Outlook for Inflation, Oil, and Tech

Bloomberg Audio Studios. Podcasts.

Radio.

News.

This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

We have our advantage with Daryl Crock with us as we pick up the pieces of a swath of economic data as well. So, Daryl, I got real GDP first look, 3.4 percent, a little above where we were, guesstimate. I got the price index. It's nicely lower, almost by a stick, 2.3%. So my Darrell Crock math is 3.4 plus 2.3. I got nominal GDP popping sort of high fives or six.

Is that still a boom economy? It absolutely is.

I mean, people don't talk enough about nominal GDP at 6%, 7%.

They just don't.

We live in a nominal economy. We don't live in a real economy. Companies spend money on a nominal basis. Consumers consume on.

A nominal basis.

So it is real. But I think what the interesting juxtaposition there is you say, okay, 3.6% PCE deflator, Fed's preferred measure, 3.4% GDP growth, right? Unemployment at 4.2 with no claims, that's not a recipe for easy policy, right? And what we heard yesterday in the press conference, right? I mean, so I think the Fed needs to get on with it. He keeps saying we're going to deliver 2%, right?

This committee will deliver price stability, and he defines that as 2% very clearly. And that's not what we're getting today. So it's time to move on.

And that where we see is Thomas is saying close to right around 6%.

Nominal GDP, what do we do in the credit markets here? What do we do in the bond markets? Because, I mean, Microsoft says, we're coming. Yeah.

Well, it'll be interesting.

Microsoft, because the issuance is two to 40 years, you know, they're going to compete with the U.S. Treasury auction in the seven-year today that is going to probably have to be a few basis points higher just because, you know, the market will look at, do I want Microsoft or do I want a U.S. Treasury in seven years, right?

You know, I still think on credit.

You've got to be up in quality.

And we have now been for 16 straight months, short duration. We think the long side of the curve, notwithstanding the move of the last week and a half where you had a bunch of short covering and pushed the 10-year down to 5%, we think next year, the 10-year is north of 550, probably more like 575.

So six is possible. Six is possible, yes. Okay, the reality here, folks, and I got to do this nicety before we drag ourselves over to Ira Jersey. Commercial free folks at this moment for Bloomberg Surveillance after Key at Economic Data. Thank you so much to IBKR for this moment for you across America. Darrell Crock with us out of the huge Ames. Did you wrestle in Iowa State?

I did not.

Were you a wrestler?

I'm not gifted enough to do anything like that, Tom.

I got out of a hockey bus in Ames, Iowa. Yeah. And as a joke, they took us because we thought we were hockey studs. We were a big deal. And I walk in. Who's the Olympian, Dan, at Iowa State? I walk in, and it's 18,000 people watching wrestling.

I know.

They take it seriously.

They take it seriously. But then you go to BU to party and with Zvi Bodi and all that. Do you have a clue what the chairman was talking about yesterday about protocol forward? He talked about a new monetary medicine. Zvi Bodi would have thrown him out of class. Help me with what protocol is.

Well, I think he's referring to protocol there as being changing the narrative of how we define forward-looking monetary policy, which is all the fade the dots, shorter press conferences. Each reporter gets one question and one question only, not two questions, right?

It's childish. It's kid stuff. What about rules versus discretion? New Zealand has rules. John Taylor has a rule out at Stanford. Okay. He wants rules that he's in charge of. Is that an interpretation?

Possibly.

I don't think he would agree with that if he were sitting here in the chair, but I don't think that's doable. I mean, I don't see how you can be so rules-based that it defines the action, whether it's Taylor.

Rule or anything else. A rigidity we can't do. That's right. But does he want a pseudo rigidity? I can't tell.

I think his definition of that is he wants more structure and more data dependent. And the data to him is not a single data point that was last month's data point. It's a trend line data, which is why you're seeing the market price out September, December, and March, which are quarterly hikes, not monthly hikes.

Can you say the show right now, please? Sure. I just had a beverage of my choice in my hands.

I know.

On the living room couch. I'm talking to the dog about this last night.

So bottom line, Darrell, is I guess we're now, you know, given what you just commented on about the Fed, higher rates for longer, maybe a more normalized rate environment relative to where we were the last 15 years. What's that mean for stocks? What are you telling your clients these days?

