The Dividend Cafe - A Comprehensive Post-Election Commentary

Episode Date: November 15, 2024

Today's Post - https://bahnsen.co/3CrSyd5 A Comprehensive Post-Election Analysis and Market Implications In this special episode of Dividend Cafe, David Bahnsen, Managing Partner at The Bahnsen Group, delivers an in-depth post-election recap and its market implications. David analyzes the recent election results, focusing on the anti-incumbency trend, significant political appointments, and their potential impacts on various sectors, including energy and pharmaceuticals. He discusses key expected legislative priorities, such as tax reforms and regulatory changes, and evaluates their probable effects on the market. The episode concludes with insights into the economic backdrop and valuation realities for investors. 00:00 Introduction and Post-Election Recap 03:09 Analyzing the Election Results 05:47 Impact of Personnel on Policy 09:38 Key Appointments and Market Implications 12:10 Government Efficiency and Deregulation 14:44 Legislative Priorities and Tax Reforms 19:07 Social Security and Healthcare 22:02 Market Outlook and Conclusion Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Well, hello and welcome to a very special Dividend Cafe. I am David Bonson. I'm the managing partner here at the Bonson Group. And today I have the privilege of bringing you a very comprehensive post-election recap. Last week, in the 48, 72 hours after the results, I tried to pack in what I could, but there was a lot less known. We knew the results of the election.

We even knew the results of the Senate, although not the exact final numbers and so forth. But I'm not really here today to just talk about the final electoral and political outcomes, where even now we don't know exactly what the Republican majority in the House is going to be. But my point being, last week we were absorbing the media aftermath, and now I've really tried. I think I'm not exaggerating to say that I may have read 500 pages of research, commentary, bulletins, analysis. I most certainly had over 50 phone calls and meetings and things this week with various people that I think are in the know, people's perspective I respect. Sometimes folks that are insiders to a lot of the transition administration and other times various commentators and people that are just opining on their own opinions. Either way, I really wanted to assemble

for you something valuable to think about the new administration coming in. And again, I'm going to give the same caveat I did last week, that this is not really a political exercise. I believe most people that listen to the Dividend Cafe or watch this video and certainly the readership of DividendCafe.com, I hope all cards are on the table. interesting position to be in where I think there are people that think I'm too friendly to the Trump side of things because I'm a lifetime conservative. And there's people that think I'm not nearly friendly enough because I'm often very critical. And I want to say that I kind of wear that as a badge of honor. I mean, I really do believe both in my capacity as a citizen, voter, and just interested patriotic member of this country, but particularly as an investment professional writing with this fiduciary duty and managing client capital with the need for objective analysis.

I really don't see this in talking about today in a political lens. I have opinions on policies and I have opinions on people and I'll share some of that. But to the extent that you could hear certain things I say and go, well, that's really against the way I feel on the issue on something. And then other people could feel it on others. I think that's inevitable. I don't know how to avoid that. And nor do I think I ought to avoid it.

So that's where we are. I'm going to get into this. And first and foremost, just say that in the midst of what a lot of other people have already done on the political analysis postmortem of the election, and people talk about what constituencies moved in their vote and what the Electoral College did and the campaigning and the candidates and the way the whole complexity of the Democratic nomination went down and so forth, the fundamental theme I would hold out is that this was an anti-incumbency election. And on the Senate side, when you look at a John Tester, a Sherrod Brown, and a Bob Casey in Montana, Ohio, and Pennsylvania, respectively, these are Democrats that have been there forever in their states, losing out to Republican challengers. And I think that this incumbency

theme is highlighted in history by the fact that there is right now in the American political system, every four years for three elections in a row, we changed out the incumbent party. So President Obama was reelected when his second term ended in 16. The Democratic White House was replaced with Trump. He did four years. It was replaced with Biden. He did four years. It's been replaced with Trump again. So you go, OK, well, yeah, that happens a lot. Well, no, it doesn't. It hasn't happened since 1884. Having the incumbent party go out after four years, three times in in a row has not happened in nearly 150 years. Incidentally, and this is just more of a factoid, but I think it's relevant to the challenges the candidate VP Harris had.

