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- [00:00]
Joe Matthew
At Duke Energy, we're making smart investments to add enough capacity to power 10.5 million more homes over the next five years. It's all part of our commitment to deliver the reliable energy America needs. Learn more at duke-energy.com poweringamerica
- [00:18]
Kelly
Bloomberg Audio Studios Podcasts Radio News. 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 with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
- [00:40]
Tyler Kendall
We are seeing oil prices an upward trajectory once again today. Despite an 11% drop last week over what's going on in the Middle east, it's the cease fire that still evidently is remaining intact. The question is, are negotiations intact after Iranian media said that Iran is walking away from talks for now given Israeli activity in Lebanon, it' striking that we're seeing Israeli media reports now, Joe, that are suggesting that actually Hezbollah is conveying to the Trump administration that they are willing to accept a cease fire as we see this intensified Israeli effort against the military.
- [01:16]
Joe Matthew
You wonder if this could be a very newsy day on the back end here, Kelly, with the President of the United States that needs to make a decision on an anti weaponization fund to allow reconciliation to go forward in the next 24 hours and also apparently may need to make some decisions. Remember, he was talking Friday about a final determination not been made yet. The President, having spent a couple of hours in the Situation Room on Friday, is still facing some pretty tough decisions and so we want to bring in Tyler Kendall for the latest on this. Bloomberg's Washington correspondent has made her way back over to our bureau from the White House. He spent a lot of time talking on Truth Social over the weekend here, Tyler. I'm still seeing posts that I missed in the throes of of weekend fund here. He says it's much tougher for me to properly do my job and negotiate when political hacks keep negatively chirping. He's telling people to back and relax. It'll all work out well in the end. Does that suggest optimism on his part?
- [02:15]
Maura Gillespie
Perhaps?
- [02:16]
Jeannie Shan Zaino
Joe, that's a good point. At this point though, the White House has maintained that diplomatic efforts are ongoing despite what we saw was an uptick in fighting actually in the region. CENTCOM confirming today that they shot down ballistic missiles that were heading towards Kuwait. The IRGC saying that they retaliated after after the US Targeted Iranian raider and drone site. Definitely something to watch. At this point though, it really feels like the President is urging patience as we get these reports from Israeli media that apparently the president is speaking right now with Israeli Prime Minister Benjamin Netanyahu because Iran has pulled in, that the front in Lebanon must be part of any ongoing negotiation, something that we've seen Iran do before. Right. Try to pressure this in terms of pushing the U.S. s hands in the talk. But I would also point out that at least publicly, the updates that we got earlier this morning and yesterday from Iranian state media showed that the two sides were far apart on some of the key issues, like Iran saying that any discussion about the disposal of the nuclear stockpile will not be in this memorandum of understanding and that Iran would retain the exclusive authority that was the direct quote over the Strait of Hormuz.
- [03:32]
Tyler Kendall
Well, of course, that's not what President Trump has said. He has repeatedly said on True Social and elsewhere that the US Is going to go in and get that nuclear dust out of Iran. So clearly, the public messaging, there's a bit of a difference there. It's unclear what private messaging is, assuming that private messaging is still happening. Happening, because we haven't heard from the US that the talks have actually ended, unlike what Iranian state media have said.
- [03:56]
Jeannie Shan Zaino
Right. So from Iranian state media, we've heard that the two sides have repeatedly traded updated amendments, is what they called it, to this draft memorandum of understanding. Now, the US has made it pretty clear what sort of structure we're putting pursuing here, that this would be that phased agreement that would need to prioritize the Strait of Hormuz reopening. We heard President Trump say as much just last week in the Cabinet meeting. Then the US could lift its naval blockade in return, and then that would start that second phase of tougher negotiations around what future curbs to Iran's nuclear program could look like and what happens to that stockpile of highly enriched uranium. There are so many different threads here at the moment, but so far, at this point, we have to say that the US Isn't letting up its leverage. Right. We heard over the weekend some pretty incredible reporting from our colleagues at Bloomberg News that CENTCOM is continuing to provide information to these vessels to help them transit through the strait in a bid to get any sort of supply to market. But so far, the US Isn't going to deploy those military assets to actually fully escort vessels. So we're still basically locked in a stalemate.
- [05:01]
Joe Matthew
It sure seems like the president speaking to the other financial news network as we speak right now, saying, I don't care if peace negotiations with Iran are over, saying he was going to ask Israeli Prime Minister Benjamin Netanyahu what's going on with Lebanon and says he's not worried about oil prices, convinced once again, as we've heard repeatedly, that they will fall precipitously once the Strait of Hormuz is reopened. But of course, Tyler, it is still closed today. It sounds like there's a lot of crosscurrents, though. There are people talking today. The tectonic plates are moving. We could have news later, right?
