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Trump Eyes Iran Economic Squeeze · Balance of Power

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Speaker 2: Charlie Pellett at my side here, Kayley. I'm spoiled at
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Speaker 2: World Headquarters in New York. We'll have more on the
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Speaker 2: markets with the Voice of Wall Street and the New
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Speaker 2: York Subway. I can actually go listen to Charlie Underground
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Speaker 2: while I'm here, coming up in just about what fifteen
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Speaker 2: minutes time, Kayley. It's been interesting watching the rhetoric around
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Speaker 2: Iran developed, or I guess, devolve over the last couple
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Speaker 2: of days, with the President opening this week talking about
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Speaker 2: a low key approach. Now we're sending another reportedly another
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Speaker 2: aircraft carrier to relieve the Lincoln, suggest that the US
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Speaker 2: is in fact girding for a longer commitment, and of
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Speaker 2: course the President has been talking as if the Strait
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Speaker 2: was under our control for weeks.
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Speaker 3: Now.
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Speaker 2: Listen, they want to make a deal with US very badly,
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Speaker 2: and we probably will I think we will.
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Speaker 3: But the Straight is open, and.
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Speaker 4: We're taking on all of their capability for anything having
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Speaker 4: to do with the Straight, with the hormone straight, and I.
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Speaker 5: Think in the end we will end up discontrolling the
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Speaker 5: whole thing. We don't need the hormone Street, but we
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Speaker 5: do it because we have to do it, because we
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Speaker 5: cannot let Iran.
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Speaker 2: Have a nuclear weapon.
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Speaker 6: We control the straight one hundred percent. Now, can they
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Speaker 6: make trouble.
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Speaker 7: Yeah, they can make trouble.
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Speaker 4: And before we get to that trouble potentially in the
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Speaker 4: Middle East, with Tyler Kendall at the White House, I
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Speaker 4: do want to briefly mention that we do have the
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Speaker 4: results of that Treasury auction. In a member, twenty five
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Speaker 4: billion dollars in thirty year bonds auctioned off, drawing the
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Speaker 4: highest deald going back to two thousand and one five
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Speaker 4: point two one six percent. That is higher than the
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Speaker 4: presale win issue yield of five point two one two percent.
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Speaker 4: So we'll look for the finer details on what the
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Speaker 4: actual drawdown was like in the overall demand picture here,
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Speaker 4: but highest yield since two thousand and one. After again
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Speaker 4: the tenure auction yesterday saw the highest yield since two
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Speaker 4: thousand and seven. We'll get more into what that means
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Speaker 4: for the financial sustainability of the United States with our
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Speaker 4: current debt and deficit in just a moment, But let's
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Speaker 4: get to Tyler at the White House first and foremost,
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Speaker 4: as Tyler obviously, as we consider what the United States
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Speaker 4: is having to fund with all this issue, and it's
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Speaker 4: in large part it's defense is that's one of the
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Speaker 4: biggest outlays for the US government. And it seems that
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Speaker 4: despite what we just heard from the President repeatedly over
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Speaker 4: the course of the months that the US is in
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Speaker 4: control of the straight of Horror moves, that control does
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Speaker 4: come at the cost of having to have a military
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Speaker 4: presence there maintaining this blockade. The Wall Street Journal obviously
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Speaker 4: reporting now, but we're sending in a new aircraft carrier
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Speaker 4: to relieve the Lincoln. What does this signal?
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Speaker 8: Well, Kelly, just on the heels of that reporting that,
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Speaker 8: of course comes amid of lawmakers here in Washington demanding
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Speaker 8: answers about the viability and the sustainability of keeping crews
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Speaker 8: deployed that long. Senator Richard Blumenthal sent this letter to
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Speaker 8: the US military saying that the Lincoln has been deployed
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Speaker 8: for more than two hundred and fifty days and has
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Speaker 8: not made a port call in two hundred days, setting
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Speaker 8: a record for consecutive days at sea. We should mention
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Speaker 8: that this switch in aircraft carriers that you both outlined
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Speaker 8: at the top of the program was planned according to
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Speaker 8: the Wall Street Journals reporting, so it didn't necessarily come
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Speaker 8: on the heels of other reporting about what those conditions
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Speaker 8: really do look like. It is something that we will
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Speaker 8: keep our eyes closely on. Our own analysts at Bloomberg
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Speaker 8: Economics have gone through their own projections about exactly where
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Speaker 8: our stockpiles at the moment stand. And I would pair
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Speaker 8: that with new reporting today out from the Washington Post
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Speaker 8: that so far the US has used up about twenty
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Speaker 8: five percent of its REP drones. These are those smaller
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Speaker 8: scale weapons that are used in targeted strikes and also
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Speaker 8: to conduct surveillance. And Joan Keiley I spoke to the
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Speaker 8: Army Secretary Dan Driscoll the other week, who says that
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Speaker 8: the US is trying to supercharge production of these lower
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Speaker 8: cost weapons in part because we know that it would
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Speaker 8: be easier to get those out the door, and in
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Speaker 8: terms of the timeline compared to some of those more
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Speaker 8: expensive weapons that it takes longer to produce.
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Speaker 2: Tyler, it was only hours ago we learned about the
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Speaker 2: Press secretary's departure. You're not going to have Caroline Levitt
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Speaker 2: in the briefing room there for a lot longer. And
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Speaker 2: I'm wondering if you're hearing anything about a process that
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Speaker 2: the White House will be following to replace her.
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Speaker 8: Well, Joe, if we look at what happened when Caroline
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Speaker 8: Levitt was on maternity leave earlier this year, for example,
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Speaker 8: the White House didn't necessarily put out an interim Press
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Speaker 8: secretary to conduct briefings, instead using basically a rotating cast
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Speaker 8: of the high level cabinet officials like the Secretary of
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Speaker 8: State and the Secretary of the Treasury to give the
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Speaker 8: press updates. It definitely comes at an interesting time, as
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Speaker 8: I know that you have pointed out, we are about
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Speaker 8: three months away from the midterm elections and Caroline Lovett
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Speaker 8: has been such a close ally and advisor for this president.
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Speaker 8: We'll have to see where it ultimately evolves. Also, considering
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Speaker 8: the fact that President Trump himself often briefs the press directly,
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Speaker 8: not yet today, he has a few different closed events
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Speaker 8: on his schedule, including another one that starts at the
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Speaker 8: top of the hour. We'll have to see if any
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Speaker 8: of them open up amid what has been at this
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Speaker 8: standstill and very little public progress when it comes to
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Speaker 8: any sort of movement in the conflict with Ron.
