The Dividend Cafe - Tariffs, the Dollar, Pete Navarro, and You

Episode Date: December 6, 2024

Today's Post - https://bahnsen.co/4glLb5A Election Updates, Economic Appointments, and Market Analysis In this episode of The Dividend Cafe, David Bahnsen discusses recent economic appointments in the Trump administration, their potential impacts on markets and regulations, and compares current and potential future policies on trade, tariffs, and taxes. Notable mentions include Paul Atkins’ appointment to the SEC, Kelly Loeffler heading the SBA, and David Perdue as U.S. Ambassador to China. Bahnsen also analyzes market trends, bond yields, and economic indicators for the upcoming year. 00:00 Introduction and Weekly Update 01:48 Economic Appointments and Their Impact 06:37 Trade and Tariff Policies 10:39 Market Reactions and Predictions 12:10 Tax Policy Insights 13:45 Global Economic Events 14:59 Conclusion and Final Thoughts 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 another weekly edition of the Dividend Cafe. I am your host, David Bonson, managing partner of the Bonson Group, and I am excited to be presenting this week's Dividend Cafe from San Francisco, where I am on Friday and Saturday at an annual conference at which I speak, and then I will be spending all of next week in our Newport Beach office before returning to New York City, where it is about 26 degrees. This week's Dividend Cafe, I started off writing believing I was just going to go

all over the map and cover some things about valuations and small cap and oil and markets and France and everything. And some of that's still there, but it really did end up being a little bit more election centric again as the transition of this presidential administration continues. And we ended up getting some newsworthy things that kind of inspired me. And so I'm going to get into tariffs a little bit, get into trade a little bit, tease up some tax reform stuff a little bit, and then start off with some of these new appointments that are economic oriented as we get really close to the kind of conclusion of this transition, the announcements, the appointments. There's still plenty that are going to have a little bit of a confirmation fight. I'm kind of staying out

of the fray. The news cycle right now is mostly around Pete Hegseth in the defense secretary position. But just staying more in the economic lane, there's a lot less controversy expected and a lot less opposition, a pretty cleaner path to confirmation for most of the folks that President-elect Trump has put into some of these economic positions. So just let me go through a quick little list of what came out this week, because the stuff that's come out in prior weeks, we've already extensively covered from Scott Besson to Treasury to Howard Lutnick at Commerce to Kevin Hassett at National Economic Council. But this week, Paul Atkins was named to be the commissioner, the head of the Securities Exchange Commission. It's a big deal inside my

business because, of course, we're regulated by the SEC. It may seem like less relevant to market actors and participants like all of you. And yet, because of the way in which the SEC regulatory environment affects financial sector, and many investors are, of course, exposed to the financial sector, not to mention some of the kind of crypto adjacent stuff, which I care about a lot less, but just the overall regulatory atmosphere with private equity, with hedge funds, with investment banks, with M&A, with commercial banks. There is a very important relevance, and Paul Atkins is no question. I mean, he was on the SEC commission before. He's been a commissioner, but he's never been the chairman.

And he has a reputation of being a very deregulatory, light-touch approach who has a lot of respect for financial markets. And a lot of financial, shall we say, market groups were really quite enthusiastic this week about the pick. We're going to be talking about him more in a moment, but Pete Navarro did end up resurfacing this week as a White House trade advisor, which is not a real role, but it's a kind of informal advisory role, like the name suggests. Won't require Senate confirmation, is not a cabinet position, does not have official negotiating authority, but will certainly have the ear of the president, which matters.

And so I'm going to speak in a moment to whether or not some of us who feel that Pete Navarro is a malignant contributor to the discussions of trade tariff and economic growth. Is this a good thing or bad thing? Because there's kind of two schools of thought. Him coming back around, getting a position could be viewed negatively for those of us that are not a big fan of his thinking and work. And it could also be thought of as a positive that he ended up getting a kind of more marginal position and one that doesn't have quite an official sense of empowerment. Kelly Loeffler, who was the senator in the great state of Georgia up until 2020, was

named as the head of the SBA, the Small Business Administration. This is not an insignificant role either. Kelly is a very talented businesswoman and seasoned executive. Linda McMahon had this role in the first term and now has been named President Trump's Secretary of Education, but she's also the co-chair of the whole transition, Linda McMahon. So there's been a lot of gravitas and recognition around this SBA role. And I would remind everyone in 2020, the SBA was the governmental agency that was administering the Paycheck Protection Facility, the PPP. And so

