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What Trump's win means for the economy · The Financial Exchange Show

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Speaker 2: Chuck, Mark and Tucker with you here the day after
1:15
the election. And as it stands right now, we have
1:21
all three major US indices well into positive territory. The
1:26
Dow's up thirteen hundred points about three percent, SMP up
1:29
one hundred and three about one in three quarters, and
1:32
the Nasdaq up about three hundred and seventy points, which
1:35
is about a two percent gain at this point. Tenure
1:39
Treasury is selling off pretty substantially, off seventeen basis points
1:44
to four point four to six percent. We've got oil,
1:47
which was down a couple dollars a barrel earlier in
1:49
the day, now up fifty one cents a barrel to
1:52
seventy two point fifty. And we've got gold down sixty
1:55
six dollars announced to twenty six eighty three and seventy cents.
1:59
This all on the back of the election last night,
2:03
which went convincingly to Donald Trump, who will begin his
2:07
second term in office in January. And what he's going
2:12
to have to work with is a Senate that is
2:14
going to have likely fifty three to fifty five Republicans
2:19
in It's still unclear exactly where that is going to land,
2:24
as we still have four states that are too close
2:27
to call at this point. Pennsylvania, Michigan, Arizona, and Nevada
2:32
still have Senate races that are let's see, the Michigan
2:38
and Nevada races are within a tenth of a percent
2:41
right now. The Nevada one is like within eighteen hundred votes,
2:44
so I don't know what the recount laws are in Nevada,
2:47
but potentially getting there. The Michigan one, despite five million
2:50
total votes, is within nine thousand at the moment, so
2:53
again very close on that front. And then Pennsylvania a
2:59
little bit gap fifty point four percent for David McCormick
3:03
forty nine point six percent for Bob Casey at the moment,
3:07
So we'll see where all of those go. But again,
3:09
somewhere between fifty three and fifty five seats in the
3:12
Senate looks likely for Republicans on the House side of things.
3:17
Decision Desk HQ, who has pretty consistently been calling races
3:21
earlier than anyone else, is right now projecting that Republicans
3:25
will have a slight majority of two hundred and twenty
3:28
seats to two hundred and fifteen for Democrats. Remember you
3:30
need two hundred and eighteen for control, so that would
3:33
be a very narrow majority if that were the case,
3:35
where Republicans can only have two defections before they are
3:40
unable to pass legislation. So the obvious question with all
3:44
this mark what the heck does this mean for the
3:47
US economy?
3:48
Speaker 3: Well, it would be easier for US, frankly if the
3:51
Republicans swept everything, because then we could narrow the number
3:55
of possible policy outcomes.
3:57
Speaker 2: Let's look at that. Let's let's assume that this whole
4:00
and Republicans end up sweeping, because I think otherwise you
4:03
have something where if there's a Democrat House, it's tough
4:06
to really figure out if anything is going to pass.
4:10
Speaker 3: Should we talk to tariffs? Where do you want to start?
4:12
Speaker 2: Let's talk taxes, because I think this is something that
4:15
I think is very likely. Is you know, top of
4:18
the priority list? Hey, Trump administration is going to try
4:22
to pass either an extension of the tax law from
4:26
uh was it twenty seventeen or kind of an extension
4:30
with some changes around the edges. And I would say
4:34
there's probably, assuming Republicans have control of the House, I
4:39
would say you're probably looking at like I would handicap.
4:42
It is like ninety five to ninety nine percent chance
4:44
that they get something done on that side.
4:46
Speaker 3: So maybe the way to think about this is a
4:48
good for growth bad for growth framework. Let's just do
4:51
a little two by two here mentally, if you could
4:52
picture good for growth, bad for growth, good for growth,
4:54
inflation excuse me, bad for inflation, extension of current structure
5:00
status quo. That is, for taxes they don't go up.
5:02
That is neutral. It's not going to put additional money
5:05
into the economy. You could argue that it boosts sentiment
5:09
and stock prices and that makes its way into growth
5:11
through the wealth effect. But I'm not gonna make that
5:14
sort of tortured case right now, which is some status
5:18
quo is neutral. Additional goodies, and Trump promised a lot
5:21
of them on the campaign trail.
5:23
Speaker 2: They're going to go to additional things. One of the
5:25
things that it does change, if that were the only
5:28
thing that you know we're passed is the long term
5:31
deficit projection, just because current CBO projections do not factor in.
