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Learn more at chevron.com/meetingdemand. Market insight and analysis. You're listening to the opening bell of CNBC, Squawk on the Street. Good Tuesday morning. Welcome to Squawk on the Street. I'm Carl Kingston, and I'm Jim Kramer, David Faber, and post-9 of the New York Stock Exchange. Futures holding some gains here on a robust news day, whether that Starbucks Home Depot, lots of geopolitics, PPI runs light, 10-year yield drops to about a one-week low. Our roadmap begins with breaking news at Starbucks. The company replaces CEO Locksman Nair Simman with the Chipotle's chief Brian Nickel. We got all the details. Plus, PPI comes in cooler than expected that does give stocks a bit of a bump ahead of the open, and we continue to see signs of a cautious consumer. Home Depot saying it expressed comp store sales to decline as customers, quote, "sense of greater uncertainty in the economy." Let's begin with this news out of Starbucks. Locksman Nair Simman is out as CEO, effective immediately and amid the company's struggles, as well as activist investors pushing for change. It is Chipotle's chief Brian Nickel will become chairman, CEO of the Coffee Chain, beginning in September. CFO Rachel Ruggieri will serve as interim CEO until he gets there. Melody Hobson will become lead independent director. Jim, this is a story that you know well and have some involvement into some agree. - Yeah, well first, this doesn't happen in corporate market. You don't have a guy, I just had Brian on. Who's outstanding and did an amazing job. Oh, look, I mean, the numbers speak for themselves. 173% says he got to Chipotle and is remarkable. You very rarely see this. Jack Hartland, you see if I was just said, listen, it's terrific. Now, Jack's staying on, that's important. But I mean, people at Starbucks, and when he said he's the best Starbucks, lucky to have him, what I would point out is that Howard Schultz really wanted this. And I think my David Faber, I think that that is part of the narrative. More than Elliot. - Yeah, listen, Mr. Schultz, of course, it continues to be a force within Starbucks, really only as what is a technically a large shareholder. Of course, he's not on the board. He has no management role of any kind, and yet he was certainly an important figure here. In part, it seems in, if I could say, turning on Luxman and or at least not giving him continued support some time back, which obviously put his job, it would seem, and clearly was in some jeopardy, and moving forward and perhaps helping. I mean, the board obviously, my understanding with the Brian Nickel thing is that they reached out some time back. They really thought they didn't have a real shot at getting him. And then as Melody Hopson indicated in the interview that she gave on Squawkbox, things really happened pretty quickly. But as you might imagine, there had been, there had been some conversation at least about it, but my understanding is they thought, well, what shot do we have to your point? I mean, it's Brian's the best. Okay, so Howard just sends me, this is a great day for Starbucks. Brian is one of one, I like that. No one better rejuvenated the company than the Starbucks brand than him. Our partners won't brace him. The Marcus reaction is consistent with the concerns that I had, and this is the solution I had hoped for. I've known Brian and followed the transformation, he led it to probably with great respect. He has been full support, and I would say obviously, thank you. So of course, one of one, that's my opinion, respect for Brian and what he will mean for Starbucks and share a whole lot of value. Look, this guy's a dream come true. Okay, I mean, he came in at Chipotle with Chipotle, I don't know if you remember, was in Disarray. Yeah. And he fixed the organization, well, that's what Starbucks needs. And then, Carl, the Esprit, higher within, promote within, respect for the workers, which Howard Schultz had always favored and done a great job with. I come back and I just say, this stock this morning, which is up 11, about a billion dollar Starbucks, even though Chipotle's lost 6.1 billion, is correct. It's correct. And because when you get someone, this monumental run in the company, it is, there's hope for change. Speaking of change, do you think your May one conversation with Nara Simmons was pivotal? What, what Nara Simmons did Nara Simmons did? I, you know, it's not like the Roger Mudd interview, like. No, you asked, you asked very hard questions that day, after a very difficult quarter for the company and Jim. I thought you were uncharacteristically, I could say, quite a critical and direct viewers to Simon. As opposed to more typically being a positive force. It was the worst quarter relative to expectations of a large cap company that I have seen. So bad that I just talked about how we should have known it had a tongue. So bad that it was. You can see it right there in the chart. Yeah, I mean, was it a disgrace? No, it's just big disappointment. And I thought, I thought there'd be more, there was a three-part plan to me only had two legs. And there was very little recognition or humility from someone that I would have expected, but I was rooting for the guy the last time it was on for everything. And I'll take a listen, that conversation on May 1st. Take a listen. - Speed of service improvements we've seen are real. The opportunities that we have with the new processes that we're rolling out suggest to us that we can make that even better. And the entire leadership team is focused live and ensuring that we make improvements as we go in order to increase that speed of service even more. - Well, the speed of service is real. That's a fanciful statement. It's the exact opposite of what is happening. And I don't know how you can say it on our air. - Jim, the facts are, and we have improved speed of service quarter over quarter. If you look at how the processes that we are rolling out, particularly around peak, what we are finding is that we have opportunities to improve that even further with changes in processes and tools that we provide to our partners at peak. - But you said that people are using the mobile app and they are not able to get what they want because they can. It's too slow. I think your