B (3:25)

Well, Tyler, as we are looking out, or you specifically are looking out, and I'm making sure I'm keeping an eye on the feed for you, a holler if I see anyone you need to go and talk to. But we know that President Trump, in addition to these meetings today, also is probably going to be kept abreast of what's happening happening in Geneva in the talks between the US And Iran. Just talk to us about what exactly what kind of deal the president is now looking for. Is this going to be just a deal over the nuclear program, or is this now about something much beyond that and for a much longer period of time, perhaps, if Steve Witkoff is to be believed, an indefinite deal.

D (4:00)

Right. And Kelly, you're framing this perfectly because it does appear that there are those contrasting parameters between the US And Iran on what a potential deal will look like. It is our understanding, understanding that this current round of talks is focused just on that nuclear program amid disagreements about how much and whether, if at all, Iran should have domestic enrichment capacity, as well as what will happen to Iran's current stockpile of highly enriched uranium. We're getting some conflicting headlines about what may or may not be a red line for the US There. But we heard from the Secretary of State, Marco Rubio, saying that the US Also needs to see some of these other critical agenda items put on the table for a potential deal, mainly Iran's ballistic missile program, but also its support for proxy militia groups in the region. And as you well know, deadlines shift a lot here in Washington. But we did hear from President Trump saying that Iran has until next week to reach a deal, and there's definitely the military firepower to back up that threat you well know that there has just been such an amassing of US Military assets in the region as Israel actually confirmed this morning that the US did move over F22 fighter jets as well as refueling planes to the country, the first time any such move has been taken. So we have our eyes on, on all sides of this. U.S. has not weighed in yet, though we do know that the White House's position has been that diplomacy is the first choice, but potential military action is not off the table.

B (5:24)

All right, Bloomberg's Tyler Kendall live at the White House. Thank you so much. Of course, these talks between the US And Iran, the potential outcome is something financial markets are paying very close attention to, especially perhaps if you're an oil trader as we consider what military conflict could mean for oil supply coming out of the Middle East. Could you actually see Iran in retaliation, close off the Strait of Hormuz or attack the energy infrastructure of other U.S. gulf allies and OPEC producers? These are all within the realm of possibility. And of course that could have implications for the price per barrel of oil and therefore prices at the pump for Americans. This is actually something we got into yesterday with Republican Senator Steve Daines of Montana. How could this economically impact people here at home? This was his response.

C (6:08)

We've decoupled our, our country from, from many of the, you know, the global markets as it relates to oil. We were overly dependent on the Middle East.

E (6:17)

Today the is the largest producer of

C (6:20)

oil and oil derivatives in the world and that helps soften the blows if

F (6:24)

there is any kind of connected activity

C (6:26)

going on in Iran. So I'm not as concerned about what happened oil prices given the fact that

F (6:32)

we have done a stellar job thanks to President Trump and the American energy

C (6:36)

industry of becoming much more self deficient, self sufficient and we are now energy dominant.

E (6:41)

We are an exporter of energy where once upon a time we were a net importer.

B (6:47)

We want to get another take now as we turn here on Bloomberg TV and radio to Bob McNally. He's president and founder of Rapidan Energy Group, also former special assistant and senior director for International energy on the National Security Council under President George W. Bush. Bob, welcome back to Balance of Power. I wonder if you agree with the senator's assessment.

A (7:05)

Hi Kelly, great to be back. The senators absolutely correct from a broad macroeconomic perspective. Right. The fact that we are an oil exporter means that if we were to see a sudden rise in oil prices from the perspective of our whole economy, the impact would be less than if we were a big net importer. So our Companies, our investors, our industries that employ people producing energy, their value would go up. So it is true at the economic standpoint, broadly. However, as the senator well knows, from the perspective of a voting motorist going to the pump to pay for gasoline there, being a net exporter doesn't help us too much in terms of insulating that consumer from the pump price implications of a crude oil price spike. So it's a bit of a mixed story, but he's correct at the economic, broad economic GDP level.