5:35
Speaker 4: Yeah, I would pay extension.
5:36
Speaker 2: Yeah again, it's not necessarily something that is a creative
5:40
to growth. It's just, hey, you're maintaining the status quo.
5:44
But it does potentially put some pressure on long internal
5:47
interest rates if that deficit becomes problematic at that point, that's.
5:51
Speaker 3: Maybe in the inflation channel. If you want to expand
5:54
my little two by two framework to three by three,
5:56
you could put But then this would start to get unwieldy.
5:58
Speaker 2: Really so it looked like a dungeon into dragons alignment.
6:01
Speaker 3: Now I wouldn't know it was ever invited to play.
6:04
Speaker 2: Oh, I know a great dungeon master.
6:08
Speaker 3: Are we talking about the same thing?
6:09
Speaker 4: I hope? So maybe okay, Teck, we're gonna move on.
6:14
Speaker 2: What are you doing this weekend?
6:17
Speaker 3: You need somebody to hold the whip or something.
6:19
Speaker 2: I don't know.
6:20
Speaker 3: I don't know what's involved. Kind of paraphernal he's involved.
6:22
It's none of my business.
6:24
Speaker 4: It's just some So what is it? To your point?
6:26
Speaker 3: There are all these kinds of feedbacks that you have
6:28
to think about, which is why a good economist would say,
6:31
don't take a partial equilibriate. I know I use this
6:33
phrase from time to time. It sounds pretentious, but it's
6:35
really it does sounds, which is perfect for me. Partial
6:39
equilibrium approaches get you into trouble because you ignore knock
6:42
on effects and other markets and stuff. So you got
6:44
to think about, to your point, increased deficits push up
6:46
interest rates, what does that do to demand? Is that
6:48
offset the stimulative effect of any tax cuts?
6:50
Speaker 2: And let's just talk about what we're seeing in markets
6:53
today as an example. So markets are looking at this
6:57
and it's a very simple trade in my opinion, that
7:00
they are processing. Trump is going to generate more growth
7:04
in the economy. Thus stocks are up, but because that
7:09
is going to be again higher overall nominal growth, bond
7:13
yields are up as well. Bonds are selling off, and
7:16
so you have a situation where that nominal growth is
7:20
going to be translated in one of two ways. Hey,
7:23
it's either going to be reflected in real economic growth
7:26
or it's going to be reflected in inflation. It has
7:29
to end up in one of those two areas. And ultimately,
7:32
I don't think the market really knows right now. But
7:36
here's the interesting thing is if you have those higher
7:40
interest rates and again the Tax Cuts and Jobs Act,
7:45
let's say it gets extended, no change is made it's
7:48
not putting more money into the economy. It's just extending
7:51
the amount that's currently going in. If that is the
7:55
status quo and interest rates go up, well that's slow
8:00
the economy more.
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Speaker 4: This is where it gets complicated.
8:02
Speaker 2: Can we talk about you have the second order and
8:04
then third order effects.
8:05
Speaker 3: There are, which is why you need a big complicated
8:07
model like the folks that the Fed US and some
8:09
private forecasters with a lot of resources and PhD geniuses.
8:13
And I don't mean that flippantly.
8:15
Speaker 4: They are use. We don't need to be.
8:20
Speaker 3: People with masters and they're good for radio.
8:23
Speaker 4: That was supposed to be self deprecating.
8:25
Speaker 3: I got okay, thanks, I wasn't insulting anybody else out there.
8:28
So can we go back to your point about GD Fine,
8:31
they're nbas Yeah, some.
8:33
Speaker 4: Of them are.
8:33
Speaker 2: Yeah.
8:34
Speaker 3: You do have to ask, so do you actually have
8:35
a master's in what you're talking about? If not, I
8:38
could go ask anybody. Growth right now over the past
8:42
several quarters annualize year over year, however you want to
8:45
look at it is about three percent after inflation. That's
8:48
much faster than most researchers who study this think the
8:51
economy can grow given structural factors. That's the economy speed limit,
8:56
if you want to think about it that way. This
8:57
idea that we can grow fast without big changes to
9:02
the labor force, level of education, how we use capital.
9:06
Maybe some AI miracle is and I'm not over exaggerating it.
