Hey everybody, it's me Einstein and Wall Street here with my man Dan Ives at Brew Markets. We just came back from doing a really fun panel here with Morning Brew, and amazing. And so let's talk about it. It's Tuesday. Obviously, tomorrow is Fed Day. Okay. And as you just mentioned there, obviously, you know, when we can't, let's go back to last Fed Day, right? We do know that for a while there it did not look like they were going to raise rates.
Okay. And then what do you think was the most significant thing that changed Fed Chairman's mind days before it? Because we know that the probability was, and there's a whole market in this, that, you know, the probability market on whether it's on Kalshi or it's on Polymarket or it's the overall Federal Reserve, it was a 50-50 chance that they were going to raise them, and then the night before it spiked up to 82% and they raised them. What do you think was the most significant thing that made them change their mind?
Now, that first one they had to raise to send a signal to the market. Okay, the 10-year, the bond market basically needed to see a raise because if they didn't raise, the bond market would just get so scared about inflation, ultimately what that was going to be, and you could argue the 10-year would be even a lot higher today.
I think you've seen the 10-year come below five. You're seeing the inflationary data, some bad, but then in other areas, you know, maybe ex-oil is starting to calm down. That's why I think you get a hold at the meeting.
You get a hold at the meeting, but isn't it curious though why, I mean, I think obviously one of the most inflationary things is oil, right? Why have we disengaged the significance of oil above 105, 110 for months and months? This is a one-day war that's lasted six months, eight months. Oil is the most inflationary component, I think, of an economy, isn't it?
Okay. And but we've completely disengaged it when it comes to that. I mean, we know that the tool that the Fed has is to raise interest rates to combat inflation. But so, but you're feeling that the bond market was the most important thing that's ignited that demand by the new Fed chairman to raise interest rates. The bond market's basically saying that, like the midterm elections, which feels like it's, you know, it's probably some sort of blue wave or something, you know, similar at least at a minimum gridlock and potentially a blue wave.
Look, that combined with Israeli election this week, like the market basically, I think, is saying like, look, you're going to see the conflict in Iran one way or another come to some sort of close.
Gotcha. And when that happens, regardless if it's two months or six months, right?
I mean, oil, then all of a sudden you're looking at $70, correct? You know, a barrel of oil again. So, I think, and it's always tough because the Fed can't just do policy off of what's happened with oil, right?
You know, that's more OPEC and whatever. So, I think that's why, for Powell, it's a balancing act that he's trying to do right now.
Okay, that's super important to know that they cannot run their mechanism around inflation all off of just oil.
No, right. I mean, they are the big arm. That's actually a huge part of like the Fed. If you go back historically, like a Fed mandate, like you cannot do it just off...
Is it just off of oil or is it one thing? I mean, what the mandate says, not one thing, let's provide everything.
So many different data points, but when it comes to oil, because of just the ebbs and flows and the vol, and because oil is basically controlled by a handful of countries anyway, right? That's always...
And that's curious, thank you for that. You just sort of opened my eyes to that because I've always said when people ask about the oil market, I say, you know what, I don't like trading in markets where I don't have an edge, right? The bottom line is the Saudis can release or contract their relationship to how many barrels of oil they want to put into the market or take out and completely change the whole dynamic. That can happen from one day to the next, and so you're right. So the Federal Reserve needs to understand that it can't be just one data point that makes them make a decision that will throw... they look at it responsibly.
And that's why Powell is going to do the hold, and we have to see as this all plays out. But it's like me and you have talked, it's like if I told you six months ago oil, 10-year, right, I said, where's the S&P? You'd say a thousand points lower. And I just think the market is telling you that based on tech, based on growth, that's what's going to drive this market higher.
Right. And so just a little bit of inflation is not going to make all the difference in the world.
Look, and the problem is that also a lot of the inflation, you could argue it's a capex boom. It's unprecedented. And it's also why like China is in a bear market, right? Because it just comes down to like the US is so far ahead of China, right, when it comes to tech.
Okay, let's talk about the midterms for a minute. We know the reason that the midterms weigh so heavily on the market, even though historically, I don't know if they do, but they do in a microcosm of a way. Is it because people believe that the Democrats are pro-regulation and anti-market? That's...
Excuse me, sir. Could you do me a favor? Can you wait till we're just done, like five minutes? It's okay. No problem. Oh, no. Thanks. Thanks.
I mean, everyone's perception is that the Dems are anti-market, pro-regulation.
Well, no, it's really around data centers that they're anti-data center and pro-regulatory. I think that's why this is so... And do we really feel that or is that just...
Yeah, I think that's almost factual, right? Yeah. I mean, I think it just comes down to like 800 to 1,000 data centers are going to get built in the US over five years. So look, this is a pivotal time, and that's... but also I tend to think like you don't want to get over your skis in terms of the concern because I could argue if Democrats, if there is a sweep, a lot of it goes state to state in terms of the data center.
Yeah. So, if a data center gets voted in one state, it will go, right? Well, look, all they have to do is look at the economy of scale of their state and they're going to go, 'Wait a minute. This is going to create major jobs. It's going to bring in a lot of money. It's going to benefit us in a big way.' Right. And we do know that President Trump has already said that any data center that's built is going to have to deal with the energy impact.
And Trump will, and he'll veto things, and exactly.
I'm just... look, if you look at the market after a midterm, right, bullish.
Extremely bullish in terms of what the market does after a midterm.
After a... no matter who wins?
