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Who are the winners and losers of the Trump Trade? · The Financial Exchange Show

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Veterans Development Corporation. This is the Financial Exchange with Chuck
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Zada and Mike Armstrong.
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Speaker 2: Kick it Thursday off Here on the Financial Exchange, Chuck, Mike,
1:16
and Tucker with you. And if you tuned into yesterday's show,
1:19
you know that we basically spent the entire show discussing
1:24
what a Trump economy potentially looks like. Today, we're gonna
1:30
dig a little bit deeper into that topic. So if
1:32
you wanted instead to hear about CVS's earnings from yesterday,
1:39
we might touch on them for like a minute and
1:41
a half, but there's just not gonna be much of that.
1:43
If you're looking for us to talk about Hershey's earnings today, sorry,
1:47
don't care.
1:48
Speaker 3: It's not that they're not important, but they're not important today.
1:51
Speaker 2: Yeah, Like, there's only one thing that matters to markets
1:55
right now, and that is figuring out what the economic
1:58
picture for a second Trump administration looks like. And so
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that's where we're gonna spend basically two hours, you know,
2:05
give or take five minutes.
2:07
Speaker 3: Right, Yeah, I think that sounds about right.
2:09
Speaker 4: So I know you guys did a fair bit of
2:11
deep dive on this yesterday. One thing that I found interesting.
2:15
You know, we talked leading up to this, like, you know,
2:17
unless you've spent hours upon hours researching what your trade
2:21
is going to be in the event of one outcome
2:24
or another and building those trades up, then be careful
2:28
about what you're doing here, because who knows. But there
2:31
were a number of, you know, in hindsight, successful trades
2:35
that played out yesterday, and I think it's interesting kind
2:38
of culling through those and pointing out like very very
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few people had it exactly on their bingo car, but one,
2:46
for example, would be this pending merger between Capital One
2:49
and Discover Financial Services, pretty household names. I think everybody's
2:53
aware of where they are. Discover had these single best
2:56
day yesterday of major companies, up twenty percent, with investors
3:00
betting the Trump administration would be more likely to allow
3:04
a merger to go through. Big banks in general, one
3:08
of the best performing sectors six point two percent to
3:10
the upside on Wednesday. And I don't know, having thought
3:14
through it all, I guess if you were spending, like
3:17
we said, thousands of hours researching, hey, who could potentially benefit,
3:21
you might have been able to pick up on one
3:23
or two of these trends. But you know, not a
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great day for tech stocks for example, on average, not
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a fantastic day for some other areas of the economy
3:31
that still might benefit, for instance from lower taxes and
3:34
higher tariffs.
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Speaker 2: No, you look at your two areas yesterday, just broad
3:38
sectors that performed best, and it was financials and energy,
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and I don't think either of these are particularly surprising. Sure,
3:46
financials a lot of chatter about, you know, potentially loosening regulation,
3:50
and so sure you get you know that pop there.
3:52
Energy everyone gets all excited about, hey, maybe we're going
3:55
to be drilling more, and so you get this this
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pop on that side. But I think you need to
3:59
watch four potentially the second order impact, which is, yes,
4:03
you might drill more, but if there's more drilling, then
4:06
prices go down and maybe there's actually less profits. So
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I do think that this is going to be interesting
4:10
to watch. Remember, during the second year of the Biden administration,
4:14
energy stocks were one of the best performing areas in
4:17
the market. The reason being there was less drilling going
4:19
on and oil prices were through the roof, and so
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green energy was actually getting hammered in. Traditional energy was rallying.
4:26
So I think you have to you know, watch these
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things over an extended period. I don't think you just say, hey,
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this is what it did on the first day, it's
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what it's going to do for the next four years.
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But you certainly had some movement Yesterday. Another one that
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caught my eye. Small caps. Yeah, or as they've been
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known for the last few years, small craps. They just
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are on fire. Yesterday the Russell two thousand was up
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I think five and a quarter percent or something like that.
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Speaker 4: It is more, I believe it finished up five point eight. Yeah,
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five point eight.
