential right now and the fed has to keep a tight policy stance to keep inflation down and you'll have the path of tight edge of policy as we continue to go forward. >> you think rick santelli happening with the playbook and any time you feel there is a softening and long term bond yields decline. the complete opposite of that is happening right now. so do you think that bonds are looking to the ism data and taking a lift on that or is something else driving them higher here? >> i think something else is driving them higher. i think if we take a step back and acknowledge the fact that the fed cut rates much too low for much too long and when you

have a decade of basically zero interest rates, the normalization will be bumpy and what's more the labor market seems to be the conundrum and you have to make assumptions to explain the strength in the labor market that's so counterintuitive and i keep coming to the same conclusion. i think econometric models and seasonalities will be under review and the problem with that is should this become a binary issue meaning that one day it looks great and all of a sudden it doesn't. that's going to really be an issue for the fed. >> but here's -- not to interrupt, but i almost wonder, rick, if the only way out, so rising yield. this whole situation is so interesting because we just had shutdown talks and the shutdown that didn't happen over spending cuts that were not even going to happen and we wake up today and we see long end yields moving higher as a result. the only thing that i see arresting that increase is if the economy really slows.

would that bail us out here because at least finally there would be some buyer of treasurys and right now there aren't enough buyers for the supply driven by all of the government deficits. >> whether it's driven in t-bills or that the government keeps on spending. you know what? let's make it even easier. i do think a good chunk of what's going on in sevens, tens, 20s and 30s and drunken sailors and spending and at some point the market will extract a cost and we're seeing that in live view. >> but it's not -- i don't think anyone in washington, do you think they realize what's happening? >> i don't think anybody in washington realizes the difference between daylight and not dark time. i honestly just don't see that there's any change and when you consider one of the issues why labor might appear to be so strong, it's almost like the third rail. what do my sources tell me if the government was too generous, programs have outlived covid are too generous.

they've taken out a segment that should be working that can get along just fine without working, so maybe self-inflicted. we need to talk about these things more. >> so, steve, the interesting thing about this is that this isn't an area the fed ever wants to wade into. they never want to get involved in talking about government spending choices and the deficit and the debt, but are these hints about financial stability alluding to the fact that they realize that the long end is becoming a bit unhinged? >> i think that's an interesting comment, kelly, and it was in the back of my mind why is michael barr talking about this issue about the impact of rates on financial stability right now and i think there may be something to that and we have to weigh carefully, and i find myself agreeing more with rick than disagreeing which is an unusual place for me to be. >> he's holding his heart. >> i'm dramatically disappointed in the treasury on two reasons. one is that --

>> join the crowd. >> when she was at the federal reserve, xi talked long and hard about the unsustainability of the debt. here she was in a position to do something about it and from what we could tell did not necessarily argue forcefully or was not an important force in the issue of putting the u.s. on a path of unsustainable, even more unsustainable. that it was on that path before biden took office and it was continued under biden and the yellen treasury, and i think that's something that we haven't talked enough about, but i do think when i talked to people in the bond market and this has been a repricing of inflation ex expectations and it's a reprising of growth and also of supply and that's what's going on right now and that's why, until, we see some sensibility that the -- that there's some control on the supply. i don't think that we'll see a top necessarily in the ten year.

>> supply is just shadow boxing debt. that's what we're shadow boxing, debt and deficits because if those were smaller, supply wouldn't have to be so large. >> jay, again. normally when we check in with you guys we're talking about the inputs with gdp. what's consumption, what's investment and exports and government spending and it's been a long time since we've had to talk about what's the deficit picture and how do net interests costs exacerbate that and what's the sustainable fiscal. what does the model look like from here as we try to figure out the impact this all could have on growth and the economy? >> well, certainly higher real yields at the end of the yield curve there is going to put a damper on mortgage rates and put a damper on the housing market and whether the higher real yields whether it was at the low end or the higher end as steve were alluding to and those things are going to put headwinds on gdp growth as we go

forward. >> so you remind me, you guys see a mild recession beginning first quarter of next year? >> we have negative growth starting in the first quarter of next year and employment growth starting to turn negative around the same time, as well. >> is there a single factor, jay that would make you more bullish on the economy? >> i think the single factor would be if i knew that productivity growth was really accelerating here. it's productivity growth that's hard to figure out in real time and if i can be convinced that productivity growth is accelerating here and that's always good news for the economy and it can grow faster at a lower interest rate and a lower inflation rate and that would help you grow out the deficit problems that we're talking about. >> very, very good point. we'll leave it there. gentleman, we'll see you there and rick bryson.

