Trump-Putin Diesel Deal Draws Backlash

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This is Bloomberg Businessweek Daily. Reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast. With Carol Masser and Tim Stenebeck.

Let's get to our Washington Roundup. Jeff Mason is once again back with us. Jeff, of course, is Bloomberg News White House and Washington correspondent. He joins us from the White House. Jeff, very good to have you here with Tim and myself. We are talking war a lot, it feels like. I do wonder if we're getting almost a preview, not to jump ahead, but let's go there, a preview of what life might be like after the midterm should there be a blue wave and we just see President Trump increasingly focusing on on affairs outside the United States because he can more easily do that?

It's a fair question, Carol.

Certainly, if you look into history, presidents in their lame duck period of their second terms often do turn their focus abroad and do more travel abroad and focus their policies abroad. But I think it's worth reminding that President Trump is not a traditional president. So I don't think necessarily that his governing strategy is going to change entirely.

But certainly he will have an enormous number of curbs that he does not face right now if the Democrats are successful in taking over control of the House and perhaps the Senate, too.

What about curbs? That's one thing. What about something even more extreme, which we saw in the first administration, Jeff, and that's impeachment? Would we see that?

Well, good question. I think that's a question that Democrats are asking themselves as well. Certainly there will be a push from some, perhaps some more left-leaning new lawmakers to come in who feel like they need to follow up on their promises to constituents. with regard to standing up to President Trump. But I know, because I've talked to some of them, that there are also lawmakers, maybe on the more moderate side, who think that that would probably backfire, because it sort of did politically. Both times that President Trump was impeached during his first term, it ended up in many ways just strengthening him politically with his base.

Democrats also have a political goal that they need to achieve over the next two years, especially if they have power in Washington of showing that they can govern and therefore giving a little bit of a platform or a runway to the number of Democratic presidential candidates who will be fighting for the Democratic nomination to try and win the presidency in 2028.

What is it that you feel like is dominating what the White House wants to prioritize? Has it really shifted towards the midterms at this point? No, a lot of talked this morning about the Times article and Elon Musk and committing a lot of money once again to the GOP ahead of the midterms. But I'm just curious, Jeff, as you talk to sources, talk to folks at the White House, what is it that is kind of their priorities at this moment in time?

I think the midterms are definitely the priority now. It's only roughly three weeks away. Amazingly, here we are in early October. And priorities are also manifested in travel schedules, and the president is traveling a lot and doing almost all of it to try to help his party get over the finish line and help candidates in some of these really tight races, ironically, in some very deeply red Republican-leaning states. He's going to Ohio again tonight. Tomorrow, he's going to Alaska. The next day, he's going to be in Montana. and also Las Vegas, Nevada. So he's doing a lot of travel, and I would say that is definitely at the top of their to-do list. And you also see that reflected not just in the rallies and

the trips on the plane, but also in policy. And you referenced one of them at the very beginning of our chat with regard to diesel and Russia.

So, Jeff, we'll get to that at the end, but you struck me with this idea of the president traveling so much this close to the election. Do you Do Republican strategists think this is a good idea, given the association that the president has right now with the cost of living and how unpopular he is when it comes to some of these polls?

I think there's some mixed emotions about that. And you saw that even with Ken Paxton, who is struggling to prevail. It doesn't mean he won't, but he's struggling, certainly in the money game, to prevail for the U.S. Senate seat in Texas against a Democrat who James Tallarico, who has been polling a little bit better than he has in a state where it's very unusual to see a Democrat even really in contention for a statewide seat like the Senate.

So there was some leaked recording of Paxton a week or two ago saying that the Dallas convention ended up not really helping and even dragging. And that is That is showing also in the polls and the fact that the president's popularity keeps going down. Those polls translate into momentum or a lack of momentum for midterm elections as well as presidential elections. All of that said, particularly now that we're this close to election day, it comes down to a turnout game. And the president going out and rallying up some of those supporters that he knows voted for him two years ago to go to the polls this year. That's no doubt the strategy behind that travel schedule.

Speaking of strategy, and President Trump and this deal, or supposed deal with Russia to release some diesel stocks, I mean, already you've got Europe pushing back, others pushing back, members of Congress pushing back.

You know, is this happening?

What do we know in terms of specifics around this?

Yeah, not a ton of specifics. I mean, the president has said it's happening recently. But you're right to highlight the reaction, and the reaction has not been positive, even among some in his party. One of the notable reactions that was negative was his former vice president, Mike Pence, who called it a betrayal of Lindsey Graham's memory with regard to standing up to Russia. And you've seen further comments from the president. denigrating Zelensky, President Zelensky of Ukraine, because he clearly feels that Zelensky's actions are hurting him.