We still think stocks can do well. Even if you got to a 555, 75, 10 year on the long side, we still think stocks can do well because the earnings are so strong. You guys know this well. This is the third quarter in a row we'll have 25% earnings growth. And the eighth quarter in a row we'll have double digit earnings growth. Like it's unchartered, right? So as long as that stays consistent and on trend, then stocks can do fine.

In fact, multiples have contracted. So hugely valuable. Darrell Cronk, thank you so much. Really appreciate it this morning. Of course, all of his work at Wells Fargo. And thank you. Shout out as well to Tom Purcelli, who joined us recently as well from Wells Fargo. here on this interesting economy. Futures negative 35 off the economic data. Bonds don't do much.

I mean, it was, as Alexis brilliantly said, pretty much on plan. We go full faith and credit now. Ira Jersey joins us from Bloomberg Intelligence. Ira, your interpretation of the combination of the inflation data and the GDP data. Yeah, so I agree with you.

You know, Krishnamamani, when I worked for him 20-odd years ago, used to say that the world's not real, it's nominal. And, you know, you guys just had that great discussion about it. And that's very true. And when we think about 10-year bond yields, you know, we start all of our analysis with what do we think nominal GDP is going to be for the next two or three years? Because that kind of sets the baseline for where long-term interest rates are going to be. and we're right there, right? So for something like treasuries, because they do have a lot of liquidity, there's going to be a liquidity premium. If you have 6% nominal GDP, you expect 5-ish percent treasury yields, and then you expect corporate bond yields to be right

at six, maybe a little bit north of six in aggregate for the non-AAA portion of the curve. So that's why this data that we received this morning is so important, right? Just going through a We want to see, is this sustainable? Is this repeatable quarter after quarter? And will we continue to have this 6% GDP environment?

So with a core PCE price index at 3.1% year over year, how concerning is that to this Fed here?

Well, obviously, we've heard him say since his very first press conference and certainly at the Humphrey Hawkins testimony and Jackson Hall testimony Kevin Morse keeps saying, look, we're going to get back to 2%. So that means that they're going to continue to hike. And even yesterday, his prepared remarks.

And look, obviously the Q & A is interesting and there's a lot of volatility around that. But we focus in on the prepared remarks because that is the committee's view, like in general, for what happened at that meeting. And it did give us some forward guidance, which is we're going to remain hawkish. We're going to continue to increase interest rates at this– you know, slowish pace, but they're going to keep going until they see inflation trends lower.

You know, in fact, and, you know, we have to key in on this, you know, come 2028, we're only going to have six policy meetings a year instead of eight like we have now. So ultimately, like these hikes, this is the pace of hikes that we're probably going to get or pace of moves, I should say, in general, that we're going to get going forward from a worse Fed.

So, I mean, if you look out there in the economy, What can the Fed do? I mean, we've got, you know, energy prices still elevated, maybe even more so. We've got AI spending all over the place. Who knows how that's impacting inflation? I mean, one could argue there's not much they can do here.

Well, there is.

Right.

So so, you know, the Federal Reserve can crimp demand very significantly from both the business sector and the and the household sector. But they would have to be but they would have to be doing it hiking at a much more aggressive pace.

Right.

And I think that that's a lot what a lot of people are wondering, like. hey, if you really want to get inflation down and down quickly, why don't you hike interest rates much more quickly? I think the risk is for them is that they do have the other side of their mandate. They do have to worry about the jobs market. And when you have this low hire, low fire environment, it doesn't take much to start to have negative payroll prints. So they don't want to be the cause of the next recession without there needing to be some type of more major policy adjustment.

Now, will that work?

I don't know.

I think they're trying to bide a little bit of time here too, Paul, because one of the things is, is that just on base effects, we're going to be at 2% headline CPI at this time next year and actually even next summer. So I think in a way they're saying, okay, we're going to hike a little bit now because we know that come May, June, we're going to be pretty close to our time.

Okay, so I don't want to turn this into a history lesson, Ira, because I know you're in the real world of getting things done. But the bottom line is you've got regret where they're scared stiff of making a mistake. So explain this. They can't raise rates and say it's one and done or we're really going to turn around on a dime if we have to. That's not part of the game, is it?