see you soon. that's a new high since october 2007 and remember, like jay was just discussing this sets the rate for u.s. mortgages among other things and some of wall street's most prominent voices including pershing square's bill ackman expect it could hit 5% in a matter of weeks and let's discuss what that means for stocks and bonds and dan suzuki is deputy chief officer at head of global fixed income strategy. good to have you both here. >> i hate to say it, but you're the star of the show in bond land and you seem to be driving anything going on in the marks and what do you think the next move is. >> today is a bad day to be a bond. prices are going down and investor are running for the hills. we don't think, pardon me, we don't think what we're seeing is anything unusual. in fact, if yields weren't backing up we'd be surprised and we've seen this before. it's interesting you mentioned

2007. let's go back to 2007. the fed finished hiking rates in june 2006. yields rallied a lot. then in june 2007 yields went up well over 100 basis points and retested the old highs and kept going and at that time the fed was declaring soft landing. we're seeing is the same things now. >> so are you -- so, it sort of sounds like what you're saying that yields keep moving higher, but we can see a much weaker economy. so as that tug-of-war shakes outdo we hit 5% next? do we go above that level? do we pull back? what does that mean? >> well, we are seeing a much weaker economy right now. if we look at core personal consumption expenditures, the fed's key measure of inflation and look at the last print and take the last three months and annualize it. you're at 2.16%. so you are pretty much betting on the fed's target and if we look at housing which is one of

the things that are most interest rate sensitive. housing affordability is the lowest on record since the data has been accumulated in 1986. we're in the sort of warren buffett camp that you want to buy when things are on sale. things are on sale now. we have clients coming in to buy. we think it's a good strategy right now . >> the things you're buying are muni bonds and some of the emerging markets and let me turn to you for context on the equities and how much of a headwind and we're seeing for certain sectors like utilities is a pretty substantial one. >> it's always a tug-of-war when it comes to the equities between the positive impact of better growth and higher interest rates with the higher sort of impact on liquidity and valuations and interest costs. i think for most companies they take the higher growth with the higher interest rates which i think is a component of what's happening in markets this year. as you know, there's

increasingly a big component of the market that's more sensitive to higher rate which is is the higher valuation components as well as the bond proxies as you mentioned, kelly. >> yeah. >> it's not a uniformed winners and losers story so you have to pick where you play your battles. >> have you guys, am i correct in thinking that you're cautious on the magnificent seven even if the nasdaq that's outperforming lead you to stick with that view? >> yeah. i think that's right, kelly. the returns were scarce and capital was concentrated and that's where the risk is expensive and concentrated so we think you're better off avoiding those areas and keep in mind that these are cyclical companies and so we think that profits have bottomed and we think that they will benefit from a higher profit growth outlook, but there's tons of other companies that traded at a fraction of a multiple that will accelerate faster and benefit more and that's where i think

investors are best served putting your dollar. >> you're looking at energy, industrials and materials in the market. bob, it's gaining traction and this idea that central banks globally will be thinking about going higher for longer until they quote, unquote break something. do you share that view and what does that look like in practice? >> i think you're right. i think they're intending to talk tough until we see inflation around their targets in a wider range of things, but they also talked tough that inflation was transitory at the end of 2021 and walked into 2022 and started hiking rates. so i think you have to put what they're saying aside and you have to look at what's going on. it was below where it was pre-covid and they're trying to maintain their level of spending and they're putting more on revolving credit and they're seeing credit card usage go up

and they're paying 20% annualized rate and that's unsustainable. we think this is where you go in and buy bonds. if you're a municipal bond investor and a general muni bond fund at a minimum yields 4.5%. it used to yield 2%. if you're a taxable investor go in and buy an aggregate bond index. you are up over 5.5%. a couple of years ago that was about 1%. bonds are cheap now and real yields are very high. >> the downturn will trump the government deficit and it's been driving yields higher. we'll leave it there for you, gentlemen. appreciate your thoughts especially on a day like this. d bob michael and dan suzuki. we'll take stock of birkenstock ahead of the debut and can they unclog the ipo market and can venture capital slow the interest rate environment and we'll talk to sam next.

