Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. So here's the late
Speaker 2: sis this morning. The Middle East conflict entering at sixth
Speaker 2: day with no signs of eas inc Iran allowing to
Speaker 2: intensify tax in the coming days. Brian Garner a stefail,
Speaker 2: writing prices, inflation, and jobs continue to be the most
Speaker 2: important issues to voter. US national security and foreign policy
Speaker 2: trail far behind. Brian joined us now for more Bran.
Speaker 2: That begs the question how much risk is the president
Speaker 2: willing to take care?
Speaker 3: I think he's all in at this point.
Speaker 4: You know, maybe if the markets start to back up again,
Speaker 4: then he reconsiders, because he you know, as we've known
Speaker 4: throughout the Trump presidency.
Speaker 3: He does point to the markets as a.
Speaker 4: Barometer for his political success, but for now, I think
Speaker 4: he's all in.
Speaker 2: So Brian, when you say the markets, which market are
Speaker 2: we tilkn abativity to the now? Or is a gas
Speaker 2: prices does the energy move actually matts out?
Speaker 4: Right? We're actually in the fog of war, right, John Jonathan.
Speaker 4: It's tough to figure out which markets we are talking about.
Speaker 4: You know, I was listening to you guys earlier, and
Speaker 4: you're talking about the kind of the very modest responses
Speaker 4: that we've had, and that you know, a lot, especially
Speaker 4: on the equity side, that people think that this is
Speaker 4: going to be very short and that there is a
Speaker 4: buying opportunity here and that it's all going to be
Speaker 4: fine at the end of the day. And that may
Speaker 4: be correct. I'm not here to say, you know, that's
Speaker 4: not the correct view. But there is a risk that
Speaker 4: this goes on for longer than what people are pricing
Speaker 4: in today.
Speaker 3: I mean, it's the old line.
Speaker 4: Wars are really easy to start, their much harder to stop,
Speaker 4: and so nobody, but nobody knows for how long this
Speaker 4: is going to go on and what the ramifications are
Speaker 4: for the economy.
Speaker 5: Yeah, markets though stock markets in particular, watch PCE CPI,
Speaker 5: all sorts of alphabet soup of different indicators, a lot
Speaker 5: of individual consumers. Just look at the price of gas
Speaker 5: that's put on a billboard and that has been going
Speaker 5: up sharply over the past couple of days. I just
Speaker 5: wonder how far that can go before that gets the
Speaker 5: White House's attention more than anything that's happening in stocks.
Speaker 4: I think when we get into the summer season, let's
Speaker 4: see what it's like when we get closer to the
Speaker 4: driving season of post Memorial Day, when Americans hit the
Speaker 4: road and when they head to the airports, our airline
Speaker 4: tickets price is going to start to go up as
Speaker 4: fuel prices potentially rise. So again, this is a potential
Speaker 4: political risk for the administration. Let's go back a little
Speaker 4: bit to October when he was meeting in Asia right
Speaker 4: ahead of the November elections, which were state and local
Speaker 4: but a referendum on the Trump administration. And what we
Speaker 4: saw was, I think was a reaction to a perception
Speaker 4: that the president was too interested internationally not enough on
Speaker 4: domestic affordability issues, and there was a pushback from voters.
Speaker 4: You know, we've got the midterm elections in November, and
Speaker 4: this is a significant political risk for the administration and
Speaker 4: Republicans generally.
Speaker 5: Talking about the midterm elections, President Trump hasn't weighed in
Speaker 5: on a really contentious race in Texas for.
Speaker 3: Quite a while.
Speaker 5: Now it's headed to run off for between two Republican candidates,
Speaker 5: John Corner and the senator who has been a long
Speaker 5: standing Republican in the Congress, and Texas Attorney General Ken Paxton.
Speaker 5: Now President Trump is getting in there saying I'm going
Speaker 5: to endorse somebody and the other person's going to drop out.
Speaker 5: Does this indicate he's going to take a more significant
Speaker 5: role in some of these races.
Speaker 4: I think we've already had those those indications. Uh uh, Lisa,
Speaker 4: I mean going back for months. I mean it was
Speaker 4: it was the White House that was really behind a
Speaker 4: lot of the redistricting efforts in Texas and in other states.
Speaker 4: The President and the White House is throwing its full weight,
Speaker 4: has been throwing its full weight unsuccessfully so far to
Speaker 4: get Indiana to redistrict.
