enterprise products. they raised their dividend for 24 years straight. >> american tower. this is a stock that's suffered for the last year. bottomed at the end of october we think the interest rates are going down eventually. it's going up. >> joe >> expedia much more run to the upside. >> thank you "the exchange" is now. ♪ ♪ thank you very much, scott hi, everybody. i'm kelly evans. here's what's ahead. he was just on stage at microsoft's ignite event he's going to get on a plane to meet with president xi but first he joins us live he's here on the company's big chip announcement, ai, china, that and much more we'll get the first live pictures of president xi and biden this hour. both countries competing for the global future. our guest says if you take a clue from recent xi speeches, a

showdown of historic dimensions could be ahead and with two days until the government runs out of money again, well, no longer but we'll speak live with phillip swagel about what needs to change and if america can get its fiscal health in order the s&p is up 2% on this two-day run, adding about 0.2% today, the dow up a third of a percent. the nasdaq lagging somewhat. and the s&p is now up almost 10% from its intraday low of 4103 at the end of october the nasdaq is up 10%, as well in november so monster moves that we have seen yields somewhat rebounding with the ten-year around 4.55 after retail sales were a little better than expected shares of target, soaring 17% after their earnings beat this morning. although, that was largely driven by cost cuts. cost controls have been the

narrative on the main street, but it's a different story on k street that's where we start, with america's deficit story. and phillip swagel with steve liesman join me. hello to both of you steve, kick us off >> yeah, kelly, i think people need to understand when the stock market is so focused on the bond market and the bond market watching the treasury, there's no better person to have than phil. thank you for joining us >> steve, it's a pleasure. >> so i have a sort of strange question to start off with here. i lost a little bit of hair in the last couple of weeks trying to understand, is it a $1.7 trillion deficit or $2 trillion? when you are in a cocktail number, phil, which number do you use? >> it's a complication what i say is that the deficit doubled from $1 trillion in 2022 to $2 trillion in 2023

and the complication is, setting aside the cancellation of student debt, that never happened and that got booked into the deficit numbers and unbooked you know, it confuses the issue. so the deficit doubled to $2 trillion >> so let's talk about what we call the road to $2 trillion i felt like i turned around, it was $1.5, then it was $2 trillion it was all aspectsof governmen finance. the biggest chunk was revenue. by biggest question is what happened with revenue, it went terrible and likely capital gains. so is that -- are you expecting those lousy revenue numbers to continue >> yeah, that is the key question in the near term deficit outlook. we had weak revenues as thechart showed capital gains looked to have been a big piece of that those coming back, and more of a traditional relationship between

capital gains and the economy, so it looks like it was a one off. there's some other one offs like employee retention tax credits, looks like it was a one off and some other things that were one-off revenue weaknesses hopefully that's not an issue in the future >> back to the road to $2 trillion what may not be a one off is that $177 billion we spent in interest payments. i have a little sympathy for you, phil. how do you forecast what interest payments are going to be when in the last week the ten-year is down half a percentage point it was up to 5%. what is your forecast what will happen to interest expense as total spending by the government >> you know, it's the biggest challenge we face in updating our budget projections we're at the beginning of that process now. over the next couple of weeks, we're going to finalize the forecast the run-up in rates from the 3.8

we had a year ago to like just over 4.5%, has added over $2 trillion in net interest outlays to the ten-year outlook. if interest rates had gone up and stayed higher like they were a couple weeks ago, that would be almost another trillion >> wow >> the week-to-week volatility we have, over ten years with a big debt stock makes a big difference in the fiscal trajectory >> phillip, kelly here it does look like the projections for the next decade show half of the deficit would be driven by interest costs. what would the ten-year have to get down to? what do rates have to get down to, to keep the debt from growing and keep the deficit from being at historically large proportions? >> yeah, kelly, you have put your finger on the difficult part we have high and rising interest outlays, but then the primary deficit, the deficit other than interest payments, is also wide.