>> this is getting a big upgrade today after sliding 12% in just the past two weeks. the analysts behind the call joins us and why he says single-family rental market is the way to play the housing slowdown. tweet me if you can guess the chart, by the way. here's a look at what's going on in the market it is this afternoon as yields have punched higher, the ten-year earlier bunched through 4.07 and the s&p is down a percent and the russell 2000 small caps hardest hit down 1.6%. "the exchange" is back after this. ♪ ♪ ♪ >> this is "the exchange" on cnbc.

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welcome back to kw"the exchange". >> birkenstock has a $9 billion valuation. the footwear maker planning to sell 32 million shares between $44 and $49 a piece. 2458d raise a billion and a half for the company. it's just the latest trying to jump-start the ipo market after the bankruptcy filing of smile direct club and mixed performances from arm and instacart. my next guest says the public market don't trust marks anymore and it could be closed for some time. joining me now is sam lessin

from ventures and you're supposed to extoll the virtues of society for venture capital, sam. what's happening? >> i'm a huge believer in venture capital and we've seen companies from zero and doing big returns as we have. i just think we have to live through an interesting period where late-stage capital the funds have gotten so big, what we've seen is they're competing with the public market. so the best companies they keep private because why not put more of your own money into them and the continued march from the spacs on through from ipo and the trash and it's not surprising we get a little bit of lack of trust here. >> rate. so the question, though, becomes if the retail investor is once burned, twice shy. smile direction was an ipo in 2017. to the larger discussion we're having about this flip in marks, this is want just the coacvid a post-covid ipos. we're talking about companies that went public five years ago in this zero-interest rate era.

>> look, the big, big, big picture. there are a bunch of reasons why a bunch of consumers look at ipos and with the ai trend, it's very easy to buy the big names which there's no upper valuation and buy more meta and things like that where the impact is clear and historically, the private markets for capital was small and the ipo was the destination and in that world they used a useful purpose until they're big move and in a good place for the ipo and what we've seep is the private market and capital have gotten so big why not take a stripe or a can va ad the private companies and keep doubling down on more of them and what gets ipoed? it is the virgin galactics via spac putting out and the rent

the runways and they were fine shots on goal, but they weren't great companies. if you tell the market over and over this is the product we're offering at some point, if you're a retail investor you would say why would i bother? this is clearly an adverse selection problem. >> i wonder what happens next because the exit is so important for venture capital and private equity for so many parts of this whole ecosystem. does that exit just become selling to another firm and still able to realize those multiples and also does that then mean, like you said, about the public markets? do we worry about the quality deteriorating over time or was it when the stuff was getting there in the first place? >> think you've got it exactly right. there was a long time, i was actually working earlier in my career when the idea of a private equity firm was verbotem and that's most of the business and as you sell back and forth with each other and higher valuations and keep the good companies private.

i think that's certainly the case. venture capital hasn't gotten there yet, but if you can totally see the trend line moving in that direction in terms of where it goes and the splintering of the markets. i think it's terrible for capitalism, candidly. it hoards the returns for people who can afford to be in private funds and there's a threat long term that you end up with the world where the trillion dollar companies are public. sure, there's a certain scale that private capital can't reach and that's kind of what the pulic market is and the vibrancy of the young, open and free public markets that existed pre-sarbanes-oxley and pre-market organization is just gone. >> the thing that i worry about because you're exactly right, but if the industry takes these arguments to washington as saying this is why you should open up access to more individual investors to private equity in particular, right now it's the worst point in the cycle to do that because it had such tremendous growth and it

now sees pressure returns and it owns owns highly leveraged, small companies and even if you're right for the next generation and if they open those floodgates right now you realize people will get sucked into those industries maybe after the best years have been had? >> i think there's a lot of unintended consequences and people have tried to regulate or protect investors and we ended up in a very sticky world. wealth in, qualitequality that compete with the private markets and there's a lot of swirling and i want to be clear. there are high quality companies being started and there are high-quality companies being founded and i'm not antiventure capital, but we've ended up with a dual cast system where the only ones making it public are the worst companies and it isn't just covid, covid and spacs

certainly accelerated. >> we don't want to cast aspersions birkenstock. >> i know it's not a vc start-up. >> sam, thank you very much for join us today. appreciate it. >> sam lessin with slow ventures. coming up, government shutdown averted, but not solved and now speakership could be in flux. we have the latest developments from capitol hill and we'll talk to dan clifton about that and the fiscal fallout. stocks off session lows right now down 173. the ten-year yield hugging 4.66 as things stabilize somewhat. "the exchange" is back after this.

