The Compound and Friends
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
00:59:31 · Josh Brown, Daniel Clifton, Michael Batnick
[00:59:31] S2: There going have a little more of is one other thing that's happening. And I was out at dinner with Scott Galloway the other night, and he said to me, however big of a deal you think this data center thing is, this pre election, he doesn't mean like moratorium. Yep. He means more like AI. Yeah. He's like, I'm pretty sure GLP-1s are a bigger deal. Oh. And healthcare sector stocks have been absolutely ripping since, let's say, September. A lot of growth managers who didn't wanna be 80% chips in AI, they're looking for secular growth opportunities, and they're finding them in pharma, Eli Lilly, biotech, all of the life sciences equipment, Yes. The AI related healthcare stuff that's like- [01:00:21] S1: Yes. Gonna speed up dryer [01:00:22] S2: stuff. Okay. Separately, but the same theme, I keep a list of the best docs in the market. Yeah. And every week I have healthcare names being added to Absolutely. Sean and I were writing about them. Yes. [01:00:37] S0: I just- I love that side, Link. [01:00:39] S2: No. But so I do think that there's something big happening that's not... Now it's not gonna be as big in terms of construction, but in terms of societally altering the way that we live. Yes. This is another really big story. [01:00:52] S1: Absolutely. [01:00:52] S2: What's the house view on [01:00:54] S1: this So first, this is the twelfth midterm election year out of the last 14 where health care outperforms. Yeah, it's It's outperformed on average by 10%. Yesterday's click was 10%. [01:01:09] S2: Yeah.