throughput is awful, sir. And I do not understand how you can say service is good and also say at the same time that throughput is awful. - Yeah, all right. As I said, he was a little more critical than typical. - This situation was sub-opt. And the question becomes, at what point did the board sort of already start to think about moving on? We've talked a good deal about Elliot being a significant owner here. Yesterday I was talking about was there the possibility of a settlement? Jesse Cone, who runs activism at Elliot, has been leading the charge on this. Certainly there have been conversations. And if, in fact, they had not made the change that they have, this incredibly significant change in CEO, one might have imagined that they would have walked in, so to speak, the front door, if you want to call it that, in terms of Elliot. They got to be happy, though, and they can certainly claim credit, whether it's due or not at Elliot, Jim. - Yeah, no, it was terrific this morning, because they got a stop sharply. Starboard, which came in, I mean, maybe they're going to sell the day, I don't even know how much stock they own, but hey, you know, you'll take it. They're in the business of making money for their shareholders, so it's gone the way they'd like it to. - But it's difficult to try to figure out a fun board. - I shouldn't say that. - I can't point to Mike Seaver and say, hey Mike, what did you do? These people are diplomats, they're not going to, like, say, you know what, I was the guy who did it. But there are, you know, Rich Allison, who left Domino's under a period-- - You're talking about director's now? - I'm looking at director's, I'm sorry. Andrew Campin, who bailed from Nike, I don't know why, I mean, he's still got a relationship, but I'm saying he used to be the chief operating officer. Beth Ford, a complete black box, land of lakes. Melanie Hobson, we heard how great it was that she got him. Now Neil Moen, YouTube CEO, people didn't think he did a good job. The group of bimbo guy, Daniel Sversky, that's an important guy. - There we are, R.A.R.N. Chapin down here. - I see you'd now put an X through Luxman's name. Yeah, that's sad. Well, it's actually is. - You know, Jim, the problems at the company, whether it be pricing, whether it be this massive mobile business they have that you were asking about. - But it's so poorly run, like in an airport. - Whether it be the fact that they have so many-- - It's so many beverages now that are cold beverages. - Yes, that they can't make. - Whether it be China. I mean, Mr. Nickel is not taking on a shortage of issues here. - Okay, so someone said, Jeff Mark said to me, my colleague for the travel trust, we have a meeting tomorrow, he said, what do you think he'll do in China? And I said, Brian Nickel, whatever's right. And that's who he is. You don't second guess this guy. I mean, he came in, everyone thought Chipotle completely lost sway and they've got the worst thing of airborne illness tonight. I mean, you said, I used to choke him as like, but they're by the grace of God. Everybody runs the restaurants fearful of that. But he just had a vision. He came from Taco Bell. He did such a great job at Yaw. I mean, he was just so great. And he totally got the zeitgeist. But what he first did is figure out how to get you a dorm burrito and get out. And when he was on last time, he was talking about saving eight seconds because he had linebackers in Boston. - Now we play Boston, you know, we're up there in Eagles. But there is without a doubt that just me, what's this? It was down to the seconds. - Got it. - Well, no, not God. - I just keep going. I just lost down the line back. - The oil, well, okay. Yeah, but in blocks, when I was doing it with the two for one, with the pairings, I'm not sure they're gonna do that. I'm just saying that when you sit down with Brian Nickel, what does he talk about? He talks about the desire to get people in and out quickly. He was, when he was on my show last, defending himself, Carl, for like the small sizes that people were saying. - Yes. - And it was just like, look, we want to give you as much as possible. That's crazy because we want you talking positively. And, you know, when you talk with him, he's a foodie. - A bag, he's in it. You know, he's talked about Chipotle and he's got the things people going through the few. But what does he really care about? He cares about checking out Plus Store. And when you try to bug him about bringing back certain things, he says all in due time. He's funny, he's playful. - So you think the problems, the deep seated problems of the company are gonna be solved by the new management team? - No, I know they are. Okay. I don't think. - So therefore, you're very positive on the stock. - All right, so hey. - And agree that we bought a lot in the '70s, bought a lot higher. No, I just wished that Brian, Nick, I had gotten on the Chipotle train when he got to Chipotle. Instead, I was stuck with something, I don't know. And this is, you know, this is one of those jump ball passes. There's no time on the clock. And boom, I mean, it falls into, I don't know, Kelsey's hands, I don't know, the usual. And this is amazing. And this is corporate America where you're never allowed to say someone's doing a bad job. That's like ridiculous. You paid them a lot of money until they spend more time with their family. We do have at least one upgrade already out of bear, guys. We expect sentiment to remain positive even if operating results are lackluster for the next few quarters. - Absolutely. - You're willing to give him some time here? - Yeah, I mean, look, Brian Nickel is a serial under-promiser. Okay, Jack Hartung, by the way, was the only person on this whole quarter who said we raised prices so much it didn't work. How? But refreshing is that. No one will even admit to raising prices. So Brian is, he's so special. He wanted to respond. He was just appalled that there was this social media thing saying that portions are smaller. I don't know. You just, I know he got to go to previous impressionists, but this is shocking. - A few tough quarters. And you think the market's fine with it. Howard Schultz is fine with it. - It's Brian Nickel, he has credibility. That was, Chipotle was in the shambles. Was it shambles? - Yeah, Jack Hartung, I'm