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Speaker 2: So you know, these are companies where, remember, forty percent
4:58
of the Russell two thousand is not profitable. And the
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interesting thing about yesterday is that the Russell two thousand
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had this huge rally at the same time that the
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bond market was getting taken to the woodshed and yields
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were rising significantly. The tenure US Treasury was up seventeen
5:14
basis points yesterday. Can we explain a little bit about
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that relationship? Sorry, Yeah, So normally when the when bond
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yields rise, at least in the last couple of years,
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it's been bad news for small caps, the reason being
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their borrowing costs are a larger chunk of their expenses
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than larger companies, the reason being there, you know, newer,
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smaller to market, they might have more debt relative to
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their size, and so their credit rating might also not
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be great. And so when yields have gone up, it's
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typically been something where on days when yields are up,
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small caps generally don't do very well because it's a
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major expense for them. On the other hand, yesterday yields
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popping up meaningfully like seventeen basis points in a day
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is it's a big move on the ten year, and
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small caps rally despite it, and I find that to
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be just something that we haven't seen. I don't know
6:08
that you can read into this as hey, that's gonna
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be again a long term thing, because ultimately, remember that stocks,
6:16
stocks at their core are to a certain extent priced
6:19
off of where bonds are and where bond yields are,
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and so rising bond yields make it challenging for stocks
6:26
for two reasons, one being added expenses, the second being hey,
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if fields get high enough, someone says, great, I don't
6:32
need to take that much risk in order to get
6:34
that return. I'm gonna go buy the bond instead and not.
6:37
Speaker 3: Worry about it.
6:38
Speaker 2: Whether that's at four percent, five six, or seven, who knows,
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but that's those are two ways that rising bond yields
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typically hurt stocks. We saw that in twenty twenty two,
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just as a key example for the broader market.
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Speaker 3: So potential theories on the small caps.
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Speaker 4: I guess if you're assuming a stronger US focused growth potential,
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a smaller sized company that only does business and has
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sales in the United States might might might surge a
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little bit more than say a Coca Cola who derives
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half of their income from abroad. That could be a
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piece of it. Corporate tax rates I actually don't know,
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but my guests would be that smaller sized companies on
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average pay higher tax rates than larger size companies, So
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maybe there's something there. But and then you know tariffs,
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I have to say, I don't know that you can
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say one thing or another. Right, if you're assuming higher tariffs,
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is that better or worse for small caps? And I
7:28
would say it probably runs the gambit depending on what
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type of company you run. So I'm not sure there's
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anything there on the tariffs. But I looked at it
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as primarily as a hey, if we're seeing and expecting
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stronger US focus growth, then yeah, those companies that derive
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most of their income from the United States might fare
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better than your much larger sized companies. A few companies
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not having the best days, specifically those who do import
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a fair bit from overseas. Specifically, shares of Nike, Target,
7:56
Best Buy, Williams Sonoma, and Restoration Hardware traded lower for
8:01
the day in spite of a very strong surge for
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the overall market.
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Speaker 2: All those companies tend to import a lot of stuff,
8:08
and so concerns about tariffs. You know, again, does it
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mean that you're you know, definitely gonna see these companies
8:15
struggle in the long run.
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Speaker 1: No.
8:17
Speaker 3: I mean, if there's one.
8:17
Speaker 2: Thing, if there's one thing that companies are good at
8:20
figuring out, it's how to get around taxes, right, And
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it might be again, they've got really good accountants. I
8:29
don't even know what they're thinking up right now, but
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you know that they're on the phone with their accountants
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and also by the way, their lobbyists saying, hey, if
8:37
this happens, do this, And to their lobbyists, hey, we
8:42
need to get a meeting with you know, whoever's going
8:44
to be, you know, the US trade representative and figure
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out what the picture looks like, and is there a
8:50
way for us to get on an exemption list if
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something's going into effect. These companies aren't dumb. They don't
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just sit there and say, yeah, tell us what will
8:58
happen and we'll deal with it.
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Speaker 3: Yeah.
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Speaker 4: I would also say the path for tariffs is pretty
9:02
unclear to me at the moment. And I don't mean
9:04
that I don't think there will be higher terrafs that
9:06
seems quite likely. My point would be, are they China
9:10
focused like they were during the Trump first Trump administration?