Well, I think at this point, Tom, to your point, like once they hike, they're going to need to stay at that, whatever that elevated level ends up being. for a decent period of time. You could argue, and we've been arguing that, and we did think that they would take back the cuts that they made last year and do that a little bit more quickly than they have done so far. But we adjusted that when we heard Kevin Morse basically saying, look, we want to do this at a deliberate pace, which doesn't mean every single meeting, right?

You remember, you know, Alan Greenspan's measured pace where they increase interest rates 25 basis points every single meeting for, you know, going on like two and a half years. You know, this is similar to that. It's just that the cadence is a little bit slower than you might want. And, you know, interestingly, you definitely have members that want to hike interest rates a little bit more because they continue to be worried about those underlying inflation trends.

I got to get this in, Eric. We got a technology block coming up, and you know how they are. I mean, Gil Lurie and Robert Schiffman, they're so impatient. You just, you know, Ira, they're not like you. Okay, Tottenham finally won a game. Are they back?

Well, I hope not because I'm a Villa supporter. It's very early in the season. Tottenham needs to do something. Tottenham was one of the potential Super League clubs back a few years ago when they were talking about breaking away from the domestic leagues over in Europe. So having one of the big six English clubs actually get relegated would be pretty astounding. I know what that feels like because Aston Villa got relegated a few years ago and they were a Premier League original. But at the same time, that would be pretty astounding.

I remember you aged. I remember this very, very clearly here. Ira Juzzi, thank you so much. And I should point out, folks, his huge commitment to youth soccer across America and in New Jersey. Stay with us. More from Bloomberg Surveillance coming up after this.

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

We are honored and I have a question. I'm embarrassed for this question, but I got to ask it. Edward Morris, Special Advisor at Heart Tree Partners is definitive on hydrocarbons and our international relations and joins us this morning, I've got to ask the question, they're telling me oil's flowing through the Persian Gulf, but they got $ 114 a barrel on the screen. Why hasn't oil come down if we're solving Hormuz?

Well, we don't know whether we're solving Hormuz. We don't know whether the U.S. is going to war the hour after the midterm elections. And, um, We don't know how much oil is really getting out of the market into where it has to go. And the refining system isn't getting enough to make enough diesel. And diesel prices keep going up.

Have we lost control of our sanctions and hydrocarbons with these agreements with Mr. Putin?

Well, I think we have to take a look back and think about where things have been in the past. So the closest we can come to the last couple of years... is 1978-9 to 1981-2. And then we had not a closure of the Strait of Hormuz, but an Iranian revolution. And we had a little war between Iraq and Iran. And we had a little war between Russia and Afghanistan. And the price of oil went from $ 14 a barrel in 19... set in 20, whatever that year was.

Yeah, nailed it. That's a Milton Berle answer, whatever that year was. Four years later.

And it went, in the meantime, you know, it more than doubled. It went from 14 to 40. And then, by the way, shortly thereafter, when people thought it was going up a lot more, it went down another 10 bucks. So that was another crazy time. But the market value of oil went up a lot more then. than it has now with the total closure of the Strait of Hormuz. Why, one might ask. And the closest I can come to an answer is that a very simple factor. The oil intensity of GDP has fallen dramatically. Go back to the quadrupling of oil prices with the Arab oil embargo in 73, 74, prices went up 400%. But then, for every 1% of growth of global GDP, there was 1.2%. 4% growth in oil demand. Today, for every 1% growth in GDP, well,

last year we had negative growth in oil demand.

So, Ed, talk to us about once the oil somehow gets out, and talk to us about the refining situation in the global energy markets today, because we've.

Heard obviously some capacity issues.

You know, in Ukraine, in Russia.

Talk to us about what's happening.

And don't forget the Middle East. Because while crude oil is flowing, products are not flowing. And there are multiple reasons for that, including the better ability to get it through the Strait of Hormuz and the Bab el-Mandeb. So we have a market in which inventories are strikingly low. In terms of days of forward demand cover, they're lower in almost all cases, whether it's crude or petroleum product of one sort or another. It's about as low as it's been in the last decade, days of forward demand cover.

And it's harsher on the product side because of the refineries that are not delivering out of the Middle East, out of Russia, and the closures of refineries in California and in Europe.