9:09
It's fanciful. It would be great just to continue to
9:12
grow at the current clip. That YEHD no, no, So
9:16
I just want to set expectations here. People who are
9:19
around Donald Trump like to throw out four or five
9:21
percent after inflation GDP growth like we had in the
9:24
forties and fifties. You remember what happened in the forties
9:28
or you've learned about it. I wasn't around, but I've
9:29
read about it. Economic growth was really fast, about four
9:32
and a half percent on average in the post war
9:33
period because we were the economic engine of the world.
9:36
We were the only democratic industrial power with an industrial
9:40
base capable of that type of output. So that'd be
9:44
really high chuck and very inflationary.
9:46
Speaker 2: Probably beyond that. The other piece that you had then
9:48
the demographics were completely different. Yes, you had a workforce
9:51
that could grow at a three to four percent clip
9:54
each year for two reasons. The first is people coming
9:57
back from the war effort and needing to you know,
9:59
reacclimating get jobs. Three reasons. Actually, the second was birth
10:03
rates were higher, so you had more people entering the
10:05
workforce in a given year. Third piece, women entering the workforce.
10:09
You had half the population that basically was on the
10:12
sidelines for you know, through until World War Two and
10:15
then started to enter the workforce then and that continued
10:18
for the next forty years. That's not really where you
10:22
go from here, Like, you already have women in the
10:23
workforce at this point. So ultimately, when we talk about growth,
10:28
there are two levers that you have. You have how
10:32
many total hours is the population working and how much
10:36
stuff do they make within those hours? And given where
10:39
population growth is, which is again somewhere depending on the year,
10:43
anywhere between half percent and one percent, you say, okay,
10:46
how fast can we reasonably grow productivity? You look at
10:49
the you know, the long term average on productivity, it's
10:52
around one or one and a half percent a year.
10:55
You know, somewhere in that ballpark is high unless you
10:58
are going to figure out a way to increase the
11:02
workforce by an additional one to two percent a year,
11:06
which would be more immigration, not less.
11:08
Speaker 4: Thank you. That's the key point.
11:11
Speaker 2: Then you're kind of putting all your eggs in the
11:12
productivity basket and saying, Okay, productivity will save us. And
11:17
look it has for the last two years. To be fair,
11:21
it's unclear that that's a sustainable long term trend.
11:24
Speaker 3: Yeah, this is why promises of growth miracles with very
11:27
little work, like I'm gonna turn this isn't really directed
11:30
at Trumpet is a little bit, but he's a salesman.
11:32
Speaker 4: He sells a vision totally.
11:34
Speaker 2: Yeah, But when he says we're.
11:35
Speaker 3: Gonna have an economic growth miracle, that's absurd because it
11:38
would take years to ramp up to the point where
11:40
the conditions were right. For one, they were right in
11:43
the early nineteen eighties, no matter who was president. As
11:45
much as I personally revere Ronald Reagan probably would have
11:49
happened under Jimmy Carter. The structural conditions were right for
11:52
a turnaround. They were certainly right in the nineteen nineties
11:56
with information technology becoming pervasive. If George hw been re elected,
12:01
had the FED not killed his chances, in my view,
12:04
he would have presided over the IT boom, and he
12:07
would be associated with the miraculous growth we had in
12:10
the nineties. You can't just snap your fingers or lower
12:12
marginal rates a little bit, especially when they're not that
12:15
high in historical terms.
12:16
Speaker 2: So this is another great thing. Let's take a quick
12:18
break because I feel like I just have a million
12:21
good ideas coming in all at once. But we need
12:23
to take three breaks during the hour. I believe that's right, Tucker,
12:27
that is correct. Okay, so we'll take one of those. Now.
12:29
When we come back, we are going to do a
12:32
little bit of trivia, and then we'll talk a little
12:34
bit more about some of the great ideas that Mark
12:36
and I have regarding, you know, just where we think
12:39
the overall economy is going, and what policies we think
12:42
are coming in and what their impact, you know, could be.
12:45
I think that this is this is the entire hour,
12:48
So we're talking the Trump economy for the entire hour.
12:52
Continuing after this.
12:54
Speaker 1: Tune in for trivia brought to you by Applebee's every
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Speaker 5: Welt time for trivia here on the Financial Exchange and
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signing up. Now that's even good in the neighborhood. Boy,
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we're prohibited dine in only well. Donald Trump was re
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elected President of the United States in a big victory.
14:21
There have only been a few presidential elections that ended
14:25
in a landslide. The most famous example is back in
14:28
the nineteen eighty four election when Reagan beat Mondale. Reagan
14:32
claimed five hundred and twenty five electoral votes to Mondale's thirteen. However,
14:37
that is not the biggest landslide victory in a presidential election.
