The Compound and Friends
00:53:53 · Josh Brown, Daniel Clifton
[00:53:53] S2: Is she that powerful? So here's Is that seat, whoever sits in it, that powerful? [00:53:58] S1: I wasn't going go into the governor of Texas isn't as powerful as most governors, but the dynamics here are very important. There's a moratorium on Texas data centers right now that Abbott put in place. There's an audit that's coming out on December 10 about the energy in Texas. And then there's a public hearing on December 17. So the idea was he pushed this out to the election. We were going to do this audit. He lifts the moratorium. Maybe we make some modest changes, it's off to the races again. She's now got that audit, Okay? And her point is, I'm keeping the moratorium in place until the legislator actually comes up with taxes and regulations for the data centers. [00:54:39] S2: Okay. [00:54:39] S1: Okay? And this is very important. In Texas, they're only in session for six months of a two year session. So, it goes from January to June. You want to see a circus, Austin, Texas, from April to June, when they're just trying to jam all these bills through. I'm probably gonna be live from there doing, like, a podcast like you guys with all the stakeholders for my clients. [00:55:01] S2: Somebody... Somebody's gotta be whispering to her, look at all the jobs. I know Oracle built big shit there. They're running TikTok out of a Texas Like, data somebody's gotta be whispering to her, hey, this is not as black and white as maybe you made it sound on the campaign trail. [00:55:17] S1: Absolutely. And by the way, that always
00:55:17 · Daniel Clifton, Josh Brown
[00:55:17] S1: Absolutely. And by the way, that always [00:55:19] S2: And she seems like smart. She seems smart. She's very smart. Okay. [00:55:22] S1: So, she's going to come in. And if she didn't win the legislature, it wouldn't be a big deal, but now she's got the legislature. So, she's going to say, I want to put a tax on there. I'm just asking that... They're flowing with money. I'm just asking them for a tax. [00:55:38] S2: I'll just a trillion dollars. They pay a higher tax. [00:55:40] S1: And there's a new type of negotiation happening between some of the leading environmental groups and some of the leading business groups, which are basically funded by all the hyperscalers. And the idea is to come up with a set of environmental standards that the data centers are going to abide by. So, that [00:55:58] S2: sounds productive, if people believe in it. [00:56:02] S1: It's going to take some time for all this stuff to work itself out. But my sense here is that you're getting to a point where you're going to be able to come up with some sort of negotiation. Virginia did it, and it killed Northern Virginia data center construction. We're still doing data centers in Richmond and outside Charlottesville, but we killed off the entire Northern Virginia data center.
00:56:02 · Daniel Clifton, Michael Batnick, Josh Brown
[00:56:02] S1: It's going to take some time for all this stuff to work itself out. But my sense here is that you're getting to a point where you're going to be able to come up with some sort of negotiation. Virginia did it, and it killed Northern Virginia data center construction. We're still doing data centers in Richmond and outside Charlottesville, but we killed off the entire Northern Virginia data center. [00:56:23] S0: So we're at the closing bell, and the market is LOD'ing to the close. The Qs are down 6.4. The S and P is down 4.4. It's so rare for this type of event to happen. Most of the time, there... It is very hard to draw a straight line between a political outcome and a market moving event. Absolutely. And this is this is A to fucking B. Holy But [00:56:45] S1: midterm elections are usually about sectors and sub industries, not about macro issues. So we get very granular. We know exactly what stocks are going to get earnings benefits and earnings hits from midterm elections. That's what we do. We're very tactical for midterm elections. The problem is that these data centers represent 90% of GDP. They're the largest market cap stocks. [00:57:07] S0: The whole story. [00:57:08] S1: So you're getting this sector issue, but it's the weight of our economy and the weight of our [00:57:12] S2: stock 75% of the expected GDP growth next year and maybe 60% of the expected earnings. Yeah. Or it can't completely go away. [00:57:22] S0: Yeah. You know that chart?
00:57:22 · Michael Batnick, Daniel Clifton
[00:57:22] S0: Yeah. You know that chart? [00:57:23] S1: Exactly. But you could see why it can have an outsized effect. A political outcome can have an outsized effect just because of that weighting. [00:57:29] S0: So, the chart that shows it's data center construction, I think office construction. Yep. You've seen that floating around? [00:57:34] S1: Yeah. [00:57:34] S0: So, that topped, right? Or bottomed, depending on which way you're looking at it? [00:57:37] S1: Yeah. And I would expect that you're going to see more. We go through the lobbying disclosure reports of every company, and you have to see the non AI companies that are lobbying on energy permitting reform and R and D tax incentives. It's Kimberly Clark, a sleepy consumer staple. They make diapers, but they're now building factories in America. So, you're going to start seeing some non AI building data coming in, [00:58:04] S0: not Okay? Just office And [00:58:06] S1: let me give you this other issue. What Warsh wants to do with the Fed is very important for real estate. He's literally saying, look, the model since the financial crisis has been to increase the balance sheet. When you increase the balance sheet, it increases the money supply, and that increases inflation. He's literally going to start in the next couple of weeks deregulating the financial service sector. Very big financial deregulation coming out. The idea is to start having the banks buy the treasuries by unlocking their capital and start to bring down the Fed balance sheet.
00:58:06 · Daniel Clifton, Josh Brown
[00:58:06] S1: let me give you this other issue. What Warsh wants to do with the Fed is very important for real estate. He's literally saying, look, the model since the financial crisis has been to increase the balance sheet. When you increase the balance sheet, it increases the money supply, and that increases inflation. He's literally going to start in the next couple of weeks deregulating the financial service sector. Very big financial deregulation coming out. The idea is to start having the banks buy the treasuries by unlocking their capital and start to bring down the Fed balance sheet. [00:58:35] S2: Meaning they can go above and beyond where they can now at, what, buying treasuries
00:58:35 · Josh Brown, Daniel Clifton
[00:58:35] S2: Meaning they can go above and beyond where they can now at, what, buying treasuries [00:58:40] S1: or We're making going to make them have less reserves holding. That frees up capital. Next year, we'll do what's called the liquidity coverage ratio and make changes to that, and that really boosts the banks. For every $250,000,000,000 balance sheet reduction we get, that's one less rate increase I've to do. So, when I meet with my real estate clients, I've been to funerals that have been more cheery than some of these meetings. It's like death. Okay? So, there's a reason why there's nothing else happening except data centers. And if Warsh is successful and this will really culminate with his balance sheet commission that he's got coming out if he's successful and he's able to get inflation down without jacking up rates as much as people anticipate, I think that's going to be a positive for the real estate, and you'll start to see some of these other sectors. So the reason that's important is if data centers are coming down, I've to match it with something else. And I think that we're