B (8:13)

Okay, so if you were advising this president, as you've advised presidents in the past, Bob, about the implications that taking military action could have for energy specifically, what would you be telling him? How should he be calibrating his moves here with that consideration in mind?

A (8:27)

Well, I think the first thing is he has to understand, the president has to understand there are no quick and easy solutions here. The spr, the Strategic Petroleum Reserve, even if it was full, which it is not, unfortunately could not offset the loss of Hormuz, that when we think about taking on Iran, it has the capability to disrupt that 20 million barrels a day of crude and some refined products, 20% of LNG, for longer perhaps than people think. It's not going to be the first Gulf War, it's not going to be the second Gulf War when it was over in a few hours to days. It's not going to be nabbing Maduro or even the 12 Day War. And so it's a, it's the most serious kind of risk you can run. That being said, to be fair, you know, if we defang Iran and we achieve our goals with Iran and Iran is neutralized, the benefits from an energy security standpoint, economic standpoint and terrorism and security standpoint are enormous. So I would be telling him enormous risks, enormous rewards. And I would be suggesting the priority militarily ought to be to suppress Iran's still intact inventory of mines, missiles, drones, boats, submarines and other things that could stretch out that, that interruption of Hormuz, because that, that is what's really going to hurt the global economy and the US Economy if Iran can shut down that waterway.

B (9:56)

Well, and so that's when the other Gulf states and other OPEC producers come in here, Bob, because it's not just about a risk reward, Cal, for the United States, but our allies in this region as well who might be worried. What if Iran comes for our infrastructure, actually takes out our capacity for a significant period of time, our ability to actually not not just move this stuff through the Strait of Hormuz, but originate it in our countries, absolutely.

A (10:19)

They do not want to see a conventional war, wide scale war in their region. Look, Saudi Arabia, it, it suffered about as close a call as you could have in September of 2019 when Iran attacked not only the most important Saudi infra infrastructure, arguably the most important energy or even economic facility on the planet, the ABC stabilization plant. Now Iran chose back then to just show what it could do, it didn't destroy it. So Saudi Arabia, uae, other countries are very vulnerable. So is Iran if this conflict spreads to attacking each other's above ground energy infrastructure. Kelly, you got to be careful with predictions. I'm thinking that's less likely. Saudi Arabia is in a better place with Iran right now. If Iran were to inflict catastrophic damage on Saudi or other facilities, I think the response would be the ending of the Iranian regime. So it would only be something they do in extreme dire straits. It'd probably be the last thing the Iranians did. And so I think the focus will be on raising the price of oil to try to back President Trump off temporarily. And you do that by just stopping the flow through Hormuz, because that's something you can start again once the conflict's over.

B (11:33)

Okay, so how far in terms of raising the price of oil realistically do you think we could see in this scenario? Because right now I'm looking at Brent crude, $72 a barrel. Are we talking triple digits once again? Are we talking 90? Do you have a sense?

A (11:48)

Yeah, I think, I think on the outbreak of conflict, should that happen? I think we're probably going up another three to $5 a barrel easily. We've had, we've been telling clients for some time now there's a 75% probability of military escalation. As you mentioned, There's a good 5 to $10 in the price right now. More spending in the options markets. So but we think we have a ways to go. So it's probably up three to five. You know, Kelly, I can actually see a relief drop in oil prices as the conflict extends because the market may think, oh, wait a minute, when the US shoots at an adversary in the Gulf, it wins within hours to days. I hear over and over, oh, the US is going to clean up the Strait of Hormuz in days. I think that's mistaken. I wouldn't be surprised if we saw a spike and then a reversal. But I think if Iran chose, and our military advisers tell us if Iran chose to make the Hormuz Strait unsafe, it could do so for weeks. Sort of like back in April when The Houthis absorbed 52 days of pummeling by the US military and we did not stop them from making Baba Mandaba and say Iran has much better weaponry, better coastline than the Houthis. So I can almost see spikes and reversals here. And if it gets to a prolonged Hormuz disruption, well over $100 a barrel, it'll have to cause demand destruction through economic downturn.