that's the challenge even if rates went back down to 3.8 level on the ten-year we thought a year ago, that would help but the deficit would still be wide we would still be talking abou trillion dollar deficits, more than 5% of gdp into the future because of everything else so rates can help, but even low rates by themselves don't stabilize the fiscal situation >> phil, you're playing singles here against doubles here's from the other side now the government -- i'm sorry, moody's just downgraded the outlook for u.s. debt to negative from stable i wonder if you could comment on that do you see the outlook for u.s. debt as negative >> umm, you know, we look at the u.s. economy and see many strengths. you know, creative playing where people want to come here, capital wants to come here we have growth looking to be reasonable, even as it slows, you know, from the very strong

growth we had last quarter so from cbo perspective, we see many positives in the u.s. the fiscal situation is challenging, and members of congress, policymakee ers, the president have to do something over time. i understand what moody's has said but i'm still optimistic we will address this fiscal challenge. >> well, a lot of people don't necessarily share that optimism, especially when they look at washington i know you are employed by congress you are the congressional -- director of the congressional budget office. tell us how you view this possible government shutdown what does it mean for the economy and government finances? >> you know, a shutdown is a challenge, it's a challenge for the government if it's a short-term shutdown, that's a relatively minor issue for the economy. the longer term is the

underlying issue that moody's pointed to ant whbout what it ms for our ability to take on these fiscal challenges. that's more of what i worry about rather than will there be a shutdown it's up to the congress and senate to act. that would push the decisions on funding the government into january and february so we might face this situation again. you know, i really look at the long-term as the issue, what the fiscal trajectory means, more than whether or not there's a short-term shutdown. >> phil, i don't know if it's a small point, but the house just recentlyly passed funding for israel by taking away additional funding for the irs. you did a report about what happens as a result of spending more on the irs. can you tell us what that says >> very good i would be happy to. so we look at the different activities of the irs, and we

say what's the return on investment in a sense of putting additional resources into these various activities of the irs. so customer service, for example, it's good for taxpayers, it's good for people calling the irs. it doesn't have a high roi in terms of revenue coming in but it takes years to hire and train new irs agents so we allocate the resources to the different activities, and we say there's roughly a 2- 1 return on those funds, but that's over a ten-year perspective. >> phil, thanks for joining us i guess we'll see you in a couple of weeks. you have a new budget forecast coming out, and i'm guessing that will be fun and great news, right? >> you know, it's a challenging situation. our next outlook will set out those challenges

>> okay. thanks for joining us. kelly? >> diplomatically said thank you, phil. steve, we'll see you form. we'll hear from loretta mister tomorrow stocks are coming off a monster couple of weeks. the s&p is up 10% from just the end of october, after yet's rally, the semis and the broader tech etfs were at all-time highs. microsoft hit a new high today as we'll hear from the ceo in a moment but my next guest warns that tech and consumer discretionary, the top two performing sectors this year, are too expensive and favors more defensive groups joining me now is michael darda, chief economist. mike, i think this is a good place to start a lot of people would say these are the biggest innovations happening in the economy how expensive are they, with

tech in particular >> hi, kelly thanks for having me on. we have a unique situation in the sense that the run-up in these two sectors are dominated by six or seven stocks has taken the equity risk premium in those areas into negative territory. that's even with this pull in bond yields. so there's just not much cushion there if things go wrong i know a lot of people are excited about ai, but let's not forget what happened in the late '90s going into the year 2000. even though the internet revolution was very, very real, we still went through a multi-year period of compression in super high pe ratio equities. i don't think it's as severe this time, but if something goes wrong with the business sickle dsh cycle, i think investors chasing here could end up having some regrets