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Speaker 2: All right, Tyler, thank you so much. She's live on
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Speaker 2: the north lawn of the White House. Bloomberg Washington Correspondent
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Speaker 2: Tyler Kendall eighty two days to the election, not that
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Speaker 2: we're counting. As we add the voice of Patrick McHenry,
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Speaker 2: Bloomberg Politics contributor, former Republican Congressman, former chairman of the
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Speaker 2: House Financial Services Committee, and of course former Speaker pro Tem.
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Speaker 2: It's great to see you back, mister chairman. Welcome. With
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Speaker 2: eighty two days to the election, we return to our
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Speaker 2: breaking news that Kaylee mentioned just a couple of moments ago,
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Speaker 2: a thirty year bond auction. Mister Chairman just pulled the
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Speaker 2: highest yield since two thousand and one, five point two
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Speaker 2: one six. On this PPI day, when some folks are
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Speaker 2: celebrating lower prices, I'm just wondering what you think that
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Speaker 2: means for prices and our economy as we head for
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Speaker 2: the mid terms. Eighty two days from now.
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Speaker 6: Well, there's politics and there's mister market.
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Speaker 9: And to quote James Carvel from the nineteen nineties, when
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Speaker 9: he dies, he wants to come back as the bond
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Speaker 9: market because it's all powerful. I think we're getting back
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Speaker 9: to those days where the bond market can speak and
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Speaker 9: speak quite loudly to Washington about its overspending and the
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Speaker 9: prognosis on the economy. I think this goes right back
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Speaker 9: to Chairman Warshaw's state of goal for the FED to
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Speaker 9: step back from being an active participant in manipulating the
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Speaker 9: market and letting the market speak. And it's speaking in
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Speaker 9: a very loud way today.
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Speaker 4: Well so is that spoken word from the market one
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Speaker 4: that's going to be heated by your former colleagues in Congress.
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Speaker 4: It's one thing for Kevin Worrish to say, look, the
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Speaker 4: FED is going to stop being such a player in
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Speaker 4: here as we take a look at our balance sheet,
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Speaker 4: We're going to let the market do as it will.
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Speaker 4: It's another to actually see the fiscal fiscal policy response
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Speaker 4: from Congress. Is this actually what brings everyone to Jesus
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Speaker 4: on the debt?
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Speaker 3: No.
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Speaker 9: And I've been a long time fiscal hawk and my
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Speaker 9: constituents stopped asking questions about it a few years into
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Speaker 9: my service. It has not been a serious issue for
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Speaker 9: the political class. It's not been raised by the public
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Speaker 9: this question of debt and deficits because they haven't felt
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Speaker 9: the effect of it. I think of it as for
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Speaker 9: the body politic, much like heart disease. It doesn't matter
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Speaker 9: and it's not evident until it strikes, and it strikes
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Speaker 9: in a brutal way.
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Speaker 6: And this is the.
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Speaker 9: Wake up sign where we need to start taking Staton's
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Speaker 9: review our diet and actually slim down on our overspending.
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Speaker 9: This also comes at a time where the federal government's
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Speaker 9: on course to have the largest structural deficit it's had
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Speaker 9: outside of wartime as a percentage of the GDP in
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Speaker 9: total terms. This is a major issue that needs to
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Speaker 9: be wrestled with by elected officials, but it begins with
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Speaker 9: the populace saying something about it.
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Speaker 2: Well, mister Chairman, when's the come to Jesus on the
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Speaker 2: Clarity Act. This is something we were looking forward to
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Speaker 2: talking to you about today because all the tip sheets
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Speaker 2: addressed it this morning. We know it didn't get taken
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Speaker 2: care of by the Senate before lawmakers left town. And
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Speaker 2: now everybody's home and they're hearing from their community bankers.
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Speaker 2: They're also hearing from banking lobbyists in Washington, DC, hoping
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Speaker 2: to use this period of time to try to address
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Speaker 2: stable coin yield in a way that will not result
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Speaker 2: in deposit flight. What's going on here? Does this last
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Speaker 2: ditch effort work?
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Speaker 9: There are making elastic ditch effort. That's what all the
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Speaker 9: banking industry can do at this point is to try
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Speaker 9: to bring this up at town hall meetings and when
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Speaker 9: people are at home and out of Washington.
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Speaker 6: It's falling on deaf figures.
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Speaker 8: Though.
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Speaker 9: This major piece of the bank's lobbying effort against Clarity
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Speaker 9: Act is that.
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Speaker 6: By allowing.
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Speaker 9: Yields on stable coin products, you're going to have massive
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Speaker 9: deposit flight. The truth is the banking industry and the
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Speaker 9: banking lobbyist in Washington have not stopped the death of
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Speaker 9: small banks in America. We have two thousand fewer banks
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Speaker 9: that we did pre financial cris A lot of that
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Speaker 9: has to do with the cost of being a bank
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Speaker 9: in the United States. The banking lobby hasn't addressed that
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Speaker 9: in any substantive way, So they're turning their ire to
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Speaker 9: crypto in order to stay together for the banking associations in.
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Speaker 6: Their political power.
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Speaker 9: Point one point two I would say is that a
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Speaker 9: deposit flight. These stable coin yields products have been out
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Speaker 9: in the marketplace for four and five years, you've not
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Speaker 9: seen deposit flight. There are numerous studies from universities, from
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Speaker 9: the Federal Reserve, from other institutes across our government. They've
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Speaker 9: shown this fight against deposit flight is just a fiction
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Speaker 9: of the banking industry.
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Speaker 6: But they've got to shoot their shot otherwise.
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Speaker 9: Clarity Act will will be passed later this year, and
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Speaker 9: they've got to do everything they can to maintain their
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Speaker 9: political power. The banking industry does. The establishment is the
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Speaker 9: establishment for a reason. Once they get in power, they
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Speaker 9: get intrenched in power. And that's what we've seen from
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Speaker 9: traditional financial products, and this is what we're seeing in
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Speaker 9: the lobbying effort. Especially they're tooting their own horn in
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Speaker 9: Washington very loudly this August that they are showing their
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Speaker 9: political power. We'll see in the fall if that in
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Speaker 9: fact matters to the votes of the Clearity Act. I
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Speaker 9: don't think it will, though.