B (13:06)

Wow, that's incredible to consider, Bob. It's so valuable to have you weighing in on this potential conflict. But I also want to ask you about some other areas as well as, of course, we're seeing another escalation and at the very least, rhetoric around our relationship with Cuba. And of course, the US Playing a more active role now choking off Cuban supplies, including that of energy. Bloomberg is now out with a story that's just crossed a red headline on the Bloomberg terminal about the Trump administration aiming to make Cuba more dependent on the United States for supplies. Apparently this plan would include reassuring energy companies that they can sell oil and fuel to Cuban businesses and authorizing the resale of Venezuelan oil to Cuba. Cuba under certain conditions. I know you're hearing this news just as it's breaking and I'm reading it to you, Bob, but I wonder if you have a thought as to whether or not Cuba can actually become a real market for, for American energy, what this would entail.

A (14:00)

Absolutely, no. I think the Trump administration, it began with Venezuela, but I think its vision of, you know, ejecting foreign influence, adversarial influence in our hemisphere and confronting and defeating regimes in the region that are hostile to the United States is underway. And Cuba is probably next after Venezuela. On that being said, I don't think you're going to see as an aggressive approach to Cuba as you do with Venezuela. I don't think the administration, Marco Rubio, the president, want to cause a humanitarian crisis in Cuba. In some ways, it's even more vulnerable than many other countries in the region. So I think, you know, the Russians are sending a boat there. I don't think we want to have another Cuban crisis with Russia. So I don't think we're necessarily in a huge hurry. And I think they're going to be toggling things and calibrating pressure and inducements. But I think they see that the trend is toward pushing Cuba to come closer to the United States. And so I think that maybe is reflected in this sort of balanced policy and balanced announcement you're seeing.

B (15:07)

Well, and of course, Venezuela is tied into this as well. And you mentioned it. Bob, what role is the Venezuelan oil that the US Is now selling playing in the global market right now? What kind of a factor is it?

A (15:18)

You know, it's a big factor, but for a small part of the market. If you're a complex refiner and you'd love to slurp, if you will, to consume Venezuela's gunky, heavy, sulfurous, poisonous oil, you'll love it. It's a huge deal because you couldn't get this really. It was all going to China. So if you're a Chinese competitor with the United States refinery, you're not happy. If you're a US Refiner that likes this stuff, your Christmas just keeps on rolling on for you. It's wonderful. But the overall volumes in measured in the hundreds of thousands of barrels a day are a drop in the bucket in the broader global oil market. What's happening in Iran is much more important. What's happening in Russia is much more important than is happening in Venezuela in terms of the broad market. It's more of a niche of the market. This, the supply and demand for this very healthy heavy sulfurous crude.

B (16:09)

All right, Bob, we so appreciate it. A voice of expertise on this sector and how it ties into these many geopolitical dynamics we are facing right now. Thank you so much. Bob McNally, founder and president of the Rapidan Energy Group and again former special assistant and Senior director for International energy on the National Security Council under President George W. Bush. Now, regarding those talks between the US And Iran, which again are underway in Geneva, a third round today. We do have some fresh reporting out. This from Axios that Jared Kushner and Steve Witkoff, who of course are the two US Envoys who are charged with leading these talks, were disappointed by the morning session. Remember there was talks this morning, then they took a break and returned for a second session. And according to Axios, that evening session is still ongoing. So these negotiations are still underway. But again, Wyckoff and Kushner apparently disappointed by what they heard from the Iranians earlier today. We'll continue to follow this story for you and we'll have more with our political panel.

E (17:03)

Stay with us.

G (17:04)

On Balance of Power.

E (17:05)

We'll have much more coming up after this.