It doesn't sound like there's a quick fix there anywhere. So how do we deal with that?

There's no quick fix, and you can't bring refining back because people don't want to do it, and it's a dicey investment to make. So I think it'll be a period of time in which we'll have to wait and see what actually happens. Is there going to be a diplomatic solution between Washington and Tehran?

Well, that's right where I wanted to go. Edward Morse with us with Hartree Partners, definitive at the Council on Foreign Relations and Citigroup for decades here on this moment at hand. Look out past the midterms, I guess a lame duck president in some form. Look out post-Trump. And if we get back to some kind of diplomatic normality, Republican or Democrat, whatever the flavor is, How do we reaffirm our relationships with the Persian Gulf states and with the family of Saudi Arabia? Where do you see us after the Trump era?

Yeah, I'll go to Ian Bramworth to start with and say, as he has said, that we're in a G-Zero world.

We don't get that.

That's globalization leadership or global leadership, and we have none in the world.

The U.S.

Has abandoned leadership has irritated foe and friend and neighbor and far distant country. And I don't know how we do that. It's going to take more than a little bit of begging on the knees. It's a return to soft power. We have a president who simply doesn't believe in soft power. Soft power worked dramatically for the U.S.

You sound like Michael O'Hanlon at Brookings, who owns his phrase, On hard power, if we're going to prosecute soft power, I'm only doing this because Tyler Kendall just walked in the studio. Tyler Kendall with his folks, with Edward Morris, of course, she's looking at the elections. We'll get to that in a moment. If we have to shift back to soft power, is there an American analog where we've had to do this before? I mean, we're in original territory here, aren't we, Tucker?

We're in original territory. It's not just the loss of willingness to exercise soft power by far the strongest economy, the strongest country in the world. But we're in a new situation where the Strait of Hormuz has actually been closed by a country in the region. And that's a precedent that will never be wiped out.

I'm going to correct you. The Strait of Hormuz was closed by a country in the region that was attacked by the United States of America. Did we close the Strait of Hormuz or did Iran?

Iran took the opportunity to what it had always wanted.

To do.

We closed the Strait of Hormuz.

Are you optimistic we can open it again?

I'm optimistic we could open it again. Part of that optimism at the extreme is to remember that Iran is in a very difficult situation. And if you go back historically, uh, the original Supreme Leader almost called it quits. We don't have anybody calling it quits today. The country has a split leadership. The elected officials are in a different position.

We have a secretary of the Supreme National Security Council in Iran who's from the very first generation. He's from the generation of IRGC people who were selected by the Supreme Leader, got rich, got to control the Supreme Leader. And they're in a dicier position now than they've been before.

Paul, get one more question in here with Dr. Morris.

If the Strait of Hormuz is never fully reopened, maybe like the way it was before January, does that suggest there's going to be a premium associated with global crude for the foreseeable future?

Yes and no. So you have to remember that, as I said earlier, we're seeing a lower global oil intensity of GDP. And we may have seen... an acceleration of that decline of oil intensity of GDP in the last few years, led by China, which has found, and the world as a whole has found, substitutes for oil as a transport fuel. Very important to remember. So we could be in a position, we know that OPEC is dead.

It's very hard to put OPEC together again. But we now have the largest members of OPEC that want to all produce more oil. And that can balance out the risk that you just talked about.

Tyler Kendall's people are in my ears saying, let's go with the old guy. Dr. Morris, as simple as I can, don't you agree with me that Tyler Kendall needs to recover to cover the 912 pages of Daniel Yerkin's surprise?

I won't comment on that.

Okay. I think she has to read all 900 pages.

Well, I read, you know, the 3,000 pages of the original manuscript.

Of the original manuscript. We just cut that. Edward Morse, thank you. Thank you so much to Hartree Partners. Stay with us. More from Bloomberg Surveillance coming up after this.

So this is the basic idea. Switches, routers, wireless networks, data center. AI fabric. How about that? It must be Cisco Systems. Good morning, Mr. Chambers, if you're listening. Jita Patel is Chief Product Officer at Cisco. The Royal Bank of Canada says we don't trust our walls. Is the next step in AI this massive security risk that Paul Sweeney's checking account is on clawed?