You know that we have only had one sitting vice president get elected president since Martin Van Buren in 1836. Bush Sr. was Reagan's sitting VP at the end of his second term, ran for president, handily beat Mike Dukakis. That's the last time. Now you go, well, I don't know. There's been other VPs in president. That's true. But with Biden, with Nixon, they were not elected until later after having served VP. And then the majority of the ones you may be thinking of became VP as a result of a death and in the case of Ford, a resignation. When you look at LBJ replacing JFK, Calvin Coolidge, and even going back to Andrew Johnson replacing Abraham Lincoln, there's a lot of history of VPs becoming president, but very little of incumbent VPs getting elected president. Incumbency can be hard,

and this was a change election. In a lot of ways, that's where things stand. So my assessment now, if I keep using the term which I was doing pre-election over and over, is doing pre-election over and over, the personnel is policy. For me to properly analyze this election, I have to analyze the personnel that President Trump's bringing in. And a lot of that personnel started to come. Now, as I'm sitting here recording in the middle of the market day on Friday, I waited as long as I could to record because I was just waiting for some more appointments to come.

But the ones I want most have not come yet, meaning Treasury Department, meaning the National Economic Council Director, to a lesser degree, the Chairman of the Council of Economic Advisors. Those are meaningful. The Treasury Department's meaningful. And a lot of people know that Scott Besant, who has been a very successful hedge fund manager, is a known guy within capital markets, both in currency and global macro. I consider him to be a very intelligent, thoughtful, and philosophically minded guy. And I would have guessed a week ago that it was imminent that he was going to get named. The word is, now that part I know in terms of how inside Besson's proximity and imminence of likely selection has been.

This other thing I'm about to say, I only know from media accounts. Nobody internally has told me this, but the word is that the president-elect chairman of his transition team, Howard Lutnick, is the CEO of Cantor Fitzgerald, that he is jockeying for the position himself. And Howard's a well-known guy on Wall Street. And so there's other reports starting to surface. I would love David Malpis, who was the president of the World Bank in President Trump's first term. He has served as a deputy treasury senior official in three presidential administrations, but I also believe he is being considered for a later Federal Reserve position. So again, I think until we hear otherwise, the two-man race of Besant versus Lutnik is what's being reported.

We'll see where it goes. I would have said from sources and other things a few days ago that Besant's appointment was imminent, but it hasn't happened. So that matters a lot. It matters to markets. It matters to kind of get a direction of how some of these things are going to go. And with Treasury, I'm going to skip ahead real quick because it's a point I make later in my kind of flow off of what I wrote about in DividendCafe.com. He has ways he's going to want to deal with China later. do believe that he may scratch some of the inches he wants to by getting China to agree to allow their currency to appreciate, to revalue relative to the dollar. And Besant has been a big proponent of this idea that he has called, it plays very much to President Trump's vanity, if you will, the Mar-a-Lago Accord. Some of you are familiar with the very famous 1985 Plaza Accord.

Japan and a lot of major West European nations agreeing to, again, similar thing to allow their currencies to strengthen and the dollar to weaken in the name of the improved global competitiveness for the U.S. And there are other factors at play. I don't know that China would agree to that. I do know that that outcome would be very favorable to President Trump. And Besant, if he's named Treasury, I think it makes that path more likely. So I want to hold that out there as just an example of where personnel is policy. Now, this week, I'm not going to spend a lot of time on it

because it's all there. Anyone's talking about the news. I mean, I think, honestly, there were some just awful picks this week and there were some really surprisingly great picks. And everyone can have their own opinions about who those people are and who's going to get elected, but because who's going to get confirmed because this is not here to do political handicapping. And I don't really see it as a directly market or economic sensitive thing, I will get into whether or not the Senate is going to confirm Matt Gaetz as Attorney General or Tulsi Gabbard at DNI, the Domestic National Intelligence. Pete Hegseth at Department of Defense. There are a few nominations that are going to be difficult. And then late Thursday night, Robert F. Kennedy at Health and Human Services. I'm going to talk about that in a second,

pertinence to some sectors in terms of equity investing. But what we do know is that Lee Zeldin was named to head the EPA. I think that's an indicator of more of what you saw in his first term in terms of energy policy. From our standpoint, that's bullish for the energy sector. What are the other ones? Oh, Governor Burgum at the Department of Interior was named. He'll certainly coast to approval. And then on the national defense side, Marco Rubio, Secretary of State, he should coast to approval. And then the CIA Director John Ratcliffe.