G (17:10)

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B (18:12)

the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa Alexa from our flagship New York station, just say Alexa play Bloomberg 11:30. Of course, if it's Thursday, that means we're two days post President Trump's State of the Union address, which as we all anticipated, focused at least in part on the issue of affordability, casting blame on Democrats for the higher prices Americans are experiencing even more than a year after the presidency of Joe Biden came to an end, and also pointing to areas in which prices have come down since President Trump took office. It's a message that he delivered to the millions of people who tuned in for at least part of that almost two hour long speech on Tuesday night. But it's a message now that the administration is taking on the road not just via President Trump, but other surrogates, including Today Vice President J.D. vance, who made travel to Wisconsin, actually just wrapping up a speech at a machining facility in Plover, Wisconsin, doing his best to sell the Trump economic agenda, answering questions there from local media including around around the President's tariffs which he say are aimed says are aimed at helping Americans. And we want to bring the panel in on this as we turn now to Rick Davis, who of course is a Republican strategist, partner at Stone Court Capital and Bloomberg Politics contributor, joined today by Megan Hayes, former Special assistant to President Biden and Democratic strategist. Welcome to you both, Rick. I'd love to get your take on just JD Vance as the messenger here with his upbringing with his populist bona fides, is he Actually, one of the better people to sell this economy, this Trump economy, to the public.

A (19:50)

Public, Yeah.

F (19:52)

I would say, just as a note, I think that part of the, what the administration is doing better this year than it did a year ago is sending the Cabinet, is sending the vice president out on these tours around the country to promote the message that the president delivered on Tuesday. So kudos to the administration for getting their organizational act together and realizing in a competitive midterm, they've really got an extra. You got to work it extra hard. Yes. J.D. vance in the Midwest is a commodity that's worth selling. He's got a lot of popularity in Ohio and Minneapolis, Minnesota, not necessarily Minneapolis and in Wisconsin.

E (20:32)

And.

F (20:33)

And so, yes, I mean, there's going to be some competitive races there, and having him present there is going to help the Republican turnout.

B (20:41)

Well, so if he might be a better person to sell the message, Megan, I do wonder about the message itself that they're trying to sell. You obviously worked for a president that tried and really struggled to say, my economy is better, at least statistically, via the data, than you might feel that it is. We know that dog Joe Biden for much of his presidency in his reelection campaign, while there was one, and it seems President Trump is in the same position now. How do you sell the idea of affordability to an electorate that is still saying, at least to pollsters, things are too expensive?

H (21:14)

Yeah. I mean, J.D. vance can put lipstick on a pig, but it's still a pig. He's going into Wisconsin, where they've lost 2200 manufacturing jobs since Donald Trump took office. They've already laid off 4,000 people in their workforce. And 16 family farms, which is a 700% increase from 2024, have declared bankruptcy. That's not happening because the economy is doing well and these tariffs are helping them. They are a direct impact, and they are attacks on people in their state and they're losing jobs and their economy is suffering because of it. So, so JD Vance can go there and try to spin all of Donald Trump's narratives and the administration's policies, but the fact of the matter is people in Wisconsin, just like along with the rest of the country, really feel it in their pocketbooks when they can't afford things. So they can go there and give speeches, but it does not change that people still can't afford things. And the numbers don't lie. When people's increase in electricity goes up and they can't afford to pay it, that is a real problem for a lot of the American people.

B (22:11)

Well, it's obviously a problem that J.D. vance is trying to tackle today or at least message his way around. But it's not just that that J.D. vance is up to, Rick, because as of Tuesday night, when the President announced it mid State of the Union, apparently JD Vance is also helping to lead the war on fraud, a war that he launched yesterday by announcing a pause on federal Medicaid reimbursements to Minnesota. Is this an assignment that J.D. vance, as we consider not just J.D. vance, the vice president, but J.D. vance, the potential 2028 presidential candidate, is this an assignment that he work for him?

F (22:43)

Yeah, it's a bit of an insider deal. You know, MAGA has been obsessed with

B (22:48)

this,

F (22:50)

you know, situation in Minnesota. It's been highly circulated around MAGA social media platforms, and I would say from what I've seen in the numbers, has not broken into sort of the popular nationwide discussion. The president put it on the agenda Tuesday. I think if J.D. vance is looking to pursue a presidential race in 28 and wants to be the darling of the MAGA movement, then, yeah, it makes sense that he'd want to own this. But I think that from a broader perspective, I can't disagree that unless you're talking about affordability in a place like Wisconsin, especially today, then you're missing the mark on what the messaging is. And so, yeah, great that he's going to do it. I think it helps him with the base of the MAGA movement. Movement. But is that going to change any votes leading up to the midterms? No. And frankly, a lot of his prospects for national office in the future are tied to their ability to not have a bloodbath in November of this year. And so I'm not sure I'd spend a lot of time talking about fraud unless it's directly related to what the price of bacon is.