- [05:39]
Jeannie Shan Zaino
We certainly could. I mean, we've also seen such a role that our regional partners have played. That's going to be also something to watch on the weekend. We saw this Wall Street Journal reporting that the UAE was actually a lot more involved than previously thought in the beginning days of this conflict. We mentioned Kuwait and the American base there that was targeted by the IRGC just overnight. So it's interesting to watch some of these other channels and some of these other discussions, not necessarily between the US And Iran, but the US and other partners, including here with Israel. Now, on the Lebanon front, we should say that we did see the broadest incursion into Lebanon over the weekend in nearly two decades. But it came as Israel said, that Hezbollah had launched nearly 300 projectiles towards the country. This dynamic, though, is incredibly important because before the conflict started, the US had long said that they wanted Iran's support of proxy militia groups like Hezbollah to be in any sort of final Iranian deal. But so far, this is one of those avenues that we haven't seen Iran back off on. And that perhaps is also adding to the tensions in what these negotiations will entail, because so far, we haven't heard that aspect of it be in any of the reporting about what could be in that memorandum of understanding.
- [06:52]
Tyler Kendall
All right, Bloomberg Washington correspondent Tyler Kendall, thank you so much as always. Now, as Joe mentioned in a phone interview with the other network, President Trump suggested that he isn't worried about oil prices, which he expects will drop like a rock when the conflict is over. But of course, it is seen by some that his pursuit of a diplomatic off ramp here, some kind of deal, is with the aim of getting oil prices down in the Strait of Hormuz back open. Certainly his former national security adviser, John Bolton, seems to fall into that camp. He had this to share with our colleagues on Bloomberg this weekend.
- [07:24]
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Yesterday, I think Trump is getting what he wants.
- [07:27]
Greg Allen
This is a deal about gasoline prices at the pump in the United States. Trump worries obviously about the price levels people are paying.
- [07:35]
Adam Stolberg
He's worried about the effect on inflation. He's worried about the effect on the elections in November.
- [07:40]
Greg Allen
But this is not a deal that
- [07:41]
Ad Read / Sponsor
really ends the war in a satisfactory
- [07:43]
Greg Allen
way for the United States.
- [07:47]
Tyler Kendall
For more on this, joining us now is Adam Stolberg, Sam Nung, School of International affairs chair at Georgia Tech, where Joe and I of course had the pleasure of broadcasting a few weeks ago. Professor, welcome back to Bloomberg TV and Radio. When we consider the chances of diplomacy actually even prevailing here, obviously an open question now with what Iranian state media is saying about walking away from talks for the time being. But if we think about the objective they are trying to achieve, or at least the US Would like to achieve via the reopening of the Strait of Hormuz, the thinking is that would bring some relief to prices at the pump. How quickly would that actually happen even if a deal is to come to fruition?
- [08:28]
Adam Stolberg
Well, that's a great question. And you know, I do think the diplomatic dimension is adding a lot of volatility to everything and that in the short term is having the impact on prices. But I think there's some long term challenges to really seeing structural changes in those prices. One, of course, is that the ships are not where they need to be to be refueled and shipped to the different markets. And of course it takes weeks to get to those markets. The infrastructure has been damaged itself. Supply stocks in different countries and consumer countries need to be refilled to maintain the balance of those prices. And of course, a lot of the institutional stable stabilizers to the oil market have really been torn asunder by this crisis. So there's a lot of uncertainty baked into the system now that's going to be much more protracted than the diplomatic negotiations underway right now, which is why
- [09:19]
Joe Matthew
some professor wonder why oil prices are not in fact higher. I know we're up today. WTI is up 6%. We're about $93 a barrel right now. Brent's at 96. We're well below the highs that we saw at the outset of this conflict. And of course, it's been nothing but time and corrosion ever since. The buffers that we were enjoying are going away. Do you suspect that prices could be significantly higher if we see more weeks of this?
- [09:49]
Adam Stolberg
Well, I think that prices could be significantly higher if the situation sustains itself through the summer because I think that's where the real consumption is going to be driven. And so I do expect to see if we don't see some damping down of the crisis for prices to begin to move up at a much more at a much steeper rate. But I think we're going to be seeing higher prices like we are today through at least the first quarter of 2027, even with a diplomatic settlement today.
- [10:21]
Joe Matthew
Wow.