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♪ ♪ welcome back to "the exchange." everybody. i'm tyler mathisen with your cnbc news update, the first of october. all 27 european union foreign ministers shows up in kyiv to show support for ukraine. it is the first meeting of foreign ministers outside the bloc. the new bill contained no new aid for the country over the weekend. the union's top diplomat said the joint meeting should be understood as a clear commitment of the european union to ukraine and its continuous support. the united nations security council is expected to vote on whether to send a multinational force to haiti to combat gang violence there. the res lugsz would authorize a one-year deployment of a multinational arm force with kenya leading the operation. haiti first requested the intervention back in 2022. the force would be funded by

voluntary contributions. the u.s. has already pledged $100 million to fight the violence there. elon musk social media site x is testing a live stream shopping partnership with paris hilton. the new feature on x the platform formerly known as twitter, of course, will allow users to watch a livestreamed video, talk with other users and shop at the same time. the announcement did not detail when the livestream will take place or what items will be sold, but kelly, there it is. back to you. >> irresistible, tyler. thank you very much. i'll see you shortly. coming up. here's one more look at the mystery chart and it's the reit, and our next guest says that's erinsts n ke shelter, amid the housing slowdown. the case for it next.

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♪ ♪ >> welcome back to "the exchange." ever core isi is projectioning a recession in the first half of 2024 and what an analyst says what is prompting investors to take jelte tore outperform today

saying the residential hold up in a downturn given the affordability crisis. joining me is the analist behind the call. steve, great to have you here. welcome. >> thanks, kelly, for having me. >> this is the same invitation for homes that we thought were causing crisis affordability and buying them and renting them out and that kind of kieng? >> the market is certainly very large across the u.s. and there's been an institutionalization of home ownership with invitation and one of the closest peers, they own a very small piece of the overall housing market, and there's been a shortage has been created with the diynamic of pushing up housing across the board. >> the fed has a lot to do with it, as well. they bought so many mortgage-backed -- anyway, that's a whole other story. what is the case for owning invitation homes now into what looks like a difficult macro environment? >> yeah.

so, look, at the end of the day, shelter is certainly something we all need whether it's going to be apartments and whether it's homes in general, and we think that right now the differential in home ownership pricing versus renting is quite wide and that does play well into both invitation and their closest peer from an affordability standpoint. so whether folks want to buy or rent, that's a big choice, but there is a big spread right now and it does seem to be favoring renting over home ownership. >> exactly. we've seen that spread where renting looks like a much better deal and it's just that a lot of actual buyers don't seem interested. how does invitation leverage that? >> their occupancy, kelly is 9% or 7% across the portfolio and the number got as high as 98% which is a very, very high number across any property to stay at that level and right now, we still think that the

portfolio can average somewhere in the 96 to 97% range and they've had very good success pushing rents. we think that those rent numbers are going to moderate and we're seeing that across the entire complex whether it was apartments and single-family rental and the increases that the companies have achieved over the last few years is not at a sustainable level and we certainly think something in the mid single-digit range is affordable and certainly achievable and as i said, the spread between owning and renting still favors renting right now. >> it makes a lot of sense, specially if we see a massive pullback in multi-family and housing supply because of the pressures that the banks and others will be in the macro system and i still want to get the fundamentals and the next question to ask is what about higher interest rates. even if they have the best supply and demand dynamics in the world and rent growth and all of that and what is going as you watch the ten-year continuing to march higher.

i'm just talking about the reit business, broadly speaking. >> it's certainly been a headwind, kelly and it's 75 basis points in the first quarter and that put pressure reits overall. the sector was down 7% and invitation in particular was down about 7% so that create the opportunity we thought to get in. we're seeinging this big march up in the ten-year, so hopefully we've getting to the end of that march higher and we think if things start to slow down economically and whether we get to the soft landing or even a modest recession and if the ten-year is lower say six or 12 months from now we think it takes the pressure off of the reit multiples and we still think the supply and demand dynamics are favorable for the single-family rental and we see it as a heads i win, tails i win for the company moving forward. >> share in the 31 range and

your price target is 37 and we'll see if we do get rateds to stabilize. thanks so much for joining us. we appreciate it. >> thanks, kelly. >> with evercore isi. shares of this name up 16% today. you've heard about it a lot today. it's a favorite and he was trimming profit last week. it's a double mystery chart day. i know everyone can guess this been, but still, go ahead and aeet me @kellycnbc. were back after this with the dow down 187. it takes years of dedication to get to this milestone. the new york stock exchange is a symbol of what america is all about, the potential of an american dream. it is day one. a lot of work has happened to lead to this historic moment. the only way you can move a society forward is a true expression of freedom.