>> the equity risk premium makes my head hurt can you talk about that around the significance of it here? >> yeah. so the inverse of the pe ratio gives us a earnings yield. that should be higher than the risk-free rate you get on treasuries but in this case, for these two sectors, it's below that level so, you know, no margin for error there in terms of things going wrong, whether it be for earnings or the business cycle in fact, for the whole s&p 500, if you compare it to a t bill, there's also a negative equity risk premium so we don't have much cushion built in here to markets, but especially those high valuation sectors that have been leading the s&p 500 this year. >> would there be any argument for permanently higher valuations we heard some of them. again, it goes back to innovation or productivity but those who say, the last time

bond yields were here in the early 2000s, equity valuations were much lower. it's a different world now >> yeah. you know, i think any time we have a run like this, you know, you start to have folks arguing that it's different this time and we're going to sustain super high valuations. we haven't repealed the business cycle, and we haven't repealed market cycles. go back to last year simply. these two sectors really got slammed hard when twe went intoa higher inflation environment and then the aggressive fed tightening so things can change rapidly you can make the case that we're in a new era, but when those things start to happen, it really should make us a bit nervous. >> the last time you were on, we talked about the potential appeal of utilities, which took off for a sprint there what do you do now

you still favor defensive parts of the mavrket, but what about those who say we've been waiting out these since january. >> it's been a rough ride for utility stocks in the last year. you got slammed almost 30% it's had a nice run, we put out the recommendation on the 10th of october so it's been the second best performer since then, as treasury yields peaked and started to pull back so i would stick with -- utilities aren't a super exciting sector. but going into a late cycle, potential recession scenario, that it's one sector that investors can hide out in, ditto for health care. so even on a normalized basis, meaning adjusting for the cycle, you have valuations in the teens where you're really paying up 25, 30 on a normalized basis for the leading sectors of the s&p if you're in a late cycle environment, the recession risk

is still there, even though that's not a consensus view now. i think there's a compelling case to stick with some of the more defensive areas >> quick final question. what do you see going on with rates? are you worried about what you just heard from phil swagel, or do you think rates will continue to drop from where we are now? >> for sure. having the fiscal deficit ramp up to 6 to 8% of gdp is asinine. so anyone should be worried about that but the -- i think the more immediate question is, the business cycle so you go back 100 years, 16 business cycles. there were only two instances were long-term treasury rates did not fall from the cycle peak to the cycle trough. so if you believe we're in a late cycle environment and you're not buying into this soft landing story, you can be bullish on the long end of the curve here but if we are talking about a 10 or 20-year outlook, anyone would

find that interview you just did with steve liesman pretty disturbing >> indeed. mike, thank you for your time today. appreciate it. >> thank you let's head out to seattle now where john ford is standing by with microsoft's ceo, fresh off of a bevy of announcements and a stock earlier that was at all-time highs, john >> kelly, thank you. yes, thanks for having me back here in seattle. you just got off the stage minutes ago. >> thank you so much, john thanks for coming out here it's becoming a great habit for you to show up multiple times o the year >> big announcements here a year ago, open ai mput out chatgbt. your stock is up 50% since then. what's been the most significant first wave of adoption in ai for you?

you talked about co-pilots today. the general public and investors don't think about those as much. but strategically for you, has that been the most significant >> i would say both, john. there are two real breakthroughs in some sense. one is this natural user interface. the first time we got a sense for it is when chatgbt launched. there is a new link to information, whether it's web information or information inside the enterprise. that's what we're main streaming with our co-pilot approach, which is becoming the new agent to both not just get the knowledge but to act on the knowledge. but the other thing that's also happening is a new reasoning, just like in the past, we thought about databases. we have a new reasoning capability, which is not doing relational algebra, you can take an api and continue a paragraph

or do predictions. that's a new capability that will change every software category so between both of these, you can see a lot more main stream deployment of ai and the benefits of it >> that's what i think a lot of people outside of the developer community don't necessarily get is that there's this ai tool that's helping developers to write code even accelerating the speed at which nvidia is able to innovate what's the breakthrough there? >> yeah, for me even, my own confidence about this generation ai being different is when i first started seeing it. that was the first product before chatgbt, we built co-pilot and deployed these models the fact that developers can do code completions now, and get,

you know -- even -- one of the things we have done is taken the joy out of some of the joy of the software development we bring back the joy and the stay in it and that's unlike anything we have seen in the past. you are taking the most knowledgeable tasks, which is software development, and seeing 50% plus improvement so that's what we are trying to replicate for the broad knowledge work and frontline work what jensen is saying, they're deploying co-pilot for the dev developers, and he's saying watch out. nvidia, if you think it's fast now, let's see what happens a year from now. >> so there's this scramble happening across enterprise software i'm talking to you, and they are trying to add ai into their portfolios and enhance their existing product offerings with it and see how much their customers will pay for that a