9:13
Are they globally focused anywhere outside of the United States?
9:17
Are they based on just companies that have recently relocated
9:21
construction or sorry jobs or manufacturing outside of the United States?
9:25
Speaker 3: Or is it focused on everything.
9:27
Speaker 4: Might Nike be able to shift production to India and
9:29
avoid tariffs? Several outstanding questions that we will not have
9:33
a good sense for months to come.
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Speaker 2: To take a quick break here when we come back.
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I want to before we go any further. I think
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one of the big things is that I've been thinking
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about this for the last twenty four hour, like not
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thirty six hours.
9:50
Speaker 3: But close to it. Like, I've been thinking about this.
9:53
Speaker 2: For a while now, what how similar is the approach
9:59
going to be in Trump two point zero compared to
10:02
Trump two point one? And I think that specifically, I
10:07
want to talk about the scenario that he's entering, that
10:11
he's coming into office in as far as the economy
10:15
and why this may or may not lead to some
10:19
different approaches. So let's talk about that when we return
10:24
Wall Street.
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Speaker 2: All right, Mike, I want to talk a little bit
12:02
about what, like what priorities this new incoming administration can
12:10
actually execute on, because I heard from a number of
12:15
people yesterday that we're saying, hey, this is gonna be
12:19
just like twenty seventeen, and we're gonna get tax cuts.
12:23
You know, things are gonna move forward to like the
12:25
market's gonna rip like YadA, YadA, YadA, like I heard this.
12:30
Speaker 3: Everywhere. Yeah, we're trying to count accurately, but no.
12:33
Speaker 2: Like from actual like humans, not from like someone writing something,
12:36
but from actual humans, probably like fifteen twenty people.
12:39
Speaker 3: Yep.
12:39
Speaker 2: And so trying to make sense of this. I'm just
12:43
gonna set the stage in October of twenty sixteen. We're
12:48
going eight years back in time, isn't that right, Tucker? Yes, Yeah,
12:53
we're going eight years back in time. I was, I
12:57
was trying to be so, okay, we're going eight years
13:01
back in time.
13:03
Speaker 3: It's twenty sixteen. I still have hair. It's a different world.
13:07
I didn't have hear then.
13:09
Speaker 2: And the ten year treasury yield at that time was
13:12
one point seven to seven percent. The two year treasury
13:15
yield was zer point eight four percent. So, right off
13:18
the bat, adding to the deficit back then was a
13:23
fundamentally different proposition than it is today. Gee, for every
13:26
trillion dollars of debt you added back then, you triggered
13:30
ten billion dollars an interest expence. For every trillion dollars
13:34
that you add today, you're triggering forty billion dollars in
13:38
interest expence four times higher. So there's a there's a
13:41
fundamental difference there to begin with, and I think that
13:45
that has to inform what we're looking at on the
13:46
fiscal side, which is, hey, if if you want to
13:50
simply see a repeat of the twenty sixteen twenty seventeen playbook,
13:56
it's going to cost a lot more in order to
13:59
do it, and potentially could even push yields higher in
14:03
the event that there is you know, a significant amount
14:07
of more debt added.
14:08
Speaker 3: So I think that's that's.
14:10
Speaker 2: Point one that I'm looking at. The other piece that
14:15
is fundamentally different inflation. To take a look at the
14:19
inflation picture back in again, let's do I'll do twenty
14:23
sixteen and even into twenty seventeen. And so if we
14:27
look at the I'm gonna use CPI just because it's
14:31
it's what everyone's more familiar with. Sure, if we look
14:34
at CPI in October of sixteen, the twelve month CPI,
14:40
then this is before Trump came into office, was running
14:42
at one point six percent. Core CPI was running at
14:46
two point two percent. If you look at where we
14:49
stand today, headlines at two four four, cores at three
14:52
to two six both are about one percent higher than
14:55
they were. And the question is from a fiscal perspective,
14:59
if you just pour you know, more money on the
15:03
fiscal fire, does it cause a reignition of inflation? And
15:08
if there's one thing, one thing that you have to
15:12
take away from the last five years twenty twenty through
15:16
twenty twenty four, it's that inflation is absolute death for governments.