- [10:23]
Tyler Kendall
Well, obviously that would take us well past the midterms. There's some domestic political considerations here. President Trump, though, has said repeatedly that he doesn't take those domestic considerations into account. He said last week he doesn't care about the midterms. Many that Joe and I have spoken with him said that's really signaling to Iran to let them know that he's not going to be pressure pressured by our own domestic political calendar. But when we think about the other players domestically in the world who might feel this more acutely, whether it's in Europe or elsewhere in Asia, I wonder if you, if you feel like this could reach a point where the kind of global energy shortage is blowing over to an extent, that there is pressure for other nations to get involved to try to relieve this situation.
- [11:07]
Adam Stolberg
Well, I think ultimately the standoff between the United States and Iran is over playing who can play for more time and who feels that time is on their side? I think one of the pressure points, obviously for the US and for the Trump administration would be those midterm elections. But obviously other countries have other pressure points and the oil prices are spiking a lot higher and faster for them in Asia and from in Europe than they are here in the United States. So there are different pressure points. But I think ultimately what you're seeing is that Trump is trying to dampen the concerns and the opportunities for Iran to exploit anxiety at home by diminishing the potential consequences for the United States while trying to keep pressure on. While as we see with Iran, they feel emboldened by the situation there, as evidenced by bringing Israel and Hezbollah back into the negotiations, dragging their feet on the nuclear equation, as was discussed in your previous segment, as well as continuing to fire some missiles on an ad hoc basis.
- [12:13]
Joe Matthew
We asked you a couple of weeks ago when we met, professor, about the potential for well closures. The storage crisis we were told, was looming in Iran. Some thought this would be the catalyst that potentially brings everyone to the table and ends this war. The idea that Iran has nowhere else to put the oil and before they start closing, wells might be more willing to talk. We haven't seen that happen yet, however, and I wonder if Iran is simply managing its production more carefully or if that's something, something that could take place imminently.
- [12:47]
Adam Stolberg
Well, it's hard for me to know how imminent that would be. Obviously, that is a critical issue. But I do think, as you mentioned, Iran has been able to manage its supply, get it out through other channels, obviously use, you know, illicit types of shipments and other outlets. So it's trying to buy for time. And I think what it's hoping is that time is more on its side than, than the pressure building up, as you mentioned earlier, domestically and internationally on the Trump administration to blink.
- [13:21]
Tyler Kendall
Well, when we consider who has time on their side, it seems that Russian President Vladimir Putin is getting warnings that time and spending may not be on his. Bloomberg is reporting today that senior government officials, including the Russian Finance Ministry have warned Putin that spending on the war in Ukraine is on an unaffordable path and risks a widening of the budget deficit. This is even as we see oil prices, prices that are more elevated, which everybody thought would benefit Russia and the relief of some sanctions for Russian crude on the water. How do you see that, that energy driven war economy in Russia and the strength of it right now?
- [13:58]
Adam Stolberg
Well, I think that report that Bloomberg carried is quite interesting, especially because in the report the Finance ministry and the central bankers are particularly calling for cuts in defense spending rather than just overall pain being leveled on the Russian economy. So I think that's noteworthy. But ultimately, I don't think Putin's decision making on Ukraine is determined by economics. And I do think with oil prices higher than they were when the budget was made earlier in the year, that there's maybe thinking by the Putin administration that they can still play for a little bit of time, squeeze out as much as possible while still ramping up the pressure on Ukraine.
- [14:46]
Joe Matthew
Only have about 30 seconds, Professor. We're at $4.32 today for a gallon of regular unleaded nationwide. Where do you think we are by the 4th of July?
- [14:57]
Adam Stolberg
Well, it's hard for me. I'm not, I'm not much of an economist or a gambler. But I would say that even with these on again, off again negotiations, prices are going to be going up. They need to, you know, it's very difficult to imagine, especially in the heart of summer as the consumption demand goes up and without a fundamental stop of this crisis that we're going to see those prices come down.
- [15:24]
Joe Matthew
Well, maybe you don't need to be a gambler. Professor. It's great to have you back on with us. Adam Stolberg, Georgia Tech Stay with us. On balance of power. We'll have much more coming up after this. At Duke Energy, we deliver reliable energy that powers lives, grows businesses and transforms communities. That's why we're making smart investments to add up to 14 gigawatts of new capacity over the next five years. That's enough to power 10.5 gigahertz million more homes. Putting customers first, Advancing American progress, powering the next generation. Learn more@duke-energy.com Powering America.
- [16:08]
Kelly
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 with the Bloomberg business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
- [16:24]
Tyler Kendall
Yes, it's June 1st. Hard to believe that we're already here. I don't know where 2026 have gone has gone to this point, but it's interesting that it is June 1st today because we thought we might be seeing a signing ceremony in the Oval Office at the White House something today because this was the day.
- [16:40]
Joe Matthew
Yeah.