14:42
Trivia question today, which US president won his election with
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the biggest margin? Once again, which US president won his
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election with the biggest margin? Be the fourth person today
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to Texas at six one seven three six two thirteen
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eighty five with the correct answer you know Whin a
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seven three six two thirteen eighty five, and the fourth
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correct response will be our winner. See complete contest rules
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at Financial Exchange Show dot com.
15:16
Speaker 2: Mark so we spent the first segment of this hour
15:19
talking a little bit about the potential for tax reform,
15:23
or a little bit I want to take into just
15:26
a little bit more on that in terms of we
15:28
talked about, Look, what if you just extend the Tax
15:31
Cuts and Jobs Act. What if you see further changes,
15:35
a further reduction in the corporate tax rate, reductions in
15:39
individual tax rates. What does that look like if those
15:43
were to be enacted next year?
15:44
Speaker 3: I think all else equal, A tax cut is stimulative,
15:48
so it increases demand, potentially puts upward pressure on inflation,
15:52
and then the Fed has a decision to make do
15:54
we accommodate the increase? They had this decision to make,
15:57
by the way, in the early stages of COVID, do
15:59
we let the wave eve of inflation pass over us?
16:02
Or do we push back against it by increasing interest rates,
16:05
stifling demand a little bit, slowing the economy and offsetting
16:07
the effect. They decided, we now know, faithfully for a
16:12
year to sit there, do nothing, and then let inflation build.
16:15
So there are like you said in the last segment,
16:19
first order if you like, and then sort of knock
16:21
on effects. How does it affect in how does it
16:23
affect the deficit and deficit projections and interest rates. Higher
16:26
interest rates feed back into consumption, into spending, and into housing,
16:29
as we all know, So that could offset the stimulative
16:33
effect from the tax cut. So but all sequel, Chuck
16:38
and I say all SQL because it allows you to
16:41
get away with not thinking about all those knock on
16:44
effects and other considerations and feedbacks and other things.
16:48
Speaker 4: ALLSEQL.
16:48
Speaker 3: It would be stimulative to demand in the short term,
16:51
but also push up inflation a little bit.
16:53
Speaker 2: Let's talk a little bit just on the other side
16:55
of the ledger. You know, we're talking about the revenue side.
16:58
What on the spending side. If the Trump administration said, look,
17:02
we do want to enact larger tax cuts, but we
17:07
want to figure out, you know, ways to reduce spending
17:11
as well, so that we're not increasing the deficit increasing
17:16
more than you know, it's already projected to go up
17:18
at Yeah, you will get where you can potentially cut from,
17:22
and it's a pretty narrow swath that you have to
17:27
pull from. Single biggest outlay for the US federal government
17:29
solid security twenty two percent. Health and human services between
17:34
Medicare Medicaid makes up another twenty seven percent combined So
17:39
now you're talking fifty percent of government spending. Right there
17:43
is Medicare, Medicaid, and solid security. So that's look, you're
17:48
not just gonna walk in and be like, hey, we're
17:50
cutting solid security ten percent next year. That's not really
17:52
a winning message. Medicare again, you're not touching that Medicaid.
17:57
Maybe you have some you know, long term things that
17:59
you can do. Again, are you, you know, enacting huge
18:01
cuts next year? Tough to see with a slim majority
18:06
in the House. Potentially defense budget's the next thirteen percent.
18:10
Don't think you're going there. You then get to Veterans
18:13
Benefits and Services, which is five percent, education, training, employment,
18:18
and social services. So basically like DOE, OSHA, like DOL,
18:22
all that stuff, that's another five percent, Dot is two percent,
18:26
and then everything else is four So you look at
18:29
the part like the actual discretionary items that you can cut,
18:33
and even if you wanted to get rid of them entirely,
18:36
you're talking like fifteen percent of the overall budget. And
18:40
clearly you're not going to just eliminate all of those
18:43
things with a slim majority in Congress. So there are
18:48
limited places that you can offset. You can do it,
18:51
but you've got to figure out, you know, how much
18:53
can you actually cut in how much does that give
18:55
you room for any additional tax cuts you want to
18:58
put through?
18:58
Speaker 3: And you may not want to be cut if the
19:00
economy's slowing. I don't like government spending. I love the
19:03
idea of cutting two trillion dollars in government spending. I
19:05
know that's an ethema to a lot of people, but
19:08
that would be a big silver lining for me. I
19:10
don't like the tariffs. Nobody with any economics training does,
19:13
and we could well.