It is, Tom, the central issue of our time at this point, because these agents that we're moving into, so we're in the second phase of AI where you've got this moment, just like chat GPT that's happening with personal agents. The difference between a chatbot and an agent is a chatbot, you just ask it a question and get an answer with an agent, you actually can give it tasks and jobs it can conduct on your behalf fully autonomously.

And one of the biggest.

Challenges you have with agents right now are people are concerned about how much you can trust these agents because there's a paradox of a sort because with agents, they're not that useful if you don't give it access to your tools, your email, your calendar, your credit card. But the moment you give that access, your risk goes up quite dramatically. And so we have to make sure that we address Okay.

How do we do that? And who does that?

Well, we are spending billions at Cisco.

Cisco is one of the largest security and safety companies in the world, and we're doing that. But the way you should think about how we do it is pretty important. The difference is that these agents are like teenagers. They're supremely intelligent. They have no fear of consequence, and they exercise poor judgment far more frequently, Paul, than you and I would like.

That's great to know.

Now, the way that you have to think about this is it's going to get harder and harder to distinguish when there's a malicious attack that's altering the behavior of an agent versus an agent just exercising poor judgment because it's very fastidiously just following a goal that you gave it to do, right? And so the way that you have to do it is you have to monitor an agent's behavior continuously and And when you start seeing drift and misalignment between human expectations and the agent's behavior, You have to be able to intercept right away. And so there's a whole set of technologies around that. And then the other area that people don't talk about as much is this notion of your ability as an organization to

efficiently manage and use tokens is directly proportionate to your security posture, which means the lower and the more efficient you are with using tokens, the better your security posture.

Where is.

the average corporate American enterprise with AI just in general, including using it wisely, protecting its safeguards, all that.

Where are we today?

It feels like we're super, super early.

We're very early.

I think what has started getting diffused is a lot of people within the enterprise now use chatbots just like they use.

The search engine.

So that's happening at scale. But when you start thinking about agents, we're still in the very, very early days. And I think part of the reason for that is just people being fearful of trust.

G.D. Patel, have you put your checking account on Muse?

I have not put my checking account on Muse, but I use Muse regularly. The reason I haven't put my checking account on Muse is that's the area that I feel like we need to make sure that we're actually being careful before we go out and.

Give too much access.

Fancy Cisco phrases. John Chambers would have never used this language. Ancient hallucinations. Alert fatigue. Translated, we don't trust the computer. That's all there is to it. How does your industry, with great respect to Mr. Chambers and all that he invented and sustained, I should say, across some tough years, how do we get the trust so we do transact given hallucinations and fatigue?

I think.

What ends up happening in this market is you have to make sure that the safety and security technology is moving and innovating as fast as the innovation in AI. And once that starts to happen, what you start to see is the comfort level goes up with people.

And that's just, it's a matter of time.

And, you know, I was just with some of the other folks on a TV show over here with Bloomberg.

And they were asking me, like, who's going to pay for this? Well, I think... The revenue is there.

If you look at just what Anthropix revenues are, that's the end user revenue that's being paid for.

And then if you look at what.

Both Azure and Google Reporter has revenue on the cloud, that shows you that the infrastructure is also getting paid for. What you need to have is the trust and safety and security being, once that goes up a notch or two, you'll start to see a massive kind of upsurge that happens within usage.

I'm going to say maybe two years ago, I was speaking with a management consultant and he was saying, His clients every day are calling and saying, this is two years ago, how do I implement AI into my business?

Is it a friend? Is it an enemy?

And he says, before we engage anybody, we have them sign a document that says their C-suite, their board, commits to implementing AI on a morally just basis and with all the guardrails and things like that. That kind of blew me away, but now it seems like that's kind of what you have to do. Are you seeing corporate America think about it that way?

You have to make sure that the way that the guardrails and the value system that your organization has gets implemented. And that is a prerequisite for success for enterprises, especially the regulated ones. And so that's not really that controversial or debatable anymore.

That's what everyone does.

The question is how and how do you implement them? Because these agents and these models tend to be unpredictable where you don't really know how they're going to behave. And so you have to make sure that there's a constant monitoring. And the moment you start seeing drift and misbehavior in some ways, it's you have to make sure that there's implemented guardrails that actually stop it from doing something you don't want it to do.

