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this is your weekly Washington Policy Pulse on the Balance of Power podcast. I'm Joe Matthew. Every Monday, Bloomberg Intelligence senior policy analyst and friend of the show, Nathan Dean shares his weekly call on upcoming catalysts in the nation's capital. Listen for the most recent and relevant policy research from our team at Bloomberg Intelligence. Now with today's installment, here's Nathan Dean.
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Good morning and good afternoon everybody. My name is Nathan Dean. I'm a senior policy analyst with Bloomberg Intelligence here in the Washington, D.C. bureau. Say thank you very much for joining the Washington Policy Post today and also want to give a bit of a shout out thank you to those of you who are listening to us via the Balance of Power podcast. We always appreciate you listening and your questions, your inquiries and your support. Today is June 1st. Happy June. It is 10:02am Eastern. I like to timestamp it just because Washington moves fairly quickly here. And let's start with a reconciliation update. It's been a while since we've had a conversation, but I think it's a good way just to reassess where we are, especially as the House returns this, sorry, the Senate returns today, the House returns on Wednesday and you're gonna see a lot of news about reconciliation again. So what the Republicans were trying to do is use the reconciliation process, which allows you to avoid the filibuster, to advance a $72 billion package in this case that would fund the Department of Homeland Security and ICE and Customs and Border Patrol. As you may recall, those negotiations broke down at the last second due to this idea that there was money about approximately $1 billion in there for the construction of the White House ballroom. And now you also have questions over the 1.7 billion DOL that the President has said that he wants to use for anti weaponization purposes. So where we are right now is that, look, it's a very difficult week for the Republicans. They are not going to have an easy week in particular. But the key thing to note is this, is that I still think this bill can pass. I think both those avenues, the ballroom money and the weaponization money, I think that gets stripped out of this. I think they can pass just a clean bill. But even if they don't, it's not that big of a deal to markets. This is $72 billion that otherwise would have gone through appropriat. So you're not really seeing a deficit impact here all that much. And we've looked at it and there's very few companies that are actually going to be impacted by this with the exception of two. There are private prison stocks in the United States that are somewhat moving on this. There are two companies. First one's called Geo Group, the Second one's called CoreCivic. Now we looked at it a little bit here and there are essentially two avenues. One is, is that if you have a funding of $72 billion for the Department of Homeland Security, you essentially fund it beyond President Trump's term for the rest of his term. And or the idea is you could have an immigration policy that remains in terms of the number of detainees for these stocks that would go for the next two years. The companies, if you look at their quarterly earnings reports and their calls, essentially said that that's sort of baked into their scenario here. But there are some people on Wall street that think that also there could be asset purchases here at play that in particular Geo Group, for example, has some assets out there in the region or in the states that the potentially could be transferred over to ice, for example. And so there's some sentiment out here that ICE would actually purchase assets from these two companies. And so as a result, both companies are sort of moving on this news. So, so just something to keep in mind if you're in that space. But what the reconciliation debate has done by the Senate pushing it from May to to now is they've actually delayed work on housing and crypto. Now as a reminder, there's a housing bill out there. This is actually very important for single family REITs. It's also important equity companies like Blackstone because even though our colleagues, Paul Goldberg, for example, has put a note on the terminal showing that Blackstone in particular has a very small exposure to this. Just the sentiment and the headline risk somewhat pulls those private equity companies in, for example. But what you should know is this, is that the House bill which passed the House and then they sent back to the Senate as remember both the Senate has passed a bill and the House has passed a bill, but they haven't passed the same bill. And the most biggest provision that's differencing between the two is that the House bill does not include a provision that would require companies to dispose those of their build to rent communities after seven years, which you know, Jeff Langbaum, our analyst in the space Would say very detrimental to the build to rent sector. The House has excluded that package, sent it over to the House or Senate and both sides are essentially saying you need to pass my bill. And both sides are saying the president supports me. Well, the last president support update we got is that the White House now supports the House version. I wouldn't be surprised if you saw the Senate, and this is my thesis on this, is that the Senate honestly is just gonna get tired of this and just say let's just pass this and be done with it. You know, Senator Tim Scott and Elizabeth Warren over at the Senate Banking Committee have said that there's more work that needs to be done. But when you only have a handful of days until the August recess and there are other things out there like reconciliation package, another reconciliation package, passing the FISA bill, trying to get that done this month. You now have a housing bill, you have a crypto bill. Oh, by the way, you also have an election in August where half of these lawmakers don't want to be here. They want to campaign. I think the Senate eventually just says, look, we're just going to pass the housing bill. Could see some movement on this week. But again, just keep that in mind. Let's also do a real quick status of the crypto bill. The crypto bill has passed the Senate Banking Committee. It seems that the deal on stablecoins is the deal. Remember, this is the stablecoin deal that allows you to pay rewards based off transactions market making use of product and service very broad. Expect that fight to go out to the law or the regulatory