15:23
I saw this in the Financial Times today and this
15:25
is this is the statistic that matters in my opinion.
15:29
They looked at seventy years of international elections that they
15:36
classify as like the ten major countries, and they you know,
15:39
it depends on the year which one like gets lumped in,
15:42
like in the nineteen fifties, Sweden's one of them. Today
15:45
it's it's it's not you have you know, more you know,
15:47
larger developed countries and things like that. But they look
15:50
at all of these these ten different countries and say, hey,
15:55
what did we see in terms of the governing parties?
15:59
How did their vot vote share in national elections grow
16:02
or shrink? And this is going back to nineteen nineteen
16:06
forty eight, so someone could do the math and I
16:08
think it's seventy six years of data that they have.
16:12
This is the first time in seventy six years that
16:16
every governing party over those ten countries lost vote share
16:22
in elections that were held this year. It has never
16:26
happened before. And so you know, to anyone who's you know,
16:31
looking at the US election results and saying, oh, like
16:34
this is just like a US thing, it's you know,
16:37
this is worldwide because we have literally never seen this
16:43
before at a unified scale. Even in the nineteen seventies
16:47
when inflation was high, you take a look at like
16:49
nineteen seventy one elections, there were still a couple that
16:52
ended up with local governments or national governments growing their
16:56
vote share of the ruling party. So I think if
17:00
there's one lesson that the Trump administration is going to
17:03
take from the last four years, it's going to be Guys,
17:08
we can't have inflation because then we're dead.
17:14
Speaker 3: Is that a fair statement? I would think so. So yeah,
17:18
I mean I would think so.
17:19
Speaker 4: And I want to talk about a few other areas
17:20
of the economy that we've just had a lot more
17:22
slacking them back in twenty sixteen, allowing for that type
17:25
of spending to work. So yes, I would think so.
17:29
But on the other hand, Donald Trump's not going to
17:31
be the next president, and I'm curious how much how
17:35
much he finds to be important the idea of Republicans
17:40
maintaining power after twenty twenty eight.
17:42
Speaker 3: I'm genuinely unsure about that.
17:44
Speaker 2: So I think there's Again I've been thinking about this
17:47
NonStop for like the last twenty four hours. So if
17:50
it takes me the entire rest of the show just
17:52
to get through this point, then sorry, But I think
17:55
there's so much meat here because like trying to figure
17:57
out the thinking is all that matters. Here's here's the
18:00
thing about Donald Trump. If you look at what's the
18:06
one thing if if you were to say, hey, if
18:09
if Trump wants to leave a legacy as president, what's
18:12
the one thing that he's gonna want to be able
18:15
to say he did.
18:17
Speaker 3: I would think, grow the economy.
18:19
Speaker 2: Manage the economy well as how I would consiplate he
18:22
wants to be known as someone who managed the economy well.
18:25
Speaker 4: The Reagan of his age is I think how I
18:28
would most appropriately describe it.
18:31
Speaker 3: Whatever, Sure, he.
18:34
Speaker 2: His whole pitch to people is I'm a businessman, I
18:38
know the economy, I'll manage it well.
18:40
Speaker 3: That's like, that's that's the thing. Yep. Can you say
18:44
that you manage the economy well if you have high inflation?
18:47
Speaker 4: No, I mean clearly the last four years is the
18:50
proof of that. It does not matter where incomes go,
18:53
where anything else goes. If inflation's high, people are pissed
18:56
and you're not gonna keep that legacy.
18:59
Speaker 2: So I think my view is, look, we all have
19:02
an ego. Donald Trump is no different, and I don't
19:07
know that Donald Trump's ego will allow him to make
19:13
that kind of inflation mistake because if he does, it's cooked.
19:17
Speaker 3: Like that's the whole ball.
19:19
Speaker 2: You can't look at the last four years and say, yeah,
19:23
I can let inflation run hot. We're gonna continue talking
19:28
about this because there's a lot of meat on this bone.
19:30
It's a juicy beef rib from Saint Louis, and we're
19:35
just gonna keep munching on this for a while.
19:37
Speaker 3: Quick break here Wall Street Watches Next.