SBA has quite a bit of authority, budget empowerment around elements of small business in our country. Frank Bisignano was named a Social Security Administrator. I don't know why Frank wants this job, but he's a good patriot. He's been chairman of Fiserv. They had merged with First Data, where he had been CEO. Frank has been at Morgan Stanley City, JP Morgan, senior roles, been around Wall Street for a long time. He's just a very serious finance guy, great reputation, and he'll be now running Social Security.

David Sachs was just named as the, again, made-up role White House AI, artificial intelligence, and crypto czar. Again, kind of advisory position, will not require Senate confirmation. And David's a big VC guy, billionaire here in Silicon Valley, was part of the PayPal group with Elon Musk and Pete Thiel back in the 90s, and has had some other major liquidity events since. An outspoken advocate for deregulation in VC, for deregulation in AI, and deregulation in crypto. And so it's probably meaningful that he's there, and we'll see how long he wants to be there. And then finally, David Perdue, who was also a former senator in the great state of Georgia, but was also the CEO of Reebok,

CEO of Dollar General, was named as the U.S. ambassador to China. The only reason I bring this one up is while David has definitely become a very big Trump loyalist and so forth over the last, let's say, four years, he also was a very big advocate of trade with China over the years and certainly did a lot in that role as CEO of Reebok. So him serving in an ambassadorial role with China is interesting. All right. So what we know is that some of the big tariff hawks from the first Trump administration, Pete Navarro and Bob Whitehizer, are either in the case of Whitehizer not around right now or in the case of Pete Navarro in a very marginal role, and that there's a bit more nuanced, still very friendly to President Trump's economic agenda, but a different

posture and experience and rhetoric and approach and philosophy and history with tariffs, trade, and whatnot from Scott Messon at Treasury, Kevin Hassett at NEC. Do I think this means something? Well, look, whether Navarro, Lighthizer were there or not, I believe that the idea of a universal tariff that Lighthizer had advocated for, Navarro certainly has advocated for, and President Trump at times would talk about and other times would not, was always going to be a big uphill climb. First of all, markets, I think, would have revolted and that would have impacted the president's thinking. But also, they're not legal without Congress. And there's certain little things you can do to get around stuff, but that's a lot harder than a targeted tariff where the president has a lot more authority or different post-hoc rationalizations

they can use to get there aimed at a specific country like, say, China. That's really what I'm expecting now is basically I'm in the middle of the road here where there's market actors that think everything's fine. They're not really going to do anything. He's going to negotiate, get great trade deals. We're not going to see any real volatility or impact or pain from tariffs. And then others are saying, oh, my gosh, it's going to be Great Depression. It's going to ruin the whole country. Or my view is that you will see more volatility than we've seen. You will see the threats of tariffs and discussions and uncertainties surface more than they have, yet not go all the way to very malignant, negative, uncertain endings. Yet the kind of Pollyanna approach that everything is just going to be totally fine, there won't be any pain

along the way, I am skeptical of as well. I do believe that with Canada, Mexico, and most of the ally nations, there's unlikely to be significant tariff extractions actually implemented, and that there will end up being other things like border crime, drugs, those policy objectives that tariff and threats of tariff are used to gain a lot of concessions in those domestic policy categories. And that where there might be actual tariffs implemented is more likely marginally increasing some with China. It's a little red meat to the base. There's more leverage for the Trump administration to do so. China has less ability to push back. But all of it is really more geared towards setting the stage for something more grandiose

