The Macro Implications of the Blue Tsunami

We don't need to tell you that the midterm elections were historic: The Democrats won bigger than even they imagined. But as the dust settles, an open question we are puzzling over is the market's ongoing reaction to this massive political sea change. Democratic control of Congress — and control over a number of formerly red statehouses, like Texas and Iowa — will influence everything from the composition of the FOMC to data center construction. And what we're seeing right now, with stocks like Tesla and SpaceX tumbling, is a direct response to these conditions. To get a better sense of this macro moment, we turn to Odd Lots regular, Employ America's executive director Skanda Amarnath to talk about how the midterms will influence the Fed's battle with inflation, Elon Musk's political instincts, and what a Democratic majority means for the market, tariffs, and AI. See Odd Lots live in NYC on Dec. 9. Tickets on sale! https://events.bloombergevents.com/event/OddLotsNYC/summary See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 1:15Speaker 01

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• 1:31Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 1:36Tracy Alloway?

  And I'm Tracy Alloway.

• 1:37Joe Weisenthal?

  Well, Tracy, I'm glad we did that episode that came out Tuesday with Nate Silver. Cause he did go on record as like, there's going to be a blue wave. And it turns out that was actually just this, it was correct in some sense, depending on how you measure wave. But it was just like, you know, it was a tsunami.

• 1:53Tracy Alloway?

  Yeah.

• 1:53Joe Weisenthal?

  Maybe like, maybe bigger than a tsunami.

• 1:56Tracy Alloway?

  It was seismic, for sure. So as everyone knows by now, the Democrats took both the House and the Senate. Going into it, as we discussed with Nate, I think most people thought there was a good chance they were going to take control of Congress, right?

• 2:11Joe Weisenthal?

  The House was seen as a lock.

• 2:12Tracy Alloway?

  The House was seen as a lock, but the big question was the Senate, which was like more of a coin flip. But Nate, Nate thought the Senate like was actually looking pretty good for the Democrats.

• 2:22Joe Weisenthal?

  Yeah, he was like, he pushed back. I remember you were like, so the Senate is more of a coin flip. He was like, no, it's not. It's like, it feels like a coin flip in your head, but he was like, the data say it's on a coin flip. Turned out it was nothing close to, I'm pretty, it turned out it was nothing close to a coin flip.

• 2:35Tracy Alloway?

  So obviously the big question now for both markets and the economy is what changes?

• 2:39Joe Weisenthal?

  Yeah.

• 2:39Tracy Alloway?

  Under Democrat control, what can Trump still do? Of course, he posted that photo of his veto hat on Truth Social. You saw that, right? So the implication is that he can veto anything that the Democrats try to push through. He still has a lot of executive order power for things like tariffs. So how much does this really change? The other thing, so the expectation going in to the midterms was that if Democrats actually win, this would be terrible for stocks, right?

• 3:07Joe Weisenthal?

  I know.

• 3:08Tracy Alloway?

  And you saw Michael Hartnett from Bank of America. He said he thought the S and P 500 could fall 10% if Democrats win. Yeah, apparently, which turned out to be wrong because we saw a Democratic victory. And I think the S and P 500 was up like one and a half percent yesterday.

• 3:23Joe Weisenthal?

  Yeah, it was, but okay, but now we're recording this November 5th.

• 3:27Tracy Alloway?

  Yeah.

• 3:28Joe Weisenthal?

  And it's 9:38 and the Nasdaq is getting hammered. So what is true, and it was like isolated in the day after like SpaceX and Tesla, which have as companies put a lot of money, both in Texas and Red Texas specifically. They got hit pretty hard. Some of these neo clouds that have like dreams of expanding their footprint, et cetera, got hit pretty hard. Now it's kind of a mix. I don't know. Anyway, the other thing, by the way, that is relevant, of course, is any future Fed governors in our world.

• 4:00Tracy Alloway?

  Yep.

• 4:00Joe Weisenthal?

  In our world, you know, if there are any Fed governor appointments coming up. Anyway, to talk about all this, very excited to say, welcoming back to the show. Perfect guest because he knows both worlds. Skanda Amarnath, Executive Director of Employee America. Actually, all three worlds, because in addition to knowing macro and politics, you're also sort of a markets junkie, but you don't really talk about that as much publicly.

• 4:22Tracy Alloway?