19:14
Speaker 2: I don't know if you're gonna cut two trillion because
19:16
the US I don't know.
19:17
Speaker 3: That's what It's an implausibly big it's an implausibly big.
19:21
Speaker 2: You just you just proved it.
19:22
Speaker 3: And it didn't take a ton of work not to
19:24
diminish what.
19:24
Speaker 4: You just did.
19:25
Speaker 2: No, I didn't do much work. It's fine, you can
19:28
say that. Let's take a quick break here. When we
19:30
come back, we had the Trivia answer and more on
19:32
the Trump economy.
19:40
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two six ' three for that bid. We had a
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trivia question in the previous segment, which was which US
21:20
president won his election with the biggest margin. That would
21:24
be FDR. He beat Alf Landon in the nineteen thirty
21:28
six election by the biggest margin in history. FDR collected
21:32
five hundred and twenty three electoral votes to Landon's eight.
21:36
Logan from Kensington, New Hampshire was our winner today, taking
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home a Financial Change Show T shirt. Logan's also registered
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to win a one hundred dollars gift card two Appleb's,
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which will give away on Friday. And Trivia is brought
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prohibited dye in only.
22:02
Speaker 2: I guess that kind of solidified the golden rule of
22:05
presidential politics, which is don't run a candidate named alf
22:10
hasn't been one since then.
22:11
Speaker 4: Is that short for something?
22:13
Speaker 1: Uh?
22:13
Speaker 2: Alfred, which is fine.
22:15
Speaker 4: I didn't realize his first name was Alfred. I don't
22:16
know why. I never thought about that as opposed to.
22:19
Speaker 2: The uh what it's it's kind of wild. Actually, do
22:23
you know what the two states are that Landon won?
22:26
Speaker 4: Kansas?
22:27
Speaker 2: Nope?
22:27
Speaker 4: No, was he Maine?
22:29
Speaker 2: In Vermont?
22:29
Speaker 4: Oh? That's right. They were all red states then are
22:32
what we would call it.
22:33
Speaker 2: The next closest was New Hampshire, where he got forty
22:37
seven percent of the vote. There is no other state
22:40
that he got above forty six and in fact, the
22:42
most lopsided ones, Like just if you want to talk
22:45
like how lopsided some of these states were, imagine this
22:49
South Carolina. He won one percent of the vote. One percent.
22:56
You can't get ninety nine percent of Americans degree on anything,
22:59
but ninety nine percent of South Carolinian said yep, I'm
23:02
doing FDR.
23:03
Speaker 4: Yeah, talk about a rigged election.
23:05
Speaker 3: Imagine if Trump had been around then we would have
23:08
been looking at South Carolina.
23:09
Speaker 4: I mean, it's like, that's almost impossible.
23:11
Speaker 2: It's just kind of wild. Actually, I mean it's it's
23:15
it's kind of remarkable. Anyways, I digress. We've talked about
23:19
a few different parts of the potential Trump economy. Let's
23:22
talk about one that he's talked about quite a bit
23:24
over the last year, which is tariffs. And there have
23:27
been a number of different tariff proposals, anything from hey,
23:30
an additional twenty five percent on everything the United States
23:35
imports one hundred percent tariffs on everything from China was
23:39
one that was recently floated. I think it's safe to
23:43
say that the Trump administration is likely going to implement
23:47
some type of increased tariff. Exactly what form that takes
23:53
is yet to be determined, but it's very clear that
23:56
that tariff is not going to be able to replace
23:59
all of the tax revenue that he would cut, you know,
24:02
otherwise through tax cuts. The reason being, if you look
24:06
at how much of the US imports right now, again,
24:10
it's like, these are just the estimates that we have
24:13
that are out there. I think it's somewhere in the
24:14
ballpark of like three point seven or four billion dollars.
24:18
If you put a fifty percent tariff on all imports.
24:21
Just as an example, it's not going to raise two
24:23
trillion dollars or half of you know, your four trillion,
24:27
because what happens is right away the US companies say, Okay,
24:31
we can't be profitable at that rate. We're not going
24:33
to import as much, and so the value of imports declines.