He's not saying that specifically, but that's what he feels in terms of saying he's hurting the United States and he's hurting world fuel markets because the president has his eye on diesel and has his eye on fuel markets going into these midterm elections.

Stay with us. More from Bloomberg Businessweek Daily coming up after this. I want to bring in Margie Patel, Senior Portfolio Manager at All Spring Global Investments. The firm has about $ 642 billion in assets under management. Margie joins us from Milwaukee. Hey, Margie, how are you?

Good, thanks.

Good, good. I just want to start with some context here about where we are in this cycle and the concentration that we're seeing in the market right now and how you're viewing that.

Well, I think instead of looking at it as a cyclical, the kind of economic cycles we've had before, I look at this more as a long-term secular growth path. I think it's really attributable to the change in the Fed and the way they're acting less activist. So I think we should just expect earnings to keep on growing. And I see no reason why we should suddenly see a topping out and then a decline. So I'm looking for the third quarter, which we should start to see very soon, should be another quarter surprising on the upside.

One of the things, though, we keep kicking around here, Margie, and I'm sure you've heard it too, is that NVIDIA and Micron are going to be responsible for, I think, something like a third or more than one third of earnings per share growth for the S & P 500 for the third quarter. Very dominant, dominant, excuse me. And so when you put that into it, I mean, how is the rest of the pack doing when it comes to earnings growth?

Well, it's true those two companies have an outside proportion of earnings. However, when you look at the rest of the market, what we're seeing is even average, average growth of corporate earnings has been very strong. We're seeing earnings growth broadening out. We're seeing profit margins, which I think are the most important thing to look at, are maintaining at their peaks. And so I think that we've seen in the case of NVIDIA, in case of Micron, what we've actually seen is is actually an erosion in their price-earnings ratio, which is kind of absorbing the worries about if and when these sectors in the tech markets slow down.

So that says to me the market is pretty good, and I think poised to once again surprise on the upside with these quarterly earnings, because the.

Economy is strong. at least moderate growth.

And some analysts actually think we may see an acceleration as we go report third quarter and look into the fourth quarter. So I don't think it's really a cause for concern about a, and I certainly don't think we'll see a dramatic slowdown in those tech leaders.

One of the things I wonder too, and we've talked about this too a lot here, is, you know, On earnings call, you want companies to have pricing power. You want to see margin growth, right? This is a sign of success. But if that margin growth is happening because prices are rising, which means it's higher and ultimately trickles down to an inflationary economy and it impacts consumers and others alike, if you're keeping wage growth, in check, how good is that really for society and the economy at large longer term?

Well, I think it's really quite good for equity investors.

And we have seen growth in average wages, so consumers haven't been left completely behind. And the fact that companies have such strong pricing power, that was one of the things people worried about, say, a year ago, saying, well, if we have inflation, companies won't be able to push through price increases.

Their margins will erode. That has not happened.

Companies have either maintained or actually improved their margins. And it's a reflection, you might say, the good side of inflation that companies are able to pass on price increases because of demand.

So it says.

That if they can push on their price increases, they aren't being squeezed themselves with higher interest costs. Companies actually, on average, have lower leverage than they've had in.

Previous points in the markets.

So all that says to me that the market is probably going to continue to surprise better results than we expected. Higher interest rates are too marginal, I think, to affect corporate profits. And I hate to be so positive, but it's really hard to find lots of things to worry about in the future.

But when you look at the here and now, things look very, very strong.

I'd say some of the strongest economic growth and corporate profits we've seen probably in our careers, actually.

So what derails that view? What could happen in the next three to six months that you'd come back and say, actually, you know what? Things aren't as strong as we were talking about earlier.

Well, I really don't see anything that is likely to derail the market over the short term, three, six months. You have a Fed that I think has fundamentally changed how it's operating, so they're not going to surprise us with aggressive increases. The economy is strong. And you could say, well, where are the weak parts? Where are the leveraged.

Parts that will be hurt with rates going up?

And you could say private credit is a sector that's been eroding and probably will continue.

But when you look at the whole economy, even that.

Is not as big a part of the economy to derail the whole economic growth factor.

But you know, so in other words, I don't see much to worry about.

But that's, doesn't that in itself and the complacency we see in an indicator, whether you like it or not, the VIX in terms of being low, like that complacency always makes me, puts me a little bit on edge. It doesn't at all for you when everyone seems to be so in on this.