- [16:40]
Tyler Kendall
That President Trump said he wanted to have a budget reconciliation bill to fund ICE and CBP on his desk for signature, having passed both chambers of Congress. It has passed neither to this point, $72 billion worth of spending that we're talking about here going to fund these agencies for three years. But it's getting held up by a separate unrelated but now related issue, which is the $1.776 billion Anti Weaponization Fund that Republicans want to see some guardrails around before they're willing to move forward.
- [17:09]
Joe Matthew
So welcome to June. Rabbit. Rabbit. No bill. And it's not just that. Remember, the ballroom at one point was going to be coupled with this, giving a lot of a billion members of Republican leadership agita on Capitol Hill. Speaker Johnson was in the White House this morning. I don't know if he's potentially still there now, if we knew that he left, but he was behind closed doors with President Trump talking about this anti weaponization fund that reports suggest Kelly could be pulled altogether by the White House if not given guardrails, some of which we talked about with Senator Rick Scott a couple of evenings ago. But it's, it's something that they need to figure out very quickly if they're going to have a vote a rama by tomorrow night and actually get the gears turning up this.
- [17:48]
Tyler Kendall
Yeah. So the question is, can they and what ultimately would those guardrails look like, knowing that this is a partisan piece of legislation we're talking about. They only need to find 50 votes in the Senate for it. But can you get to 50 without adequate guardrails, knowing that there are a couple Republican senators who have been basically ousted by the president in their primaries? You might be feeling like they're ready for a fight.
- [18:10]
Joe Matthew
The new YOLO caucus we keep hearing about. Let's assemble our political panel for their take on this. And they do have one. Bloomberg Politics contributor Jeannie Shan Zaino, our Democratic analyst and Democracy visiting fellow at Harvard Kennedy School's Ash center, is with us alongside Republican strategist Maura Gillespie, the founder of Blue Stack Strategies. Maura, I'll start with you as you spent a good chunk of your career working for a former Republican speaker of the House in John Boehner. How do you manage this one? Is the job for Mike Johnson, which seems to get harder on the Daily to convince the White House to withdraw this idea altogether or craft enough guardrails that makes the rest of the conference happy?
- [18:53]
Maura Gillespie
Well, I think when it comes to Donald Trump, you have to play to his ego. So what is going to be more palatable for him? Are you, you know, does he feel better about hearing that there's going to be guardrails around him? I don't know that that's the case. Or does he pivot, remove this from consideration and go on to the next thing, which I feel is more in line with what Trump does is that not necessarily taking it as a loss, but pivoting to something else that he cares more about at this current moment. Again, I think when you have this judge that's now looking into the case itself. And so then to create this weaponization fund with money that you may or may not have with a judge looking into it, I think it's better to pull it and then pivot your attention elsewhere. And so I think for Mike Johnson, the challenge becomes how do you relay that message to the president without necessarily saying you don't have the support in Congress? I have members who will not touch this at the time of the poll. And you need to get this off the table so I can do my job. That's obviously not what Mike Johnson's going to do, but he's going to do it in a way that sounds very more appealing to the president and is more in line with showing him flattery. And, you know, I'm on your team, I'm on your side, let's work together type thing.
- [19:53]
Tyler Kendall
Well, and of course, it's not just Mike Johnson, Jeannie. I would imagine Senator John Thune has a pretty similar message as it was the Senate that had to shelve this thing before the Memorial Day recession.
- [20:05]
Kelly
Yeah, absolutely right, Kelly. And you mentioned prior people like John Cornyn. And I don't know if we talked about this on Friday. But John Cornyn put up a very, very interesting excerpt tweet where he talked about fable and it's right, Fable scorpions, you know, people saying they're not going to they're doing things because of their character. I mean it really does raise the question is he going to be this kind of renegade when he or now that they are back and what does that do to things like that, this slush fund? And of course I think the White House would be smart to try to pull it. The problem is is Democrats are still going to be able to introduce amendments to this bill saying what the White House cannot do. And that is again going to cause consternation because you're going to have Republicans who also want to sign up for that because they are very upset. And we heard this from the former vice president over the weekend saying they do not support this kind of anti weaponization bill that could give funding to people who attacked the Capitol and cops.
- [21:10]
Joe Matthew
Well, look no further than the latest dear colleague letter from Chuck Schumer dropped late yesterday to get the tongues wagging this morning. He points to a coordinated effort as he writes to kill the slush fund before $0.01 goes out the door. How do you do it, Jeannie? He says if you Republicans return to reconciliation, which they will, we will be ready with amendments to shut the fund down. They try to bury the issue, will force them to the Senate floor. If they try to sneak behind appropriations, we'll fight them there too. But he's in the minority. Is he counting on Bill Cassidy and John Corn and Thom Tillis to help him out?