  We'll get you to do equity recommendations.

• 4:24Joe Weisenthal?

  We'll get Skanda's, Skanda's five lock picks for Q4.

• 4:30Joe Weisenthal?

  No, but for real, just like, let's stick just with the politics for a second. We're recording this November 5th. So like, we all know what happened, but are there any dimensions of the earthquake tidal wave extinction level event for the GOP that stand out for you in some way?

• 4:48Speaker 05

  I mean, I think people are missing. Yeah, I, I think that the Senate itself, this is more structural, just really matters for the, for American government. It is sort of the institution that shapes who serves on the Supreme Court. It's the institution that shapes who serves on the Fed board. And for a long time, there's been a pretty structural advantage for the GOP.

• 5:06Joe Weisenthal?

  In the Senate.

• 5:07Speaker 05

  Yes. And maybe that advantage is still true and this blue tsunami will be a one off. But I think you at least see for Democrats, there is a path ahead for how they could sustainably stay, stay competitive in the Senate. It's not reaching to get to 50 to 51 votes. I think that can change a lot of different things.

• 5:24Joe Weisenthal?

  And the structural advantage for the GOP in the Senate comes down to the fact that if you take a state like Kansas or Iowa or whatever, they haven't seen a lot of population growth. Their share of like is, but they still get two votes, just like New York. And if there's ever a time when there's down to like a hundred people left in Wyoming, they're probably, the assumption is going to be Republicans and they're going to have infinitely more influence over the rest of the country than New York.

• 5:54Speaker 05

  The Senate is about the number of states, not the number of people.

• 5:56Tracy Alloway?

  The corn doesn't vote, as they say.

• 5:59Speaker 05

  Except, except I think what?

• 6:02Speaker 05

  I would say what Bob Dole had some quote about basically way more ag states than there are any other kind of state. And that's, that's going to always count more. I think that has some implications for sort of how kind of power shape from here. For Democrats, there's also just a sense of, oh, this was actually possible. I don't think Democrats expected to win in South Carolina, unless they were in the, any Andrews campaign, maybe. I don't think they expected to win in Mississippi. And it looks like at least that's going to be coming really down to the wire. So it just shows that there's different possibilities, which will also kind of shape how they govern, what kind of, kind of map they want to sort of optimize towards in subsequent elections, which may just change the agenda to some degree.

• 6:39Tracy Alloway?

  Okay, so the Senate is important, but I think the consensus assumption is still there's going to be some form of political gridlock because, you know, for instance, the Democrats don't have the 60 votes they need to like push through a Republican filibuster and stuff like that. On the other hand, I think if we learned anything from Tuesday's elections, it's that Trump seems to be politically toxic now on both the Republican and the Democratic side. So maybe there's a potential to come together on like a few issues at least.

• 7:09Speaker 05

  Yes, it's not, in general, divided government tends to be gridlock, right? So I think that means it's harder to pass policy. It becomes harder to pass policy in a crisis. So if you think about it, like we were talking about this in 2018, right? We were talking about, okay, there was the midterms effect, but Trump was kind of going forward with his kind of trade war, trade conflict issues. Fast forward 18 months later and you have sort of the CARES Act issues from COVID. It just required a lot of coordination. Kind of worked out then in terms of, at least Congress passed a lot of different things. I'm not sure how it's going to play out this time, right? Because it does seem like there's clearly, I said, the presidents were quite toxic. How polarizes it? Are Republicans willing to peel off?

• 7:51Speaker 05

  One thing that stood out from this election cycle was you could point to two very tangible things where policy really did matter, right? You could say tariffs clearly identifiably moved prices and the war clearly had an effect. How that does, do any Republicans actually change their sort of approach to the president? I suspect that it's hard in the context of war to change a sort of executive action. Tariffs are more interesting because you're talking, we talk about ag states. They're probably the ones who really like, really holding the bag in terms of the costs of tariffs and sort of how they were executed by the president.

• 8:24Tracy Alloway?

  But tariffs are being pushed through now purely by executive orders. So how much power does anyone else have to change that?