going to thank heavens. But in Jack's staying alone, which is a really big deal for Chipotle shareholders who were frantically selling their stock, but I just, you don't see this. You don't see someone don't do a good job for two quarters. And then they call it other than in football. Other than in football, they will fire someone mid-season. I've not seen this level of rigor in a major corporation. - Yeah, it's been a while since we've had a hop like this at companies of this scale. - And sometimes the activists being there can't have that pressure as well. - Yeah, that's true. But we don't really know the activists. We do know that there were people on the board who just were upset. - Yeah, clearly. - And the Mr. Schultz. - Mr. Schultz, which I would not pass easily over as a key reason. - There were many people who reached out to me to say, "Well, you get on a locksmith train. You get on the locksmith train. Don't be on the Schultz train." And I said, "You know what train I'm on? The train's that's late because of my darn Starbucks and I don't make the train. Airport, airport. Eighteen minutes last week, no!" But that's, oh Jim, that's a racing store. It doesn't count. And take your name off of it. - When we come back, we'll talk some more Starbucks. We'll get to depot, of course, in the quarter there. We'll look at PPI, goose egg on core, and we were looking for two tents. And we'll have a wide-ranging discussion with Blackstone, Jonathan Gray, when we continue from post nine in a minute. - At Ever North Health Services, we believe costs shouldn't get in the way of life-changing care. We're doing everything in our power to make it possible. Behavioral health solutions that also keep your projections at their best, it's possible. Pharmacy benefits that benefit your bottom line, it's possible. Complex specialty care that cares about your ROI. It's possible because we're already doing it. All while saving businesses billions, that's wonder made possible. Learn more at EverNorth.com/wonder. - Support for this program is provided by Chevron. Demand for energy is projected to continue rising in the future. To help keep up, Chevron is increasing their U.S. oil and gas production, and they're innovating to help do it responsibly across their operations, including their Gulf of Mexico facilities, which are some of the world's lowest carbon intensity operations, helping supply energy that's affordable, reliable, and ever cleaner. That's energy and progress. Learn more at chevron.com/meetingdemand. - My dad works in B2B marketing. He came by my school for career day and said he was a big RO as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laughing at me to this day. - Not everyone gets B2B, but with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to linkedin.com/results to claim your credit. That's linkedin.com/results. Terms and conditions apply. Linkedin, the place to be to be. - You're just being helped this morning by this morning's inflation data. July PPI comes in a bit tamer than expected. Up a tenth month on month up 2-2 from a year ago, Jim, but core, as we said before, the break. A goose egg looking for two tenths. We'll see what CPI gives us tomorrow. - Yeah, look, this is a max seven number. Who does well on a slow down? Where do you find the most coiled spring? - I'm reluctant to go into the small cap again, because it turns out you're just buying a future, or you're buying some basket that you can't get out of. And David, look, these are kinds of numbers that you get right before you get a cut. And I saw Home Depot. Someone's trading at down 15 or this morning, and I'm saying, what an idiot. The Fed's about to cut. You know what stock you buy? The first cut, Home Depot. - Could you figure out those from the commentary? And I know the call's been ongoing in terms of Home Depot, whether they are forecasting the slowdown, because the consumer is stretched. - They're straight down. - Or whether the fact that rates are gonna come down is actually why the consumer is waiting to embark on, perhaps some of those home improvement kinds of, kind of tasks and or larger projects that would require them to finance, and therefore waiting for rates to come down. Which is it? - Yeah, okay, so they do accept the fact that there's consumer uncertainty. But Home Depot has done a lot of straight line forecasts. It's like, wow, okay, it's going like this, you know, going down. So we just have to say it's gonna continue to go down. And they're very conservative, they're very good. And it really doesn't matter. It's like Builders First Sourceman. When they reported, and it was like, suddenly Builders First Source was up, even though the numbers were, the forecast was terrible. And the reason why it was up is because people say, "The Fed's gonna cut, I gotta get in on one of these." Call, this is like, there's so many amsters out there. I mean, I don't know. I'm not gonna say they're on Robin Hood, 'cause maybe they're on Fryer Talk, I don't know. But there is an element of stupidity that is just so shocking. I wrote it on Twitter, I said, you're always selling down 10 'cause these mean down 15. - I saw that. - And then it went down 15. I mean, people knew nothing. I mean, they didn't have any knowledge of what Home Depot's gonna say, Ted Decker's gonna say. But they're just, I have to call them idiots. - Still though. - I buy them a triple bente cappuccino with skin wet and throw their face. - It calms down for seven straight quarters, Jim. I mean, do you think this is, you're calling a bottom on Depot then? - What? - I'm not on Depot. I'm calling a bottom in the psychology of the owner if we can just get the home equity loans down. We gotta get that interest right down. Then people wanna do something in their place, even if they wanna stay in it. But look, Decker, Decker is a seasoned pro. Who knows, you don't, you can't really defeat the cycle. But the cycle does take a little bit to kick in. I do think that we're building inventory in the country for homes, and if rates come down, then the fed's gonna be in a little bit of a gym, but we need to see some traffic. Because the stuff in Home Depot aisle, aisle after aisle is doing badly, except for like paint. - Well, their focus has been in professional services and supply