Well, there's a John Arnold tweet. I think it's quite apt here. It's like, what, political giving is the original wealth tax. Yeah, so this is another conversation. And like, they really seem to be bad at it, like, just especially, like, tech money. Like, just no intuitions, and neither, like, 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.
Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
Well, Tracy, I'm glad we did that episode that came out on Tuesday with Nate Silver, because 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, was a tsunami. Yeah, maybe like, maybe bigger than economy. It was seismic.
Yeah, sure. So, as everyone knows by now, the Democrats took both the House and the Senate.
Yeah. 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? The House was seen as a lock. But the big question was the Senate, which was like more of a coin flip. But Nate thought the Senate like was actually looking pretty good for them.
Yeah. He was like, he pushed back. I remember you were like, so this is more of a coin flip. He's like, no, it's not. It feels like a coin flip in your head. But like, look, the day, the seconds on the coins turned out to be nothing close to, after all, it turned out with nothing close to a coin flip.
So obviously the big question now for both markets and the economy is what changes. Yeah, 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 into the midterms was that if Democrats actually win, this would be terrible for stocks, right? I know, and you saw Michael Hartnett from Bank of America, he said he thought the S&P 500 could fall 10% if Democrats win.
Apparently. Which turned out to be wrong because we saw a Democratic victory, and I think the S&P 500 was up like 1.5% yesterday.
Yeah, it was, but okay. But now we're recording this November 5th.
Yeah. 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 neocons that have like dreams of expanding their footprint, etc., got hit pretty hard. Now there'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, you know, if there are any Fed governor appointments coming up. Anyway, to talk about all this, welcoming back to the show, perfect guest because he knows both worlds. Skanda Amarnath, executive director of Employ America. Actually, all three worlds, because in addition to knowing macro and politics, they're also sort of a market junkie. But you don't really talk about that as much publicly. We'll get you to do equity recommendations. We'll get second, second is five lock picks for Q4.
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?
I mean, I think people are missing. Yeah, I think that the Senate itself, this is more structural, just really matters 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 in the Senate. Yes. And maybe that advantage is still true in this, or maybe it will be a one-off. But I think, at least for Democrats, there is a path ahead for how they could kind of sustainably stay competitive in the Senate. That's not reaching to get to 50 to 51 votes. I think that can change a lot of different things. 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, I say they still get two votes just like New York. And if there's ever a time when there's down to like 100 people left in Wyoming, they 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.
The Senate is about the number of states, not the number of people. And corn doesn't vote, as they say. Except that I think in the Midwest, it was a, what, Bob Dole had some quote about basically, you know, way more ag states than there are any other kind of state. Yeah, right. And that's, that's going to always count more. I think that has some implications for sort of how kind of power shapes from here. There's clearly a fringe for Democrats. It'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 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 map they want to sort of optimize towards, and subsequent elections, which may just change the agenda to some degree.
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.
Yes. It's not, the 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're talking about this in 2018, right? We were talking about, okay, there was the midterms, but Trump was kind of just 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 these, 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 president's quite toxic. How polarized is it? Are Republicans willing to peel off? 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 identifiable even with prices. And the war clearly had an effect. How does, do any Republicans actually change their sort of approach to the president?
Mhm. I suspect that it's hard in the context of war to change sort of executive action. Tariffs are more interesting because you're talking about ag states. They're probably the ones who really like, we can't really, we're sort of really holding the bag in terms of the cost of tariffs and sort of how they were executed by the president. But tariffs are being pushed through now purely by executive order. So how much power does anyone else have to change? And the question is, are there Republicans in the ag states? There's still plenty of them. Right. And I'm talking about the middle of the country, west of the Mississippi, who clearly, I mean, I don't think John Thune really likes so aggressive tariffs there. 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, it not 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'm saying 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're thinking about where policy can change, it would require quite a substantial amount of coordination with other Republicans in the Senate, at least just from a numbers thing.
I mean, I was in a 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.
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, whether it's in Florida or Kentucky or Indiana, and you were seeing in some cases, obviously in Florida, some of the swings are narrower relative to 2020 for something closer to 5 to 8 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, a 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 side. You're going to see like pretty big swings in the... In what? Texas? It seems like it's going to be close to double digits for its, just a little bit, just like I've said it.