- [21:48]
Kelly
Yeah. I mean there is no question the weaponization, the ballroom that you guys were just talking about, this has been wins for Democrats just in terms of messaging. And you're hearing that in Chuck Schumer who is saying Republicans can try to run away from these two unpopular things but they cannot hide because we are going to force the issue on amendment. And again, they can do that because there is a justice line in this bill. And so this is why Republicans have a problem. And I think the thing that we forget is this bill would have probably passed already and we would talking of be talking about the more difficult reconciliation 3.0. If the President didn't continue to be pushing for things that are widely unpopular with his own party, should we just
- [22:33]
Tyler Kendall
be writing off the chances of a 3.0 reconciliation bill at this point? More of the August recess is looming. The midterms only get closer. And clearly 2.0 is challenging enough.
- [22:44]
Maura Gillespie
It is you know, you have six weeks right now until the August recess. And after that, you really have maybe four weeks until members go home to campaign for the midterms. So at least in the House and Senate as well, should be out there campaigning for their colleagues. But it's an interesting timeline to be looking at. You know, it's June 1st, as you said, but really, there's only a handful of weeks to play with here for Republicans to get done what needs to get done before they go home. And so I do think that there is this opportunity when you have the ballroom spending, as Jeannie talked about and you all talked about this, the slush fund bill, all these things that have added cost to the American taxpayer. And Republicans pride themselves on being fiscally responsible, and so can they reclaim that message? And I do think it requires not just this yellow caucus, as you called it, Joe, but more members to stand up and say, we are the party of fiscal conservatism. And so looking at what we're spending and how we're spending it, and are we being accountable for those dollars that our taxpayers are even more so cognizant of, when gas is where it is, where groceries are where it is. And so there's a real, I think a real opportunity for Republicans to, to rally together at what they stand for and the values that conservatives have. It's, it's part of why I'm a Republican. Right. I believe in where does our money go and where is it being spent. And having that transparency, you know, front and center, that's really being denied a lot by the Trump administration. They're certainly not putting forward conservative principles and policies. And so Republicans have this opportunity right now. I've been saying it for a little while, but I really hope some people take heed of this. But there is this, this place where they need to be standing in terms of where are we spending our, our, our constituents money.
- [24:13]
Joe Matthew
We've got a new post on Truth Social from the president which takes us a bit off topic, but, but not if you'll put up with me. I had a very productive call with Bibi Netanyahu. He writes, israeli prime Minister, there will be no troops going to Beirut, and any troops that are on their way have already been turned back. Likewise, he says, through highly placed representatives, I had a very good call with Hezbollah, and they agreed that all shooting will stop, that Israel will not attack them, and they will not attack Israel. This is incredibly important because Iran earlier today warned Israel about its continued assault on Lebanon, suggesting that it was a violation of the ceasefire and threatening a much wider conflict as a result. Headlines are just now crossing the terminal and we're going to keep tabs on the market reaction here, knowing that oil prices were already higher and they're coming back from their highs right now. A Dow industrial average that was was lower is now coming off of its lows and The S&P 500 is up 21 points. Jeannie, there's still the matter of war powers. Even with everything that I just said, it is expected that if legislation hits the floor this week, it will pass. Do you believe that?
- [25:28]
Kelly
I think it could. And I would just go back to the president's statement. I mean, this is not the first time we've seen a statement from the president and something different coming out of other parties involved. So again, we don't know how Hezbollah is. Israel, Iran and other parties to this war are going to respond. But I think we have to take a wait and see attitude because let's not forget, Israel took a castle in southern Lebanon just in the last weekend. And so this is would be welcome news if they agreed to not go to Beirut, if they, if Hezbollah agreed to all of this. But the president has been stepping out above his skis during this entire war, making statements that we've then had to walk back or he's had to walk back. I do think there is going to be a war powers vote. That's why the House fled Washington ahead of Memorial Day. They knew that was going to pass. And I think there's a very good, a very good chance it passes. Then, of course, I think the president will either ignore it, as Senator Graham has advised him to do, or they will. And, or they will try to take it to the Supreme Court and try to fight it. And it's not the first time that that bill, which many believe is unconstitutional, the War Powers act, has been challenged in court. So it will be, though, I think an important moment as Congress has not yet given their advice on this war yet.
- [26:53]
Tyler Kendall
Well, so Maura, we do know that war powers vote is at least expected to be put on the floor on Wednesday. Is it your also your expectation that it will pass and if so, so what?