24:37
Now you can make a case, hey, this is what
24:39
the Trump administration wants. They want you to, you know,
24:41
produce more stuff domestically, but it's unclear if the stuff
24:44
that's currently being imported would be able to be produced
24:48
domestically at prices that are competitive. Case in point, Mark,
24:53
I'm holding a pen right now. This ah, this pen,
24:57
Thank you, Probably you're welcome, just in.
25:00
Speaker 3: Case, waving around there, Tucker all a pen.
25:03
Speaker 2: This pen probably costs three cents to make in China,
25:06
and it probably sells for ten cents, you know, in
25:09
a package of you know, a hundred or something like that.
25:12
You can't make three cent pens in the US, because
25:15
if you could, we'd be making them here right now.
25:17
That's just like we don't we don't send send manufacturing
25:20
to China because we just want to ship it, you know,
25:22
across the ocean. We do because it's cheaper. So ultimately,
25:26
when we talk about tariff's, I don't think we know
25:28
exactly what format they will take. But I tend to
25:32
be of the belief that some of the larger numbers
25:36
that have been floated out there probably won't happen because
25:39
it's simply not realistic. When it comes to how the
25:42
US economy is structured, all I.
25:44
Speaker 3: Can tell you, and this is just textbook, is that
25:46
tariffs do a couple things. They increase the price of something,
25:49
and it's paid by consumers. Companies don't pay tariffs. A
25:52
tariff is a tax. It's just like a sales tax.
25:55
Speaker 2: You bear it, or if consumers don't pay it, it
25:58
comes to the form of reduced margins for the company.
26:02
Speaker 3: The traditional analysis assumes that the burden falls on consumers,
26:06
but there may be other scenarios. I'm just gone with
26:08
a sort of superficial take on it. It also generates something
26:12
called a dead weight loss. You may remember that term
26:14
if you ever took an economics.
26:16
Speaker 6: Class, And that's that's because some activity that would have
26:21
taken place transactions that is, doesn't take place, and it's
26:27
not impossible to measure.
26:28
Speaker 3: But it's tricky. It's as a result called a dead
26:30
weight loss. It's just an inefficiency.
26:32
Speaker 2: To give an example of that, how that like just
26:35
a specific exam.
26:36
Speaker 3: If something gets so expensive that I can't buy it,
26:39
I'm worse off and the seller is worse off. There
26:43
is surplus if you like, the surplus being the pleasure
26:49
I derived from consuming something. The difference between that and
26:53
what I paid for It could be thought of is
26:54
is surplus. I'm willing to pay one hundred bucks for
26:58
a pair of sneakers, I only have to pay fifty.
27:00
They're cheap, they're made in China. The difference is my surplus.
27:03
It sounds more theoretical than it is, and producers enjoy surplus.
27:08
Speaker 4: Two.
27:09
Speaker 3: Some of that goes away when you impose a tariff,
27:12
and there's reduced activity. That's part of the dead weight loss.
27:15
The other part of the so called dead weight loss,
27:17
if I'm remembering this correctly, not my area, so apologies
27:20
if I'm botching a little bit. But the thrust of
27:23
it is accurate, is that we're going to be shifting
27:25
some production here. Jd Vance famously said five million cheap
27:29
toasters is not worth one American job.
27:32
Speaker 4: Really, JD.
27:33
Speaker 3: Even if we're saving ten dollars on each toaster for
27:36
a total of fifty million dollars. You compensate the worker,
27:39
you retrain them, and you let consumers enjoy cheaper toasters,
27:43
is the answer. You don't close up your borders like
27:46
the Soviet Union in the nineteen thirties, or something that's
27:50
part of dead weight loss too. Think of think of
27:52
the inferiority of American cars those of us who drove
27:55
them in the seventies and eighties, or drove cars made
27:58
in the seventies. Remember that they where in terms of
28:00
fit and finish, in reliability inferior. That's part of dead
28:03
weight loss to the efficiency you lose if you like,
28:07
due to lack of competition. So tariffs are generally not
28:11
economists favorite solution to anything, although every president in recent
28:16
in the modern era, including Reagan, have used them opportunistically,
28:21
not as a very broad tool, certainly not to raise revenue.
28:25
In the modern era, nobody does that as a sole
28:27
source of revenue, I should say.
28:29
Speaker 2: So, we'll have to see again if there is a
28:31
broader you know, terify on all imported goods that is imposed.
28:36
The other thing that I think you have to just
28:37
worry about from that perspective is hey, what does that
28:39
do to inflation and does that potentially start to rekindle.
28:43
Speaker 4: It it goes up full stop?