• 8:30Speaker 05

  And the question is, are there Republicans in the ag states? There's still plenty of them, right? And I was talking about the middle of the country, west of the Mississippi, who clearly, I mean, I don't think John Thune really likes aggressive tariffs. It has a lot of costs for farmers and for the ag industry. Are you able to peel off some of those to actually work on restricting sort of how much power the executive branch has over trade policy? These are all, again, they're all quite reaches because it's going to require pulling off an additional set of Republicans to work with Democrats and work against the president. That's again, I'd say the more tail scenario considerations. I'm sure Democrats will be happy to run on the idea that the president is raising costs through tariffs. But I mean, if you think about where policy can change,

• 9:13Speaker 05

  it would require quite a substantial amount of coordination with other Republicans in the Senate.

• 9:19Joe Weisenthal?

  Just from a numbers thing, I mean, I was in the chat with you on Tuesday night and you're like, this is historic. Like what was the early on thing you're like, oh, this is like, we're actually talking about a history making election.

• 9:31Speaker 05

  Yeah, I think when you get early returns, the thing you want to look for is county comparisons where you actually have all the vote in, not just the early vote. Because who votes early changes cycle to cycle. But when you actually get those like first few counties that whether it's in Florida or Kentucky or Indiana, and you were seeing in some cases, obviously the, in Florida, some of the swings were narrower relative to 2024, something closer to five to eight points. But then you saw like outlier changes in a lot of other counties where it was closer to 20 points. And then it was, okay, if it's 20 point swing from 2024 to 2026 in the same house race. Yeah, those might be outliers, but it's telling you like, this is the distribution, right? And that distribution is, there's like a long tail of outliers on the Dem side. You're going to see like pretty big swings.

• 10:15Speaker 05

  In the end, what Texas, it seems like it's going to be close to double digits for Tarrico.

• 10:20Joe Weisenthal?

  I've said it, but you know. I've known a lot of people who work in Texas politics and they had like dream of like, well, maybe Texas will be a purple state one day. So I see you've worn a purple sweater today, by the way, very bipartisan. And I'm like, and I used to just make fun of those people. And then to wake up and I know so much and it's like, it's not even a purple state. It's like a deep blue state now. I mean, the scale, it's a what's that bomb where people, the new, like a neutron bomb?

• 10:52Speaker 05

  Yeah, yeah.

• 10:52Joe Weisenthal?

  Where there's not even any destruction. It just, the people just disappear.

• 10:57Tracy Alloway?

  It's everyone. It's like, and it's also not just the things that you hear about. It's like the comptroller, the lieutenant governor.

• 11:04Joe Weisenthal?

  The education board, they're gonna like change the University of Texas Regents because someone just told me like that person's coming up for retirement and Hinojosa is gonna get to appoint his replacement. Like the entire state in one night essentially goes like hard party rule. Like no one, like, look, I know, like, the purple Texas stuff has been like for years.

• 11:25Speaker 05

  Yeah.

• 11:25Joe Weisenthal?

  But now it's like you wake up one morning and Texas is not just like, at least for two years, it's not just like a blue state, but like a hardcore. It's really weird. Like everyone, everyone is just like, this is like a very surreal thing to see.

• 11:39Speaker 05

  Yeah. I mean, I, I think that the scale of the, the victory itself points to, there's just like newer possibilities in a lot of these states. And when you kind of think about Texas, when I think about what the business class sort of corporate America tends to tout certain states is like, this is the state you want to be. And like, obviously it was Texas for a long time.

• 11:57Joe Weisenthal?

  Wait, tell us about this business court in Texas. No, this is important. We'll have to do a separate episode.

• 12:01Speaker 05

  I, I think you'll probably need to get a separate.

• 12:03Joe Weisenthal?

  What's the story here?

• 12:04Speaker 05

  So Texas has created a new business court, right? And there's a lot of.

• 12:07Tracy Alloway?

  We did an episode on this.

• 12:09Joe Weisenthal?

  Oh, yeah. This is to compete with the Delaware.

• 12:11Speaker 05

  Yeah. So there's, there's a lot of corporate law competition in terms of where you want to set up your corporation. And there have been some lawsuits in Delaware that have rankled certain founders to say, oh, I have to do all this for shareholders. Can I find a more friendly place to incorporate?

• 12:24Tracy Alloway?

  This was supposedly one of the reasons why Elon Musk moved to Texas.