- [27:05]
Maura Gillespie
I think it will. And I do think that, you know, one thing that just struck me as Joe was reading out that tweet or two social post is the fact that we were sitting here wondering, is that true? I think there's a lot to be said about the fact that we're not even sure if those phone calls necessarily took place with Hezbollah. Who does he talk to who is he? Who is the representative there? Are they speaking for Lebanon? Are they speaking for all the people? And so there's a real concern there that I have just thinking about is that true and what of that needs to be walked back? What of that do we need to look into further? Because this playing with the markets by posting things on true Social that don't end up being coming to fruition is jeopardizing not only our economy but our standing in the world when you have someone who is sharing every thought, every whim and what he wants to be true, putting it out there like that. And so I have concerns greatly there, but I'm hopeful that the Congress can reclaim their power and their authority when it comes to the authorization of war powers.
- [28:03]
Tyler Kendall
All right, Maura Gillespie and Jeannie Shan Zaino, our political panel today. Thank you so much. And as Mora pointed out, we have heard from President Trump on this. He says he's spoken to both Hezbollah representatives and Israeli Prime Minister Netanyahu. And Israel will not be attacking Hezbollah further. Hezbollah will not attack Israel, but we have yet to hear confirmation of that from those two other parties.
- [28:22]
Joe Matthew
Joe, that is is absolutely right. And we're watching the market react to this with some ups and downs. It's a bit of a confusing play here. Stay with us on Balance of Power. We'll have much more coming up after this.
- [28:36]
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Tyler Kendall
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- [29:35]
Kelly
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 with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg 11:31 of
- [29:55]
Joe Matthew
these days though, Amy Morris will be giving us live coverage of an anthropic ipo. We can confirm that today. I know you saw it coming, but we actually have confirmation today through a confidential draft that was submitted to the SEC and the philanthropic BBC submitting draft paperwork for the public listing, potentially leapfrogging open air to the public market. Caylee, that would be a big deal in a company that has been valued at nearly $1 trillion.
- [30:21]
Tyler Kendall
Yeah, it just closed that funding round last week. That values it post money at $965 billion. Now, of course, going to public markets and public markets are going to be real crowded with some of these juggernaut companies because of course SpaceX is expected to IPO in just a couple of weeks. And as you said, OpenAI, we think was targeting fall as well. So these two might be racing each other for that fall IPO. But we want to get into all of this and the policy that is going to be shaping these companies, that will be public companies in the not so distant future. As we turn now to Greg Allen, of course you're familiar with him here on Bloomberg TV and Radio. He joined us in his previous capacity frequently at the center for Strategic and International Studies, but as of today is launching a new company. He's the founder and CEO of Decision Tree Research. And what you're doing is focusing on policy of not just artificial intelligence, but all of these geopolitically significant technologies, be it semiconductors, defense tech in the like. An interesting moment for you to be doing this. Clearly an exciting moment for these companies and these capital markets when we consider the race that specifically these juggernauts seem to be in to go public. It's not just a question of if they beat each other, are they also going to beat a regulatory framework that guides them as public companies operating in this space than we just saw a few weeks ago the president polling an executive order that would have helped regulate AI.
- [31:41]
Greg Allen
Yes. And all of these big muscle movements are happening at the exact same time. You know, they're trying to IPO on evaluation in the absence of a regulatory structure. And one of the things that might determine some of that valuation is a regulatory structure. So there's so much uncertainty going into these extraordinarily generous valuations. I have an MBA and I think it's useful sometimes to just go back to business 101. What do these valuations mean? If you were to buy an annuity that was valued at a trillion dollars, the interest free, risk free rate is currently 4.5%. A trillion dollar annuity would mean $45 billion in guaranteed cash every year for the rest of time. And they're saying that these companies, some of which not only don't currently make a profit, but actually lose significant amount of money every year, are worth north of $1 trillion. What's that kind of bet based on? It's based on the explosion in revenue that they're generating. Anthropic has disclosed some of their run rate numbers and they are jaw dropping.
- [32:44]
Joe Matthew
Staggering.
- [32:45]
Greg Allen
End of last year they were at a $9 billion run rate, which means if you took their December monthly revenue and turned it into a 12 month annual, it would have been $9 billion. Now it's reportedly north of $47 billion. That is 5x in the company's revenue in five months. That bodes well for the future of this company. But as you started out by saying, there's so many different things going on, there's still so much uncertainty in this ecosystem.
- [33:10]
Joe Matthew
I can't imagine why someone would want to open an AI research company.
- [33:14]
Greg Allen
There's a lot of unanswered questions and I'm happy to try and listen to.
- [33:17]
Joe Matthew
Congratulations. We're very happy for you here because you've helped us understand a lot. And I want to go back to this was almost two weeks ago. The President decided to cancel a signing ceremony for his AI executive order. He was asked about this, but there were executives on their jets in the air on their way to Washington. When he pulled the plug on this event, reporters asked him why. Here's what the President said.