Speaker 3: The White Houses all in they they really want.
Speaker 4: To maintain a especially a House Republican majority so they
Speaker 4: can avoid investigations in a in a in the second
Speaker 4: half of the term and try and get some of
Speaker 4: the legislative agenda through which would be blocked if Democrats
Speaker 4: flipped the House, much less the Senate. But yeah, I
Speaker 4: think I think we have had all along lots of
Speaker 4: indications that this White House is all in on the
Speaker 4: on the midterm elections and maintaining a majority for Republicans.
Speaker 2: So, Brian, without of mind, as we started the air,
Speaker 2: we had a flurry of populist proposals one after another,
Speaker 2: day after day, and it's kind of gone quiet. We
Speaker 2: can need that efit sometimes say so, Jonathan.
Speaker 4: I think it's a little quiet because you know, obviously
Speaker 4: the big headlines of the day, the only headline of
Speaker 4: the day is Iran.
Speaker 3: But behind the scenes there are still things going on.
Speaker 4: Now you want, I think Republicans want those back in
Speaker 4: the headlines, and they want they want to be seen
Speaker 4: as as addressing affordability issues.
Speaker 3: So they are going to pivot at some point.
Speaker 4: And and you know the rest of the agenda, the
Speaker 4: deregulatory agenda that doesn't need Congressional support, that continues as
Speaker 4: as is. You know, there have been moves among the
Speaker 4: banking regulators. You know, I do a lot of work
Speaker 4: with my KBW colleagues on banking regulation.
Speaker 3: There's a lot of work going on there.
Speaker 4: So the the agenda is generally on track. The problem
Speaker 4: is that it's being drowned out by everything else, and
Speaker 4: they're going to try and pivot and you know, message
Speaker 4: that they're working on affordability issues, but the war complicates that.
Speaker 4: There's no easy way to shift a war off of
Speaker 4: the headlines and off the top story of the evening
Speaker 4: news and.
Speaker 3: Get back to those affordability issues.
Speaker 2: Ryan does want to infilm the other I think that's
Speaker 2: what we're really trying to get to.
Speaker 3: Here.
Speaker 2: Are we underestimating the president's willingness to pursue his goals
Speaker 2: in the Middle East despite the way you.
Speaker 4: Know, I think what we have seen throughout this year,
Speaker 4: the first year plus of the second term, is that
Speaker 4: he is looking legacy wise. He is looking more internationally
Speaker 4: than we would have maybe have expected him to do
Speaker 4: so going into the year Venezuela.
Speaker 3: Hear the engagement with the EU and NATO about future policy.
Speaker 4: So I think we have to try and figure out
Speaker 4: how he sees his legacy and what he wants to
Speaker 4: get within the concept two of maintaining a majority in
Speaker 4: the midterms. But what I think the signals have been
Speaker 4: all along that he is very interested in a foreign
Speaker 4: policy type legacy. He keeps pointing to it, He keeps
Speaker 4: pointing to the peace talks that he is engaged in,
Speaker 4: and I think he sees that in an historical context
Speaker 4: as potentially his biggest legacy.
Speaker 2: Stay with us. More Bloomberg surveillance coming up.
Speaker 3: After this.
Speaker 2: US and Israeli military strikes, creating the largest power of
Speaker 2: vacuum in Iran for decades, with a slim chance of
Speaker 2: a popular uprising, several candidates are reportedly angling to take control.
Speaker 2: The former Deputy National Security advice of Victoria codes right
Speaker 2: in the following. Indications are that another theocratic protegev company
Speaker 2: is said to take charge. This doesn't provide any opening
Speaker 2: to an end of hostilities. Victoria joins US now for more, Victoria,
Speaker 2: welcome to the program. The operation in Venezuela was surgical
Speaker 2: Caracas had Dousi Rodriguez. How different is the operation in
Speaker 2: Iran and what's available to transition to in Saehran?
Speaker 3: Well, it's radically different.
Speaker 1: I mean, this is obviously a very significant military campaign
Speaker 1: that the President has initiated. Against the Islamic Republic, which
Speaker 1: is going extremely well. By the way, we are seeing
Speaker 1: a dramatic reduction in the number of missiles around is
Speaker 1: able to fire off at their neighbors and at Israel,
Speaker 1: and that means that they're running out of missiles. That
Speaker 1: we've also degraded their missile defense systems and their launchers.