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Speaker 4: Well, mister Chairman, to your point about these yield rewards
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Speaker 4: programs have already existed and you haven't seen that deposit flight.
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Speaker 4: Is the argument not that you finally give this industry
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Speaker 4: the market structure and regulatory regime it's been asking for.
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Speaker 4: You legitimize it in that way, allow it to continue
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Speaker 4: to grow and develop, and ultimately down the road it
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Speaker 4: is a legitimate competitor with or major disruptor to the
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Speaker 4: traditional financial system. It's not supposed to be immediate, is it.
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Speaker 3: No.
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Speaker 6: But that's not the argument they're making.
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Speaker 9: They're saying that this is that you've seen deposit flight
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Speaker 9: and you will see more deposit flight. There's not been
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Speaker 9: evidence of deposit flight, So on the first point, it's
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Speaker 9: not true. The second point is, I think we think
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Speaker 9: of our money market funds and savings accounts differently than
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Speaker 9: we do our transaction accounts money. If people have PayPal
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Speaker 9: sort value on PayPal today, they think of that as
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Speaker 9: different than their long term savings with a money market
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Speaker 9: mutual fund. The truth is the banking industry is still
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Speaker 9: fighting the fight over money market mutual funds from the
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Speaker 9: early eighties. Fidelity invented the product, they fought like mad
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Speaker 9: against the product. They lost that war. Money markets are
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Speaker 9: now offered by banks. I think likewise, you're going to
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Speaker 9: see yields on these stable coin products or some return
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Speaker 9: of value to the users of stable coin products, and
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Speaker 9: banks will be offering it. And I think you're going
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Speaker 9: to see that in very short order post passage of
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Speaker 9: the Clarity Act. So you're going to see a change
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Speaker 9: universe for banks. And that is just what the marketplace
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Speaker 9: is demanding, what consumers are demanding, even though the banking
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Speaker 9: lobbyists are raising their ugly heads this summer trying to
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Speaker 9: say differently.
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Speaker 2: Well, I don't know if this is enough of a
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Speaker 2: household issue that lawmakers running for reelection or for election
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Speaker 2: can seize on the Clarity Act if they get this
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Speaker 2: thing passed. But I'm curious about midterm messaging more broadly,
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Speaker 2: when it comes to the economy. Congressman, we heard from
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Speaker 2: the President yesterday well by way of Kevin Hassett, who
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Speaker 2: was talking to Larry Cudlow. This is far from a
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Speaker 2: bag fully baked proposal, but they're talking about capital gains
13:26
Speaker 2: once again, indexing capital gains. You've heard this, you've seen
13:30
Speaker 2: this movie before, taxes applied on gains adjusted for inflation.
13:34
Speaker 2: They're also talking about exempting taxes on sales of homes
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Speaker 2: worth two million dollars or less. Could they get that
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Speaker 2: done in time to promote it on the trail or
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Speaker 2: this is for another day.
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Speaker 9: No, I think it's a popular issue, and I think
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Speaker 9: it would be a reassuring push to the market. It
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Speaker 9: would be a psychological improvement rather than a very quick
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Speaker 9: economic improvement. But psychology is the big driver of inflation
14:01
Speaker 9: and affordability, which is a major issue for the voters
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Speaker 9: right now. So anything the administration can do to shift
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Speaker 9: the narrative is going to be a political improvement for
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Speaker 9: Republicans of the midterm. Anything at all would be an
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Speaker 9: improvement over what is currently the case across the country.
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Speaker 4: But what about the conversation we were just having around
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Speaker 4: the debt and fiscal sustainability. Why look at something that
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Speaker 4: could be revenue reducing.
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Speaker 9: Well, the marginal impact of these tax reductions it's very
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Speaker 9: small compared to the amount of overspending we have. We're
14:41
Speaker 9: paying now more on interest payments than we are on
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Speaker 9: national security as a federal government. So these things are
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Speaker 9: small things around the edges. They're not going to have
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Speaker 9: a major fiscal impact over the medium term or long term.
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Speaker 9: That's why they could be passed relatively easily on Capitol Hill,
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Speaker 9: even with the fractious nature of the two parties, and
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Speaker 9: between and within those two parties, on Capitol.
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Speaker 7: Hill, relatively easy.
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Speaker 4: Everything is relative in Congress, as you know. Well, mister Chairman,
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Speaker 4: thank you so much, as always for joining us. The
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Speaker 4: former chair of the House Financial Services Committee, former Congressman
15:20
Speaker 4: from North Carolina, now Bloomberg Politics contributor Patrick McHenry. Of course,
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Speaker 4: Congress is not here in Washington right now. They're all
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Speaker 4: on August recess. Joe Matthew's not here in Washington either,
15:31
Speaker 4: he's up in New York. I'm all alone in the studio.
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Speaker 2: Should come out.
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Speaker 7: You used to Charlie Pellet up there. I sho know.
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Speaker 2: We're having a good time. Well, you know, I'll tell
15:40
Speaker 2: you what. If you want to work the weekend, I'll
15:42
Speaker 2: meet you Saturday morning, you can make it.
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Speaker 4: I'll leave that to Carol Masser.
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Speaker 2: Stay with us on Balance of Power. We'll have much
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Speaker 2: more coming up after this.
15:56
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16:15
Speaker 2: Live in New York. Great to be in the same
16:17
Speaker 2: room as Charlie as we hold forth from world headquarters.
16:20
Speaker 2: Kaylee lines is live in Washington. And you remember the
16:23
Speaker 2: old line, it's the economy stupid. That was what James
16:26
Speaker 2: Carvill said, Kaylee, so many years ago. But I'm starting
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Speaker 2: to wonder if it's been refined to it's the data
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Speaker 2: center stupid. Because you're right, Kaylee, this has become one
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Speaker 2: of the only bipartisan issues out there. Certainly the populist
16:41
Speaker 2: movement from both the Democratic and Republican sides of the
16:44
Speaker 2: Isle are seizing on the nimbiism and the impact on
16:48
Speaker 2: energy prices water resources that come with data centers that
16:53
Speaker 2: are of course exploding around the country. Fascinating first reported
16:57
Speaker 2: by punch Bowl Kayley, just see this ad impact sports.
