00:12:43 · Joe Weisenthal, Tracy Alloway
[00:12:43] S0: Okay, so I'm just reading killmatters.org. So the billionaire tax failed, but then there was a separate Proposition 42, which prohibits new taxes on personal property, such as business holdings, intellectual property, and financial assets. So this one was put on by billionaires in the hopes that if the wealth tax passed, that this one would cancel it out. And this one is also winning by a wide margin. So California might be just like the best place to do business. [00:13:09] S1: Yeah. Can we talk more about data centers? So you mentioned things shifting very quickly, like literally overnight for a lot of states. And one of the headlines on the Bloomberg terminal this morning is open AI to change how it handles data center efforts after outcry. So it feels like the change is kind of filtering down to a corporate level pretty quickly. So they're not going to do NDAs anymore. They're not going to have actual residents pay for electricity of the data centers and things like that. The obvious question is, are we just going to see a big slowdown in data center construction?
00:13:58 · Skanda Amarnath
[00:13:58] S2: I suspect what will matter most there is economics more than the politics. And I do think that we were seeing, we're definitely seeing whispers and whiffs of this before the election itself. Oh, there's like, markets aren't always rewarding more CapEx. How useful is this? Oh, now we start to see the S1 from Anthropic. We haven't yet seen that on OpenAI. It's like, this is a lot of investment. It's a lot of risk. Do we just kind of keep greenlighting it because it's progressing the frontier? Or is there actually like, because CapEx is also a burden. So I think we're seeing some of that, some of the rewarding of capital efficiency over just raw CapEx. Nevertheless, I feel like this is going to be a bit of a sea change in terms of the politics now where, yeah, look, if you take five or six governors and they all are of the same party, could presumably even coordinate their own efforts if they really wanted to. That sort of changes how easy it is to do business For a long time, even in a lot of blue states, there were like a lot of tax breaks for data centers. And it was sort of seen as like, oh, we want to invite this economic activity. It's very good. And at least for the past 12 months, it got super toxic in terms of politically. That might not be the case going forward, or at least there may be a better path ahead. But yeah, clearly there are new variables for a lot of the hyperscalers, a lot of sort of the companies that are really kind of leading this sort of construction effort to kind of grapple with that they did not have to deal with before. Josh Shapiro and Greg Abbott probably two of the most pro-data center governors I can probably point to. I think they both made pivots, and Josh Shapiro seems to have pulled off the pivot very successfully, Greg Abbott less so. That might just be a function of the macro environment more than data center messaging in any way. But I think it's quite telling, right? That even those who are the most favorable towards this type of activity have had to read the room, recognize that things have to change, at least to manage the electoral cycle. And I think the question from here is, is there an ability to rebrand any of this stuff, or will there just be a focus on Maybe we don't need to have such a heavy footprint.
00:15:50 · Skanda Amarnath, Joe Weisenthal, Tracy Alloway
We can find other ways to kind of do what we need to do without attracting so much nimbyism or any kind of like specific detractors in political space. [00:15:58] S0: Maybe we short USD-MYR, short the dollar-ringgit pair on the expectation that, well, yes, there will be the big semi, there will be the big compute shortage that everyone is expecting on a certain maybe medium timelines. It's just not going to be built in the United, maybe it won't be built in the United States, but there are other jurisdictions where they're building a lot of data centers, including Malaysia. It's also interesting, you know, there's, again, you sort of hinted at it, the economics, this sort of theory. Well, maybe it's good for just like the existing hyperscalers already have pretty big footprints. Maybe like this means that implicitly Meta gets to charge higher chip rents and it's a Louisiana data center, et cetera. It feels like there's a lot yet. There's a lot we don't know about. [00:16:47] S2: Yeah, yeah. [00:16:49] S1: Rental prices for H100s, by the way, went up yesterday. [00:16:51] S0: Yeah, they're still going up. [00:16:52] S2: Yeah, there's definitely, depending on where you sit in the value chain, do you want maximal activity? Probably Jensen would love maximum activity. [00:17:02] S0: Yeah, Caterpillar would want maximal activity.