• 12:27Speaker 05

  That is right. And so Texas has created a new business court also to kind of support that. And I think it's like all the statewide races Dems won. So it's a little obstacle where there, I think that is a probably, this is the place where I feel like the surprise is probably in some ways most underrated. It's like, oh, this guy like, oh, Texas is perfect. Texas is the perfect business environment. It's like, well, little conditions can change and it wasn't that popular.

• 12:52Joe Weisenthal?

  Just rejected the wealth tax and didn't they ban all wealth taxes going forward? Like, wasn't there two measures on the ballot?

• 13:00Speaker 05

  I'm not as familiar with the specifics of the California. I know that the wealth tax didn't pass. Clearly there was a lot.

• 13:04Joe Weisenthal?

  Also, I could be wrong. I think they also banned future wealth tax.

• 13:09Speaker 05

  I think that probably was some like constitutional changes, I'm guessing, but, but it is, yeah. Clearly that was very controversial for a lot of reasons and a lot of money thrown at it, even in a state that is as blue as California, where it's basically Dem versus Dem in most races. I, I think these are, it's just telling that the state, the state landscape just looks a lot different for sort of what corporate America perceived. And when you think about the states that are kind of the leaders of kind of data center construction, AI, it's like, actually, they're all, I think, now controlled by democratic governors. So if you think about Texas, Georgia, Pennsylvania, Ohio, Virginia, even Wisconsin, the landscape has shifted in quite a way. Most, most power related data center construction kind of resides

• 13:53Speaker 05

  at the state level, state and local, not federal.

• 13:56Joe Weisenthal?

  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.

• 14:40Speaker 00

  What's next for virtual assets? I'm Jacob Grease, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McKeever from the Dubai based virtual assets regulatory authority has this to say.

• 14:56Speaker 06

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service institutional clients.

• 15:05Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reese America Ripple says.

• 15:12Speaker 07

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80 year old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 15:32Speaker 00

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• 16:47Speaker 01

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• 17:47Joe Weisenthal?

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• 18:52Tracy Alloway?

  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 OpenAI 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?

• 19:23Speaker 05

  I suspect what will matter most there is economics more than the politics. And I do think that we were seeing, we 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, well, 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 green lighting it because it's progressing the frontier? Or is there actually like, this capex is also a burden? So I think we're seeing some of that, some of the rewarding of capital efficiency over cap, just, 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, you have like, if you take like five or six governors and they all are of the same party, could presumably even coordinate their own efforts if they

• 20:08Speaker 05

  really wanted to. That sort of changes like how easy it is to kind of 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 we're sort of seeing it's 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. It's no Josh Shapiro and Greg Abbott, probably two of the most like 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

• 20:51Speaker 05

  a function of the macro environment more than data center messaging in any way. But I think it is, it's quite telling, right? That even those who are the most favorable towards this type of activity have had to like reckon, read the room, recognize that things have to change, at least to manage the electoral cycle. And I think the question from here is like, is there a 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. We can find other ways to kind of do what we need to do without attracting so much called nimbyism or any kind of like specific detractors in political space.

• 21:23Joe Weisenthal?

  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 timeline. 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

• 22:05Joe Weisenthal?

  a Louisiana data center, et cetera. It feels like there is a lot yet. There's a lot we don't know about.

• 22:12Speaker 05

  Yeah, yeah.

• 22:13Tracy Alloway?

  Rental prices for H100s, by the way, went up yesterday.

• 22:16Joe Weisenthal?

  Yeah, they're still going up.

• 22:17Tracy Alloway?

  Yeah.

• 22:17Speaker 05

  Yeah, there's definitely, depending on where you sit in the value chain, do you want maximal activity? Probably Jensen would love a maximum.

• 22:26Joe Weisenthal?

  Yeah.

• 22:27Speaker 05

  Yeah, activity, all the picks and shovels, the chip, 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're all spending in some level of 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, the capex is a cost, even if it's not showing up on sort of EBITDA, it's showing up in the D and the A.

• 23:06Tracy Alloway?

  No, and we definitely saw that shift in the market because they've gone from like spending cash on capex to borrowing in the bond market. And now some of them like Oracle are starting to issue new equity. So you can see like the pressure kind of filter through the cap stack for sure. Let's talk about Fed Chair, going back to Senate control. You mentioned the Senate and its importance to Fed appointments. Can you talk a little bit more about that?

• 23:27Speaker 05

  Yeah. So in the case of before this election, or any, and 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, was it 2018, 1920, there were a number of Fed nominees Trump chose that did not make it.