So there's been a lot named. And like I said, you can guess which ones I've listed. I don't like which ones I do, but it's sort of a mature of our purposes. The stuff that we'll get into more, and I'll be as absolutely forthcoming and transparent as I can, is when he names NEC and Treasury. With the National Economic Council, for one year, he had Gary Cohn, who was the president of Goldman Sachs, who came in and really drove the passage with Congress, coordinating with Kevin Brady at House Ways and Means and Paul Ryan, Speaker of the House at the time, to get President Trump's signature legislative achievement done. But then my dear friend, Larry Kudlow, became National Economic Council director for the final three years of administration. I think did an outstanding job. And I do believe it's possible that Larry NEC sits at the juxtaposition of policy,

legislation, working with Capitol Hill and with the business community. And so that kind of brings us to our next point. The other thing he announced this week was Department of Government Efficiency, that he was asking Elon Musk, who needs no introduction, and Vivek Ramaswamy to head up. This should not be confused with the Department of Homeland Security, the Department of Health and Human Services, the Department of Education that have been instituted by Congress. There's no such thing as a department of government efficiency. It will not have Senate approval.

It will not have a budget. It will not have appropriation. It will not have authority. It will not have a budget. It will not have appropriation. It will not have authority. Other than executive branch, they can go be advisory, poke around and try to generate ideas. It could be very effective and they can end up doing an outstanding job.

But I just want to make sure we're clear that the nomenclature can be confusing. But as a matter of technicality, it's very important. When people say they're going to go cut costs, the Department of Government Efficiency and two advisory positions in Musk and Ramaswamy don't have any control over budget. But what they can do is identify fraud, waste, and corruption. And this is a harder thing because, for example, the Government Accountability Office has already told us they're admitting that they believe there's over $200 billion a year that's been wrongly paid out, the bulk of which is Medicare reimbursements, and sometimes to states with Medicaid reimbursements and funding and unemployment funding. Again, both those latter two being to states.

Then the third is largely with income tax credits. And then they had a bunch of stuff out of COVID. These are not easy to identify the specifics of, to unwind. Some of these are, if you'll pardon the expression, they're popular mistakes. You know, people like getting money that they're not supposed to get. So I am not bearish on the idea. I love what could come of it, but I don't believe it's as low-hanging fruit as people think. They're unempowered, and so it's going to require a lot of savvy.

Now, these are two very savvy people. Ramaswami is a very articulate communicator. If they find something that is a real embarrassment to government, I think they have the ability with their platforms to really shine a light on it and then kind of force Congress to act or force other agencies and regulatory bodies to act. So there is a TBD around this

that could very well prove to be very interesting and add to a deregulatory climate that is beneficial to markets. What do I expect in terms of sequence? I want to bring people back to 2017. President Trump gets elected, and he had talked a lot about tariffs and a lot about trade and a lot about NAFTA and a lot about unfair trade deals in China and Mexico.

And his primary legislative priority was basically tax reform. They tried Obama-Gaycare appeal, the ACA appeal. It didn't go to work. They went into tax reform, and he scored a major victory into the early second half of 27 and then focused on certain border initiatives and really dug into energy early on. Most of these things were popular with the base, and many of them were quite popular with the whole American people. Then in 2018, he did pivot to tariffs,

and did so already with the kind of, shall we say, support of the American people that were happy with what he had gotten done with some of these other areas. I very much expect a similar playbook. Now, I don't believe he's going to ignore tariffs for his first year, but I expect an executive order early on to demand people look at tariffs or demand different agencies look at where they can or what they're allowed to do. Some sort of reporting executive order will buy in time, pacify the base, but then turn to what will be very likely legislative victory popular with making some of the 2017 tax cuts that are set to sunset permanently, potentially new tax cuts, and some

of the government efficiency, deregulatory efforts, et cetera. You know, during the campaign, he promised about five different tax cuts, no tax on tips, no tax on overtime wages, no tax on Social Security income, an expanded child tax credit that he never really elaborated specifics on, but Vice President Vance talked about $5,000, and then an increase in the SALT deduction limit that he had brought down to $10,000. He wanted to expand that. So to go into a new bill now, and you're not going to get 60 votes in the Senate,

so you need to do it through budget reconciliation, which is filibuster proof, and you're only going to need about 50 votes. At that point, basically, I think you want this to not really add a whole lot into the deficit based on the budget window that gets set and the 10-year mark, the way the budget reconciliation process is structured. So what are they going to be able to get through? What are some of the offsets going to be? What are things they can get rid of that pay for the new things they want to add? He's talked about getting rid of the EV credit that new auto buyers get with the electric vehicles. A lot of that has to get scored. I'm going to know a ton of what they're planning to do when we know who some of these policy advisors are going to be. That's what I keep saying about

personnel as policy, because the devil be in the details. They will put a tax package forward. There will be votes in the House. They'll probably get some Democrat votes when all is said and done. But that bill is not going to look like exactly what he said in the campaign, because it never does. And then because of budget reconciliation, a bunch of stuff's got to get paid for. So it's going to have surgery done to it. And I can't predict exactly where that will go, but I think that will be the sequence of legislative priority. Where Bob Lighthizer will fit into this when we talk about personnel, trade, et cetera, is important. He was President Trump's U.S. trade representative in the first term. He's by far the most protectionist, pro-tariff, anti-global trade of the people being discussed.