agencies when they implement this. But the new fight is over ethics linguist and it always was going to be the case. In fact, CEO Jamie Dimon over at JP Morgan just said over the weekend that he's very much against this language in here. But the idea going into the Senate Banking Committee was that this was always going to be an issue. But the idea here is it would be hashed out on the floor of the Senate. And I do believe at this point I'm still at a 70% chance of passage here. I could be a little bit out of consensus. I didn't look at the Kalshi contract this morning, but you know, I'm still at a 70% chance of success here because I think they can figure out a way to get the ethics language together and also figure out a way to grandfather essentially the Trump administration because that's where some of the hesitation is here. Grandfather put the Trump administration. So some of the ethics language about preventing federal lawmakers from profiting on token programs that they release as part of this would start potentially January 21, 2029 or something like that. I don't know. But I do think they'll be able to figure that out. So again, it time's ticking though. I mean, don't get me wrong, there's only a few days before the August recess. And when they come back in September, they got to deal with the highway bill and they got to do with the government funding bill. They get to keep the government open past September 30th and then they're not here in October and then all of a sudden you have lame duck. So there's not that much time left. I mean, I like to joke sometimes it's very poor joke, but I like to joke that around Memorial Day it's time for Washingtonians to shut it down for the year. I mean, there is not much time between, you know, Memorial Day and the end of the year when it comes to Washingtonians during the, during the election, the season. So maybe it's time to shut it down for a year. Obviously I work for Bloomberg, so we're not going to shut it down for the year. Real quickly. On the highway bill, just one thing to note is that there is some infrastructure names. This is Market, this is Marietta. I almost said Marcus Mariota, as in the Washington Commanders quarterback, I think, Sorry. No, it's Marietta, Vulcan and CRH are the three names that you need to watch here. Our analyst Spencer Lieberman out in Chicago has been tracking this along with myself. On the highway bill, what you need to know is $530 billion is the proposal. This is over five years. This is an extension of the $1.2 trillion Infrastructure and Jobs act that is now done in 2026. I mean, it's crazy to think that 2021 was only five years ago. It seems like it was just yesterday. But now we have a five year bill that would get $530 billion over the next five years. Now the legislation came out and it favored mostly bridges, roads. There was a provision in the markup on railways. But largely it figures those cement companies and those companies that actually deal now included in. There is two things though that are a little bit of interest. So there is a tax in here on electric vehicles. It's $130 annual tax per EV, $35 annual for a hybrid. And this would actually go to make up the highway trust fund for the lack of federal gas tax that these cars are actually paying here. You're starting to See, some of the Democrats somewhat be opposed to this, even though that the language came out did have some Democratic support. There is some hiccups on this. We've talked to our analyst Steve over this. He said it's not that big of a deal. So if you're looking at the EV impact of it, $130, like if you're going to buy a $90,000 electric vehicle, you could probably afford $130 federal EV tax. But again, that's a hiccup here. The other thing to keep in mind is, is that with the straight of four moves continuing to be closed, there's now pressure on this idea of the federal gas tax drop or even a federal gas tax holiday or something like that. We've talked about that in a prior call where we don't think that's going to go forward. And even if it does, we're only talk when the price of gasoline is $4.50. Funny enough, when we were in Europe last week, I also said I fully recognize if you're sitting in London or if you're in Paris right now, what you pay per liter for petrol is a lot more than what we're paying for per gallon in the United States. But Americans do not like high gasoline prices. And because we're still at around 434, 50, you know, the Trump administration number that really people have been looking at is that $5 to $5.30. So as of right now, again, I don't think the federal gas tax is going to happen all that much. And for the highway bill, our thesis has been is that there's just not enough time to get something like this done. I don't think that there's really real controversy here with the highway bill. But come September, look for them to kick the can a little bit and maybe either get this done during the lame duck or first part of the next congressional session. Just a couple of other things. Keep in mind there is a war powers vote coming up this week. The Senate was 5050 last time this happened. Now with the way that things have changed, you know, Senator Cassidy, Senator Cornyn in Louisiana and Texas have lost their primaries. They are going to feel a little bit more emboldened to vote their way. Henrietta Treyes over Veda Partners just this morning said this and I'm going to completely steal it. She's now calling this the YOLO conference. You only live once. Well, there's a lot of senators out there who are not going to be returning and as a result they're not going to be able to vote their way. I wouldn't be surprised if this War Powers Resolution actually passes. Now. What does that mean? Absolutely nothing. Because War Powers Resolution needs to get a veto proof majority in order to force President Trump's hand. That's not going to happen, but it is going to put more and more pressure on the President to sort of deal with the Strait of Hormuz. And as we saw just this morning, and I'm reading the headlines on the terminal right now, I ran to halt messages exchange with the US Over Israel. So again, the Strait of Hormuz issue continues. And as a result, my friends over at Bloomberg Economics who sit right behind me are going to continue to be really busy on that. Just a couple other small things. The one big thing from our trip to Europe that I wanted to highlight was pretty much every client we met with, our thesis to the client was that they need to be more cognizant of what tariff volatility and tariff transparency is coming, especially