• 23:57Tracy Alloway?

  Oh, yeah.

• 23:58Speaker 05

  So there was Judy Shelton, Steve Moore, Marvin Goodfriend. Now it's, the challenge with it is I suspect there's going to be even more scrutiny. There are.

• 24:07Joe Weisenthal?

  Yeah, of course there'll be more scrutiny. But like, who's coming up? Like, are there going to be?

• 24:12Speaker 05

  Well, there's one Jay Powell.

• 24:13Joe Weisenthal?

  So then when is Jay Powell?

• 24:14Speaker 05

  His term ends the beginning of 2028.

• 24:17Joe Weisenthal?

  Okay.

• 24:17Speaker 05

  He has stayed on longer.

• 24:18Tracy Alloway?

  Yeah, now he can retire in peace, right?

• 24:21Speaker 05

  I think the question for him is, there's been this on, 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 the respect to how the president can influence policy, what exactly is going on now within the building. But I think even like 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 decided to stay till 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, that'd be my best guess. Unless they're

• 25:06Speaker 05

  able to find a way to really pick a nominee who can win over the trusted Democrats relatively quickly, coordinate that to some degree. I don't know with, and there's no, there's not going to be any coordination with Jay Powell. 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 is like, this is, 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, maybe 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, six years, even as there are other Senate cycles that

• 25:46Speaker 05

  will 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 would 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. 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, that hasn't changed so drastically. But even so, you have a president right now who clearly would like to move policy in a specific direction, has been very vocal

• 26:28Speaker 05

  about that. And I think that's what, there's more sand in the gears here. There's more, more of a challenge actually in that.

• 26:49Speaker 00

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• 30:01Joe Weisenthal?

  Just real quickly, like on the pure macro. So like, I feel like if we were having a conversation about the state of the economy, wow, Tesla shares declined 10%. SpaceX shares fall another 7% 7.5%. And they got hammered yesterday pretty hard. So these are like, man.

• 30:17Speaker 05

  Yeah, I mean, you have the unwind.

• 30:19Joe Weisenthal?

  Elon cost them a lot of money.

• 30:21Speaker 05

  Yeah, it's funny. It's funny where you have like this unwinding of the effects from the 2024 election response where you had a lot of stocks that really ripped after Trump won. They clearly put a lot of money behind Trump's election.

• 30:34Tracy Alloway?

  He could have just paid taxes.

• 30:37Joe Weisenthal?

  Just pay taxes. Just build cars and spaceships. It's really like incredible how in addition to being a great car industrialist and a great spaceship industrialist, he like really decided to like get into politics. And he really may have just for nothing at the end, like when we really look at like, maybe 2028, 10, like what if he got anything out of like, if he had just avoided the germ of like caring about politics, like I just doesn't seem like.

• 31:08Tracy Alloway?

  It's not even that. It's the male urge to tweet. That's all it is.

• 31:13Joe Weisenthal?

  It really feels like it. The male urge to tweet.

• 31:16Tracy Alloway?

  Politics is useful to like have something to talk about on Twitter.

• 31:18Joe Weisenthal?

  Yeah.

• 31:19Speaker 05

  I mean, there's.

• 31:19Joe Weisenthal?

  It just seems like when you add, when we tally it up in the end, the cost of like, the cost of caring about posting, the cost of caring about what people are talking about on X, the cost of wanting to then influence the world through X, just seems like may end up being one of the most colossal wastes of like money we ever imagined, right? I mean, what has he got? Has he gotten one thing from caring about politics or caring about posting at all in his life?

• 31:45Speaker 05

  So I guess it'll be to be determined about what he was able to get out of the experience of Doge in terms of his like knowledge of government. But I think it's a, but there, but there's a John Arnold tweet, I think is quite apt here. It's like what political giving is the original wealth tax.

• 32:06Joe Weisenthal?

  This is another conversation and like, they really seem to be bad at it. Like especially like tech money, like just no intuitions in either like, and in either ever at any point, either what the important races are or the things or like how to do it effectively. It just seems like zero intuition.

• 32:24Speaker 05

  Yeah, there's.

• 32:25Joe Weisenthal?