17:00
Speaker 2: Candidates for House, Senate and governor's races have aired nearly
17:03
Speaker 2: four dozen broadcast TV ads mentioning data centers this cycle,
17:09
Speaker 2: and the partisan split is pretty even here. The ads
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Speaker 2: ran in twenty one different races across eighteen different states.
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Speaker 2: One of the Michigan were you might remember the name
17:20
Speaker 2: William Lawrence. This is the co founder of the Sunrise Movement.
17:23
Speaker 2: Progressive Democrat managed to win the race. This was what
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Speaker 2: two weeks ago now against Representative Tom Barrett, a first
17:32
Speaker 2: term Republican, by seizing on the issue of yes, the
17:36
Speaker 2: data center, which he calls an existential threat. Here's a
17:39
Speaker 2: piece of his ad.
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Speaker 10: Congressman Tom Barrett wants to turn this field into a
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Speaker 10: data center. This is an existential threat, he laughed when
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Speaker 10: voting to give big tech billionaires the massive tax breaks
17:53
Speaker 10: to build it while raising taxes for the rest of us.
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Speaker 2: Nobody's laughing.
17:57
Speaker 4: Now, let's see if our panel is laughing at all
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Speaker 4: at this issue and how prevalent it has become in
18:05
Speaker 4: this midterm cycle. As we bring in now Rick Davis
18:07
Speaker 4: and Genie shan Ze know both of them Bloomberg Politics contributors,
18:09
Speaker 4: Genie or democratic analyst and democracy visiting fellow at Harvard
18:12
Speaker 4: Kennedy Center's senter, as well as Rick Davis, partner at
18:16
Speaker 4: Stone Court Capital and Republican strategist Rick. As we listen
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Speaker 4: to the words in that ad and the way in
18:21
Speaker 4: which Joe described this as it used to be the
18:23
Speaker 4: economy stupid. Maybe now it's the data center stupid. Is
18:26
Speaker 4: this not actually an economic issue? Ultimately, people are concerned
18:31
Speaker 4: that this is going to bring about higher utility cost
18:34
Speaker 4: and they're concerned that it's big corporations and big infrastructure
18:39
Speaker 4: developers and AI developers that are reaping the economic reward.
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Speaker 5: Yeah. I don't think there's been an issue that has
18:45
Speaker 5: had the roller coaster effect that data centers have had.
18:48
Speaker 5: I mean, if you just go back a couple of
18:49
Speaker 5: three years, people will wildly in support of the data centers.
18:54
Speaker 5: One they had the expectation of the great IT revolution
18:58
Speaker 5: that was going on with AI I going to make
19:00
Speaker 5: life different for them better, and they saw the enormous
19:05
Speaker 5: amounts of tax revenue. Certainly I live in the state
19:07
Speaker 5: of Virginia. Virginia really was the leader of this movement
19:10
Speaker 5: in the entire country, and Glenn Youngkin, the governor at
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Speaker 5: the time, said Hey, we're going to charge these guys
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Speaker 5: to do this, and you're going to be able to
19:18
Speaker 5: have lower taxes because data centers are going to pay
19:21
Speaker 5: bigger taxes.
19:22
Speaker 6: And at the time.
19:24
Speaker 5: Wildly popular, over sixty percent of the people in Virginia
19:27
Speaker 5: supported that. Now it's in reverse now it's only thirty
19:31
Speaker 5: percent of the people in Virginia support it because they're
19:34
Speaker 5: worried about the water, They're worried about the power bills
19:36
Speaker 5: going up, they're worried about other issues that are sort
19:39
Speaker 5: of nimbi associated. Do you really want one of these
19:42
Speaker 5: things in your own backyard? And those are Republicans, Democrats,
19:47
Speaker 5: and independence. It's really not a hard partisan issue, but
19:52
Speaker 5: it is definitely a political issue.
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Speaker 2: It's a big one in some important states. Look at
19:57
Speaker 2: Shared Brown's ad. I'll require the data centers to pay
20:00
Speaker 2: the full cost of their electricity. Not you, the Ohio
20:05
Speaker 2: former senator who wants to come back to the Senate, Jennie,
20:08
Speaker 2: what do you think about this? How much of how
20:10
Speaker 2: did it happen so quickly? Because Rick is right, two
20:12
Speaker 2: years ago, even a one year ago, this was a
20:14
Speaker 2: pretty different conversation. Now that we're getting into this cycle,
20:17
Speaker 2: it has emerged as a pre eminent issue here. Is
20:20
Speaker 2: that because people are actually seeing the impact in their bills,
20:24
Speaker 2: or they are afraid of what the impact could be.
20:28
Speaker 11: You know, I think there's a lot of different factors.
20:31
Speaker 11: Data centers have become sort of a proxy for widespread
20:34
Speaker 11: anger about billionaires, particularly tech titans, telling us how we
20:39
Speaker 11: need to live our lives and what's going to happen
20:42
Speaker 11: in the future in issues as personal as our jobs
20:45
Speaker 11: and our employment to how much we pay for water
20:48
Speaker 11: and electricity. There's also the fact that if you look
20:52
Speaker 11: at the five biggest hyperscalers that includes Amazon, that includes
20:56
Speaker 11: Google and Microsoft, they're on track to spend over one
20:59
Speaker 11: trillion on AI infrastructure from last year to this year.
21:03
Speaker 11: That's an astonishing increase. And of course there's also other realities.
21:09
Speaker 11: One of the big reports, one of the big early
21:11
Speaker 11: reports that came out in the New York Times was
21:14
Speaker 11: about the fact that in a lot of these buildings,
21:18
Speaker 11: and this one they focused on how to do in
21:20
Speaker 11: Louisiana for these data centers have been done sort of
21:24
Speaker 11: in the middle of the night, with NDAs signed with
21:26
Speaker 11: local officials, without transparency that we're all due and you
21:31
Speaker 11: know that case that was I think a Meta's fifty
21:35
Speaker 11: billion dollar data center project in Louisiana, But there's been
21:40
Speaker 11: more of that around the country, robbing Americans of what
21:44
Speaker 11: we expect in a democracy, which is that our public
21:47
Speaker 11: officials are going to be transparent with us. They're going
21:51
Speaker 11: to tell us what deals they are striking and how
21:54
Speaker 11: these things will impact us. And you know, we're talking
21:57
Speaker 11: a lot about how this is bipartisan, the concern is
21:59
Speaker 11: by ortisan. But what is not then is the response
22:03
Speaker 11: Governor Holpel and New York led the way with this
22:06
Speaker 11: moratorium to widespread criticism. She was right on that. At
22:09
Speaker 11: the same time Donald Trump signing an EO to build
22:13
Speaker 11: these things faster, and the Commerce and the Energy Department
22:17
Speaker 11: rather taking federal lands to build these things. So, you know,
22:21
Speaker 11: we've seen Governor Abbott try to square this circle by
22:24
Speaker 11: moving in the other direction in Texas, but this has
22:26
Speaker 11: become something more of a partisan issue. On the ground,
22:30
Speaker 11: it's widely unpopular, and yet the Republicans have found themselves
22:34
Speaker 11: with the supportive tech on the wrong end of this issue,
22:37
Speaker 11: and that is a big problem for them that they're
22:39
Speaker 11: trying to unwind now.