Speaker 1: So that is going according to plan, and I think
Speaker 1: we'll see that campaign continue. But yes, we do have
Speaker 1: this vacuum at the top of the Iranian government. There
Speaker 1: is a very hardline cleric, Alireza Arafi, who is considered
Speaker 1: for Supreme Leader. He's not very well known, he does
Speaker 1: have some support in the military. Another name that's been
Speaker 1: floated as Hassan Ruhani. Your audience may remember him. He
Speaker 1: was president from twenty thirteen to twenty twenty one and
Speaker 1: was the lead negotiator on the Obama era nucle deal
Speaker 1: that did bring a fairly significant economic relief to Iran,
Speaker 1: so that he might be fairly a fairly popular name.
Speaker 1: And then finally you have the son of the deceased
Speaker 1: Supreme Leader of Taiba Kamani. He is a much more
Speaker 1: I think polarizing figure. He's known for being extremely corrupt.
Speaker 1: He does not have a great deal of support in
Speaker 1: the army. So his name is obviously very well known.
Speaker 1: He has a lot of power, but it's not clear
Speaker 1: that that's going to be well received by the Iranian people.
Speaker 2: Well, given the objectives of the US government, how well
Speaker 2: received would it be by the American government? Victoria, what's
Speaker 2: your sense on what would be palatable to this White House.
Speaker 1: No, I don't think that would be that would be
Speaker 1: well received at all, And I wouldn't give him a
Speaker 1: particularly long life expectancy if that, if that were to happen,
Speaker 1: And so I do think you're going to have an
Speaker 1: ongoing sort of search for individuals that are more pro American,
Speaker 1: that are willing to sort of oversee more of a
Speaker 1: t transition period. And don't count the Iranian people out. Obviously,
Speaker 1: they've taken things into their own hands before in nineteen
Speaker 1: seventy nine, and the issues surrounding the protests that we
Speaker 1: saw in December and early January haven't gone away. As
Speaker 1: a matter of fact, they've been made worse by the
Speaker 1: military action of the United States. These are endemic economic problems.
Speaker 1: They have just run away inflation and their currency is cratering.
Speaker 1: And everyone is fleeing what's left of their stock market,
Speaker 1: So you have a really really horrible economic situation. Eventually
Speaker 1: that does drive people out onto the streets. So, especially
Speaker 1: with the regime being revealed to be so weak as
Speaker 1: the American intervention has revealed them to be, I do
Speaker 1: think we have more than more a greater chance perhaps
Speaker 1: of a popular uprising victoria.
Speaker 5: Everything that you're talking about to find a new leader
Speaker 5: or to coalesce around what that new leadership might look
Speaker 5: like takes time. Do you have a sense of how
Speaker 5: long that really implies that this conflict could go on?
Speaker 1: Well, what it means is that they can't really make
Speaker 1: decisions while they're in this kind of liminal state without
Speaker 1: major leadership. And when you're involved in, you know, a
Speaker 1: major military conflict, that kind of vacuum of leadership can
Speaker 1: be extremely deadly. So I think that is why you're
Speaker 1: seeing some rather bizarre decisions out of Tehran, like the
Speaker 1: intense attacks on countries that had been mediators for them,
Speaker 1: like Oman and Qatar. You know, the launching of a
Speaker 1: missile toward Turkey. All of these things suggests that nobody's
Speaker 1: really firmly in charge.
Speaker 3: So I don't think.
Speaker 1: Anybody knows how long this is going to go on,
Speaker 1: nor do they know how effective any new leadership would
Speaker 1: be once it's chosen.
Speaker 5: A number of analysts have raised the point that, yes,
Speaker 5: the US clearly has superior military power, as does Israel,
Speaker 5: and there's increasing pressure by other regional countries to stop ran.
Speaker 5: At the same time, there have been questions around ammunition
Speaker 5: ammunitions more broadly, and whether the United States is running
Speaker 5: to an uncomfortably low place.
Speaker 1: What do you make of that? Well, I agree with
Speaker 1: Secretary Haig Seth what he said yesterday that for this engagement,
Speaker 1: I think we're well supplied. I think we will be
Speaker 1: fine for the weeks, not months, that are likely to
Speaker 1: be the time period for this for this episode. What
Speaker 1: concerns me more is if we were in a longer
Speaker 1: term war with a more powerful adversary, namely China. And
Speaker 1: at the Heritage Foundation, we've recently done our first large
Speaker 1: scale AI based simulation of what that would look like
Speaker 1: over a year's period, and given the capabilities of AI,
Speaker 1: we've been able to run thousands of scenarios for both
Speaker 1: US and China, and the ammunition is the terrifying part.