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♪ welcome back to "the exchange." a quick check of the markets and the dow is down 165 points and we are off the session lows when the ten-year yield popped off 4.7% and the nasdaq's up a quarter percent now and the russell 2000 are the worst performer, underperforming all of the major averages. the small caps down 1.6% today and they've now turned negative year to date and it's sitting well below the 50 and 2 h00-day moving averages and it is up 4.7% the i hooest since 2007 early on. and the 30-year yield hitting 4.81% and that was the highest since 2010. las vegas' newest entertainment

venue officially opening this weekend and i'm sure you saw on social media the inside looks beautiful and lots of performances, too. sphere entertainment are up sharply and that's off the highs and that was the mystery chart and best day since spinning off msg invitational who was trimming it last week. speaking of spin-offs, kellogg's north american serial business is ticking off as klg. kellogg is renaming itself kelanova. how did i not trademark that first? it's the smack part of the business, think pringle, pop tarts and cheese-its and they're to the lowest since '21 and down sfen% since announcing the spin-off last summer. it was supposed to be cereal, snacks and plant-based brands

and weaker interest in the plant-based category led to that business staying under the kela nova umbrella and here's what the ceo of kelanova told "squawk on the streets" about the nuts and bowls lts of the new busine >> 80% of the portfolio is snacking and international businesses. very high growth and growing like a snacking powerhouse that it is and driven by the largest bring, pringles, rice crispy treats and egg-o waffles and very differentiated and brands and we think the mark will know the kelanova than we've seen recently. >> adding to pressure consumer staples today ask utilities are down more than 5%. necks ter a the worst name in the s&p down 11% now. it's been a lot of pressure the stock lately and wells father

low slashed its price target from 80 to 33. nextera trading at 50 at its lowest level since 2020. coming up, we are 43 days away from another potential government shutdown after congress passed that bill in the 11th hour to keep the government running. era' see big red flags on amics balance sheet. implications for the bond market next. which have become top targets for ransomware attacks. but there's never been a reported ransomware attack on a chromebook. which is why thousands of schools like the fairfield-suisun unified school district switched to google tools for education. so they can focus on teaching and 22,000 students can focus on learning, knowing that their data is secure. ( ♪♪ ) your record label is taking off. but so is your sound engineer. you need to hire. i need indeed. indeed you do. indeed instant match instantly delivers quality candidates

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get way more into what you're into when you stream on the xfinity 10g network. welcome back to "the exchange." congress has until exchange." congress has until mid-november to work out a deal to keep the government funded after passing a continuing resolution over the weekend, but with 90 republicans voting against that measure and kevin mccarthy's speakership possibly in jeopardy will it be even harder to get a deal done next time? emily wilkins joins us with that story. hi, emily. >> reporter: hey, kelly. a lot that's happening in the house today, but probably the number one thing is whether kevin mccarthy is going to be able to keep his speakership in moving forward. congressman matt gaetz, he's threatened for weeks now if mccarthy worked with democrats to provide a stopgap spending bill he would move a motion to

vacate. gaetz spoke on the house floor today saying he would be bringing up a motion later this week and saying that mccarthy needs to answer questions about ukraine aid. this is an area that's really split republicans. mccarthy has said he is supportive of sending additional funding to ukraine and gaetz and a number of other members say that shouldn't be the case. listen to what gates said just a few hours ago. >> i would ask that these questions be answered soon because there may be other votes coming today or later this week that could be implicated by the answers to these questions. members of the republican party might vote differently on a motion to vacate if they heard what the speaker had to share with us. >> reporter: now there are a lot of unanswered questions about this point about how a vote to potentially out of mccarthy would go. it's not clear how much support congressman gaetz has to oust

him. it's not clear whether they would give mccarthy the votes to put him over and it's not clear if he did get removed who would replace him. a lot of unknowns at this point but speaker kevin mccarthy is not sweating it. he spoke to reporters when he came into the capitol this morning and said basically he has other things to worry about. >> i'm just going to focus on doing the work that i'm supposed to do. i think this is a question to the institution itself. i'm not worried about it. >> reporter: all eyes are on house republicans as well as democrats who will need to decide whether or not they want to back mccarthy and if they do what their price is going to be. kelly? >> absolutely. emily, thank you for now, for all your reporting. emily wilkins, appreciate it. the fighting over a shutdown is merely a proxy over a largey