28:44
Speaker 1: Chuck.
28:45
Speaker 3: Question is is the Fed what does that do to expectations?
28:48
And then you get into these knock on effects we've
28:49
been talking about in previous segments. Does the FED push
28:52
back against that? Do expectations go up? Does that feed
28:55
into future inflation. That's why people have called many of
28:58
these proposals, some of which are stimulative of some of
29:00
what you're punitive like tariffs or meant to shift production.
29:04
Speaker 1: Here.
29:05
Speaker 3: The Trump proposals, as far as they've been fleshed out,
29:08
which is not in great detail so far, they seem
29:10
pretty inflationary.
29:12
Speaker 2: I think one thing that just to try to you know,
29:17
square this circle that's out there right now is, look,
29:21
we just talked a little bit about the idea that, hey,
29:24
tariffs aren't really good for an economy for reasons X, Y,
29:28
and z. Despite that, you've got markets, specifically equity markets
29:32
that are surging today. When you look at the idea
29:37
of hey, we're talking about something that could potentially be
29:41
you know, a problem for the economy if if broadly enacted.
29:46
How do we reconcile that with what we're seeing in
29:49
market action today, which is I think can best be
29:52
described as very optimistic. I have my answer if you
29:56
want me to go first lay thank you. So I
29:59
think the big thing this, this is one piece here,
30:01
and I think that the the thought that markets have
30:05
is I think there are two overriding ones. The first is, Hey,
30:10
the first Trump term up until COVID was generally pretty
30:14
good for equities, and he did what he could to
30:17
support the economy and markets. It was a real priority
30:20
for him.
30:20
Speaker 3: Twenty eighteen, and at twenty eighteen got Harry though. If
30:22
you remember, we had a big growth scare, FED in
30:24
an emergency rate God of I misremembering the no.
30:27
Speaker 2: Dock we did. But I think you can make the
30:28
case that that was the FED then more than what
30:31
the Trump administration was doing. That was what j Poal
30:34
famously said, you know, we're on autopilot with our balance
30:37
sheet reduction, and you know we're going to continue to
30:39
raise interest rates. And then twenty nineteen he's like, yeah,
30:41
we're gonna stop the balance sheet reduction and uh, no
30:45
longer raise interest rates. That was also the Christmas where
30:47
it was Christmas Eve and Steve Madusan comes out and
30:52
is like, hey, there's no problems with the stability of
30:54
the banking system, and everyone kind of looks around as like,
30:58
we weren't really nervous about the stability of the banking system,
31:00
but what, like, what do you mean? But again it
31:03
was kind I think that was more the FED, which
31:06
again Powell was appointed by Trump, so ultimately, like the
31:10
buck stops there, But it is something where I think
31:14
in general, you look at equity performance and you say, okay,
31:18
was good up until the pandemic hit. I think the
31:21
other piece is that in this campaign, Trump is largely
31:27
campaigned like one of the two biggest things that you
31:29
campaigned on is hey, I'm going to manage the economy
31:32
better so that you will feel better than you did
31:34
under the Biden administration. And I think that that's a
31:38
huge deliverable that he needs to deliver, Like that's that
31:42
has to show up. And so I think that that
31:44
is market's looking at, hey, here's what you did before
31:48
and we liked it, and here's what I'm saying I'm
31:51
going to do. And I'm not saying that it will
31:54
or won't happen, but I think that helps to reconcile
31:57
it in that Yes, like even with Trump, you know,
32:00
some tariffs on China during his term in office. Ultimately
32:04
you had a market that you know, did see equities
32:07
move up until hit by the pandemic, which you know,
32:09
wrecked equity markets everywhere. That's that's how I get to
32:12
what markets are doing today. Let's take a quick break.
32:15
When we come back, we'll have some last thoughts on
32:20
the Trump economy right after this.
32:23
Speaker 1: Thanks to US six one, seven, three, six two thirteen
32:26
eighty five with your comments and questions about today's show,
32:29
and let us know what you think about the stories
32:31
we are covering. This is the Financial Exchange Radio Network.
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33:47
Speaker 6: Mark.
33:47
Speaker 2: One topic that I don't think we've covered yet that
33:49
I want to touch on is the FED and what
33:54
the outlook is for them next year. Let's assume that
33:57
the Trump administration moves forward with some kind of tax
33:59
cut because I think it's very very likely this is
34:03
happening with a backdrop in the last couple of months
34:06
where growth is you know, continue to be stronger than
34:08
people expected and as a result, long term rates the
34:11
tenure treasuries at four point four to six right now,
34:14
how does the Fed thread the needle of Hey, growth
34:18
is going to be hotter than we're projecting right now.