19:42
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19:54
Street Watch a complete look at what's moving market so
19:57
far today right here on the Financial Exchange Change Radio Network.
20:01
Speaker 5: After yesterday's massive rally on the heels of a presidential
20:04
victory for Donald Trump, markets today are extending their gains
20:08
as investors await the Fed's decision on interest rates at
20:11
two o'clock, followed by a press conference from FED Chairman
20:14
Jerome Powell at two thirty. Right now, the Dow is
20:18
modestly higher, up by thirty one points. SMP five hundred
20:22
is up another half a percent or thirty points, in
20:25
the NASDAC up another one percent or one hundred and
20:27
eighty eight points. Russell two thousand is pulling back narrowly
20:31
by a third of a percent. Ten year treasureel down
20:34
by six basis points at four point three five percent,
20:37
and crude oil off by just over three quarters of
20:40
a percent, trading just above seventy one dollars a barrel
20:44
after its leap yesterday. Shares in Trump Media and Technology
20:48
pulling back by twenty percent so far today. Meanwhile, shares
20:52
in Lyft surging by twenty nine percent after the right
20:55
handling company posted a stronger than expected fourth quarter outlook.
20:59
After it saw a sh sharp rise in sales in
21:02
ryder counts. Elsewhere, Zillow jumping by twenty one percent after
21:05
the online housing platform beat Street forecasts on the top
21:09
and bottom lines in the previous quarter. Moderna swung a
21:14
profit and posted higher than expected third quarter revenue, fueled
21:17
by the launch of its updated COVID nineteen and RSV vaccine,
21:21
sending that stock up by two thirds of a percent.
21:24
Qualcomm said its profit nearly doubled and issued a quarterly
21:28
revenue forecast above analysts estimates, driven by a strong demand
21:33
for smartphones. The company also said its board a prove
21:36
fifteen billion dollars in additional share repurchases. That stock is
21:40
up by nearly one percent, armholdings up by five percent
21:44
after the chip maker posted better than expected earnings and
21:47
maintained its full year guidance, and Nissan announced plans to
21:51
cut nine thousand jobs in reduced production capacity by twenty
21:56
percent after swinging to a net loss. That's Wall Street.
22:01
Speaker 3: Watch, Mike, last segment.
22:03
Speaker 2: We were talking about just you know, key differences in
22:05
the setup of this Trump term compared to the first one.
22:11
Speaker 3: Any other data points that you want to add to that.
22:13
Speaker 4: Yeah, so unemployment rate, that's obviously an important one here,
22:17
Donald Trump. Look, I wouldn't describe the twenty fifteen economy
22:20
as terrible, but you have to put yourself back in
22:24
that framework. There was a lot more slack in the
22:26
labor market back then. The unemployment rate in October of
22:29
twenty sixteen, which would be the only data you had
22:33
ahead of that election, was at four point nine percent,
22:35
nearly five percent on the unemployment rate today October of
22:39
twenty twenty four, we're set at four point one percent.
22:42
Speaker 3: Another one for you, Mike, just while we're going through them.
22:44
Speaker 4: Yeah.
22:44
Speaker 2: Yeah, In October of sixteen, the labor force participation rate
22:50
for prime age aged twenty five to fifty four, So,
22:52
like what percentage of those people were in the labor
22:54
force then was seventy eight point five percent.
22:57
Speaker 3: Today it's eighty point nine. So you don't have a
23:01
whole lot.
23:01
Speaker 4: More reach to get more people coming in to the
23:04
labor market. And we're talking about immigration reform too, so
23:08
what does that do to the labor market. Homes for sale,
23:11
that's another interesting one that I would like to dive
23:13
into here, because there's a lot we're going to cover
23:16
in terms of potential Trump impact on the housing market.
23:19
Homes for sale in the United States October of twenty sixteen,
23:22
four point zero eight million active listings. I believe that
23:26
does include both single and multifamily as of October twenty
23:30
twenty four, nine hundred and fifty four thousand. So if
23:33
you have a lot more money in people's pockets because
23:35
of things like tax cuts without corresponding increase in supply,
23:39
and I do think increase in supply is a key
23:41
goal of a Trump administration for twenty twenty four and
23:44
potentially how you combat some of that inflation by doing
23:49
some things on the housing market.