in 2027. And there was this general sense that tariff status quo was going to be sort of the case because of President Trump's disapproval rating, which is currently around 37 to 39%. Now, I would argue that disapproval rating is largely because of independence. The Republican Party largely continues to support the president. But you know, President Trump continues to view tariffs as a way to conduct negotiations. And as a result, you know, while you may not see tariffs move all that much in advance of the November election, come after the November election, things may change. As a reminder, you know, President Trump lost the ability to use IPA tariffs. He now has to go to Section 122 tariffs. The Section 122 tariffs are a stopgash measure. And the US Trade Representative, the Department of Commerce are currently conducting investigations. They just launched a new one in Vietnam last week, for example. When those investigations are completed, which could be as soon as today. I mean, it's not going to be today, but as soon as, you know, imminently, President Trump is going to be able to go back and use tariffs and you'll get a very similar situation to we got three weeks ago when I was on a Friday afternoon call it, I think it was like 8pm London time, you call it 3pm Washington time, where President Trump said, you read an article about how the US and the EU was struggling to do a trade ratify. The EU was struggling to ratify its trade deal with the United States. And President Trump essentially said, look, 25% tariff on all EU automobiles. Now, you know, he doesn't have the justification to do it then. And those tariffs never came into fruition. But once these investigations are complete, then that type of reaction, market reaction, is coming back. Something to keep in mind. I think that was the biggest takeaway from our trip to Europe. Two final things. One is several of us at BI are putting together a deep dive report on the future of prediction markets. Highly recommend. When that comes out, just shoot me an IB and I'll get a copy of that to you. There is a living breathing portion of that. It's already on the terminal. We're just adding a little bit more into a PDF format. So if you're off terminal, you want a copy of that, just I can get that to you in a week or so. If you're on terminal, just shoot me an IB and I can send a copy of that to you today. When it comes to the cftc, though, forever. Forever when it comes to the cftc. However, when it comes to prediction markets, I had to eat a little crow last week. If you've been following me and if you've been reading my notes on prediction markets, you know that CFTC put out an ampr, what is known as an advanced Notice Proposed Rulemaking. I thought this meant that there wouldn't be an NPR a notice of proposed Rulemaking until later this year or the beginning of next year. Well, our friends over at Bloomberg News reported that it is now currently the proposal is currently sitting over at the Office of Management and Budget at the White House for its review, which means the proposal has been written and currently is in the final stages of being released. This means the proposal could come out imminently, probably within the next few weeks. Fastest I've ever seen it from when it's noticed to when it's come out is probably about a week. Sometimes it's taken about three months, but let's just call it probably after the Juneteenth holiday, which is June 19th here in the States. So what does this proposal most likely have in it? Well, I just put the update out of the terminal. If CFTC wrote this thing really quickly, which is it seems like they did because they went from AMPR to NPR fairly quickly, it looks like it's going to be one of those proposals that essentially reaffirms these event contracts as swaps, gives them federal jurisdiction under the Commodity Exchange act, and also has a affirmation of which contracts are considered out of bounds, terrorism, assassination or et cetera. So I don't think it's going to really change all that much. One thing I am looking for though in this is this idea of a self listing standard, very similar to what you have over at CME or at ICE in the derivatives exchange, where you essentially say, look, here's a contract. I think it meets the blessing of the cftc, therefore we're going to be able to self list it. You know, maybe and CME Group has said this that they're not entirely comfortable with the listing standards of event contracts. And look, we've seen event contracts in the case where it's like the CFTC has had to come in and say no, you can't do this. So we'll see. But if that proposal comes out, say this year or this month, we could see something as you know, so you know, it'll be one of those things where maybe it'll be finalized by the end of the year, probably the beginning of next year. So last thing, and I apologize, I've gone a little bit longer. Lisa cookwatch we need to start paying attention to this. The Supreme Court is most likely going to be releasing its opinion on Lisa Cook fairly soon. My colleague Elliot Stein has been covering this. Fortunately for Elliot, it didn't happen while we were in Europe. But the soonest that could happen is on Thursday. We got a lot of questions from clients on how do you track Supreme Court cases. Just remember every time the Supreme Court announces in advance when they're going to be doing these releases and it happens at 10am Eastern. And so essentially you just have to sit there and hit F9, F9, refresh, refresh, et cetera. But keep in mind the earliest that Lisa Cook could come is on Thursday. And Elliott's thesis, which he has consistently been saying, is that Lisa Cook most likely will win her case that prevents President Trump from firing her. It's just a matter of broad or how narrow the Supreme Court wants to actually make that point. So I'm going to stop there. I want to say thank you very much for attending. We really appreciate it. If we can ever be of service, please just send me an IB or let me know and we'll get you back to your week. Thank you very much. Take care.
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Bye.
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Our thanks to Nathan Dean, Bloomberg Intelligence Senior Policy Analyst, bringing you the latest installment of his weekly Washington Policy Pulse. For more from BI or to join this call live each week you can email Nathan@ndeanloomberg.net that's NDE a nloomburg.net and come back to the podcast later today for the latest edition of Balance of Power.
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