Go ahead.

And just got about 30 seconds.

Not complacency is what I see is, um, Too many people worried about what might happen, you know, data center demand might collapse, the borrowing that the hyperscalers have been doing. And none of that looks like it's likely to happen, and I don't see any spark that is likely to.

Make that happen. Even with the big increase in energy prices, the U.S.

Has fared very well because we have gone from being an importer many years ago to being an exporter. So actually on the margin, higher energy prices looking at the whole economy, particularly the energy sector, it's been very, very positive.

So no sector looks really over-levered.

We have the Fed being in the background, being a force for neutrality. And there's always something, but I think basically we will have a continuation.

Stay with us.

More from Bloomberg Businessweek Daily coming up after this.

A lot happened over the weekend, especially with regard to the Middle East. And after four years of relative calm, the war that pits Yemen's Houthi militia against the country's internationally recognized government and its backer, Saudi Arabia, is back on.

Yeah.

It just feels like this is kind of heating up, if anything. And we're talking a lot about Saudi Arabia and the Houthis. Announcing the start of a full-scale military campaign against the Houthis, the Saudi-led force set on social media... on October 4th, that the goal is to, quote unquote, eliminate the group. We hear so often with the current round of wars about existentialism and the fight to the bitter end, because it is about a certain population's existence.

For more on why the Houthis are so hard to defeat, we're joined by Veena Ali Khan. She's a reporter for Bloomberg News, previously a Middle East analyst at the International Crisis Group, and we really lean on her. So help us understand why the Houthis are so hard to defeat. What do we need to understand here?

The best way to understand current events is to go backwards, right? So the Houthis have spent more than the majority of their life fighting an opponent. They managed to survive quite a heavy bombardment from Saudi Arabia for almost a decade. And afterwards they experienced US strikes, Israeli strikes last year.

So this is all to say that in their eyes, they're more superior than any opponent that has tried to fight them. And with that confidence and military expertise that they've developed also comes the Iranian angle in this all. Iran became much more of a noticeable character in Yemen after the Saudis interviewed in 2015. And over time, the Iranians saw it was beneficial for their end to carry on supporting the group and started, you know, sending quite sophisticated cruise missiles, ballistic missiles. And slowly the Houthis were able to not only make these weapons themselves, but also use commercial supply chains from places like China and India to make these weapons.

How did they do that?

I mean, it's not that hard, right?

Like, In order to get anything to the Houthis, they have to stop by a port in Djibouti for this kind of UN verification mechanism to ensure that no full weapons are going to the Houthis. But after years of partnership and close ties with Iran and other actors within the Axis of Resistance, the Houthis have managed to learn how to use these different components to manufacture weapons themselves.

And this didn't come overnight. This is really an example of Hezbollah operatives being in Sana'a, also Iranian operatives. And it was a long time in the making, but also it shows the Iranian perspective of investing so much in a partner for them to be able to do that in the future and rely less on them on Iran too.

I guess what I kind of keep thinking about too, Veena, is just, you know, you've got the Houthis, Um, or I'm thinking, you know, just the connections and the relationships, whether it's Iran, Russia, China, then you've got Saudi Arabia, the U.S. It's just like so complicated. I mean, why is it right now so much Saudi versus also the Houthis?

Why is it down to that?

Yeah.

Yeah, so the province where the Houthis are originally from is actually the bordering region from Saudi Arabia. So the Saudis have been a big part of their lives since they were even created. And they've fought many wars with Saudi, including in 2004. After the Yemeni war, which was at the height in like 2015, 2017, at.

2022, the Saudis and the Houthis too.

Thought it was a best time to put down their weapons and start negotiating for peace settlement. The Houthis had huge economic demands from the Saudis and they weren't delivered. So the Houthis have started threatening within their media and still their demands were not met. And now they're really trying to cause as much attention as possible to grab Saudi attention in order for them to meet their economic demands.

But also, we can't separate this from the wider.

Iran war, right?

So this also seems like a great time to escalate against Saudi Arabia. Now we're coming up to the midterms. Now the Iranians want to increase any kind of concessions they might be able to get in negotiations with the US after the midterms. But there's something in me at the same time that really questions the role Iran plays in these specific high-profile attacks. You know, Iran and Saudi have worked hard in order to have some kind of understanding in which both sides are separated from the wider US-Iran war. And the Iranians, in terms of their strategy, which we've seen in the US-Iran war, they like to act in a calibrated way. And there has been instances where the Houthis have reacted and have launch strikes and

Iran hasn't necessarily agreed. And this is the whole problem with having the Houthis as an ally. You know, you can tell them to escalate, but you can't really tell them to de-escalate.