23:51
Speaker 3: But without that type of thing.
23:52
Speaker 4: You could see further inflation there just because of such
23:55
an inordinately tight housing market.
23:57
Speaker 3: Right now, I think that sets the stage in terms
24:02
of key differences.
24:03
Speaker 2: Right So, look, in twenty seventeen, the big thing was, hey,
24:08
we're just gonna do a massive tax cut. And remember
24:12
the term animal spirits back then. I remember like everyone's like, oh,
24:16
like everyone just got all excited. And you can't do
24:21
that right now in this setup, Like Mike, we've talked
24:25
about this. If you throw a trillion dollars into the
24:27
economy next year in the form of tax cuts, where's
24:30
inflation ending up? I don't know, but higher it's higher
24:34
than two four. Let's be intellectually honest about this. It's
24:37
moving higher, yeah, higher than two four, right, Like, I
24:40
don't think it's going to nine. I don't want to
24:41
overexaggerate things. No, no, no, I'm not saying higher than
24:43
two point four. It's it's going up. Yeah, we've talked
24:47
about this. If you just throw a trillion dollars into
24:49
the economy next year, you can't do that and realistically
24:53
just be like, yeah, inflation's gonna come down.
24:55
Speaker 4: But that does require some nuance because that's exactly what
24:59
you did in twenty six We which have any meaningful
25:02
inflation over twenty nineteen. And that's why we're bringing up
25:05
these points is because the economy today fundamentally different from
25:09
what we are looking at in twenty sixteen. That's why
25:12
you could have trillions of dollars in tax cuts in
25:14
the first Trump administration with nothing in the way of inflation.
25:19
Speaker 2: But let's also talk about the stated goals economically from
25:24
the Trump campaign now the Trump administration. A couple big
25:28
ones that are out there. If you talk about trade,
25:33
and this is a phrase that you're gonna hear quite
25:34
a bit, fair trade, not free trade. How do we
25:38
make trade fair. Mike, in what world is fair trade
25:43
cheaper than free trade? The it's correct answers fantasy world.
25:49
I'm racking my brain because it's it's going to be
25:53
more expensive. I'm not saying bad, I'm saying more expensive.
25:55
Like I'm building a case here for where I think
25:59
this is going. Next piece on the immigration front, we're
26:04
talking about potentially a crackdown on people living in the
26:09
United States illegally today and potentially reducing immigration in the future.
26:16
Speaker 4: Labor supply goes down. What does that do to labor cost?
26:18
Mic drives it up. I'll bring up one argument that
26:21
I've seen on the other side of this. You could
26:23
see weaker housing demand as a result of less immigration.
26:27
So maybe there's some offsetting impact to the housing market
26:31
suspect of that, but that that has been brought up
26:33
as a potential benefit to inflation if there were less immigration.
26:38
Speaker 3: Do you have a lot of people who are in
26:39
the country illegally buying houses not to my knowledge, but
26:42
they're living in some fine again just re uphousing inventory.
26:48
Speaker 4: I want to acknowledge the argument, even though I'm not
26:52
sure it really moves the needle on anyway.
26:54
Speaker 2: Uh, big priority reducing government jobs. We're talking about like
26:58
government efficiency and things like sure, right, that potentially helps
27:02
on the fiscal side, but potentially also reduces you know, spending,
27:06
which is something that creates a little bit of economic drag.
27:10
And the tax side of things, if you're you know,
27:13
basically saying, hey, we're just going to extend the cuts
27:15
that we have and maybe make some changes on the
27:17
corporate side to incentivize stuff coming back. You know, I've
27:20
heard the idea of a lower corporate tax rate of
27:22
fifteen percent for companies that make stuff domestically. That's something
27:27
that provides some help at the margins. But ultimately, if
27:32
you're going to do all of these things, and I'm
27:34
not saying that the Trump administration will or will not,
27:38
but here's the case that I'll make for where they're
27:42
trying to go. It's something where in doing this, if
27:46
you're able to accomplish it, it's going to result in
27:51
some real pain.
27:52
Speaker 3: In the short term. Costs are going to go up.
