Warsh Takes a Fed That Can't Cut

Kevin Warsh gets sworn in as Fed chair on Friday with a policy wish list that the Iran war has quietly torpedoed. He wants lower rates. He wants a smaller balance sheet. The economy is telling him — and the bond market is screaming — that neither is happening any time soon.

When the Journal nominated Warsh back in January, futures markets were pricing two cuts this year. Today the futures market is pricing zero. The Iran war started at the end of February, energy prices ripped higher, and the inflation re-acceleration that followed has the European Central Bank and the Bank of England both warning they may raise rates. That's the global backdrop Warsh inherits.

What that means for our book: we keep leaning into the themes that work when rates stay high and energy stays elevated. Energy majors. Defense primes. Data-center power. Cybersecurity. Selectively, gold. None of those positions need a rate cut to keep working — in fact, several of them got better the moment rate-cut hopes went away.

Today's NextEra (NEE) and Dominion (D) deal is the perfect example. Two of the biggest utilities in the country combine to serve 10 million customers in Florida, the Carolinas, and Virginia. The single biggest reason they're doing this deal is data-center power demand. AI is the customer with the checkbook.

$72 Billion in AI Power Deals in One Day

Between the NextEra (NEE) and Dominion (D) merger ($67B) and the Alphabet (GOOGL) and Blackstone (BX) joint venture ($5B), Monday saw $72 billion of capital re-allocated toward the AI build-out. That's not a coincidence.

Wall Street has finally figured out what the engineers have been saying for two years: the bottleneck for AI isn't compute. It's power and real estate. The chips can be made. The data centers cannot be turned on without grid-scale electrons. So utilities are the new picks-and-shovels trade, and the smart money is consolidating ahead of a decade-long capex cycle.

For our portfolios this validates positions we've held all year: GE Vernova (GEV) for grid build-out, Vertiv (VRT) for data-center cooling and power infrastructure, Eaton (ETN) and Quanta Services (PWR) for electrical contracting, and Constellation Energy (CEG) for nuclear baseload. Adding NextEra (NEE) directly to the Fundamentals tier panels makes sense — the dividend yield plus the AI optionality is a combination that's hard to find at this size.

Quote from the Journal that captures it: "Access to power has become a key hurdle in the race to build data centers quickly." The race is on. Whoever owns the electrons wins.

AstraZeneca (AZN) Gets a Multi-Billion-Dollar Hypertension Win

AstraZeneca (AZN) won U.S. approval for a new hypertension drug it expects to do multibillion-dollar annual sales at peak. Hypertension is the most common chronic condition in adults over 60 in the United States, and AstraZeneca's pipeline has been getting credit for everything except primary care drugs. This re-rates that story.

The book carries Eli Lilly (LLY) in every aggressive tier already. AstraZeneca (AZN) is the obvious second pharma name to add — lower beta, higher dividend, and now a fresh primary-care catalyst. We added it to the watchlist tier today; it earns a real position if it holds its post-approval gap.

The Halal model already screens-eligible name list will be reviewed Wednesday; AstraZeneca passes the standard screens, so it goes in there too if it gets promoted from watch to add.