added boost. you have some data showing how microsoft customers feel about, you know, this ai being built into your software >> it's very, very, very promising. obviously, the developer one is the one where we have conclusive data and it's becoming -- it went from wow, this is a good idea to main stream, just like that because of the obvious benefits, both individually and for organizations. i do believe firm level performance, you'll stop seeing divergence, if you are adopting or not adopting some of these technologies the next place is things like customer service we ourselves deploy our co-pilot for support. when you are a customer service agent, by the time you're trying to solve a problem, it's already a very hard problem to solve, because the automatic bot didn't solve it so co-pilot helping is fantastic.

>> the idea being the ai can go into a database, figure out when did they call and what is the problem. >> and bringing the solution to you, so to speak but here is the interesting thing. it's not just that, that is hard, but it's the pain every customer service agent had of summarizing everything they did to solve the problem at the end of the call, which took like a half hour with all the logs and art art facts. so we are seeing the same thing in sales and finance so broad strokes in this conversation that we are launching all the data we have with the co-pilot. but we're very optimistic this is probably the thing we have been looking for the last time information technology showed up for real in productivity data is when pcs became main stream in the late '90s and early 2000s, because

work and work free thrlow chang. >> it's a generation ago how long do you think before the data is conclusive enough that you know, what the calculation is to aid your sales effort and -- >> yeah, in fact, one of the things we are developing is a bit of methodology and how we go about measuring. what is the product really measuring here can you thinkable some tasks and really look at, deploy the software, look at and follow the cohort in a month, three months, and every business is different. every work flow is different every business process is different and it's different in time so having these customization tools, we're excited about the co-pilot studio. because you need to be able to taylor these experiences for your specific business process so i think all of these will add up i'm hoping that in '24, i think

of calendar year '24 is the year where we will have i'll call it classic deployment data. >> that's sort of the top line, customer demand. what are the problems it's solving. i want to talk about the bottom line and costs that's where some of your chip announcements come in. you talked about azure this is not competing with nvidia necessarily or jenson wouldn't have been on stage with you. but starting with microsoft's own workloads, the soft wash that microsoft is offering out in the cloud, this will help run that more efficiently. what kind of efficiency is possible with your own designed chip versus what you can get off the shelf? >> the thing, john, that we are seeing is, as a hyper scaler, you see the workload and you

optimize the workload. that's sort of what one does as a hyper scaler >> hyper scaler meaning it's you, amazon, google. you're the cloud with billions and billions spent on this data. >> that's right. we're a systems company, everything from how we source our power to how we think about data center design the data center is the computer. the cooling in it. everything is all optimized for workload so we saw these workloads first. we have a three, four-year advantage of trying to learn everyone about this workload that's got to mean in a systems business, you have to be early to the next big workload that will take over, so to speak. that's what we got right so we've been hard at work on it the other thing is, we also, and i think you were talking about ai for us, open ai models are deployed at scale. those are the models that we are

training at scale and deploying for scale. it's not just a bunch of models but just this one model. so we now have a great road map for how we think about amd, nvidia, all in our fleet like right now as we speak, we have some of the mia stuff powering co-pilot. so you will see us deploy our own accelerators and take advantage. we have some fantastic memory charact characteristics, so we are excited about all this and our partnerships that is deep with nvidia and a mmd >> aws, google, what does it take to make yours better and get more benefit out of your system >> i think the way i look at it,

you don't enter the silicon business just to be in the silicon business i think of the silicon business as a means to an end, which ultimately delivering a different workload for example, that's why i don't think of the silicon itself, i think about the cooling system what we did is we built an entire rack, which is liquid cooled for mya and everything, the thermal distribution of that entire rack is very different from a traditional rack we built it so we can deploy it in data centers that we already have so that's the level, when i think about the advantages we will get, it is not just going to be about one sort of silicon, but the entirety of its system optimized for high-scale workloads that are deployed broadly, something like open ai inferencing. >> let's take a global perspective. you're getting on a plane and going to san francisco