chain. - They went that way. They went that way and they made that acquisition. We gotta find out what that acquisition really was helpful. But again, I mean, the idea that you wanna sell this company down big on the eve of a rate cut, do it without, yes. Before the rate cut was near, you have to sell this stock and people should have been in it. Because it is a huge unfortunate, it's more cyclical than it used to be. They don't put up any stores. But it's good as gold, it's a well-run company. So this is the company that contractors, not just builders for service, they could build us for a source. But contractors and individuals who come in, they'll bring back to it yourself, which has really been on standby. And it's a great situation to own. So those who sold it down 15 have never studied the history of Home Depot. But history means nothing among a particular cohort. And I'm not gonna say which letter. X, you know, Z. - Do you don't mean the social media platform? - No, I can't get it, it's like coming in just someone. I think someone packed me or something. But I couldn't get it as social media as well. - It's probably probably a good thing. - No, no, no, look, this isn't great company. And anybody like Frank, like granted, when Bernie ran it, there's such a great company. - Margelli? Why do you hurt me? - Well, get framers mad dash and countdown to the opening bell. Just a few minutes until that bell, stay with us. - Support for this program is provided by Chevron. Demand for energy is projected to continue rising in the future. To help keep up, Chevron is increasing their US oil and gas production and they're innovating to help do it responsibly across their operations, including their Gulf of Mexico facilities, which are some of the world's lowest carbon intensity operations, helping supply energy that's affordable, reliable and ever cleaner. That's energy and progress. Learn more at chevron.com/meetingdemand. - My dad works in B2B marketing. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laughing me to this day. - Not everyone gets B2B, but with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to linkedin.com/results to claim your credit. That's linkedin.com/results. Terms and conditions apply. LinkedIn, the place to be, to be. - Take a look at some monaz day gainers this morning. We mentioned Starbucks at the top. Now gonna open up, close to 17%. The rest indicate that the chips are a bit resurgent. We're gonna talk about some of the upgrades in tech today, including Dell, UBS on these NVIDIA chip delays, opening bell coming up in five minutes. And don't forget, you can catch us anytime, anywhere. Just listen to and follow the Squawk on the street opening bell podcast. - All right, let's get to a mad dash, opening bell two minutes from now. I wanna talk a little Dell. - Yeah, a lot of people who've been watching this talk of Dell just plummet. I'm sure Michael Dell too is putting up some numbers the other day in Twitter that shows you how well it is done. But this morning, Barclays comes up with a piece I've been waiting for. And the piece to say the AI hype is now flushed out. Equal weight to upgrade. That's very smart that he had it as an equal weight, as a whole. Look, this is a stock that sells around 10 times earnings normally. It sells at 11 times earnings here. And yet, I think that historically, you wanna buy this company after it's been hammered, regardless. It's just been right to do that. So I agree with Barclays. This stock should be bought right here. - You like it here? - Yeah, because how about anything else? I mean, do you buy HPE? Do you buy Super Micro? Or do you just, this is the name? - Super Micro was pressured by someone. We don't know who to ship. It's just to ship some materials that were frankly, hurt gross margins badly. HPE, I've been way too negative one. It's doing very well. The stock should be higher. But Dell has just been crushed here. And Dell is a good company. Remember, Michael Dell was at the big conference and was singled out by Jensen, as the person you should use to do business with. And so I think that Dell is a good idea right here. - Really good. - Barclays does not change numbers on Dell, by the way. They think this is all just about some sentiment. - I know. - It can be launched. - But I do think that the sentiment, you know, this is different from Mike from, where we keep hearing that there's some pricing pressure. It's different from AMD, where we see that Intel seems to be dumping chips. Here, these are service companies doing a fantastic job, with great contacts in the enterprise. I think Dell's a buy, even though they did not raise the estimate. (bell dings) - Last year, the opening bell, and it seemed to be a real time of change. And the big board, it's home security company, ADT. And it's been asked that, all last year, Mercado, odd Hentinos, the leading stock exchange in Argentina, as we get some 1% jumps here in the NASDAQ, Jim. - Now we've got a new updated number, Starbucks adds $14.6 billion on Brian Nickel, again, he and his CEO. And it's lost $6.8 for Chipotle, $2.8 billion. Trying to keep track of the ratios. - This is a far cry, of course, from last Monday, Jim. Nikkei's recovered, last week's drop. Stocks here have done the same. - It does feel a combination of good data, and the fact that we recognize that there were just some errand funds. One of the things I want people at home to understand is, we're not allowed to find out. When you are, I was a manager, and if something was happening to you, it isn't like people were supposed to share it. They're not allowed to. So we don't really know, David, you know this, we don't really know the giant institutions that were doing this trade. - And had gotten, as I'm told, very complacent about the trade. - The end, Kerry. - Yeah, very complacent. - I think it is interesting how little transparency there is. - Isn't it? - Yeah, and everybody's guessing at how much is done, and how much has been covered, and what's still given its influence on the market for what may have been a brief period, but nonetheless was certainly a very volatile one. You would think we would have a little bit more transparency in terms of just how much was actually in this so-called yen-carry trade. - I think we all owed that. Obviously, the