00:17:02 · Joe Weisenthal, Skanda Amarnath, Tracy Alloway
[00:17:02] S0: Yeah, Caterpillar would want maximal activity. [00:17:03] S2: Yeah, all the picks and shovels, the chip designers and makers, and then you have probably someone sitting in between is like Anthropic and OpenAI are, they need to be at the frontier, but they also know like ultimately they do have to show some prospect of sustainable profitability. And then you have the hyperscalers who probably, there's a little bit of bootleggers and Baptists type dynamic where it's, we were all spending in some level of an arms race here. Do we have to keep spending? What was once the best business model in the world, ads, is now one that looks a lot more like an industrial. So I think for them, it's The CapEx is a cost, even if it's not showing up on EBITDA. It's showing up in the D and the A. [00:17:41] S1: No, and we definitely saw that shift in the market because they've gone from spending cash on CapEx to borrowing in the bond market. And now some of them, like Oracle, are starting to issue new equities. So you can see the pressure kind of filter through the cap stack for sure. Let's talk about Fed, Jared. Going back to Senate control. You mentioned the Senate and its importance to Fed appointments. Can you talk a little bit more about that?
00:17:41 · Tracy Alloway, Skanda Amarnath, Joe Weisenthal
[00:17:41] S1: No, and we definitely saw that shift in the market because they've gone from spending cash on CapEx to borrowing in the bond market. And now some of them, like Oracle, are starting to issue new equities. So you can see the pressure kind of filter through the cap stack for sure. Let's talk about Fed, Jared. Going back to Senate control. You mentioned the Senate and its importance to Fed appointments. Can you talk a little bit more about that? [00:18:03] S2: Yeah, so... In the case of before this election, or I guess even now, it's a lot easier to get your nominees through. Generally speaking, your own party is going to scrutinize your nominees to a much lesser degree than the opposition party. We saw several, even under Republican Senate control in, what was it, 2018, 19, 20? There were a number of Fed nominees Trump chose that did not make it. [00:18:32] S0: Oh, yeah. [00:18:33] S2: I forgot about all of those. So there was Judy Shelton, Steve Moore, Marvin Goodfriend. Now the challenge with it is I suspect there's going to be even more scrutiny. [00:18:41] S0: Yeah, of course there will be more scrutiny. But who's coming up? [00:18:47] S2: Well, there's one Jay Powell. [00:18:48] S0: So when does Jay Powell? [00:18:49] S2: His term ends at the beginning of 2028. He has stayed on longer. [00:18:54] S1: Yeah, now he can retire in peace, right?
00:18:57 · Skanda Amarnath
[00:18:57] S2: I think the question for him is there's been this on-again, off-again issue of Fed investigations. I suspect he would like to roll off if he felt confident that it wasn't going to do anything to the institution. That's sort of his comfort zone, I suspect, with respect to how the president can influence policy, what exactly is going on now within the building. But I think even if there's a vacancy for that seat, how quickly can that be filled? I suspect it's going to be very hard if Jay Powell is out of the state until the beginning of 2028. I think it's going to be really hard to fulfill that by the end of the term because you're going to have to get through a lot of Democratic sort of veto gates of sorts. So you have just like that math gets very difficult and so probably won't get filled. That'd be my best guess unless they're able to find a way to really pick a nominee who can win over the trust of Democrats relatively quickly, coordinate that to some degree. I don't know with, there's not going to be any coordination with J-PAL. So I think that's good. That's itself going to be a challenge for how to kind of manage, navigate that. So you're going to be left with the Fed board composition. But the thing is, with the Senate, it's like, these are six-year terms, right? So it's going to matter, the fact that like, it may be a one-off that Democrats win in South Carolina. It may be a one-off that if it's Mississippi or Kansas. But they're going to be there for a while, and that itself just tilts things for at least, yeah, another four or six years, even as there are other Senate cycles that'll happen. And so if you're thinking about who are going to fill the subsequent seats, that tilt looks a little less favorable if you're trying to tilt it in a partisan direction. Now, look, it really wouldn't be for the best if the Fed board did not take on a partisan character. And I think the Fed board is less partisan than, say, the Supreme Court. The Supreme Court, we all kind of see that's, like, got some very convenient splits of votes on key decisions that do take on a partisan character. That hasn't been the case, even under, I don't know, Chris Waller will still vote in the same direction as Philip Jefferson. It's not, that hasn't changed so drastically.