27:56
Speaker 2: Like that's again the reason that companies have chosen free
27:59
trade is because it's cheaper for them. They have fatter margins.
28:02
Like I can't make this any more clear. You don't
28:04
bring stuff back to the US and raise tariffs and
28:07
stuff and magically have cost go down, not.
28:09
Speaker 3: Right away right.
28:12
Speaker 2: Costco up initially labor supplies reduced. Like this creates drag
28:16
on the economy. It's potentially like that if you implement
28:19
this all at once, the next year has the potential
28:23
to not be great. But and here's the butt. I
28:28
think we have to look at this in terms of
28:30
also who's going to be taking you know, roles in
28:32
the administration and the scullllle butt that's out there right now.
28:36
The most important one that's out there is Secretary of Treasury.
28:40
The three names that I've seen floated as potential front runners.
28:44
First is Robert Leitheiser, who's the US trade representative from
28:47
Trump one point zero. Second, John Paulson, big hedge fund
28:50
manager made I think like four billion dollars back in
28:53
two thousand and eight betting against the housing market. Uh.
28:56
Speaker 3: And uh Scott Besson, who is an advisors to the
28:59
Trump camp. Pain.
29:00
Speaker 2: He also founded what is I think, Key Square Capital? Yeah,
29:07
Key Square Capital, and they do like all kinds of
29:11
different investing stuff. Uh.
29:14
Speaker 3: So I think if you.
29:15
Speaker 2: Look at this Lightheiser's the guy who I think probably
29:18
has the inside track just because he's already been in
29:21
a Trump administration and knows him and they get along
29:24
very well from what I hear, sure and Lightheiser is
29:29
the guy who ultimately, you look at his biggest priorities,
29:34
it's fair trade and cutting government expenses, and those two
29:38
things are going to add cost and reduce growth in
29:41
the short term. But I think the selling point to
29:46
Trump in terms of leaving his legacy long term, hey,
29:50
you're gonna have some pain in year one, but the
29:56
aftermath of it, when you have a situation where you
29:59
know you you've now built the foundation for more robust
30:04
US growth in the future because of doing this is hey,
30:12
for you know, for for the US Treasury secretary, it's
30:16
the idea that, hey, you want to look like you
30:18
know what you want to be, like what Paul Volker
30:20
was back in the nineteen eighties, the guy who raised
30:23
rates like just said, you know what, screw it, I'm
30:25
just gonna nail inflation, even if it costs US a recession,
30:29
even if that's where we have to go. That's what
30:32
I'm going to do because I know the longer term
30:35
path is better there. Now, I'm not saying this will
30:37
work or will not. But if I'm putting together these
30:41
different pieces, this is what it potentially looks like for
30:46
me is hey, it's not a repeat of Trump one
30:50
point zero, which is, hey, we had an economy that
30:52
was okay, not great, and by throwing a big tax
30:56
cut at it, you added a whole bunch of growth
30:58
that was needed at the time. It's much more, how
31:02
can I restructure the US economy even if it causes
31:05
some short term pain in order to give a better
31:08
long term growth platform. That's what I think the story
31:14
is going to be, and that's what I've put together
31:16
over the last thirty six hours. It's a fundamentally different
31:19
story than twenty sixteen, twenty seventeen.
31:22
Speaker 3: I'm not saying it's good or bad. I'm just saying that, like,
31:24
this is where all of this stuff is pointing to me.
31:28
Speaker 2: Because if you think we're just gonna be like, hey,
31:31
tax cut next year and that's it, I don't know.
31:35
Speaker 3: That doesn't move anything.
31:36
Speaker 2: It's kind of a tough putt for me in an
31:37
environment where core inflation is still running at three to two.
31:41
Let's take a quick break, and then I want to
31:44
dig in on a couple other things here because I'm sorry.
31:47
It's just there's so much to talk to, to talk
31:51
through on this, and I think it's really interesting where
31:56
this can go. And I don't know how it's all
31:58
gonna play out, but let's take it quick break. When
32:01
we come back, I want to talk about some of
32:02
the geopolitical stuff, because I think that's another place that
32:05
is also fundamentally different from twenty sixteen to twenty seventeen,
32:08
when Trump first came into his first term in office.