So when you see a company like Anthropic file an S1 and then the risk section is the risk is the world's going to come to an end, AI is going to destroy everything. I can't even imagine being the lawyer or the banker who was tasked with writing up that silly risk factor.

But it's not silly, is it?

Well, I think there is a considerable risk of things going wrong I think we have to make sure that we're careful on not being hyperbolic about it either. So while there might, two conditions can hold true. You can have risk and humanity does not need to come to an end.

Do you see a roll up here? I mean, if there's going to be transactions and combinations down the line, success, failure, how do you see that unfolding into anything but monopoly or even monopsony characteristics?

I think the number of players that are participating in this market today is not one or two. There's a fair number of players. Now, as agents come about, will the business model shifts occur?

Absolutely.

Think about a retailer. In the past, a retailer would typically go direct to a consumer, influence the consumer through some advertising, and make sure that they can actually upsell or cross-sell. Now you might have an agent that you have to talk to. That agent aggregates the information across a multitude of retailers and then provides an algorithm to give it back to the consumer. That changes the business model, and we have to make sure that we all think through that.

Thank you so much. Greatly, greatly appreciate it. With Cisco this morning, Jita Patel. Stay with us. More from Bloomberg Surveillance coming up after this.

Brian Smith and company publishing out the Microsoft paper now for Global Wall Street. We got to do this. Libby Cantrell take notes on this. First of all, Paul, they're a AAA company. We forget that. Please. They're like AAA boilerplate.

Anything you want.

JP Morgan, UBS, Wells Fargo are the chosen few. And, Paul, I'm looking at the 40-year piece. I mean, it's just too long for us. But for Libby Cantrell and Alexis Christophers, it fits in nice.

Yeah, absolutely.

So, I mean, this is just a phenomenal issuer.

Not a lot of paper in the market, but you're going to see, I guess, when you listen to Rob Schiffman at Bloomberg Intelligence, We're going to see a lot more of this stuff.

We go to surveillance dog and pony correspondent Paul Sweeney on this. Seven or eight phone calls. Oh, yeah. It's 15 minutes.

What I noticed about this is you get UBS and Wells Fargo as a joint book running managers. What happens on investment grade deals and bond deals in general, you try to repay the folks that provide you with a lot of.

Your corporate banking stuff.

Libby Cantrell's nodding.

When I was at Citi, I would say, yeah, O is here, dude.

You got to put us in.

Joining us now before the election, Libby Cantrell of PIMCO with all of her work on the linkage of policy. So much of this Microsoft deal, Libby, is within the uproar. And of course, in your world, there's massive uproar right now. Life just goes on. What's the inertial force right now in Washington, away from the zoo, the cacophony? What's the inertial force where life is just going on?

Well, I mean, well, the midterm elections obviously are happening next week. And I think that life will just go on for lots of folks who are probably going to be displaced. I mean, one interesting element is that you're having people who are probably going to get kicked out of office and they have to come back for the lame duck session of Congress. That's supposed to be a very productive session of Congress. It probably won't be because a lot of if a lot of folks lose their job.

But it's obviously, you know, I was on the Hill two weeks ago and just talking to folks on that. There's a real capitulation among Republicans about the House. I mean, no one really is talking about about keeping the House that, you know, the Senate. I do think there's there is some hope that they can keep the Senate. If you look at the national environment, though, the national environment is just.

so bad right now for Republicans. So maybe they can pull it out, but it would be, they would have to, you know, do quite well. They would have to get quite a good turnout in places like Iowa, in Alaska, which is obviously in the news this morning, and then also in Texas. You know, I think though, Tom, just to relate it to your other story about Microsoft. I mean, this is something I do think that is underappreciated by our client base is just how bad the politics are on AI and how oftentimes politics, you know, leads policy.

And I think people are underestimating how much friction there could be in this AI infrastructure build out come 2027. Because remember, not only are both chambers up for election, it's also 36 governors. And a lot of these governors are actually running on an anti-AI, anti-data center platform. The easiest thing for them to do when they come into office to sort of show that it's not just rhetoric is just to put a moratorium on like they have done in in New York. And even if they don't put a moratorium on, it just means that the cost of doing business for these hyperscalers, for these data center developers, are just going up because they're going to have to put a lot more money in these communities. in order

to convince them to build there. So again, I think life will go on. The change of power is something that folks are sort of used to in Washington. But I do think, again, the market might be underestimating the risk at the state level around the AI infrastructure buildup.