  And these are people who love talking about their, I'm updating my epistemic priors. Those people love, these are people who love updating priors. They're like, oh, let me improve my epistemics here. Update my priors. And then they just get hit with the biggest like blind spot. And it just seems like it happens over and over again with these guys. It's like, first of all, I'm going to update some priors and then just completely step on a rate.

• 32:49Speaker 05

  Yeah, there's a lot of Dunning Kruger to this stuff, right? Where it's just like, you think you know a lot and you actually you're really at the beginning of like the learning curve.

• 32:57Joe Weisenthal?

  And we all have to be humble, right? We're all Dunning Kruger all the time.

• 33:00Speaker 05

  Yeah, we are.

• 33:00Joe Weisenthal?

  These are people who pride themselves on the fact that they don't have this thing because they're so rigorous and there's our first principles thinking and systems thinking and all the like, this is, we're all Dunning Kruger. Like that's a given. What I'm, what remarks, what's remarkable about me is like, there's a whole group of people pride themselves on their rational, like I look at the data, all this stuff, and they seem to be, get it the worst.

• 33:24Speaker 05

  Yeah, I think it's also funny because I said 2024, if you were sort of in tech and you like were leaning, or you had just decided I'm going to go to the right here. And so you throw a lot of money at it and success. So that's like, clearly the success is because I also contributed, I did the smart thing. It's like, well, you did the same thing again and didn't quite work. I feel like cause and effect are different from each other in some ways. And so you might get sort of these like, Elon, was he the cause of why Trump won? I don't think he was. But there were a lot of, a lot of Democrats and liberals who I know were like, oh, he's the key factor behind this. And it's like, okay, Elon's still giving a lot of money, but it didn't quite work out the same way this time. So who actually has influence?

• 34:02Joe Weisenthal?

  Just on the macro stuff, a couple of months ago, we might have, if we were just catching up with you, talking about the macro, we might have said, well, the non-AI economy is soft, maybe it's like getting stressed by higher rates. The AI economy is still absolutely booming on that. We have a lot of inflationary pressure, et cetera. Where's your read on right now, the sort of the core impulses and you know, do we have a path not like, especially maybe if some of this AI spending cools off or like, how much work does the Fed have to do to get back to 2% inflation or whatever? What are the trends there?

• 34:41Speaker 05

  Yeah, so I think even by the sort of, call it early part of this year, we had already seen sort of the basing of that, that dynamic where it was, oh, the non-AI economy is soft and like we're headed, the Fed was lagging in rate cuts as late as what the May meeting. And that was just too late relative to where the economy was. The economy was solidifying after the government shutdown had ended. And so the risks were already tilted in a direction of, hey, the economy is like, it's not, I wouldn't say the non-AI economy is gangbusters, but it's fine. Like it's, it's fine. It's been fine. It's nothing I would say is amazing, but all booms tend to be imbalanced.

• 35:18Joe Weisenthal?

  Housing is terrible still, right?

• 35:19Speaker 05

  Housing is, housing's soggy and soggy.

• 35:21Tracy Alloway?

  Home builders started going up yesterday by quite a bit.

• 35:24Speaker 05

  Yeah, part of that is a rates move. And so you have just a, there's clearly some effect of if you have less AI capex, you will have maybe a softer economy, lower interest rates. There's more room for other things to thrive. I'm quite skeptical that if you did see AI capex really cool off, these things tend to not be very linear. It tends to be more binary. It's on or off. And once it's off, is there something that's going to pick up that slack very quickly? That's obviously the Goldilocks outcome. I'm, yeah, I'd say history suggests that's, it's hard to pull off. So we are obviously in a world where I was, I'd still characterize it as an AI boom. I'd still say there's obviously a lot of activity going on. There's a lot of activity still booked to happen.

• 36:05Speaker 05

  But if the tide comes out, I'm not as convinced that there is going to be some big housing boom that offsets it. So another set of, these things, those things take time to really get going as well. So you don't have this super nice sort of countercyclicality here in terms of how the economy works. And so you have like the, the share of what I call the AI sensitive segments of spending in the kind of GDP mix have grown at such an enormous pace. It's something getting close to 8% of GDP. If I think about like just your tech hardware, tech software and industrial equipment, those categories itself make up such a large share of the US economy from the demand side. Obviously a lot of it's imported, but it still matters.