Speaker 1: We really we run out pretty quickly in that kind
Speaker 1: of a conflict. So I think we're ok for a run.
Speaker 1: I'm very concerned though, going forward that our stockpiles will
Speaker 1: be way too low, and so we're very hopeful that
Speaker 1: Congress uses the one point five trillion dollar defense budget
Speaker 1: that President Trump has proposed to really remedy that deficit.
Speaker 2: Victoria, I think we're all in trade.
Speaker 3: Now.
Speaker 2: What else comes out when you perform that scenario analysis, Well, I.
Speaker 1: Mean, it really was fascinating to see. I mean, we
Speaker 1: call it Project Title Wave. It's on our website. Obviously,
Speaker 1: it's the first report we've ever done that. The US
Speaker 1: government asked us to redact parts of it. They didn't
Speaker 1: they didn't want our conclusions and recommendations to be publicly
Speaker 1: publicly available, and we did agree to do that on
Speaker 1: the basis that they would work with us on them.
Speaker 1: So we're working on that, and ammunition is one key
Speaker 1: piece of it. The other piece we looked at closely
Speaker 1: was energy, because if we're in a conflict with China,
Speaker 1: that's likely in the Pacific, closer to China itself, and
Speaker 1: we would have to project power across the Pacific, which
Speaker 1: means we would have to get all this ammunition and
Speaker 1: other material across the ocean, and that's also very concerning.
Speaker 1: We don't have the tankers that we would need to move.
Speaker 1: We have plentiful energy here at home, obviously, but we
Speaker 1: don't have the means to move it the way we
Speaker 1: would need to in that kind of a conflict. So
Speaker 1: we have, we've it was a fascinating project. We're considering
Speaker 1: doing another very similar related project on European conflict with Russia,
Speaker 1: and so I think it's a it's a really interesting
Speaker 1: example of how artificial intelligence is transforming policy analysis.
Speaker 2: Stay with US mult Bloomberg Surveillance coming up after this.
Speaker 2: Executives from hyposcapas and artificial intelligence firms signing a White
Speaker 2: House pledge to cover electricity bills for data sense of projects.
Speaker 2: Jettish of what you imply at rightsing the media has
Speaker 2: it backwards. Data centers won't push on pricing, they will
Speaker 2: actually push down pricinc Jet joins us now for more. Jeed, welcome.
Speaker 2: I've been looking forward to this conversation. I want to
Speaker 2: give you some time just to explain why you believe
Speaker 2: that's the case.
Speaker 3: Well, thanks for having me.
Speaker 6: We're actually out with our racks and stacks which is
Speaker 6: our monthly Data center empower index today. So a lot
Speaker 6: of data, a lot of things to talk about. And
Speaker 6: I think, you know, on the heels of the pledge
Speaker 6: from the White House, from the tech companies, if you
Speaker 6: just think about it, what the utilities are going to
Speaker 6: get is subsidized generation, and so is that going to
Speaker 6: drive up or downpricing? I think I would say it
Speaker 6: obviously would drive down. And so I think there's a
Speaker 6: fear narrative around data centers. You know, not in my
Speaker 6: backyard type of phenomenon, but that is is if we
Speaker 6: look at what is driving up prices and we've written
Speaker 6: about this in our report Pain at the Plug and
Speaker 6: if you look at PGM, which is the most notable
Speaker 6: rto experiencing that that's not a function of data centers
Speaker 6: that are driving that up.
Speaker 5: Jed how much is assuming a really rapid build out
Speaker 5: of some of the power centers that a lot of
Speaker 5: big techniques are looking to engage with. In other words,
Speaker 5: is there a time mismatch here Until they get those
Speaker 5: power plants up and running, they will be sucking demand
Speaker 5: away from utilities.
Speaker 6: I'm not so sure that that is true, actually, I
Speaker 6: mean when we in our you know, when I mean,
Speaker 6: the data shows that there is a rapid increase, a surge,
Speaker 6: if you will, of gas turbines to provide base load power,
Speaker 6: and so you know, I'm not sure that that is
Speaker 6: a true statement in terms of that they're going to
Speaker 6: be sucking the power from the the rate based or constituents.