B (24:09)

Well, Megan, I'd love for you to weigh in on that idea of, of the 2028 prospects as well. I know we're a long way out from that, but it seems that President Trump keeps playing into this oh, who will I pick kind of narrative on JD Vance, the vice president, Marco Rubio, the Secretary of State. And it was not Vance that really was applauded by the president out of the State of the Union, but Marco Rubio, who was called out for his efforts diplomatically on a variety of fronts, and at least half of the room stood for him at that point. Where do you come down on. On this idea of Van Vance via versus Rubio? And the two, of course, are reportedly Very good friends.

H (24:44)

It will be interesting to see how it sort of plays out. I think that part of this fraud assignment is that JD Vance needs something to do, and he needs something that he can actually try to tackle as vice president, because normally the vice president handles a lot of foreign policy. That's what we did when Joe Biden was the vice president. We traveled all over the world and really held the diplomatic core and those negotiations. But Marco Rubio is clearly much more effective at doing that. We saw that in munich this year. J.D. vance kind of went there and. And made a disgrace, had a lot of mess that the United States had to then clean up. But Marco Rubio went, said very similar things, but his tone was different, and he's received much differently abroad. So it's just, it's sort of interesting to see how it plays. I just think that Marco Rubio has more of an opportunity to show the American people what he can do diplomatically and that he's already been a senator. He just, it's. He seems to be a much better candidate.

B (25:29)

And J.D.

H (25:30)

vance will always be tied to Donald Trump's economic policies, where Marco Rubio gets to sort of distance himself from the domestic policy. So it'll be interesting to see how it plays out. But I don't think J.D. vance has a really good shot unless they can clean up the economy and people really feel it.

B (25:46)

Well, on the issue of the economy and of affordability, obviously housing plays a role in that. And we understand that. The New York City mayor, Zara Mamdani, is meeting with President Trump at the White House today to discuss housing. Keeping in mind that the President also talked about Mamdani in his State of the Union address on Tuesday. Here's a reminder. And even the new communist bearer of

A (26:05)

New York City, I think he's a

B (26:06)

nice guy, actually speak to him a lot.

C (26:09)

Bad policy, but nice guy just said they want people to shovel snow. They got hit hard.

B (26:18)

He says he speaks to him a lot. Rick apparently speaking him to him in person at the White House today, according to Bloomberg's reporting. This is via sources familiar with the matter. They're expected to focus on housing development in New York City, specifically discussing ways the city can pave the way for more. More big projects. Are you surprised to see this kind of collaboration between a Republican president and someone he's describing as a communist?

F (26:42)

Any Republican president, yes. This Republican president, no. Donald Trump seems to always fall in love with those he hates the most and obviously said a lot of really tough things about Mandani before The election. Mandani came to Washington, met with the president, and you thought he was his new adopted son. On it's, it's quite a turnaround. But look, I mean, at the end of the day, I think even for Donald Trump, these policies that Mandani is promoting in New York City, especially $100 billion plan to build 200,000 union produced housing units, is more than Donald Trump can, can swallow. Mandani needs the federal government. He won't have that opportunity to get money out of the state and election un here. And so if he wants to make good on his promises, he's got to find a benefactor. And why not go to the biggest person in the world and that's in Washington.

B (27:37)

And I should note that it's actually political reporting that we're leaning on here. Meghann, please weigh in on this as well. If your mom, Donnie, having just kind of ridden this incredible wave to the mayor to become the mayor of New York City with this very specific message to a Democratic base, specifically the left side of the Democratic Party, how does it play optically for you to be working closely with, with this, this president that Democrats clearly are not a fan of?