But, you know, I used to, I've known a lot of people who work in Texas politics, and they had like dreams of like, oh, maybe Texas will be a purple state one day. Oh, I see you bought a purple sweater today, by the way. Very bipartisan. No, I know, like, and I used to just make fun of those people as a name, and then to wake up and I know so. And it's like, it's not even a purple state. It's like a deep blue state now. I mean, the scale, the scale of this, it's a, what's that bomb where people, the new, the new, like a neutron bomb. Yeah. Yeah. Well, there's not even any destruction. It just like the people just disappear. That it's ever like. And it's also not just the things that you care about. It's like the comptroller, the lieutenant governor, the education board. They're going to like change the University of Texas Regents, because I think someone told me like that person's come out for retirement and Hinojosa is going to 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. Yeah, but now it's like you wake up one morning in Texas, is it not just like, at least for two years, it's not just like a blue state, but like a hard one. Like it's really weird. Like everyone, everyone is just like, this is like a very surreal thing to see.
Yeah. I mean, I think that the scale of 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, called corporate America tends to tout certain states as like, yeah, this is the state you want to be in. And like, obviously it was Texas for a long time. We talked about this business court in Texas.
Now this is important. We'll have to do a separate, I think if I need to get a separate, what's the story here? Because I haven't. So Texas has created a new business court, right? And there's a lot of, we did an episode on this. Oh, yeah. This is to compete with Delaware.
Yes. So this is just sort of trying to court corporate law competition in terms of where do 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? This was supposedly one of the reasons why Elon Musk moved to Texas, is right. And so Texas has created a new business court also to kind of support that. Yeah. And I think it's like all the statewide races, there's one. So it's a little vertical right there. I think that is probably, this is the place where I feel like the surprise is probably in some ways most underrated. It's like, oh, it's kind of like, oh, Texas is perfect. Texas is the perfect business environment. It's like, well, conditions can change.
And it was just rejected the wealth tax. And didn't they ban all wealth taxes going forward? Like, wasn't there two measures on the ballot?
I'm not as familiar with the specifics of the other California. I know that the wealth tax and pass are clearly there. Also, I could be wrong. I think they also banned future wealth tax. I think they'll probably write some constitutional changes, I'm guessing. But, but it is, yeah, I could be wrong. 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 D versus D in most races. 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-centric construction, it's like actually they're all, I think, now controlled by Democratic governors. So if you think about Texas, Georgia, Pennsylvania, Ohio, these are all, I think, Virginia, even Wisconsin. So I think it's a, the landscape has shifted in quite a considerable way. Most, most of the power-related data center construction kind of resides at the state level, state and local, not federal.
Okay, so I'm just reading KM, is that org? So the billionaire tech 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 like in the country right now. Can we talk more about data centers?
Yeah. 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?
I suspect it will matter most. There is economics more than the politics. And I do think that we were seeing whispers and whiffs of this before the election itself. Sure. Oh, there's like markets aren't always rewarding more CapEx. Mhm. How useful is this? Oh, now we start to see the S-1 from Anthropic. We haven't yet seen that at 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 this 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 have like, if you did pick like 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 like, sort of how easy it is to kind of do business. Clearly there was, for a long time, even in a lot of blue states, there were like a lot of tax breaks for data centers and what sort of thing is like, oh, we want to invite this economic activity. It's very good. And at least for the past twelve 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, so 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 do not have to deal with before. 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 be 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 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 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? 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 the political space.
Maybe we are short USD, and why are short the dollar ringgit pair on the expectation that, well, yes, there will be the big semi, there will be the big computer shortage that everyone is expecting on a certain maybe medium timeline. It's just not going to be built in the UK. 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. Tells you an interesting, you know, there again, you sort of hinted at the economics there, 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, Matt gets to charge higher. Chip Rand said it's a Louisiana data center, etc. It feels like there's a lot yet. There's a lot we don't know about.
Yeah, yeah, we wish the rental prices for each one. Hundreds. By the way, it went up yesterday. Yeah. They're still going up.
Yeah, yeah, there's definitely, depending on where you sit in the value chain, do you want maximal activity? You probably, Jensen would love maximum. Yeah. Yeah. Caterpillar would. 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 bootleggers and Baptists type dynamic where it's, yeah, we're all spending in some level of an arms race here. Do we have to keep spending? The what was once the best business model in the world, ads, is now a one that looks a lot more like an industrial. Yeah. So I think those, for them, the CapEx is a cost, even if it's not showing up on sort of EBITDA. So it's showing up in the D and the A now.