Speaker 6: I think that is a fear narrative that's being driven,
Speaker 6: but I don't think that's supported by the data that
Speaker 6: that we are seeing.
Speaker 4: So how do you.
Speaker 5: Explain the fact that utility bills have been going up
Speaker 5: so significantly, in particular power bills in a lot of locations,
Speaker 5: particularly those closer to a lot of these AI.
Speaker 6: Centers, such as where in Texas for example, So in Texas,
Speaker 6: which does have you know, I don't think that you're
Speaker 6: seeing AI data centers that are directly driving up pricing
Speaker 6: in Texas specifically. So I think what you are seeing
Speaker 6: is is you're seeing certainly a migration shift to Texas
Speaker 6: in terms of population increase, and you're seeing you know,
Speaker 6: a very favorable industrial permitting and industry which is obviously
Speaker 6: increasing load of which you know, data centers are part
Speaker 6: of that where you're seeing the highest increase in electricity
Speaker 6: pricing in the US.
Speaker 3: I mean, I live in Massachusetts.
Speaker 6: My electricity prices are through the roof Connecticut, New York, California, Illinois.
Speaker 3: You know, you're you're seeing.
Speaker 6: Very high pricing there and you're not seeing data centers.
Speaker 5: So what do you think is driving it?
Speaker 4: Then?
Speaker 6: I think the so I think it's starts to get into.
Speaker 6: You know, when you start digging into it, what you'll
Speaker 6: see is transmission. Most of what we talk about is
Speaker 6: on the generation or the capacity side, and a lot
Speaker 6: of these markets have been deregulated for the capacity, but
Speaker 6: are not deregulated for transmission and distribution. And the more
Speaker 6: renewables that you're going to have, you're going to stress
Speaker 6: the system over a certain percentage, and is that variability
Speaker 6: ticks up. We found that most rtos have over ten
Speaker 6: percent of variable assets. That the generation will actually be
Speaker 6: usurped by the variability costs, and that's requiring more transmission.
Speaker 6: And so when you look at those states with very
Speaker 6: high RPS subsidies, you're actually seeing the highest power pricing.
Speaker 6: Now some will push back and say, hey, causation is
Speaker 6: not correlation, and that's fair. I think some of this
Speaker 6: is being figured out, and obviously there's going to be
Speaker 6: some impact in terms of adding data centers which do
Speaker 6: act like a semi fab or a steel mill, et cetera.
Speaker 3: But if you now have.
Speaker 6: Your tech firms that have all made a pledge that
Speaker 6: they're going to bring their own capacity and they're also
Speaker 6: going to be responsible for interconnects, that's a huge underwritten
Speaker 6: subsidy for that power, which should lead to lower prices,
Speaker 6: not higher prices.
Speaker 2: So genet you is explain this runs contrary to the
Speaker 2: popular narrative you hear so much of on programs like this.
Speaker 2: As you and the team identify these data points, what
Speaker 2: do you believe the investment opportunity is.
Speaker 6: Well, I think the obvious one is you need to
Speaker 6: have ge Vernovaz a core holding within your portfolio. And
Speaker 6: the most pushback that we get on that one is
Speaker 6: all the stocks run. You know, we picked it up
Speaker 6: it I think it was around two hundred dollars per
Speaker 6: share and it's now at eight hundred and thirty dollars
Speaker 6: per share. But you're continuing to see we haven't even
Speaker 6: seen all of the maintenance in the service side of
Speaker 6: the business that flows into the into the model.
Speaker 3: So we still continue to believe that.
Speaker 6: There's upside to that one on the nuclear side, BWX
Speaker 6: technology or centrist on sharing up the supply chain, so
Speaker 6: anything that's baslow. What we are seeing is the economy
Speaker 6: in the US is shifting from a largely service focused
Speaker 6: or highly optimate optimized energy efficient economy that if we
Speaker 6: move to a multipolar economic system globally, that's going to
Speaker 6: require shoring that requires a lot more power. And then
Speaker 6: specifically baseload not surge or peak, so that's benefiting, that's
Speaker 6: going to benefit net gas, coal, hydroelectric, geothermal, and I
Speaker 6: might be missing one or two, but that's really the
Speaker 6: driver here. So you're seeing the contribution of baseload being
Speaker 6: valued more than that or surge peak.
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