- [33:38]
Adam Stolberg
I postponed it.
- [33:39]
Joe Matthew
I think it gets in the way of, you know, we're leading China, we're leading everybody. And I don't want to do anything that's going to get in the way of that lead. We have a very substantial.
- [33:49]
Adam Stolberg
And it's causing, it's causing tremendous good
- [33:53]
Joe Matthew
and it's also bringing in a lot
- [33:55]
Adam Stolberg
of jobs, tremendous numbers of jobs.
- [33:57]
Joe Matthew
Again, we have more people working right now than we've ever had. I really thought that could have been a blocker and I want to make sure that it's not a blocker. He said somebody got on the phone with him. Reportedly it was Zuckerberg, Elon Musk and others.
- [34:11]
Greg Allen
David Sachs, the former White House AI
- [34:13]
Joe Matthew
author, might have that cell phone number, that it would interfere with competitiveness. Is he right?
- [34:19]
Greg Allen
Well, let's start with sort of what's reasonable in what the President is saying. He's talking about competitiveness mostly with China, which actually has AI models, some of them are pretty good. And depending on how you sort of measure how good the AI models are, you can say roughly that the United States has something like a 12 month to 18 month lead on China in terms of where their models are today and where our models are today, and sort of where their models are compared to where we used to be. Now, the draft executive order, which was leaked because all these executives had a copy, they had been told in advance, they were in the air, as you pointed out, and that was talking about a 90 day pre release review period. So think about if you're President Trump, okay, 90 days and we only have an 18 month lead. So we're going to consume, you know, a month and a half of that just for risk reduction. Is that a reasonable trade off? Well, here's the thing. It wasn't even mandatory. As I said, we have the text of the executive order and it was voluntary only. So if there really was some kind of concern, right, that this was going to take too long, you didn't even have to ask permission to not go through this sort of framework. And so you have to ask yourself, why is the government opposed to building the kind of capacity that we need to ensure that these models are safe, that they're going to work as intended and they're not going to get in the hands of the wrong people? Let's not forget sort of how we got here. The Trump administration took office saying they wanted to dismantle all kinds of AI regulations, that the risks were not that significant. Then they met Claude Mythos, and according to some of the reporting on this, half of all the cybersecurity vulnerabilities that have been discovered ever were discovered by Claude Mythos just in the past handful of months. I mean, this, this thing is a chainsaw to most organizations. Cybersecurity. Now imagine if Anthropic had taken a different approach to releasing that model, just throwing it out into the wild and saying, anybody who wants to use it can use it. I think a lot of banks would have been opposed to that kind of outcome. A lot of healthcare institutions would have been opposed to that kind of outcome. And so Anthropic was kind enough to go off and do this. But how do we know that future executives of future companies, companies are going to have that approach? And how do they even go to the government for help? Right. One of the things we need the government to do is to invest, to get good at these types of skill sets so that there are people who companies can call to check their homework and understand whether or not they've done a good job securing these models.
- [36:46]
Tyler Kendall
We want to continue this conversation on the models. I do just want to mention, though, a redhead that just crossed the Bloomberg terminal. It's actually coming from a true social post from the president regarding talks with Iran, which he says are continuing, and he says, quote, they are continuing at a rapid pace with the Islamic Republic of Iran. Thank you for your attention to this matter. That is all the president said, no context as to whether or not these continuing talks are going well. And yet it seems to be enough, at least for equity markets, which just hit session highs were around 7,613 on the Nasdaq. On the S&P 500, the Nasdaq 100 briefly was up a full percentage point right around session highs as well. So we'll continue to monitor that. But we also want to continue this conversation on AI. You were talking about the notion of our competitiveness with China and how we do have a lead on that. How much of that competitiveness doesn't just come from making sure that our artificial intelligence companies have an advantage and aren't running into red tape versus also making sure that China can't access the chips to power their own artificial intelligence development.
- [37:42]
Greg Allen
Well, this is obviously a topic that has been at the center of US Foreign policy for years, years now. I mean, it started really with the first Trump administration trying to restrict Huawei's access to advanced chips. They were thinking about phones and laptops, but now we know really what counts for strategic impact is thinking about AI. Well, the Trump administration has been back and forth on this issue. First they tightened controls, then they loosened them, then they loosened again. But there was one line that the Trump administration, and President Trump himself said he wasn't going to cross, and that was selling Nvidia Blackwell chips to China. The latest and greatest. But according to an issuance from BIS just on May 31, just yesterday, they had to issue a clarification on a rule that made it obvious that they have been allowing the sale of Blackwell chips to go to Chinese companies not based in China. So President Trump assured Americans that China wasn't going to get access to to these Blackwell chips. But now it's clear that his own government is saying, actually because of how we were interpreting our own rules and how we were not clarifying the questions that companies were asking in terms of what was allowed and allowed, they allowed a lot of these sales to go through and we don't know the full scope of just how many chips were sold but ask yourself the question, why was China so casual about saying, we're not going to buy any of these Nvidia Hopper chips? A plausible explanation. Because they were allowed to buy the better chips and they just didn't want to say the quiet part out loud. Wow.