22:43
Speaker 4: Well, as Genie talks about Governor Hoche's implementation of a moratorium,
22:46
Speaker 4: Siana College put out just this week a poll about
22:50
Speaker 4: that overall, fifty two percent of those surveyed agree with
22:54
Speaker 4: the moratorium, sixty one percent of Democrats do, fifty one
22:58
Speaker 4: percent of Independence, forty percent of Republicans. So this speaks
23:02
Speaker 4: to the bipartisan nature by and large of what you
23:05
Speaker 4: both have alluded to. So Rick, it does raise the question,
23:08
Speaker 4: as Genie points out that Kathy Hokeel did this, you're
23:11
Speaker 4: seeing Greg Abbott with this pause until an auditus conducted
23:14
Speaker 4: in Texas. Those are current governors up for reelection. Yes,
23:20
Speaker 4: so they're having to make that calculus with that in mind.
23:23
Speaker 4: For anyone else in a gubernatorial race, they're all being
23:26
Speaker 4: asked to take positions on this. So if you were
23:28
Speaker 4: running those campaigns, what's the smart one?
23:31
Speaker 5: Yeah, Look, I don't think there's any question that the
23:35
Speaker 5: countries in a phase where you're going to tighten regulations
23:39
Speaker 5: around the new term that everyone's using is byop bring
23:44
Speaker 5: your own power, Right, that's the party I want to
23:47
Speaker 5: go to. So at the end of the day, there's
23:50
Speaker 5: going to be a change in how government regulation is
23:54
Speaker 5: applied to these, both at the local level, as Genie
23:56
Speaker 5: pointed out, at the state level, which we've been talking about,
24:00
Speaker 5: but also at the federal level. And because our grid
24:05
Speaker 5: is a national grid, our power generation is at state level.
24:08
Speaker 5: I mean, like if you decide at a local level
24:11
Speaker 5: to build a give a permit, to build a data center.
24:15
Speaker 5: Where are you going to get the power from? You
24:16
Speaker 5: get it from the state. So all these things are interrelated.
24:20
Speaker 5: And when you have a trillion dollars coming through a
24:24
Speaker 5: capital expenditure pipe that's wide open, it's going to land someplace.
24:28
Speaker 5: And so you're going to have some good actors and
24:30
Speaker 5: bad actors in this. But at the end of the day,
24:33
Speaker 5: regulation is catching up to industry, which is usually the
24:36
Speaker 5: way this works. And I would say we're better off
24:40
Speaker 5: as a country if we don't try to polarize this
24:43
Speaker 5: in the form of Republicans and Democrats. We want to
24:46
Speaker 5: be leaders in AI around the world. It is a
24:49
Speaker 5: I an existential effort. I don't want to have to
24:53
Speaker 5: be getting on a Chinese AI model in order to
24:56
Speaker 5: learn about what I need to know.
24:58
Speaker 6: To get through the day.
24:59
Speaker 5: And so at the the end of the day, I
25:01
Speaker 5: think it's a matter of education and regulation right now,
25:04
Speaker 5: and I think that's a lot of state governors are
25:06
Speaker 5: doing that well.
25:06
Speaker 2: It's interesting to see some of the legislation we talked
25:09
Speaker 2: to Byron Donald's, for instance, the Republican congressman from Florida
25:12
Speaker 2: who's running for governor and has made this a big
25:14
Speaker 2: part of his campaign to create essentially a closed circuit genie.
25:19
Speaker 2: If you want to build a new data center. And
25:21
Speaker 2: by the way, this is why Elon's talking about putting
25:23
Speaker 2: them in space, because this is complicated. How do you
25:26
Speaker 2: cool them, how do you power them? And how do
25:28
Speaker 2: you keep them away from people's houses? Is the beginning
25:31
Speaker 2: of this closed circuit. Like Rick said, bring your own power,
25:35
Speaker 2: you also need to have a cooling system that does
25:38
Speaker 2: not draw from municipal water, that might include a different
25:42
Speaker 2: type of technology. Does that create a more palatable scenario
25:46
Speaker 2: for voters from both parties?
25:49
Speaker 11: It does to a certain extent, but it also raises
25:53
Speaker 11: enormous additional challenges.
25:55
Speaker 3: You know.
25:55
Speaker 11: The closed circuit is an interesting one because there are
25:59
Speaker 11: many scientists to say that in fact, to get that
26:02
Speaker 11: to operate and the chemicals that it uses requires even
26:06
Speaker 11: more energy and more water and more electricity. There are
26:10
Speaker 11: challenges as Elon Musk thinks about putting these data centers
26:13
Speaker 11: in space, you know. And so this is where I
26:17
Speaker 11: think we come down to the crux of this is
26:19
Speaker 11: that we do need a pause, We do need some
26:23
Speaker 11: kind of time out where we think about what the
26:27
Speaker 11: impact of all of this is on our lives and
26:30
Speaker 11: our communities. You know, somebody talked about the fact that
26:34
Speaker 11: our infrastructure as it exists now is so antiquated. We
26:38
Speaker 11: are right now, as I mentioned, over a trillion dollars
26:42
Speaker 11: building an entire infrastructure for one industry. What happens when
26:46
Speaker 11: Elon must Innovates puts these things in space and we
26:50
Speaker 11: are left with trillions of dollars worth of this infrastructure
26:54
Speaker 11: on earth?
26:55
Speaker 7: Who pays for that?
26:56
Speaker 3: Right?
26:56
Speaker 11: These are all these questions that need to be asked.