All right, so let's say that the Democrats do take control of the House, maybe the Senate. So you've kind of got a split Washington, D.C., with Republicans still.

In the administration, the Trump administration. What are you telling clients will happen in the next two years?

So there's going to be a ton more oversight, right? I mean, this is going to be, everything will be investigated from the war on Iran to the Epstein files to the family, you know, alleged family conflicts and what have you to big tech. I think big tech is going to have a huge focus in both chambers if both chambers- Flip, there'll be a lot of obstruction, right?

Things won't get passed. The $ 5, 000 checks won't get passed. And then I think, interestingly, there'll be more spending. And this is something that we think there'll be more spending regardless of who wins Congress. The composition will just be different, more defense if it's more Republican-leaning, more health care and defense.

If it's more split.

But bottom line is a deficit.

I got eight ways to go here. I'm going to do this. Folks, I am such a fossil that I look at Arizona as having two congressional districts. Good morning, Barry Goldwater. And as Libby Cantrell has tattooed on her left arm, right below the Van Cleef bracelet, she knows there's 11 congressional districts and growing in Arizona. New York State used to have 45 districts. districts. Do you know one district now, Paul, is all of the Adirondacks? I mean, do we understand the demographic shifts here from now in this election into 2018? into the census of 30? Do we have any clue what's going on?

Well, no, I mean, it's an excellent point. I'm actually from Colorado. And when I was growing up, there were two or three congressional districts.

And now there's seven or eight.

So it is, yeah, I mean, the West has really exploded. And as a result, the politics of the West have exploded. I mean, or have changed quite significantly. I mean- As you know, Arizona was a reliably Republican state and now it's represented by two Democratic senators. So, you know, the demographics are certainly changing. And I think you're going to see that a little bit in this election. I think what we're advising clients is not to do too much of a read through in terms of the 2026 results to the 2028 election. This will be much more of a protest vote should Democrats win than an endorsement of their ideology. But there might be some sort of previews for 2028. And one is around the Hispanic vote. And

that's sort of to your point, Tom, about just the changes in the West particularly. You know, obviously we saw a lot of Hispanic men in particular sort of switch to Trump in 2024. Do those folks that were reliably a Democratic cohort switch back? And I do think that will be important. And that will in some ways inform maybe who the Democrats are to pick for the nomination in 2028.

Is AI really a story for the average consumer out there from a political perspective?

So AI, I mean, you ask 10 voters what they mean by AI, and they'll give you 10 different answers. But I do think that data centers are sort of manifesting not just the existential concerns about AI, but also about affordability and big tech. I mean, I think this is something I think people are sort of lost. People do not trust big tech. And I don't mean to be hyperbolic, but... In some ways, big tech is becoming big tobacco, like in people's minds.

Oh, well said. I steal that.

Please steal that.

You have a copyright on that?

I'm not sure if our media people will love that. But I do think in some people's minds, it's the boogeyman, right? And so this is like, it's a David and Goliath story. And so they're like, I'm not going to, even if these data centers are promising me the world, no, we're going to like, you know, we'll sort of use the power of the votes.

I don't care. You're not here for this. You're from Colorado. Are you kidding me? Chiefs 5-1, Broncos 5-2?

I know.

Are you flying out for the game?

It has not been pretty, I will say. This has been sort of a difficult season, although they looked a little bit better than the last game. But, you know, we're keeping the faith alive. And we do rally at the second part of the season. I feel like, I mean, I'm not, I'm not unfortunately going to.

Be flying out.

You're not going to get the PIMCO golf stream.

Or the PIMCO coach in the middle seat. Tom, we're a fiduciary, right? We're not going to get to blow our clients money on flying private.

That's part of America right there. Kansas City Chiefs Broncos. Libby Cantrell, always orange. Thank you so much for being with us today.

This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.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.

Outlook for Inflation, Oil, and Tech

Kapitelklicken springt direkt hin

Shownotes

Transkriptvom Podcast bereitgestellt · Zeitmarken springen hin