chinese president xi is there. he would like access to all of these innovations that microsoft has been talking about, that nvidia has been talking about. joe biden says no. what should happen from here that both allows trade to take place and protects intellectual property >> that's a great question at the end of the day, nation states define their policies it's clear that the united states has a particular policy decision that they're making on what it means to both have trade and competition, and national security so as the states decide, in this case, obviously, we are subject to what the usg decides. but we will be compliant wit, and at the same time, we do have a global supply chain. the reality of tech as an industry today is it's globalized the question is, how does it sort of reconfigure as all of these new policies and trade restrictions all just play out

whereas at least for now, the majority of our business is in the united states and in europe and the rest of asia so we don't see this as a major issue for us, other than any disruption to supply chains. >> the aips? >> that's right. most of our business -- in fact, a lot of the chinese multinationals operating outside china are our bigger ai customers perhaps. but china is not a mavrket that we are focused on domestically we are mostly focused on the global market. >> for the customers who have to operate in all of these different regions and fields, as a hyper scaler, you've been building out data centers so you can abide by the rules does this friction make it more complicated or does it benefit microsoft's more diverse global foot print and you have more options to serve customers

>> i've always sort of felt that in order to be a global provider of something as critical as compute, you just need to localize i always felt that data sovereignty would limit any reason why any country would want it. critical industry was always going to be true you need to have a global foot print to serve everyone in the world. so having invested and gotten ahead on ai is going to work to our competitive advantage. but i think that this is alsoable the majority that one needs to deal with the world as is it's not like we're building one consumer service reaching 3 billion people this is about reaching every public sector workload in the world with all of the compliance and security needs that's a very different business than just having one hit

consumer service >> it's been about 25 years since microsoft lost a big case versus the government where it looked to some like microsoft was about to get smaller we are talking here where microsoft won a legal case where you are getting bigger with the acquisition of blizzard. there's some work in the ai context here, and now to integrate this, particularly in ai you talked about this on stage what's the challenge of integrating this into microsoft, into a svrzure in a way that yot the benefit of the content, and of ai? >> at the end of the day, when i think about ai, it's not just about this as another technology on the side. it's about changing the nature of every software category

whether it's in gaming, whether it is core azure or windows, all redefining every software category where ai is going to be core to what we do in the value props we develop the other important consideration is also do not think of safety as something that we do later, but to really shift left and build it into the core like for example, when we think about co-pilot, we built all the responsible guard rails right at the very beginning so that when people are deploying the co-pilot, they know that they have the best safety around the co-pilot built in so these are the things we are going to do up and down the stack. that's why i walked up today from infrastructure to data to co-pilots. we are thinking of ai as the main thing with safety as opposed to one more thing. >> with the stock recently at all-time highs, thank you for

joining us on cnbc kelly, back to you >> thank you very much let's get reaction from gene munster and steve co-vak steve, knee jerk reactions here. >> yeah, there are two stories going on here. you have these co-pilot announcements. that's the money coming into microsoft. this is that product they're selling $30 per month per user new data of what they're seeing in these early days of the sell of co-pilot. again, it doesn't matter right now until we see the results of how that's selling, whether or not that productivity boost is worth that cost. >> do you know anyone who is working that directly? >> i was at an event yesterday and several of the executives at that council yesterday are using it and talking about using it and forming policies around it so it is something people are testing and they're working on a

cybersecurity version of it that will come out next year. so we'll hear co-pilot so much that's the one thing these new features are just kind of candy on top of the sundae they already built and then qualcomm, arm and intel all up amd and nvidia down today. why? because they are going to be competing with this chip that microsoft just announced i know he said we're going to bring in nvidia and amd. that's all great but the real concern is if you're a microsoft investor, what is the cost savings here? these nvidia chips cost up to $40,000 a pop and you need tens of thousands to do what they need to do with these ai large language models. >> sam altman said that the chatgbt launch, they had to stop -- >> too much capacity, exactly.