34:22
We might not be able to cut interest rates, but
34:24
people really don't like high interest rates, and President Trump
34:27
is likely going to you know, jawbone J Powell being like, hey, get.
34:31
Speaker 4: Those ratings down.
34:33
Speaker 2: How does the Fed thread the needle of trying to
34:36
keep everyone happy without inflation getting out of control?
34:39
Speaker 3: In that they may have to push back. You've got
34:42
two levers that the government can pull. I feel like
34:45
i'll might I say the government, I mean all branches
34:47
and entities within it. Fiscal and monetary policy. The monetary
34:52
policy makers, they reside in the Fed. It's Powell and company.
34:56
They have to think about the fiscal side of the house.
34:59
Speaker 4: They have.
35:00
Speaker 3: For example, in the early nineteen nineties, the fiscal side
35:03
was tight. Clinton was cutting budget George hw Then Clinton
35:06
cut budget deficits that allowed greenspan to keep interest rates low.
35:10
Fiscal and monetary policy worked together, you had tight fiscal
35:14
relatively loose monetary policy, particularly in the latter half of
35:17
the nineties, it worked very well. The opposite happened in
35:21
the early nineteen eighties. Reagan's fiscal policy was loose, monetary
35:24
policy was tight, and it really was right through for
35:27
the most part, right through the entirety of the decade.
35:29
This will probably look more like that, Chuck Denning up,
35:32
depending on how aggressive the tax cuts are and other
35:35
potentially stimulative fiscal measures, you'll have tight or tighter than
35:40
we've been used to, and tighter than currently projected monetary
35:43
policy and loose fiscal policy. As to how it affects
35:46
their thinking this week, I think they would say it
35:49
does not at all, because, as you pointed out many
35:51
times today, we don't know enough.
35:53
Speaker 2: No, we don't, And I think this is all going
35:56
to be stuff that we start to get more concrete
35:58
deals on details on as we get into January, February March.
36:04
As far as hey, what are the specific plans. We
36:07
can speculate all that we want to. But the other
36:10
thing that I always come back to is, look, each
36:13
of the last two presidential elections that we had back
36:15
in twenty sixteen and in twenty twenty. In twenty sixteen,
36:19
Republicans came away with a slim trifecta, not even it
36:24
was actually they had more room to maneuver than today.
36:29
They had, I think it was two hundred and forty
36:30
one seats in the House after the twenty sixteen election,
36:33
and they still were able to pass tax reform, but
36:36
not any kind of healthcare reform. In twenty twenty, Democrats
36:41
came away with the trifecta as well. They had slim
36:43
majorities in both the Senate and the House. They ended
36:46
up passing some green energy spending. They did not do
36:49
anything as far as the proposed tax increases that the
36:52
Biden administration had, you know, kind of set out to do.
36:55
And I think this is something that is instructive in
36:59
looking at how the next few years play out, which is, look,
37:03
even if you have a trifecta, you don't get everything
37:07
you want, especially with a narrow one. If you can
37:11
only lose a couple of, you know, House members in
37:16
order to pass a bill, you can't go and do
37:19
everything that you want because a lot of those House
37:21
members are in competitive districts where you know they won
37:24
fifty point two to forty nine point eight percent, and
37:28
they don't want to be the deciding vote on a
37:30
controversial bill.
37:31
Speaker 3: And you can't control financial markets. Trump may browbeat the Fed,
37:34
he may install his appointees, they may acquiesce, but you
37:37
can't control the bond market. They'll push back and that
37:40
could force a course correction and policy. Too many unknowns, Chuck,
37:44
but it's going to be a very interesting ride the
37:46
next four years.
37:48
Speaker 2: Taking a quick look at markets as we head to
37:50
the top of the hour of the Dow is still
37:51
up thirteen hundred points, the S and P up one
37:53
hundred and twenty, and the Nasdaq up four hundred and forty,
37:55
so broad based rally in all major US inn deceies.
37:58
The Russell two thousand even get on the action a
38:00
four and a half percent after just kind of flopping
38:04
around aimlessly for the last couple of years. We're going
38:07
to take a quick break here for the rest of
38:09
the day, but we'll be back tomorrow with more financial
38:12
exchange