H (28:03)

I mean, I think it plays well for him. He's, he is doing what he needs to do to get things done for his city. And that's exactly what our elected officials should do. They should cross party lines and, and work with people to get it done. I do think it's problematic for Donald Trump and the fact that he's taking the wind out of the sails of all the Republicans that are trying to paint MNAMI as a boogeyman by working with him, inviting him to the White House and having these jovial conversations. So, you know, it's interesting because, because the whole Republican Party is trying to make the whole country believe that everyone is, and everyone is a communist and it's going to be like New York City when it's just, I mean, that's just not true, as we all know. So the more that Trump cozies up to him and they become buddy, buddy. I think it's just bad politically for Trump and Republicans. It doesn't, I don't think it impacts Democrats at all.

B (28:45)

Well, and when we consider the issue specifically today that they're discussing this one of housing, Megan, is this an area in which Democrats and Republicans, to your point, on working together for the betterment of your constituency, is this going to be one of the few bipartisan areas of compromise, perhaps even legislative effort that we see in this midterm year. Is housing basically as good as it gets? If you're looking for progress on something?

H (29:09)

I mean, I would sure hope so. Housing is extremely unaffordable for people. There isn't enough rental homes for people to live in. So I do think it is a major issue and it's not just impacting cities, it's impacting small communities as well. So it is something that I would hope that people could work bipartisan on because it does impact literally every single person needs a place to live. So I just, you know, if there's one issue that we could create cross the lines and I always thought it'd be health care, but I guess housing will have to do.

B (29:35)

All right, Megan Hayes and Rick Davis, our political panel today. Thank you so much for joining us. And I do want to bring our audience here on Bloomberg TV and radio up to date on what we're watching. In Geneva, of course, talks between the US And Iran that are being mediated by Oman. And Oman is now saying that the talks have finished for today and that the talks made significant progress. Again, it's the mediator that's saying that we'll see what the readout is is from the United States and from Iran whether enough progress was made to avoid military action. For now, we'll have more ahead right here.

E (30:04)

Stay with us on Balance of Power. We'll have much more coming up after this.

G (30:12)

Support for the show comes from Public, the investing platform for those who take it seriously. On Public you can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index. With AI, it all starts with your prompt. From renewable energy companies with high free free cash flow to semiconductor suppliers growing revenue over 20% year over year. You can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few clicks. Generated assets are like ETFs with infinite possibilities, completely customizable and based on your thesis, not someone else's. Go to public.com podcast and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com podcast paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory services by Public Advisors llc. SEC Registered Advisor Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete disclosures available@public.com disclosures.

B (31:14)

You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto Auto with the Bloomberg Business app Listen on demand. Wherever you get your podcasts or watch us live on YouTube, keep in video

E (31:31)

in mind because I did ask Shep about this madhouse reaction today. Thanks for being with us. It's the Thursday edition of Balance of Power. You made it to Little Friday and glad you're here on Bloomberg Radio. We're streaming live as always on YouTube. Search Bloomberg Business News Live. Unless that's already part of your routine. It's nice to meet you here again. Again, we'll welcome our global television audience to the conversation coming up at about 1pm Eastern Time. With our eyes on the other side of the Potomac. We're looking at the Pentagon here in the first half of this hour. We just talked to Becca about Iran. This is a whole different matter involving anthropic. It's a story that we introduced to you earlier this week in a conversation with Gregory Allen at the center for Strategic and International Studies. Gregory Allen, boy, is the the salve that makes social media work. I think more than 400,000 of you have watched this conversation on YouTube alone. You start adding TikTok and the rest and this guy is helping to keep the lights on around here. Listen to Gregory Allen on guardrails that Anthropic wants to see on its AI technology so it will not include mass surveillance or human free weapons. Autonomous economists think the Terminator. Of course the top brass, well I guess beginning with Pete Hegseth don't want Anthropic to be making those decisions. They want to be able to use this technology for whatever they can. Now the best and final offers reportedly gone out and Bloomberg's done a lot of reporting on this. Here's the aforementioned Gregory Allen. His take from CSIS knowing that he worked on the AI program at the Pentagon just a couple days of years ago.