industry protects everybody. But, I mean, Carl, if people had known that it was just a couple of giant funds that were frantically flailing, and trying to get out of very, very good stocks, they would have been able to buy the very good stocks, and it's a shame that they weren't able to, because everybody scared everybody out of, you know, they presumed that it was something really horrible, and it wasn't. - As I said, the fund managers say very today out of B of A, the number one tail risk. US recession has now jumped to number one. The journal with this piece about the boom and travel spending beginning to slow. - Well, remember, you can't have rate cuts without things going wrong. (laughing) I mean, David, why would we need rate? If everything's so great, why would we need rate cuts? We could say, hey, you know what? This is pretty good. We have a great growth. We don't have any inflation. No! - It's a fair point. - It doesn't want to, it doesn't want to straight line. It doesn't want to say, you know, look, I recognize the data's weak. I'm going to take action. If the data were strong, the conversation would be, what do you bother me? Why don't you bother me? You know that like hour and a half torture that we have, well, Mr. Chairman, did you, when did you stop being a dead funds rate? Well, I mean, all right, all right, listen. - It's kind of nice that the Fed Chair answers questions to the American press. - Yeah, that's a question. He gives people some idea of how he's thinking about things. - The question now is, do we get 50 basis points or 25 minutes of time, right? - Right, but it seems. - Right, it seems to be a 50/50 wager at this point in terms of at least the way that-- - So you find the press conference very illuminating and you'd make big decisions. - I don't, necessarily. I know you're quite critical of it. - Well, because let's have a split's have. - But it's better than the days where we used to look at Grease Man's briefcase. - How about we just-- - And be like, oh, it's this big. - Have you been-- - We're going to get a cut. - Just do it, Netflix, let's pick 10 good questions. - I mean, that way he says, well, here's some what I got from the New York Times. Rather than, there's Mr. Chairman, my name is so-and-so from the New York Times, but that time I'm done. - My name is so-and-so, or you're, come on. - Let's go look, let's select the best questions. - Shares this Chipotle are down 10%. Brian Nickel, of course, leaving the company to become the CEO of Starbucks Effect, if I believe it's the 9th of September in a-- - Really stunning move here with the current CEO, of course, Luxembourg Narsam and leaving immediately. Chipotle's going to have to get paid out, by the way. I haven't mentioned that. I mean, he's got stock there or stock coming to him. I think, you know, a quick look, indicated somewhere around 63 to 70 million bucks. - They'll do it. - I'm sure he's getting incredibly well paid for the job ahead, Jen. - Oh, my God, why don't you be struck from with the price that he got? Chipotle shareholders reacting, as you might expect, saying, okay, we've just lost a potential superstar, not potential, a superstar CEO, your words. - Oh, he's so great. Now look, they have a great bench. It's kind of like Costco. They've got people who are there for life who are very good. But I know that there are a lot of people who were very disgruntled and were rebellious. There were rebellious people working at the company. Sedition, I would call that. Others might just say, you know, kind of unhappy people. - We were just making note of the number of S&P names that have done better since that Chipotle has, since Nicole arrived, do you want to guess how many? - Nine. - Nine. - Nine S&P names have done better than Chipotle in the time since Nicole was named. - He rebuilt a franchise. I don't know if you guys remember. I was in the restaurant business table, you know? - Yeah, I'm aware. - And they were in a spiral that it was so painful to watch. And if you take a look at a long-term, I mean, just zoom in on during the 2015, 2016 period where the beginning of the airborne, oh, my. - And, well, that's interesting. It doesn't really show you. - We should take a look at Starbucks as well because it is a stunning, a stunning ascent there. 20% has been added to the market value. This obviously on the expectations and hopes that will come with the ascension of Mr. Nickel to the CEO job there. Again, a few weeks out, for him, there'll be an interim CEO, but Starbucks is up-- - It's a serious plan. - 1T% despite what are going to be continued challenges. - I think this may be the best day in history. - It should be. - For Starbucks. - Yeah, well, look, this is a transformation. A lot of people felt that Locksman was not doing a good job. Everyone knows that Nickel has done a good job in a similar situation. It's a throughput situation. You can't get this stuff. And, you know, David, when I think about it, I think what we need is like a private equity guy to take a hard way of equity. We need a world's largest alternative asset manager. You know what, John Gray just sits at the end of the desk. I think about the fact that wouldn't it be great if he was with us every day? Just part of the group. - Let me try to get him? - Yeah, maybe he just-- - He wanted to be handing in what he wants. - He wants to be my man, money, co-host. - All right, here's the show. - Let's not break format. Let's bring in our next guest, of course. He does join us here. Blackstone, by the way, the largest alternative asset manager, 1.1 trillion assets under management. They own or control as much as 250 companies, 12,000 separate assets in the real estate business, the largest private owner of warehouses, globally, for example. So, yeah, no shortage of things to discuss with the company's president and CEO, John Gray, who is here at Post-9. John, thank you for coming down. - It is great to be here, great to be here, live at the stock exchange. - Well, it's great to have you. Listen, you were on not that long ago talking earnings. I'd much rather bring it to what we talk about so often, the macro economy, particularly given some of the stats that I just gave people. You know, when rereading your comments and CEO Steve Schwartzman's comments, I did get a more