that's where the open ai thing comes in these new chips will be powering, and that's less work for nvidia and amd to do that's why nvidia is reacting the way they are so how much money is microsoft going to save with this new chip and they're not going to divorce themselves from nvidia they're bringing in amd, but it can help with cost savings they guided towards some massive cap x that rattled some people sat >> gene, what are your thoughts? steve mentioned the move in nvidia shares, down about 2% it is interesting to watch him try to toe this line here of, no we're not looking to displace you, but by the way, we might be displacing you a little bit. >> it was masterful. it reminded me when the iphone

rocker phone came out from motorola, and apple was krsecrey building the a iphone. microsoft threaded the needle today in terms of keep thing relationship close with nvidia the reason why they want to keep it close is they want to get access it's really competitive to get access to these gpus they will still be doing a lot of business with nvidia, but don't bury the headline here, which is microsoft and google and amazon all want to diversify away from nvidia this is a plus by the way for tsm. we are a holder of tsm they are building all these chips. but that jumped out to me today. and then there is something off on the side that was shining at the very end that was related to ai and the metaverse ai and spatial computing. for those of you following

microsoft, you might remember the product hollow lens. it's still around. they ended with a teaser, inspirational video of bringing co-pilot to hollow lens and show industrial technical workers use thing. it reminds me of a battle i think that will set up between apple with their vision pro, and with microsoft and what they will do with hollow lens it begs a bigger question as to what is apple doing related to all these good things that microsoft is pushing out in ai >> that's why we like watching market caps, and apple is still about $200 billion advantage over microsoft here. this reminds me a little of those flagship moments when the first iphones were announced he said --

pv >> so the point gene was making, they seem to have the clear lead in this, and the only thing i have heard from google this week, this partnership with character ai, but this feels like today's announcements, it feels like the leading edge of where this technology is going over the next ten years. >> a lot of people are saying microsoft has been dead. when the bing chat came out, there were this talk about growing market share against google that never happened. so that's part of it, too. but look, yes, that is true. search might completely change and that is an opportunity for microsoft, that is google is still behind if you try to use their barred version of ai search, it's just not there yet. is the bing one any better

no but they are rebranding co-pilot it makes sense this is the product they're selling. there is a co-pilot for everything you want to do, whether you're a giant business like nbc universal and you have a huge workforce you need to deploy this to or an individual user or a student who might need a lighter version of this product. >> gene, i find myself giving in i want to curate my own answers what do i put the oven on when i'm making something i feel myself slipping and that these habits are changing and the old search is going away >> definitely. the world of search is going to be different i think google will figure this out. i think they have a lot coming with gemini. we're also investors in google we think they'll make that p

pivot. it's about increasing the amount of attention you have with the platform search, you will have a question about what you're baking or about a destination, about a better product i think microsoft is going to have a great place when it comes to ai long-term related to what they are doing with these gtps and integrating them into work flows. i think that will be a business. i think both will be successful. the punchline here is that this stuff is a big deal. i don't like big adjectives and i don't like playing into hype i want to be judicious how i think about things but it's hard not to see how transformative ai will be. credit microsoft for getting on early. >> i think i need to go back and find the founders. you were right thank you both still ahead, presidents biden and xi are moments away

from their first face-to-face reaction sense a year ago. we'll bring this to you live when it happens and look at what to expect from the meeting and president xi's dinner tonight with u.s. executives, including the ceo of microsoft here is a look at markets. dow is hanging on to a 155 point gain s&p is over 4500 nasdaq up 10% this month n-arotteye ne, 4.55. back after this. ard for my retirement. the second best? stay healthy enough to enjoy it. so i started preparing physically and financially. then you came along and made every mile worth it. hi mom. at vanguard you're more than just an investor, you're an owner. helping you prepare for today's longer retirement. that's the value of ownership. ♪♪ we're not writers,