You know, Veena, are the Houthis more powerful than Iran? I mean, they closely coordinate, but they don't necessarily, they also kind of do things on their own too.

Yeah, for sure.

I think The best way to understand the relationship is one of mutual benefits, right? So the Houthis would say, you know, they don't really answer to Iran's demands, but they listen to Iranian advice. Because why wouldn't they? They see Iran as the master of the region, have been able to take... on Israel and the US and come out, in their eyes, fairly unscathed in terms of their regional power.

And the Houthis look up to.

That, right?

And so the Iranians, for their part, they're very... They know how to act with their allies in a way that they're not just demanding the Houthis to do things, but they're presenting options so that the Houthis would see which actions are also beneficial for themselves as well. Abdulmalik al-Houthi, which is the Houthi leader, has been quite transparent in his speeches. He thinks he's now the leader of the whole axis of resistance, which is all the groups that make up Iran's allies. And I think with that confidence comes boundaries that we thought the Houthis would never cross, and they are today. So it's not that the Houthis think they're better than Iran. I think now within the Axis resistance, they see themselves as equals.

Veena, before we let you go, just in the last 40 seconds that we have, how would you characterize pockets of support in the region for the Houthis?

I mean, I think when it comes to serious support for the Houthis, it mainly comes from the axis of resistance. So these are the groups that are largely anti-US, anti-Israeli. We have the Hezbollah group in Lebanon. We have Iraqi militias in the Iranian-backed Iraqi militias. And that also, you know, people say some of these attacks on Saudi, some of them might have come from Iraq too. That still needs to be validated.

But also a growing.

Fear is the Houthi growing relationships in the Horn of Africa. So these are Al-Shabaab and also groups in Sudan. If these relationships grow stronger, as they already are, we would have a situation where both sides of the Bab al-Mandab is kind of dominated by the Houthis, which gives a really dangerous precedence of the future of maritime shipping.

Stay with us. More from Bloomberg Businessweek Daily coming up after this. One thing I don't think about much is where to park my private jet.

That's because you don't got one.

That's true. It turns out, though, if I did have an $ 80 million Bombardier Global 8000, parking it wouldn't be so easy. It's got a length of more than 111 feet, a wingspan of 104 feet, and a height with the tail... This is important for 27 feet. It's always about the height.

Yeah.

It is.

That's what they say when you're finding that hanger for your private jet, right?

That is where Sky Harbor comes in. The company is all about the infrastructure needed to park the growing number of private jets. And as we fly around on commercial, we see it all the time. With us is Tal Kanin. He is the CEO of Sky Harbor. They've got a market cap of about $ 780 million. He also knows a bit about flying, considering he is a former F-16 pilot.

And so we could just spend an hour talking about that, but we're going to talk about it a lot. Good to have you here. Welcome, welcome.

Thank you for having me.

Let's go big and broad. The environment right now. Tell us about what you're seeing and what you're up to.

So, yep, the wealthy are getting wealthier. And I don't think there have ever been backlogs this long at the aircraft manufacturers. So our fleet is growing, but the hangar capacity is not. And that's really what the infrastructure need is here.

So you guys are different than FBOs like Signature Aviation or Atlantic Aviation. We've written a lot. Yes, we've done a lot. Our Bloomberg News team has written a lot about the FBOs recently. Explain where you fit into the infrastructure piece.

Yeah, so think of the FBOs conceptually as hotels for business jets. Think of us as a home for business jets. So if you're on the road, you need fuel, you need terminal services. That's an FBO.

What's interesting, I talk to folks who work for companies that fly privately. A lot of them use net jets and stuff, so they don't necessarily have their own planes. Increasingly, are you seeing companies buy their own planes, individuals buy their own planes, or are they still doing the fractionals like a flex jet or jet cards?

It's a great question. The traditional migration from commercial travel to private travel is first to charter or jet card membership. Most people don't buy an aircraft outright as their first move. Some subset of that community then ends up buying aircraft. That's our clientele.

You've got to fly a lot to make that work, numbers-wise.

Yeah, although I've got to say, increasingly, that threshold is actually getting lower.

Why?

Because the... Jinx. Yeah, there's been such a massive move, inspired largely by COVID-19, into private aviation. And once you move in, very few people actually move out. That first move in, that bulge right now is contained in the charter and jet card.

But if you have a private jet, you don't really want that thing to be parked very frequently. Because the more it's parked, the more it's costing you. The less it's being used, so you're not amortizing that cost over a number of hours.