debate over america's finances and sees austerity as a potential for the future. just briefly for me, what are you thinking as this all plays out? >> kelly, first, thanks for having me on today. as you know, we've often talked about this idea when your debt servicing cost hits 14% of tax revenue the bond market starts to act that way. it's gone to 4.6% in two months and now we're having a children's debate about whether to remove the speaker of the house. when you look at the surface we have two competing thoughts, one, brinksmanship and two whether we need to get the fiscal house under control. when you have a low debt servicing cost you're more worried about brinksmanship, and now the market is saying can this group of congress be able to get our fiscal trajectory in a better place and don't really

believe they don't need to. we're in a constant struggle, this budget trench warfare as we like to call it that will continue through the remainder of the year and overhanging that is whether you know who is going to be the leader of the republican party. you're starting to see the market begin to worry about these debt issues in a way that we really have mott seen since 1981, 1982. >> right. >> the last time our net interest and servicing costs hit these levels. this is a really critical stable that we're facing thinking about the fourth quarter. >> literally everything you've warned about has started to play out almost textbook. >> yeah. >> but no one else in washington, spending wasn't even a part of this fight of the all they did was cap spending for two years in the deal back this spring. the deficit meanwhile kept getting wider than expected. treasury had to increase itsy issuance and that's what's gotten us to this situation but still no one in washington is realizing or taking notice or acting with any urgency. what's the pain point? what level of the ten-year or what has to happen in the stock

market? >> exactly right. the conversations i'm having with investors this morning is that there's no realization, no wake-up moment, and so that we'll continue this trajectory until something breaks. that's the concern. i think you nailed it perfectly. but think about this. we've been in a period of stimulus for 25 years. we can cut taxes, increase spending, obamacare, trump tax cuts. we can do it all and not increase our debt services costs. it's over and it takes a long time for members to remember that. there were meetings going on talking about doing an unpaid for tax bill at the end of the year that both democrats and republicans support. seems less likely to us, but it just tells us that what's happening in the markets has not caught up with congress yet, and at some point we're going to get there. a 5% treasury which was unthinkable for most investors a few months ago looks very, very real today on the trajectory that we're going. if you line up yield with today with 1982, they look very similar before things ended up

breaking. not saying that's our base case. >> right. >> but you're starting to see the worrisome signs. also listen to what the fed was talking about today, that financial stability needs to be wrapped up into monetary policy. those are important comments being made by the fed because they are telling you that they are starting to be stress back into the paininging sector, something we haven't seen since svp. those pressures are there under the hood. probably have to go a little bit more before people realize that. you're asking people to change their 25-year framework. it's changed. they just haven't recognize it had here in washington yet. >> looking through the projections from february, the deficit 7.5% of gdp, a record non-crisis high is expected to be 5%, 6% for the next ten years and half of that is interest service costs. >> yes. that was again from february before rates are where they are now. so the problem is it seems to me it's hard to pull that back, right? when you look at the spending this year, there was really no one factor driving it. there were a lot of will factors, about three points higher than normal, and you look

at the revenue said and it's basically in line with normal, around 17% of gdp. can we raise revenues enough? can we really reduce spending that much? i literally don't understand how that's going to happen. >> it's going to be tough, especially before a presidential election, and then next year, kelly, as you know, you have all of the trump tax cuts expiring on individuals so higher amt, higher income tax rates, lower child tax credit. that's probably going to have to be paid for no matter what wins the presidency and we haven't done that before. a lot of pressure points here. it will be gradual. in 1981 what started to happen is social security's solvency started to pull forward that ultimately forced the greenspan commission to come up with ways to make social security solvent. that's probably what we're going to see after the 2024 election, but we're a long way away from there, and you're starting to see the pressure building underneath the hood, and i don't think there's a realization here in washing tann that you'll need

financial conditions to tighten more. >> and if there's a recession the revenue side gets worse and even though bond yields should fall. >> yes. >> it's going -- it's unpleasant to ponder, but we'll see where we go interest here. dan, thanks for your time today. appreciate it. >> kelly, thank you. appreciate it. >> dan clifton with strategis. that does it for us. wells fargo cut its price target on nextera but nep, next partners, is down. coming up on "power lunch," microsoft's ceo is testing in the google antitrust comments. we'll get his comments. tyler is getting ready. i'll see you on the other side of the break. with comcast business... it is. is it possible to help keep our online platform safe from cyberthreats? absolutely. can we provide health care virtually anywhere? we can help with that. is it possible to use predictive monitoring to address operations issues?

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