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welcome back to "the exchange." i'm tyler mathisen with your news update. the united nations security council is expected to do on a call for an extended humanitarian pauses throughout

gaza diplomats told reuters the you are gem pauses would last several days and enable aid access this will be the council's fifth attempt to take action since the war began. the text demands all sides cooperate with international law and calls for hamas to release the hostages toyota's next camry model will be a hybrid only model. the traditional internal gas powered engine toyota unveiled the 2025 camry last night saying it's part of a broader strategy to give buyers more choices in green cars tiktok will launch a new feature that lets users download their favorite songs from videos directly to spotify, amazon music or apple music this comes as the social media continues to grow. >> tyler, thank you.

president biden set to hold his meeting with xi jinping this afternoon with the apec summit in san francisco underway. it's the first time in six years the chinese leader has been on u.s. soil. eomon? >> xi jinping arrived hoere in san francisco yesterday. it's being billed as just a working meeting on the sideline of the summit here, as you mentioned. for the chinese side, the optics are poimportant for the domestic audience back home so even though we won't see a full-dress event, the c choreography of what we will see has been planned out in minute detail xi wants to send a message that his country is open for business, and that u.s. ceos do not need to worry about the post pandemic climate in china. he will make that case tonight in a much anticipated dinner in san francisco, which will serve

to send a message to washington about the high-powered friends that china has in the united states on foreign policy, xi will want assurance that there is no change to the u.s. one china policy in terms of taiwan. for biden, who said that the u.s. would help defend taiwan from a chinese invasion, that presents a conundrum his statement angered the chinese and may have to be solved behind closed doors with biden assuring xi in private and off camera we'll get our first indication how this is going when biden holds a press conference tonight at 7:15 p.m. eastern and they just released the location where this biden-xi will take place, it will be in woodside, california, about a half hour south of san francisco. so we expect to see those pictures here before too long. >> stay with us. what is the sflignificance of ta

site being chosen? >> when you look at the picturing online, you see a gorgeous facility. so a great backdrop for a meeting. it's an intimate setting and also outside of san francisco. some distance away so there is less likely to be protest activity, other political activity and from a security perspective, they can secure that whole facility, not just one city block here in san francisco. so a lot of reasons for that but the backdrop should look gorgeous just outside of san francisco. >> stay with us. positive sentiment has been growing around this meeting between the two leaders. with some going so far in the past 24 hours to say geopolitical risk premium around china may have collapsed that has to do with developments in the taiwanese elections but president xi has a conviction that u.s.-china relations are destined to worsen joining me now is fred kemp.

i don't want to make you sound too doom and gloom, but people seem to be thinking maybe the u.s. and china are going to stay economically connected for some time after all >> in washington, the pendulum swings so much on china relations, sometimes you just have to duck at one point, china is ten-feet tall and threatening us at every point. another point, china is -- peak china, the economy is slowing, 20% unemployment property bubbled, deflationary property bubble. china has big economic problems. that's why xi jinping wants to have reduced tensions and a successful summit to stabilize relations, and the u.s. just wants to calm the global situation with wars in europe and the middle east. i meant by

times" has unearthed all sorts of speeches of president xi to his party, to his military during the time of obama, when people were trying to repair relations, and he was talking about a long-term contest with the united states to see who is going to be the dominant country, and china has made no secret that it hopes to be there by 2049, the centennial of the party. whatever you see in terms of public rhetoric and calming down tensions, there's nothing to show that china has changed that intention at all and indeed, the way they're backing russia in the battle of ukraine, the way they positioned themselves in the war on the mideast shows that they are more at conflict with the united states than seeking cooperation. >> that said, fred, i want to ask you about this development in the taiwanese election where

two of the opposition parties agreed to run a joint campaign that's that could give them a lead. how much of a win is this for china potentially? and it kind of is a double edge sword. it could calm things on the geopolitical front but increasing the risk of more chinese intervention in the long run. >> no doubt that president xi wants to go down in the history books as one of history's greats and he's also made clear that happens in large part by bringing taiwan back together with china he doesn't need to do that militarily he can do that through many other means. the question is, how patient is he and how many more means can he employ domestic politics in taiwan is one of those means if he can get taiwan to move more in the direction of