27:00
Speaker 11: And you know what, when we say no to these
27:02
Speaker 11: big corporations, they will innovate and find another way. And
27:06
Speaker 11: that's why I think even with the tax incentives and
27:09
Speaker 11: bring your own water in all of these things, you
27:12
Speaker 11: have a lot of people out there who are wary
27:14
Speaker 11: and saying no, we need a plause on this one,
27:18
Speaker 11: and we need the federal government because to Rick's point,
27:21
Speaker 11: these are in many cases federal and local state issues
27:24
Speaker 11: to step in, and there are a lot of states,
27:27
Speaker 11: but we need the federal government to step in as well.
27:30
Speaker 2: Just imagine if this has become the issue it has now,
27:33
Speaker 2: what this is going to be in twenty twenty eight,
27:35
Speaker 2: with that many more billions of dollars invested into all
27:39
Speaker 2: of this. This is a great conversation and one you're
27:41
Speaker 2: not going to hear or see anywhere else. And big
27:43
Speaker 2: thanks to Rick Davis and Jeanie Shanzano for helping us
27:46
Speaker 2: explore this. Bloomberg Politics contributors, I'm Jill Matthew in New
27:50
Speaker 2: York at World Headquarters alongside Kaylee Lines in Washington. Stay
27:53
Speaker 2: with us on Balance of Power. We'll have much more
27:55
Speaker 2: coming up after this.
28:01
Speaker 1: You're listening to the Bloomberg Balance of Power podcast. Catch
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28:17
Speaker 2: Thank you so much. It's been fun to do this
28:19
Speaker 2: today in the same room as Charlie Pellett and he
28:21
Speaker 2: will continue with another update in just about twenty minutes
28:24
Speaker 2: time two pm Eastern, as we kick off Bloomberg Business
28:27
Speaker 2: Week Daily. It's an opportunity, though, to not only check
28:30
Speaker 2: the headlines, but look under the hood a bit in
28:33
Speaker 2: this market and get a sense of what is driving
28:35
Speaker 2: decisions right now. And happy to say Christina Quino is
28:38
Speaker 2: with me. At World Headquarters in New York. Will note
28:40
Speaker 2: that Kaylee Lines is in Washington, d C. Holding forth.
28:44
Speaker 2: As always, Christine are managing editor for the Market's live blog.
28:48
Speaker 2: Is wonderful to see you. As always, We're at another
28:51
Speaker 2: record high. We could be at eight thousand, depending on
28:53
Speaker 2: how the next couple of days ago imminently here despite
28:57
Speaker 2: the incredible uncertainty geopolitically and what was a baffo earnings
29:03
Speaker 2: reporting season, we're being pulled in multiple directions here, Christine,
29:08
Speaker 2: how does it shake out for the next couple weeks?
29:10
Speaker 12: I mean, honestly, Joe, at the moment, it's making for
29:12
Speaker 12: an everything rally. Everything's rallying, I mean primarily stocks and
29:16
Speaker 12: months as you mentioned, you know, s and P five
29:18
Speaker 12: hundred and another intra day record high set for another
29:21
Speaker 12: record close. But at the same time we're seeing the
29:23
Speaker 12: bob market rally as well, even though you know, we
29:26
Speaker 12: did just get that auction result in the thirty year
29:28
Speaker 12: yields highest yield since two thousand and one. But investors
29:31
Speaker 12: tend to like that when a borrower is paying up
29:35
Speaker 12: for the debt, and that includes the US government. So
29:38
Speaker 12: you know, seems like everything's fine if you're just looking
29:42
Speaker 12: at the markets.
29:42
Speaker 2: Okay, we'll take it into vacuum.
29:44
Speaker 4: Kayley, Well, is everything fine because we also had cooler
29:48
Speaker 4: inflation data and the market is thinking that maybe borrowing
29:52
Speaker 4: cars costs aren't going to be moving higher this year.
29:55
Speaker 12: Christine, Yeah, that's definitely part of the story, Kayley. I
29:58
Speaker 12: mean the pair of Cpippi report that we got over
30:01
Speaker 12: the last couple of days really goes a long way
30:03
Speaker 12: in easing some of those inflation concerns that have been
30:06
Speaker 12: plaguing the markets for some time now, and especially since
30:09
Speaker 12: the Federal Reserve itself called attention to the pressure from inflation,
30:14
Speaker 12: since Chairman Kevin Walsh took the helm at the FED.
30:17
Speaker 12: But you know, these pairs of reports that we've seen
30:20
Speaker 12: alleviate some of those concerns. We have definitely seen some
30:23
Speaker 12: of those expectations for rad has, particularly in September, fade away,
30:27
Speaker 12: and now looks like traders aren't looking at a possibility
30:31
Speaker 12: of rate hike up until December, when you know, just
30:34
Speaker 12: last week they were saying that, hey, the September FED
30:36
Speaker 12: meeting could be live, but that doesn't seem to be
30:38
Speaker 12: the case.
30:39
Speaker 2: Now, are we in a world then we could throw
30:41
Speaker 2: any number of headlines at you, Christine, where the stock
30:44
Speaker 2: market is essentially dependent upon the bond market for day
30:48
Speaker 2: to day direction.
30:49
Speaker 12: I mean it's interesting, though, Joe, because in some ways
30:52
Speaker 12: yes and in some ways no. You know, the stock market,
30:55
Speaker 12: of course, has its own very compelling catalyst, which is
30:58
Speaker 12: the AI trade that it seems to keep on going.
31:01
Speaker 12: I mean, we heard from companies at the most recent
31:03
Speaker 12: earning season. Everyone's upgrading their forecast, everyone is upgrading their guidance.
31:08
Speaker 12: Seems like that trade is still roaring on, and so
31:11
Speaker 12: that's an independent catalyst for equities. And then of course
31:14
Speaker 12: you add in the fact that inflation pressures are easing,
31:18
Speaker 12: you know, the job market is holding on. I mean,
31:20
Speaker 12: that's basically a goldilocked environment that stocks it's another reason
31:24
Speaker 12: for stock's rally on top of what we're seeing on
31:27
Speaker 12: the AI side of things.
31:30
Speaker 4: Well, inflation is easing because energy prices fell in the
31:33
Speaker 4: month of July for the most part, and then they
31:36
Speaker 4: rose again as we saw on escalation and conflict in
31:39
Speaker 4: the Middle East. Christine, When we consider how the Middle
31:44
Speaker 4: East and how the trajectory of oil prices is factoring
31:47
Speaker 4: into this market as a whole, what's the correlation.