• 36:47Speaker 05

  This is still like spending, spending is a risk, spending is a, someone who is spending is putting that on their income statement, their balance sheet in the US. And so these dynamics are probably going to dictate the cycle. I think that's not actually at this point, very original to say, but we had coming into this year, there was a sense of, oh, the non-AI economy is soft. It's like, I'm not sure that's quite true. It's like not amazing. The other side of it is inflation, right? Where we have three themes, maybe four at this point that are going to matter. Look, the strain of horn moves, closure and to some degree, obviously the, some of the refining capacity issues that are maybe tied also to the Russia, Ukraine conflict have clearly blown out sort of set of prices for jet fuel for, and that has pushed up airfares quite considerably.

• 37:30Speaker 05

  So when people are saying, ah, well, services inflation is running hot, it's like because airfares are sensitive to energy. It's not necessarily because of the labor market. Diesel prices are very high, caught a lot of political attention, but the effects actually on the consumer, I think have yet to be seen really, which is to say like, there's a lot of, I'm curious for a lot of the food retailers who have had to take on additional energy costs and transport costs, are they going to have to pass through higher prices into food, food services inflation, which actually does matter for core. The, that energy dynamic is clearly one big thing that I think, I suspect we're still kind of processing. It may not be more aggressive in the next several months, but it may be, call it just as aggressive or pretty close to what we've seen in the last several months.

• 38:15Speaker 05

  Then you have the AI boom itself where it's still places where this is showing up. Again, maybe we're past the peak impulse, but it may be more durable than people realize in terms of, we had a lot of prices that spiked for your laptops, for various sort of things tied to memory, but there's still more things that could rise. So that might just mean that we had to deal with more durable inflation there. And the third piece of this is obviously is tariffs itself. Look, there are a lot of categories that have already moved. There are some categories, notable categories that have not moved yet. Cars, right? Like you have not seen anything that's happened in the auto space and some of that is because they, it's a different tariff regime there. But even so, there were a lot of the Canadian tariffs that were put on and on off, on that still cost that's not yet passed through to the consumer.

• 38:59Speaker 05

  And so I think those three themes are still with us. It may not mean that we're going to go to 4% inflation, but we might be stuck around three a lot longer than is currently suspected.

• 39:08Tracy Alloway?

  Last question, are we going to see a democratic socialist on the ticket in 2028?

• 39:14Speaker 05

  My prognosis is probably, probably not. I think that this is.

• 39:17Joe Weisenthal?

  You gotta pick, if you had to pick, you could, you don't have to say it on air. If you had to pick, nominate. Just a guess, not a preference.

• 39:25Speaker 05

  I think the prediction markets here is a, Ossoff is I think moving into frontrunner now, and I believe in efficient markets.

• 39:32Tracy Alloway?

  Don't lean on prediction markets.

• 39:34Speaker 05

  What I suspect that's important for that primary at this point is like the Senate map looks different and Democrats have not been competitive in the Senate for a long time.

• 39:45Speaker 05

  Yes, there's one faction that's very progressive and has their political leanings that are kind of ideologically based. That will matter. How do you excite them? There's another segment that obviously likes to be competitive and win. Winning is also itself very kind of addicting and attracting. And so I imagine for those who are governors in a lot of states, they probably will want to push it, whether that's Andy Beshear or Josh Shapiro. I think John Ossoff, the margins he won by are going to be very compelling. So I think, I think Ossoff is a pretty reasonable favorite right now, but it's like, it's really early. This will ping pong back and forth. There's a pretty, the, the field is pretty, pretty large and there's no obvious frontrunner.

• 40:23Tracy Alloway?

  Large and flat, basically.

• 40:24Speaker 05

  Large and flat. It's not like Hillary Clinton going into the 2016 cycle or even the 2008 cycle where she was clearly the frontrunner and over time instead of Obama and obviously John Edwards, who was the other one who they, that was the race. We don't really know what, who, what the head to head will be, who will be the top three. I suspect Ossoff is right now the frontrunner, but there are a lot of people who are the frontrunner coming right out of midterms. That could just change very quickly.

• 40:50Joe Weisenthal?

  All right, it's gone to Emmerich. Thank you so much for breaking it all down for us. Thanks for coming on, Al.

• 41:09Joe Weisenthal?

  Tracy, that's a lot of fun. I think this election was a sort of mini version of what we always talk about. It's like, wow, there's a lot of new stuff to consider.

• 41:18Tracy Alloway?