positive tone from your conference call. I'd assume perhaps some others did. Are you starting to see a turn and getting prepared for that when it comes to inflation coming down and the potential obviously for rates declining sharply in the near future? - Well, that positivity was about the deal business, tied to rates coming down. But I think it's helpful to talk about the economic picture overall. And what I'd say what we see from our companies is that there's been real resilience in the economy. Revenue growth, still mid single digit at our companies, defaults with our corporate borrowers, still extremely low. But we are seeing a bit of slowing out there. We're seeing that sequential revenue growth decline a bit. We're seeing weakness. Employment is pretty flat, I would say. And when we look out there, what we're seeing is definitely weakness in the consumer sector in particular. Water parks, theme parks. Some of our consumer goods companies. But the positive here ties to inflation, which you noted, which is rental housing is definitely coming down. It's lags in the government's data. We see also input costs flat. We see the labor market not nearly as tight. And that's gonna give the Fed some room here to cut rates. And when they cut rates, that's super helpful for the deal business as cost of capital comes down. So that optimism you heard from us was we were starting to invest in scale before the all clear sign. We deployed more than $50 billion in the second quarter, deployed or committed. And we wanna do that before everybody says things are safe. And that's what you've got to do as an investor. So that was a two year high for you guys in terms of what you're actually deploying during that quarter. And so you do anticipate that level will continue given what your, your have more confidence now because your expectations are that rates are coming down. I think what you're seeing is as cost of capital comes down, it will enable companies to borrow more at lower costs. That's supportive for the transaction environment. It's supportive for asset prices, right? I mean, you PV the cash flows out there. It's helpful for real estate. It's helpful for infrastructure. It's helpful for all sorts of companies. And so what we're doing is saying, look, people are still a bit cautious. Assets are priced at reasonable levels in the private markets. Let's try to take advantage of that. We bought businesses around the world. We bought some fast food businesses, some technology companies and much more reasonable prices than 2021. And certainly in specific areas, there's a lot of opportunity. I would say the data center space is probably the area we've been the most at. And I wanna talk to you quite a bit about that. But I wanna come to private equity for a minute because frankly between private credit and data centers and infrastructure and so many other things at Blackstone, we really don't talk about it very often. What about the exit side? We haven't seen many IPOs. It's been a difficult time to monetize some of these investments in the funds. Do you expect that things are gonna open up there? And until they do, can you really put a lot more capital to work? Well, it's a natural cycle. If you think about what happened, the Fed raises rates by 550 basis points and it really stops the deal business, right? M&A activity falls off a cliff. There is no IPO activity and you have a lot less realizations. Now we've seen the 10 years start to move down. The Fed here fairly soon will probably cut rates. Spreads are also coming in. You've seen investment grade. Now, non-investment grade spreads tighten. You've seen real estate borrowing costs come down. That starts to get that flywheel starting. We're a big investor in other people's funds in our secondary's business. We're the largest investor in that space. In the second quarter, we saw a 30% increase in realizations over last year. So we're rebuilding, but it takes some time. And as investors, what we're not gonna do is wait for that all clear moment. We're gonna deploy some capital first and that's what you see. And then as we move into 25, that's when I'd expect to see a meaningful pickup in realizations. Now, I wanna go and I know Dave wants to do too. And Carl, your data's $25 billion empire, power hungry data centers. >> Well, I met the CEO of QTS. Thank you so much for introducing me. And when I came back and said, this is the company that has a vision. You're not trying to put them up and think maybe someone's interested. There's a real demand right now. You seem to be a real believer in what AI can do. And that may be you're involved technically with AI and data centers. So tell us what the big guy you're saying to you. What's your relationship with Jensen One? >> Well, I would say this. We have very good relations with the big tech companies overall. We spend a lot of time talking with them. And I know there's a lot of debate about the amount of investment they're making today. What I would say is they see a huge opportunity here from AI, but it's also cloud migration. It's data storage. And what the data centers are are really the highway system of the 21st century. >> But we have a bad highway. >> Yeah, but this highway is going to get built out and there's going to be enormous spend. And if you looked at the earnings calls, and this is what we hear, not on the earnings calls and private conversations, they're saying, look, we've got to spend more. There's a greater risk that we're going to fall behind. And so what we're doing is taking their demand signals and doing it in the form of long-term contractual leases. And QTS has done an amazing job. It's been hugely beneficial to our real estate and infrastructure investors. We partnered with other companies. >> Yeah, like Facebook. >> You just financed $4.5 billion for $7.5 billion raised for them as well. >> Well, we've an amazing company. We did our large house. >> Tell them to supplier to Nvidia. >> So what they do is assemble Nvidia chips. They put those together. This company's basically started as a crypto miner three or three or four years ago. They pivoted and now there's this incredibly fast-growing company. They're using capital. >> The other element of this that I think's really interesting is the power that ties to it, which we're