G (33:10)

Listen, I'm sympathetic to the DoD in

B (33:12)

saying it needs flexibility in these contract terms.

G (33:15)

What I think is an unreasonable escalation is threatening to designate Anthropic as a supply chain risk.

B (33:21)

That's what we do when we find

G (33:23)

out companies are secretly have Chinese or Russian ownership to take a domestic AI

B (33:28)

champion at a time when the White House is saying that the air race

G (33:32)

with China is equivalent to the space

B (33:34)

race during the Cold War with the Soviet Union. Union.

G (33:36)

You do not want to take one

A (33:38)

of the crown jewels of your industry

G (33:39)

and light it on Fire over something like this.

E (33:44)

Ah, but that might be about to happen with reports now that the Pentagon's gone out to the old line defense contractors and even some of the new ones to find out how integrated their systems are with Anthropic. How difficult would it be to cut the cord and potentially run this company into the ground if in fact fact they were deemed a supply chain risk? This is what's on the line here. We're talking about a company that was going to be one of the biggest IPOs in the world this year. Hold your breath. Mike Shepard's been reporting on this for days and helped to craft this beautiful big take that we have on the story today. Anthropic's Pentagon showdown is about more than a guardrails. Mike, it's great to see you as always. We're going to get an up or down. The Secretary says by Friday. That's the ultimatum. Is this not looking good?

C (34:34)

It's unclear. We're getting no signal though that the company is ready to yield to the Pentagon's demands that it relinquish as part of its usage policy those two conditions that you just mentioned, no mass surveillance and no fully autonomous weaponry. Now the catch is in this conversation is the two sides. There may be an element of them talking past each other. The Pentagon has said that, look, we just want lawful use of this and lawful use of course precludes mass surveillance of Americans domestically and fully autonomous weapons. They insist that a human will always be involved. But Anthropic has really stood by those two conditions as its red line. And it will be interesting to see how, if at all, they try to come to some sort of final compromise based on that final offer.

E (35:24)

Do we have any sense of. You call Boeing and Lockheed after they do their internal review, what their answers would be, how deeply integrated Anthropic is in these defense companies knowing that their technology was used in the capture of Maduro in Venezuela.

C (35:37)

Well, it's a great question because does it spread? I mean, when you think about the impact of this, how wide is the blast radius of this move? So in other words, if Boeing and Lockheed are using it, say in human resources or in their financial accounting. We have heard so much about the way Claude plug ins can be used across business uses. What does it mean for that? Let's say we're not even talking about say a classified use of this technology by a Boeing or a Lockheed or even a Raytheon or other old line defense contractor. What does it mean for that? Does that mean they have to disconnect that. And what is the business. What are the business implications then for Anthropic there and Greg Allen and other parts of his conversation, which was an excellent interview and I recommend the nearly million people, kudos to them for listening. But if you hadn't, it really was a great, enlightening conversation. That was one of his key points, that this could really spill far beyond just this dispute over the government.

F (36:38)

Right.

E (36:39)

When we're trying to get this industry off the ground, at least by the view of the administration. Just like that. Guest. And Sean Parnell is listening to us again, Mike. He just went up on social media, on Twitter. This is spokesperson for the Pentagon. The Department of War has no interest in using AI to conduct mass surveillance of Americans, which is illegal, he says, nor do we want to use AI to develop autonomous weapons that operate without human involvement. He just wrote this. Yeah, this narrative is fake and is being peddled by leftists in the media. You guys are hearing this as Shep and I read this. This here's what we're asking. Allow the Pentagon to use Anthropic's model for all lawful purposes. Lawful.

C (37:19)

Yeah.

E (37:20)

This is simple common sense request that will prevent Anthropic from jeopardizing critical military operations and potentially putting our war fighters at risk. We will not let any company dictate the terms regarding how we make operational decisions. Get this, Mike, they have until 5:01pm Eastern Time Friday to decide. Side.