31:50
Speaker 2: I mean, very good question, Kaylee.
31:52
Speaker 12: The correlation has actually been fading a little bit over
31:55
Speaker 12: the last few months. I mean, we saw that kind
31:57
Speaker 12: of peeking around May of this year. That was when
32:00
Speaker 12: oil prices was the main catalyst that's driving socks, driving bonds,
32:04
Speaker 12: driving to dollar. And since then we've really seen that
32:06
Speaker 12: correlation weekend. And you know, that speaks to a lot
32:09
Speaker 12: of things, primarily, I think the sense of fatigue that
32:11
Speaker 12: traders feel when they're grappling day in day out with
32:14
Speaker 12: so many headlines, a lot of them very confusing, very
32:17
Speaker 12: contradictory and not necessarily giving a clear longer term picture,
32:21
Speaker 12: or what's going on in the strait of horror moves,
32:23
Speaker 12: what's going on in US Iran tensions, or their relations
32:27
Speaker 12: actually easing a little bit. I mean, it seems like
32:30
Speaker 12: the story is changing day to day, and so if
32:32
Speaker 12: you're any a trader worth your salt, you're probably not
32:35
Speaker 12: necessarily going to be changing your positions just because we
32:38
Speaker 12: got one headline saying because it could be saying another
32:41
Speaker 12: just hours later.
32:44
Speaker 3: All right.
32:44
Speaker 4: Christina Kino, managing editor for the Market's Life blog here
32:48
Speaker 4: at Bloomberg, thank you so much, as always for joining us,
32:51
Speaker 4: and as we consider the trajectory of oil prices. Specifically,
32:54
Speaker 4: we want to bring in now Rebecca bab and CIBC
32:57
Speaker 4: Private Wealth senior energy trader, who's back with the US
33:00
Speaker 4: on balance of power. Rebecca. Always good to have you
33:03
Speaker 4: on the program. It's interesting to look at a churn
33:05
Speaker 4: of oil right now because with the exception of that
33:07
Speaker 4: spike we saw once again in mid late July, with
33:10
Speaker 4: the escalation of attacks, the US resuming strikes against Iran,
33:14
Speaker 4: we've been pretty range bound in this eighty to ninety
33:17
Speaker 4: dollars range. Is there anything that materially can break us
33:22
Speaker 4: out of that? Or is this the new status quo
33:24
Speaker 4: for the foreseeable future.
33:27
Speaker 3: So I think there's a couple of things that break
33:29
Speaker 3: us out of that. I think the first is if
33:31
Speaker 3: we see the flows that have been transitting poor mus
33:34
Speaker 3: and that number is widely debated, but significantly higher than
33:38
Speaker 3: what analysts originally penciled in. So if we're looking at
33:42
Speaker 3: seven million barrels flowing through the strait, which is kind
33:45
Speaker 3: of between the low and the high end of five
33:48
Speaker 3: million barrels on the low end, and Chris writes nine
33:50
Speaker 3: million barrels, if we start to see that number materially
33:54
Speaker 3: decline below five million barrels a day due to increased
33:58
Speaker 3: kinetic military action, that will break us out of the range.
34:02
Speaker 3: The second thing that will break us out of the
34:04
Speaker 3: range is if the Red Sea becomes more of a
34:07
Speaker 3: target by the Hoho thies.
34:09
Speaker 7: Right now, Saudi Arabia is.
34:11
Speaker 3: Avoiding the Babel Mendeb transitting north through the Suez. If
34:15
Speaker 3: we start to see the work around to the workaround
34:19
Speaker 3: be impacted, that will break us out of the range.
34:21
Speaker 3: And the last thing is if we see China materially
34:25
Speaker 3: increase their imports from around seven million barrels a day
34:29
Speaker 3: back up to eleven million barrels a day in coming months,
34:33
Speaker 3: that will break us out of the range, assuming that
34:36
Speaker 3: flows have not fully resumed.
34:37
Speaker 7: So I think those are the keys that break us
34:39
Speaker 7: out to the upside.
34:40
Speaker 3: To the downside, what breaks us out of the range
34:43
Speaker 3: is clearly normalization of flows through horror moves at the
34:47
Speaker 3: same time that we have non OPEC supplies increasing.
34:51
Speaker 2: Okay, Rebecca, So that's what we should be looking out for.
34:55
Speaker 2: But what's driving decisions today? You've got do WDTI and
34:59
Speaker 2: Brent both down a about one and a half percent.
35:01
Speaker 2: Who's selling oil today and why so I.
35:05
Speaker 3: See this as maybe a little bit of profit taking.
35:07
Speaker 3: If you look on a week on the week, we're
35:09
Speaker 3: up four percent. And what I see more than the
35:12
Speaker 3: selling is just a lack of conviction of buying. It's
35:15
Speaker 3: a buyer strike. There is just no threshold for pain
35:20
Speaker 3: to own crude into a weekend where you could get
35:23
Speaker 3: rhetoric around a piece deal or that more flows that
35:27
Speaker 3: we thought we're going through the strait are moving through.
35:30
Speaker 3: So I actually think the threshold for where buyers step
35:34
Speaker 3: in is just so much lower than where we're at
35:37
Speaker 3: right now. It's kind of in that low seventies range
35:40
Speaker 3: where there's some conviction and for now we're the traders
35:43
Speaker 3: are really letting, you know, the profit taking and in
35:46
Speaker 3: the downside expressions through puts kind of drive the trade action.
35:51
Speaker 3: So I don't see this as panic selling or aggressively
35:56
Speaker 3: putting on short positions. I see this as more I'm
35:59
Speaker 3: not willing to step in at this point. I want
36:02
Speaker 3: to see more concrete information. I want to see the
36:04
Speaker 3: China data. Really, if I'm looking at fundamentals improve before
36:09
Speaker 3: I start getting really comfortable buying crude at these prices.
36:14
Speaker 4: Well, so you're looking at China data. I'm assuming in
36:18
Speaker 4: terms of demand rebacker, you also raise China in terms
36:20
Speaker 4: of one of those potential breakout scenarios if you start
36:22
Speaker 4: to see them coming back as a material buyer in
36:25
Speaker 4: a limited supply scenario. Is the entire trajectory of the
36:28
Speaker 4: oil market buy and large now dependent on China.