playing in private equity, in real estate, in infrastructure, and its battery storage, its utilities, is it a gating issue, John? Is it a gating issue on the ability to put up these data centers? I mean, we always here basically you measure them on how much energy they consume, right? >> It is the big issue. If there wasn't a power limitation, then you wouldn't have the pricing power as a data center developer. But because power is becoming in short supply, interestingly in the US, over 20 years, power demand was basically flat. We weren't manufacturing in this country. We were getting more efficient. Then what happens? We start to re-shore. There's some more demand from electric vehicles, but it's really these data centers that are using a lot of power. They're now forecasting a 40% increase over the next 10 years in power. That's going to mean enormous investment in utilities. Yesterday, we acquired a company that consults on renewables. We're building a ton of renewables. There's all sorts of software. There's a whole grid expansion. >> Natural gas. >> Natural gas is going to benefit LNG, and it's a global phenomenon. So if you think about being an investor, we think about finding great neighborhoods. Leaning in, David mentioned logistics, something we've been doing now for almost 15 years. Digital infrastructure, the power that goes with it, is a great neighborhood. There are other neighborhoods around the world. India is one where we've been leaning in for a long time. Not many investors watching probably have exposure there. It's been a terrific market. We think it has a long run. So what we try to do is find these big neighborhoods, and then express it in private equity, real estate infrastructure, and that's how we can generate outsized returns. >> I wonder if you just circle back to the macro for a second. You mentioned spreads. And viewers may wonder if last week's price action prodded you to give your models a second look, or your checks a second look, just given the magnitude of the change. >> I think, you know, anytime there's a market shock, you look and say had something fundamentally changed. And I think the key is to take a little bit of a longer-term perspective. Markets are like a speedboat zigging and zagging. You guys know this better than anybody. The economy itself is more like a super tanker, moving more slowly. And when we look back to my earlier comments, there's been pretty good resilience, but it's slowing. And there was nothing that we see that's fundamentally out of balance. And I do think as this slowdown continues, it gives the Fed room to cut, to hopefully soften this blow. And so no, we didn't come back and say we're materially more nervous. In fact, what we say is, maybe this creates a little more opportunity to invest. And it's when you invest away from consensus, when you generate the best returns. We said at the beginning of the year on our January call, we thought real estate values were bottoming. That was very much out of consensus. That's turned out, I think, to be a pretty good call. What about office space? Now, I know as a percent of your overall commercial real estate portfolio, you say this many times, it's minimal. But is it time then to consider getting back in, has office space bottomed? Well, I would say the challenge on office is more fundamental than in the rest of real estate. So if you think about logistics and rental housing, which are the vast majority of our portfolio, vacancy rates are five or six percent. So pretty healthy. When you look at the office sector, you're talking about 25% vacancy. So it's gonna be a long grind to get out of that. Now, the values have fallen pretty sharply. So there may be opportunity in the best buildings and best locations, but it's tough. And if you look, for instance, at the linkancies in the commercial mortgage back securities market, it's 20 times higher in office buildings than logistics. So what we had in apartments and warehouses was a cost of capital shock. That's starting to go away as rates come down. We're also seeing a lot less new building, which will be helpful. That's why, like after the financial crisis, we wanna lean in here earlier than other people. There'll still be plenty of bad deals that come through the system, but the opportunities that we believe is now. - Office, there may be some opportunities. - But it doesn't sound like you have that much interest. - Yeah, very selective. - Yeah, one of the things that we have you, and you'll tell the truth, okay? No, you'll tell the truth. Do you do deals, and does someone say, wait a second? If President Trump's elected, that's a real bad deal. Or, let's say you're trying to figure out whether you wanna do LNG, or you wanna do Windows. If someone says, you know what, I think Windows won't do as well as LNG, but does anyone say, you know, that's right? Or do people say, hey, you know, it doesn't matter who's elected President. - Well, I would say a couple of things. First off, we've had, you know, blue governments, red, purple governments, and the constant for us has been delivering great returns for our investors. Second thing I'd say is, the shifts in developed markets are not as dramatic, for instance, in developing markets. So you often think things will move very dramatically, but you need the House, the Senate, and the presidency to change things. And so it tends not to move as dramatically as you might expect. But yes, you do take into account that there could be policy changes. So energy is clearly an area. So yes, will LNG do better in a Republican administration? Will renewables do better in a Democratic administration? Yes. And so when you're looking at a real-time deal, what do you say, what happens if the IRA is changing some way? Does this business still work? What's our risk? Both as a creditor or an equity investor? Yeah, you have to factor this into account. But what I worry about as investors is, they focus so much on the noise of the election. And it's those big megatrends we've been talking about. What's happening in digital? What's happening in life sciences? What's happening in the recovery in real estate? Or what's happening geographically in certain markets? That, I think, is the long-term thing to focus on. The elections are relevant, but they're not the