32:12
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34:00
Speaker 2: We got a little bit more to dig into in
34:02
terms of again, just one more difference that I want
34:05
to touch on, and that's the overall geopolitical picture now
34:09
versus twenty sixteen.
34:11
Speaker 3: Sure you look at obviously the Middle East, which.
34:15
Speaker 2: Is in a vastly different spot, and the continued escalation
34:21
between Israel and Iran through direct confrontation is something that
34:26
I think you have to be fundamentally wary about as
34:29
far as how that may impact energy prices in the
34:31
New York term. Okay, I think that's going to be
34:34
something that you have to again, like you look at,
34:39
I think it is increasingly likely that Israel takes stronger
34:44
action against Iran, given the cozy relationship that net Yahoo
34:51
and trumpet joy during Trump's first term. I think that's
34:55
increasingly likely, and that gives kind of a fat right
34:58
tailed oil prices with the potentially that they move much
35:01
higher in the short term. You know, if something were
35:03
to happen. So you add all this up and I
35:10
think it's a picture that again depending on how it
35:15
ends up playing out. I don't know that in the
35:18
short term it's as rosy as the first year for
35:21
the first Trump term, but it potentially builds that foundation
35:26
for stronger growth from there.
35:29
Speaker 4: Yeah, I think the key takeaway that I have would
35:31
be we can talk about all the individual scenarios, but
35:35
today you have an economy that is far more at
35:40
risk of high inflation than it was in twenty sixteen.
35:44
Speaker 3: It does not mean that it will come to pass.
35:46
Speaker 4: A really really important distinction here, And you know, depending
35:49
on how policy develops, depending on what gets implemented what
35:52
does not. You can create capacity in this economy in
35:56
some way, shape or form, or maybe we see that
35:58
miraculous improvement to productivity that we've been seeing over the
36:02
last few years power surge through something like I said, miraculous,
36:07
But I don't think you can rely on, you know,
36:09
miraculous productivity improvement to avoid inflation. And so again, the
36:15
the whatever that Trump administration is that gets formed looks
36:18
like they're not a bunch of dummies. They are well
36:21
aware that this economy has the potential for higher inflation.
36:25
They're also well aware of how people feel about high inflation,
36:30
and so it does shape.
36:32
Speaker 3: What those policies are going to look like. You mentioned
36:36
the global stage. I guess we just talk about productivity
36:38
for one second.
36:39
Speaker 1: Yeah, please.
36:40
Speaker 3: Did you happen to notice the productivity data that came
36:43
out this morning? No? I did.
36:46
Speaker 2: I did, because despite you know, focusing on you know,
36:49
all this other stuff for the last thirty six hours,
36:51
we did get productivity data at eight thirty this morning.
36:54
The expectations were for productivity to be rising at a
36:57
two and a half percent annualized rate.
36:59
Speaker 3: Came into two point two. It's a miss.
37:02
Speaker 2: The prior reading, which had come in at two point five,
37:05
revised down to two point one.
37:08
Speaker 3: So this is the meat.
37:09
Speaker 2: And as a result, unit labor costs, which the prior
37:13
reading of point four percent was you know, looked at
37:15
as hey, like this is something that takes pressure off
37:18
inflation revised up to two point four. And for the
37:22
current quarter, eric Q three expectations were at one point
37:25
zero came in at one point nine.
37:28
Speaker 3: So you like, yes, you the point is the exact
37:31
one you just made.
37:32
Speaker 2: Which is you can't put all your eggs in the
37:33
productivity basket, right, it's not that big of a basket,
37:37
and there's too many eggs.
37:40
Speaker 3: Really pushing this analogy, Huh. I can keep going if
37:44
you want.
37:45
Speaker 4: Yeah, So look again, it's an important framework to have,
37:50
and history echoes itself and it never, never exactly repeats itself,
37:54
and you likely won't see an exact repeat of the
37:57
twenty sixteen Trump administry should nor would you want that
38:01
for the economy that they face today.
38:04
Speaker 3: Let's take a quick break here.
38:06
Speaker 2: We still got a lot more to get to in
38:08
our two of the show, a whole lot more coming up,
38:12
just little bits