36:33
Speaker 3: It's not entirely dependent on China, but they are the
36:37
Speaker 3: largest importer of crude and they have been one of
36:40
Speaker 3: the most significant buffers to this event over the past months.
36:45
Speaker 7: So are they the key to this puzzle?
36:48
Speaker 3: They kind of are in the short term. Now, over
36:50
Speaker 3: the long term, there's so many more factors that we
36:52
Speaker 3: need to look at. But over the very near term,
36:55
Speaker 3: what China does really does tip this supply and demand
37:00
Speaker 3: kind of scarcity surplus story on its face. So that
37:05
Speaker 3: for me, that really is the key over the coming months,
37:09
Speaker 3: in addition to obviously flows moving through the street. But
37:12
Speaker 3: they have really China has really been incremental in keeping
37:18
Speaker 3: prices from moving above this one hundred dollars a barrel range.
37:22
Speaker 3: They've drawn stock piles, they've shifted away from crude, gone
37:25
Speaker 3: to coal, They've reduced their exports of products. They did
37:29
Speaker 3: reverse that and we are starting to see China export
37:32
Speaker 3: some products now, which when we look at how tight
37:35
Speaker 3: the product market is, is really critical. So yes, to
37:39
Speaker 3: put to give you a short answer, I think in
37:42
Speaker 3: the short term, China is the most important factor.
37:44
Speaker 2: Interesting when we consider the refining bottleneck, we add another
37:49
Speaker 2: layer here, Rebecca. We're at four dollars seven cents nationally
37:53
Speaker 2: for gasoline today, it's five point forty for diesel. And
37:56
Speaker 2: you have pointed out that refiners have been pushing back
37:59
Speaker 2: maintain for some time now, and at a certain point
38:03
Speaker 2: they won't be able to do that anymore. When you
38:06
Speaker 2: consider crack spreads and where gas and other distillates are going.
38:10
Speaker 2: How worried are you about refinery outages.
38:14
Speaker 7: I'm pretty worried.
38:15
Speaker 3: I mean, we're running at ninety six percent refinery utilization
38:19
Speaker 3: at this point. Almost every refiner has pushedback maintenance to
38:24
Speaker 3: capture the crack spreads that are extremely elevated.
38:26
Speaker 7: You can't do that continually.
38:28
Speaker 3: There will be something that breaks and that will cause
38:32
Speaker 3: an outage that lasts longer than potentially maintenance would, So that.
38:37
Speaker 7: To me is a huge risk.
38:38
Speaker 3: We've already lost twenty percent plus of refining capacity through
38:43
Speaker 3: the Middle East and Russia and China reducing their runs. Right,
38:47
Speaker 3: we don't have anything less left in the system if
38:50
Speaker 3: something surprise happens. We saw Libya lose a little refining
38:54
Speaker 3: capacity earlier this week. There's no buffer here. So I
38:58
Speaker 3: do worry about this maintenance season. If refiners do go
39:02
Speaker 3: and maintenance, keep in mind, that keeps the product market tight. Right,
39:05
Speaker 3: We're losing that ability to bring product to market and
39:09
Speaker 3: actually weighs on crude. But that's a better solution than
39:13
Speaker 3: creating a system law or or a fire that keeps
39:17
Speaker 3: things offline for longer than the maintenance period.
39:22
Speaker 7: We have a hurricane maintenance, now.
39:30
Speaker 2: God forbid we have a hurricane. I mean that would
39:32
Speaker 2: be a game changer.
39:33
Speaker 3: Now that that would be a game changer. I mean
39:38
Speaker 3: it is an El Nino year, and it's predicted to
39:40
Speaker 3: be less and less of a factor this year. But listen,
39:43
Speaker 3: you just never know. So, yes, another huge risk on
39:46
Speaker 3: the horizon.
39:49
Speaker 4: Okay, so can we look out eighty two days on
39:51
Speaker 4: the horizons, specifically as we approach election day? Do you
39:55
Speaker 4: have a best guess of where retail gasoline and diesel
39:58
Speaker 4: prices will be early November?
40:02
Speaker 3: I don't have a best guess, but I don't think
40:04
Speaker 3: it's going to be as low as the administration would
40:06
Speaker 3: want it to be, So I guess I would say
40:09
Speaker 3: it's going to be higher than the pain threshold for
40:12
Speaker 3: many in the administration, and probably not as high as
40:15
Speaker 3: the extreme scenarios that people are talking about. So if
40:18
Speaker 3: I had to put a range on it, I would
40:20
Speaker 3: kind of put it in the Ford to four to
40:22
Speaker 3: twenty five, four to thirty range of where we see
40:26
Speaker 3: gasoline prices, and I think diesel a little bit more
40:29
Speaker 3: of a wildcard, remains above five. Maybe we see five
40:32
Speaker 3: point fifty six in a bad scenario. So I think
40:37
Speaker 3: that's what the range is. It's not significantly lower than
40:40
Speaker 3: where we are today.
40:42
Speaker 2: Interesting. Just lastly, Rebecca, we're back to this reluctance to
40:45
Speaker 2: go long into the weekend that continues until there's a breakthrough.
40:48
Speaker 2: We've got about thirty seconds, so I.
40:51
Speaker 7: Think it does continue.
40:53
Speaker 3: I mean, if you just look at how traders have
40:55
Speaker 3: been nicked up this year with headline risk, and it's
40:57
Speaker 3: the middle of August, the threshold for pain is low,
41:02
Speaker 3: and I think that buyers are going to say, you
41:04
Speaker 3: know what, I'm willing to miss this five percent move
41:07
Speaker 3: higher because I do not want to lose ten percent
41:09
Speaker 3: of the downside.
41:10
Speaker 2: Yeah, it's great to have you back with us. Rebecca
41:12
Speaker 2: bab and CIBC Private Wealth senior energy trader taking us
41:17
Speaker 2: right into the pits for a trader's view, Kayley, this
41:21
Speaker 2: is something that's not likely to change anytime soon. We've
41:23
Speaker 2: got a report today that another aircraft carrier is still
41:26
Speaker 2: on the way to the region to relieve the Lincoln,
41:28
Speaker 2: and we're girding for the long term. Thanks for listening
41:32
Speaker 2: to the Balance of Power podcast. Make sure to subscribe
41:35
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41:41
Speaker 2: weekday from Washington, DC at New Time Eastern at Bloomberg
41:44
Speaker 2: dot com.