determinative thing in my mind. It's done your name occasionally. The way back has been banded about in terms of treasury, secretary-kind of things. I mean, you laugh. Could you imagine, though, by the way, if Vice President Harris were to win the presidency, would a Democrat ever actually put somebody in that position, not you necessarily, from the financial services industry? Or is that just not something that's possible for you? I think it's possible. I mean, I think there's been a long history in the Democratic Party, not as recently. Not recently. Successful people from the financial industry. Sure, sure. I mean, there've been a lot of people, as we know, certainly going back to the Clinton administration. Bob Rubin did a terrific job. I think there's openness. These things tend to ying and ying. Yeah. And so, I think it's possible, I have no idea what would happen. Would you have any interest if you were on that position? No, I have, as you probably get a sense from my enthusiasm, I think I have the greatest job in the world. I work at this amazing firm. Steve Schwartzman brings all this energy. We have incredibly talented people. And we get this intellectual challenge every day to think about where should you be deploying capital? How can you grow businesses? What's happening with technology? What's the next thing gonna be? And so, I love what I do. It's a little crazy, 24/7, that's a lot of fun, but no changes. I don't want to end on a down note, but you're stock, you're stock. Come on, you know what is coming. Your stock has had a not great year. Year to date, sort of flat. We stop it. You know, what do you tell investors at this point? And are you frustrated at all? Because a number of the other alternative asset managers have had better performance in the stock market. So, we tend to look over a longer period of time. Last year, we were the best performing manager, I think up 80 plus percent. Over the last five years, we've delivered a triple of investor capital between the appreciation and dividends. We love our business model. We're a asset manager whose capital light, brand heavy, we're global. We think we can continue to grow with institutional clients, insurance clients, individual investors. We think there's a ton to do. Cyclically, our business has been heard a bit by less transaction activity, incentive fees, realizations, that's gonna turn. And the mega-trend in alternatives, another neighborhood we love is gonna continue. And we haven't even talked private credit, of course, which we're gonna have to get to on another day. - Well, is it coming on every day for an hour? - Yes, he's gonna nap the air co-host. - I'm actually leaving. - You are? - Yeah, because you're gonna go join - You are a blokesman or somebody in retirement. - He is nothing, I have nothing. He's everything, I have nothing. - You guys are the best. - Love baby. - Thank you. - We really appreciate your taking time. Thank you for coming down. - Thank you. - John Gray, President of Blackstone. - As we go to break, let's check bonds and the markets at large. Pretty nice start here. In stocks at least, all sectors green, except for energy, Vicks back below 20. And as we await Boston at 1.15 today, 10 year back to 3.86, about a one week low. Stay with us. - Jim, what a show, what's on Mads enough? - Okay, so we, that was a great show. So we have a company that is very misunderstood. All right, this is on, on. It's been all over the morning. It's on holding, so happens to be something that a lot of us really like. And I still think it was a good quarter. They did a beat, but they didn't race. You know, that kind of nonsense. - Christian Peck just keeps hitting out the park with, with so at us. I find, you know, cause maybe we have rescue dogs. I find it incredibly important to know pets. And I think very few people know pets like Christian Peck does. - I'm worried about my pets all the time. And the cost of the vet is a fortune. And we're going to address that. - I worry about, I worry about Scoop a lot. - You know, yeah, but he tells me he's doing fine. - Yeah. - What did you think of, what did you think of Greg? - I was very happy to have John Gray join us. I'm glad that we were able to make that happen. I throw too many soples. - No comment. - I think it was a good conversation. - It was a conversation. - We covered a lot of the ground. - In a conversation. - We have to review everything we do in real time. - Okay, it's a conversation. I don't say like, you know, David, you ridiculous. - No. - You did one tough interview. And now, you know, now you're passing in. - We know, when you start calling him sir, that's when you got a done. - A tough interview. - And how many years? - This sir was big. - I've seen there were two. - Oh, that is a tough interview. - There are two. - Emelt. - Emelt. - Emelt. - God, you threw up Wells Fargo, man. - Oh yeah, which one? - No, I don't know. - The boss of it is probably the one who deserved the tough interview. - Oh, good. - Yeah, but it's not. - Jim, we'll see you tonight. - Yes, Billy. - Bad money, six p.m. Eastern time. - You've been listening to the opening hour of CNBC's Squawk on the Street. - All opinions expressed by the Squawk on the Street participants are solely their opinions and do not reflect the opinions of CNBC, NBC, Universal, or their parent company or affiliates. And may have been previously disseminated by them on television, radio, internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information Squawk on the Street participants consider reliable, but neither CNBC nor its affiliates and/or subsidiaries warrant its completeness or accuracy and it should not be relied upon as such. To view the full Squawk on the Street disclaimer, please visit cnbc.com/squawkonthestreetdisclaimer. (upbeat music) - Want a website with unmatched power speeding control? Try Bluehose Cloud. The new web hosting plan from Bluehose, built for WordPress creators by WordPress experts. With 100% uptime, incredible load times, and 24/7 WordPress priority support, your sites will be lightning fast with global reach and with Bluehose Cloud. Your sites can handle surges in traffic no matter how big. Plus, you automatically get daily backups and world class security. 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