Yeah, so that's true for an aircraft that is geared for charter or for jet card membership, or the fractionals are also used that way. More like airliners. If you own a jet outright, it actually sits on the ground 95% of the time. You're only using it when you need to fly. It's not a moneymaker. It's a time saver.

Are a lot of people who own jets outright not using them for charter?

Correct.

Would you want to? I would want to. Yeah, I would. I'd be fine with it. I'm not going to rent my home out on Airbnb, but I'd be fine with a jet being used. You just get somebody to come in and clean it.

But there's a cost to the usage also, right? So you've got to do the math in terms of maintenance and so on, right?

Of course, yeah. Yeah, for sure.

So it's not just like, oh, wow, we did a bunch more trips and then kind of do general math.

I mean, there's a lot more involved. That's right. But think of a corporate fleet that's flying three, four times a week for the sea suite of that company. They don't really have the time to actually have that airplane be gone, in other hands.

So let's talk about your business because you're building the infrastructure and you've got some built already across the country. There's a bunch out west, some here on the East Coast And you've got some in the works. Give us an idea of your expansion plans and what is determining. Is it just being able to access land where you want it or what is it?

So bingo. That is the binary entry ticket to this business is getting land. And if there is one kind of core competency of the company, it's securing land at airports, which is a pretty complex endeavor.

How do you do it then?

So first of all, they're all ground leases. All of our airports are federally funded airports. They're 50-year ground leases at these airports. You've got to navigate a kind of Byzantine architecture where you've got federal regulation on the one hand, usually state and local, and then the airport administration on the other. And it's kind of a puzzle that needs to come together. And we just want a new airport that we've been working on for six years. And that's That's kind of the life cycle of that endeavor.

If you win an airport, does it mean somebody else loses that airport? Does it mean if you get that ground lease, your competitor can't get it?

Yeah, so the land is very, very limited. I think one of the kind of coins that haven't dropped for the industry so far is that we've added, think about this, we've added 47 million square feet of airplane to the U.S. fleet net. That's new entrance minus retirements in the last 15 years. We've added exactly zero airports.

Right.

So you've got tremendous inflation right now in prices. That's kind of the crux of our opportunity. But we will run out. We will run out of land. We have typically taken the last readily developable land on an airport.

In terms of the build itself, like we talk a lot about AI data center build and the cost of making things. How much have your costs gone up and how difficult is it to get everything that you need in terms of those supply chains?

Yes, so that's, Carol, that has been a real challenge. We made, I think, a very fortuitous decision a couple years ago to vertically integrate. So we manufacture our own steel today, our own hangers. We now also general contract. We build our own campuses. That's been a big deal for us. No supply chain interruptions. We've managed to keep pace with our business plan on construction. Our quality, I think we put out the best product in business aviation infrastructure, you know, we think, and I think the industry sees it the same way.

So cheaper to have your own team doing all of this, keeping the Amman staff or whatever, right?

Yeah. And then doing your own build.

Wow.

At a certain scale.

Yeah, yeah, yeah, yeah.

Wow, okay.

So you have campuses that are operational in Dallas, Denver, Houston, Nashville, Phoenix, among other cities. Where are you working on right now acquiring that land?

So we're building now in 14 locations around the country, including several around New York, Northern California.

Southern California.

Something like 22 or something in total? 24.

24, excuse me. So go ahead.

Yeah.

Yep.

So what's next? We kind of keep that close to the chest.

Well, what are the areas of the country that are desirable for you?

So like I said, New York is the best market in the country.

But you have some- Teterboro is a very crowded airport.

Yeah, that's right. And we're not at Teterboro.

Is anyone at Teterboro?

No.

The FBOs are in Teterboro.

There is no home base. But an FBO is not really relevant here because an FBO, just like you said, it's the hotel. It's not the home.

By the way, if you ask me, Teterboro should be used as a hotel primarily. It really shouldn't base aircraft. Because it's so small or rather so crowded. There's so much traffic.

Yeah, exactly.

There's so much traffic visiting New York City that it kind of makes sense. But that's... That's beyond our purview. But you've got those established markets, and then you've got markets that are just rising really fast. So South Florida is one of those, Nashville, Dallas area.

Really quickly, can you go global or no?

Or you can? We certainly can. We're trying to stay focused for the time being because I think about 65% of our market is right here in the United States. One regulator who knows us, we know them. For the time being, I think we stay here.

This is the Bloomberg Businessweek Daily Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekly. afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal. © transcript Emily Beynon

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