C (37:39)

Yeah, and we are bracing for that. And again, you heard the argument there that in essence, we don't need your usage policy. We already comply with it. We don't need these conditions on the contract because we've got you there. But Anthropic is in essence saying they want that additional check. They want that additional assurance, you know, in writing, a pinky swear. I don't know how else to have. How else to put it. And there is a backdrop to this, Joe. And that is something else that in our big take, we explored in the whole question of whether this Pentagon and this administration is fully abiding by the lawful use of force. And you know, what US law and international law have recognized over the years, and this specifically refers to how the boat strikes were carried out, how the raid that captured Venezuelan strong man Nicolas Maduro was carried out. And there were a number of former military officials, members of Congress, human rights observers and others who said, wait a minute, some of those moves have crossed the line. And the question is, you know, is the Pentagon moving too swiftly with this rapidly evolving technology with which when you talk to Dario Amade and others from Anthropic and other AI companies, they all acknowledge it's not perfect, it is still error prone, and they do want to make sure that there is an extra safety and safeguard.

E (39:02)

On God. James is already producing a special for 5:01pm Friday. What do you think of this hard line, though? They're acting like this company has somehow crossed the Pentagon or broken the law. My God, the company's going to turn into a pumpkin at 501 tomorrow.

C (39:19)

Well, this hard line was actually being baked leaked into the AI strategy at the Pentagon for some time. The document that they published last month kind of laying out their vision for accelerating adoption of artificial intelligence by the military, becoming an AI first force that included language, Joe, that really pointed toward doing away with those kinds of usage requirements from the companies that the Pentagon sees as a Hindu hindrance and an insistence on, look, we will use this technology by the letter of the law and therefore we do not need your usage policy. They don't want to be constrained by an additional codicil or asterisk or anything else coming from the company that might, you know, do they want to sign off from the company in the event that they have to go to war that they have to use for worse? And the answer is not going to be phone calls when they don't want to be making that phone call.

E (40:18)

Fascinating, Mike. Well, I guess we're about to find out. A little more than 24 hours from now, we're sitting here talking the morning after in video results. I have to ask you about this because it's the biggest story of the day, of course, in the market and it might be for many more days. Yeah, I'm just trying to get my head around this and pull me in off the ledge. 94% profit growth, 73% revenue, revenue growth. A beat in raise, a conference call that was borderline inspiring. Don't look at me. I don't know anything. And I'm not trying to turn you into a stock analyst. How do we have this experience after so much doubt leading into the tape and a stock that's been just kind of hanging around and everybody wants to sell it.

C (40:57)

Well, you know, Joe, for, you know, the past couple of years, Nvidia really has been the bell of the ball when it comes to earnings, when it comes to tech, when it comes to the AI boom. And some of the bloom is off the rose here. We are really seeing that investors are growing skeptical about how much longer this

E (41:15)

infrastructure about last is it more than Nvidia.

C (41:19)

I think they're also looking at, you know, the longer term what are going to be the long term use cases? Will it eventually run out of steam? Now Jensen Huang and his CFO at Nvidia Colette Crest insisted yesterday that we have enough customer demand sure is going the need for compute power is growing exponentially and we even saw in the past week deals that metastruck to buy millions of Nvidia chips and then AMD to buy AMD stock and buy billions of dollars of their hardware too. So there is clearly some momentum from the so called hyperscalers. And yet also the AMD deal with Metta does raise the prospect of what does that mean for video? Is that some competition and does that put some stress on the long term storyline? And that is something else. And then Michael Burry also weighed in big short. He pointed out, you know, said can't win, he can't win. And the concerns that he raised this morning about you know, purchase obligations.

E (42:20)

Yes.

C (42:21)

Yeah. Going way up and really just ran raising the question about what does it mean if you know the demand train slows a little bit and where does that leave in video. And the words from him really do carry that kind of weight with investors. And we have also seen just the broader fear and loathing about how disruptive AI is going to be and you know what the adoption start to look like across the economy.

E (42:49)

Fear and Loathing with Mike Shepherd. I love it. Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already at Apple, Spotify or wherever you get your podcasts. And you can find us live every weekday from Washington D.C. at Noontime eastern@bloomberg.com

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