- [39:10]
Joe Matthew
Incredible. We heard from Jensen Huang himself last evening. This is the Computex annual speech and event is a big keynote, tends to move the stock and today it is for the better. I'm going to ask you to play that SOT in a second here, Sam. There were a couple of announcements that came out of this, including a CPU that would make your your own laptop or PC AI enabled. That seems to be moving the stock. But more interesting for this conversation was what he had to say about coding and the SaaS apocalypse that we've spent so much time talking about. We're not going to need fewer coders, we're going to need more is essentially what his message was. Listen to Jensen Huang at Computex.
- [39:52]
Greg Allen
People talk about AI reducing jobs. Complete nonsense.
- [39:57]
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It's causing more software engineers to be
- [40:00]
Joe Matthew
hired because the output is so incredible.
- [40:02]
Adam Stolberg
People want to hire more software engineers. This is going to show up in
- [40:05]
Greg Allen
our economy somehow soon.
- [40:08]
Adam Stolberg
And so the first thing is useful AI has arrived.
- [40:13]
Joe Matthew
It's an incredible time to be a software company, he says. We're going to be hearing from CrowdStrike and Palo Alto this week. Left on the side of the road in the SaaS, but most recently have been rallying because of what you pointed to. Mythos that in fact we will need cybersecurity to deal with these threats. What do you make of this confusion over software and its relation with AI?
- [40:35]
Greg Allen
Well, so Huang's comments are actually correct in the data that we can observe, but they need a little bit of context. It's not just every type of software developer. Demand for them is going up. It's really those most seasoned engineers, the ones who are qualified to grade AIs homework and observe when it's going in the wrong direction. If you have a complete novice who is using AI to generate software, they can get a little bit down the road before they find out that somewhere their AI made a wrong turn and they're not really qualified to assess where that wrong turn was. So the job breakdown has sort of been we need fewer entry level people, the kinds of folks who are probably not qualified to oversee and check all the work that AI are doing, and more of those seasoned people who can actually understand and make use of these tools. Those types of individuals are 10xing. Maybe 100x ing their productivity. And if I told you that, you know, a software developer today, for the same price can do 100 times more work than they did last year, you might want to hire more of those folks this year. But what actually determines the overall ceiling for labor demand is the elasticity of that demand, which is to say, if the cost comes down, how much more do you want to buy? Think about this in terms of food production in the United states, right? In 1920, one out of every three Americans who had a job, had a job on a farm. And today we produce way, way, way more food with way, way, way fewer farmers. And that's because we can all double the amount that we can eat, but we can't 100x the amount that we, we can eat. So that's how the job destruction leads. But in Software, you can 100x the amount that you see. Elasticity of demand. We're nowhere near the clearing point.
- [42:17]
Joe Matthew
They're really fascinating and I can't wait to hear what kind of clients you assemble for your new firm. Decision Tree Research is the name of it. The sage of the most important technology of our time. Gregory Allen, it's wonderful to have you back with us. You're always welcome here. I think you know that.
- [42:34]
Greg Allen
But thank you so much.
- [42:34]
Joe Matthew
Shedding light on some really complex stuff here, Kelly. The President said he postponed that EO signing, but we don't have another date for it, do we?
- [42:42]
Tyler Kendall
No.
- [42:42]
Joe Matthew
Okay.
- [42:43]
Tyler Kendall
We don't. Maybe we'll see these companies come to public markets before we actually see an entirely possible sign the sequence here. We have a lot of questions. So we're not hearing from President Trump on that, though I would reiterate that the news just broke from his true social feed a moment ago that he says talks with Iran are continuing at a rapid pace and that's given a little more juice use to equity markets.
- [43:03]
Joe Matthew
You wonder if they open some of the events he has on the schedule right now. All close to press today and we'll find out between now and 5pm Eastern when we meet you for the late edition of Balance of Power. We could have some news by then alongside Kailey Leinz, I'm Joe Matthew. Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already. Apple, Spotify or wherever you get your podcasts and you can find us. Listen live every weekday from Washington D.C. at Noontime Eastern@Bloomberg.com Game Night Rush or
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Joe Matthew
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