  Yeah.

• 41:18Joe Weisenthal?

  There's just like, it's just, and no one really knows. And it's just a lot of new things.

• 41:24Tracy Alloway?

  And it happened literally overnight.

• 41:26Joe Weisenthal?

  It's really weird.

• 41:27Tracy Alloway?

  Yeah.

• 41:27Joe Weisenthal?

  But like now, you know, the, for a long time, when I sort of thought about the two parties, I thought it's like, okay, they're like, you know, roughly even in the grand scheme of things, Democrats heavily coastal, California, New York, New Jersey, et cetera, a few big cities. And then you're just like, no, like, the Democrats are a national party in a way they haven't been in ages. And in some places, I just do not think the Republican Party exists that they were dominant in. That's what it feels like in Texas to me.

• 41:59Tracy Alloway?

  Yeah. Well, I mean, Texas. So I remember my dad is Texan. He comes from like a small town outside of Dallas. And I remember my aunt used to be a closeted Democrat. She wouldn't tell her friends and family because it just like, wasn't socially acceptable, like way up until the early 2000s, which is kind of crazy. But the one thing I'm thinking, a lot of this can change pretty fast. Like, you know, a lot has happened in the past two years. A lot could happen in the next two years. I remember after Watergate, there was a big Democratic sweep, right? And then what, like, eight years later, Reagan was in office, something like that?

• 42:34Joe Weisenthal?

  No, people were comparing this election to the post Watergate election. And it's actually a pretty good, like, it's both because of the scale, but because what are like the two things? It's like, high inflation and a deeply unpopular president together.

• 42:51Tracy Alloway?

  Yeah.

• 42:52Joe Weisenthal?

  And then you just get this. So maybe that is like the best analogy. But I really do think like, like, I don't know, I'm not, not a prediction, but things change really fast. And after the 2024 election, you know, there's a truly new map, not new map necessarily, but it looked like the sort of Trump version of the GOP had fully solidified. And not only fully solidified, had like one done extremely well among various minority groups in a way that hadn't been seen before. So it's like, oh, everything we thought, we thought we knew about the Democratic Party coalition. So it's like, uncertainty is like, you know, let's just, in epistemic humility, unlike the tech, unlike the tech billionaires who talk about their epistemic humility, I will actually practice.

• 43:36Tracy Alloway?

  You've updated your worldview.

• 43:37Joe Weisenthal?

  I'm updating my priors as we speak, and I'm going to put it, I'm going to do some practice.

• 43:42Tracy Alloway?

  Speaking of things that are changing very fast, the stock charts.

• 43:46Joe Weisenthal?

  Yeah.

• 43:46Tracy Alloway?

  So in addition to SpaceX and Tesla, have you looked at Sterling Infrastructure?

• 43:51Joe Weisenthal?

  No, what do they do?

• 43:53Tracy Alloway?

  They build data centers in Texas. And that looks like a dot com chart.

• 43:59Joe Weisenthal?

  Wow. Yeah, these are some really ugly charts.

• 44:02Tracy Alloway?

  That's pretty bad.

• 44:03Joe Weisenthal?

  That's, wow, that's, I, that was a thousand dollar stock in June. And as of right now, it's a $255 stock.

• 44:11Tracy Alloway?

  Yeah. Isn't that crazy?

• 44:13Joe Weisenthal?

  That's a good chart. That's a good one. We'll put that in the newsletter.

• 44:16Tracy Alloway?

  Shall we leave it there?

• 44:16Joe Weisenthal?

  Let's leave it there.

• 44:17Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 44:23Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guest, Skanda Amarnath, at Irving Swisher. Follow our producers, Carmen Rodriguez, at Carmen Armin, Dashil Bennett, at Dashbot, Cale Brooks at Cale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And of course, you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots. And for more Odd Lots content, check out our daily newsletter, which you can find at Bloomberg.com/oddlots.

• 44:50Tracy Alloway?

  And if you enjoyed this conversation, if you like it when we talk about seismic shifts in politics and what it means for the economy, then please leave us a positive review on your favorite podcast platform. And if you're watching on video, then please like or leave a comment, or better yet, subscribe.

• 45:05Joe Weisenthal?

  And remember, if you're a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there.

• 45:16Tracy Alloway?

  Thanks for joining.

• 45:48Speaker 07

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