accommodation with china, less in the direction of independence, that certainly takes care of a big domestic problem for president xi >> to bring you back into this, eaman, i'm curious, after "the new york times" reported that for $40,000, for president kp kp -- >> to get a table in the room with him then we saw more hawkish members for even offering these kinds of opportunities and warning u.s. businesses not to get too eng entangled. >> if you're an american ceo, you're in a tough position i'm going to be in the room watching the body language and looking to see how close they want to get. both physically and rhetorically but if you're a tim cook for example and you depend on china for manufacturing and an enormous customer base, there's

no choice but to go to an event like this and be forthright. so i think a lot of ceos are fw going to feel like they have to attend this. i it is a difficult position for them to find themselves in and they understand there's going to be criticism that comes along with that. >> i can't imagine them also putting themselves in the position of also being forthright glad you'll be there thank you for your time. coming up, names like novo and lily are stealing the spotlight but our strategist says there can be a lot of dry kindling including one name down more than 42% dow's up 170 back after this.

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welcome back that lower cpi report yesterday, the lower report this morning, they have stocks off to the races in believing the fed is done hiking and that the worst of the inflation problem has passed our next guest is here to explain why he's more cautious than many. welcome to you i'll save our little chart reveal for just a moment from now. why is good news not so good news as far as you're concerned?

>> to take the wayne gretzky line that's been way overused, where is the puck going. i think right now, it's flying through this soft landing goldilocks land but it's on its way to a slower economy. rates don't keep for good reason they keep for sad reasons for equity investors, which is that the economy is slowing and that will manifest over the next three to six months. >> doesn't everybody know this i don't understand why the market can just take this and run with it. especially with so much algo driven trading don't they look at the history and go maybe you want to sell the last hike? >> it's been while missing the train that things are taking off between now and the end of the year, which by the way, i think continues. folks don't want to miss that. they don't want to end the year poorly so they want to get on that train the problem is where is the train going over the next six, nine months. it's difficult >> let's reveal our mystery

chart. everyone seems to know i think darren got it first. it's pfizer. i think there's so much focus on this for a couple of reasons one because healthcare was supposed to be a safer place to hide it's not been the case you feel a little bad for the company after everything it went through with the covid vaccine is this a stock you'd want to own here >> i think so. the reason is first of all, low expectations the virtue of low expectations we've talked about with verizon and other things there's a lot of dry kindling. second, unexciting as pfizer is, unex unexciting might be a good thing going into a slow economy. and these pharma companies have a new way of pulling new drugs out of the hat or making strategic acquisitions when you have something at a ten-year low multiple, ten-year high dividend yield, that's kind of an exciting place to be

>> so final question then is go going to circle back to microsoft. we kicked off with satya nadella. it's getting to the point of almost being physics i don't understand the details of what all they're doing but they're trying to supplant nvidia, maybe not go that far. what would you do with a stock like that? >> well, there's no question microsoft is one of the leaders and has made the transition to new technology so many times and now to ai. so i would bet on having said that, it's not a cheap stock it's not a reasonably price to where it usually is. i think you could take a deep breath, keep your eye on it and wait for a better entry. >> you're sticking with verizon? >> i am. still nicely ahead of tesla. >> indeed, it is chris, thank you so much that does it for the

exchange next on "power lunch," one automaker is betting big not on evs, but on hybrids. we'll have the details of toyota's big me.ov tyler's getting ready. i'll see you on the other side of this break.

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and track market trends with up-to-the-minute news and insights. trade brilliantly with schwab. oh, you wouldn't believe the ten seconds before "power lunch" begins, but welcome, everybody, to "power lunch. it's going to be a great day alongside kelly evans, i'm tyler mathisen nasdaq up 10% already in november you're richer. and we're only halfway through the month. prepare for a reversal or happy holiday? plus, presidents biden and xi meeting in san francisco no major policy changes expected, but are talks enough to get china to soften its stance for u.s. businesses, kelly? >> these guys in here would really put the nascar pit crews to shame let's get a