There was some talk that he may be in the mix for Treasury Secretary or Commerce Secretary. I'm not hearing that name quoted. Trump himself has circulated that he'd like to bring Bob back to that same position. Robert Lighthizer has said he might want something more advanced. Anything that is horizontal or diminished from before, I think might indicate that the tariff priority is not as much as some have feared. And anything escalated, if Robert Lighthizer was named Treasury Secretary, I think that that would establish a much higher assumed prioritization of tariffs than is being expected, including by myself.

I did get a client who wanted me to comment on what this may mean for Social Security. And I will say that essentially it means nothing because there's no talk at all out of President Trump of doing anything not only short term with Social Security benefits, which pretty much no politician would do or should do, but even longer term, like even addressing the ultimate fiscal sustainability and some of the reform needs that are likely to be inevitable with Social Security and Medicare, President Trump in the primary and in the general took entitlement reform off the table. And I think he more or less said he's a final term president. He sees it as a political loser.

It's inevitable someone has to do it, but he didn't want to. And so I think entitlement reform will become a major issue in 2028, but I see nothing on the table now. And so for those worried about their own current benefits, there will absolutely be no change. I'm confident of that. And the specific amount of benefit will end up just depending on the degree of COLA adjustment each year. Drugs, reimbursement, pharmaceutical, Robert Kennedy at HHS, junk food, snacks. HHS has a huge budget. HHS doesn't make law. Things like vaccines are entirely administered

by states. Now, federal employees can have their own mandates and things like that. But for the most part, there's very little jurisdiction at the federal level for some of this stuff. Now, there's a bully pulpit. I don't know if RFK is going to get confirmed. I would view it as a coin flip. I wouldn't have anything better than a 50-50 odds to make. I would offer almost 100% odds for a lot of candidates I've discussed today. I'd offer very low odds for one or two others. But in the RFK one, it's kind of 50-50-ish as far as where I can see that going from the political side of it. But as far as the impact, do I believe that it's going to cut into revenue of pharmaceutical companies? I do not.

Do I believe that there's going to be regulatory burdens in place, maybe marginally? Some of these things could already be well priced in, but no, I do not. And most importantly too, you could look at all the things that somebody like Robert Kennedy has said and say, what if all this kind of happened? But I think it's very important to realize that these are not the priorities that animate the president. And so he'll give his advisors and people any kind of niche necessary to go do their own thing. But to the extent there ends up being a pushback to him, President Trump has the things that he is going to focus on. And I'm quite convinced that those priorities are going to be in this order, trade and immigration, tax and regulation, and ultimately energy. And I think you could argue that a lot of that's very pro-market.

There could be room for some anti-market stuff in there, particularly around tariffs and trade. could be room for some anti-market stuff in there, particularly around tariffs and trade. But the major market takeaway you have to hold out is, look, let's say I believe a lot of these things have the potential for being tailwinds to markets. Certain tax reforms, certain regulatory reform, certain energy reform, a little bit of headwind on tariff. And you price all this in. You have to price it in the context of valuation. But before you get to valuation, there's economic circumstances, which are largely tailwind. It's not an unconstructive backdrop for investors with low unemployment, with the

Fed lowering interest rates, with GDP growth better than expected. The economic backdrop is helping. These other policy potential things are helping. But then you have to weigh that up against valuation. And that's the major takeaway is that no matter who is president, all things being equal, you can get a more constructive policy backdrop. But you do it up against a valuation reality that has to be factored in. So I'm going to leave it there because that's our big conclusion. I really want you to read DividendCafe.com if you have the time and inclination because getting into China, Vietnam, Mexico, some of the global ramifications of all this, I didn't have time to get into. And I didn't get into this idea of a Bitcoin emergency reserve. And I do deal with that at

DividendCafe.com. And that's one of my favorite parts of the written Dividend Cafe this week. Thanks for listening and thank you for watching. Reach out with any more questions and we will see what next week's Dividend Cafe will have in store because I don't know at this time. A lot of it will depend on some of these things that are to be determined and have a lot to do with the policy agenda of the years to come. Thanks again for listening, watching, and reading The Dividend Cafe.

Have a wonderful weekend. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. Thank you. The Bonson Group and Hightower shall not in any way be liable for claims and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

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