But all of it is really more geared towards setting the stage for something more grandiose that is a more U.S.-centric policy outcome that could lead to a dollar-China currency exchange rate change. It could lead to China opening up the market for rare earth minerals for the U.S. You recall this phase one deal from 2019 that just called for them to buy more oil, gas, and soybeans from us. But all of these things in the end, I do believe we will not end up facing the worst case tariff scenarios, but I don't think we're going to get there without some volatility and uncertainty and moments. We call them scary tweet moments along the way that go beyond just a mere tweet. And that's what I think you're seeing on the policy side, that Lighthizer not

being there, but his old chief of staff being there. Navarro being there, but in a different role. Guys that are probably a little more traditionalist in some of their approach to these things like Besson and Hassett, it all speaks to a kind of middle ground lay of the land on these issues. And that's where I would summarize things here now. What have you seen since Besant was named at Treasury? Well, you've seen a huge bond rally, 10-year yields that were facing around 4.5%, now down to around 4.15%. It's come down 30 to 35 basis points in just three to four weeks. It's a big rally in the longer end of the curve. And that's all happening while I think you're

going to see more foreign ownership of bonds next year as the yield curve uninverts. I think you're going to see downward pressure on deficits because of a declining cost of debt service as the Fed continues to lower rates and more and more of the short-term debt rolls over into lower cost and higher revenue than expected. The stock market was up 20-something percent last year. It's up 20-something percent this year. I just believe the CBO estimates for capital gain tax and other income tax are going to prove on the low end. And so you get a little boost to revenue. We already know the Fed is getting ready to wind down quantitative tightening. I think it positions for a lot more liquidity in the financial markets. And Besson and his competence

and his philosophy, to me, are likely to be beneficial in the appetite foreign owners of treasuries will have. And when you're introducing more buyers for treasuries, then that is putting downward pressure on yields. I need to spend a lot of time in my white paper this year on tax policy. I had a lengthy conversation with Dan Clifton yesterday, who's the senior policy strategist at Strategas Research and one of the foremost experts in the country on a lot of these things. And I'm convinced there's a lot of nuance that people are missing and that I'm spending a lot more time. I probably read 30 pages of research just this morning to kind of really get my... There's a few particular topics around 100% expensing, around things that were not big

campaign-related issues as to where some of the big mega tax bill that the president-elect is going to be looking for in 2025 go. And it's going to be a big theme in my white paper, but I want to tease it out a little now. We know he campaigned on no tax on tips, and we know he has to do something there. We know a lot of these sunsetting provisions of the individual tax code at the end of 2025 are now very unlikely to sunset, that there's very likely to be a big extension of a lot of those things. But when you add some of the other pieces to the mix, some that were campaigned on that I just frankly think have no chance of happening, like no tax on social security,

but other things that are likely to happen around child tax credit, around business expensing, around bonus depreciation, around the salt limit. There are some big, meaningful things out there that I want to unpack more. So this administration transition is a big deal, a lot going on. This week, there was noise in France as they had a no-competence vote and the euro took another leg down. I don't know what's going on there. OPEC Plus announced, no, we're going to delay again getting our production levels back up. They're supposedly 6% below where they would be in production to kind of affect where they want in the supply-demand balance. I don't know if I believe it or not, but is the president going to

have a harder stance with Iran that takes some of their oil offline? And then that enables U.S. producers to produce more. Do I think we're really headed to $50 oil? Some analysts I love believe we are. I don't, and I don't know that U.S. producers would let the drill baby drill approach get them there. I know why from a policy standpoint, it's so disinflationary that I know why from a policy standpoint, it's so disinflationary that I know why the president would love it. But I don't think the economics of the US oil and gas industry are such that they can get to $50. But we're sitting here at 67 now, not 75 where we spent most of this year, not 80 to 85 where we spent some of this year.

of this year, not 80 to 85 where we spent some of this year. 65, 67, and OPEC Plus is holding back. There's a lot to talk about there. So I encourage you to check out divinacafe.com, the chart of the week, all the fun things that we love to incorporate there. But I need to run to a speech now. So I'm going to call this short. I have covered all my basic things I want to do. Trade, tax, tariffs, the three Ts, lots going on in this president's administration and a lot of new people announced this week, giving us more color to what may be expected. Nothing I really said today at all is political. I did, I guess, say I'm not a big fan of Pete Navarro, but I think that more speaks to my pro-conservative credentials, not to anything being anti-Trump or whatnot.

I just think that there's a lot of complexity in what needs to happen around our currency policy and our tax trade tariff policy. And there's a lot of folks that President Trump has named that I have a lot of confidence in. Pete's not one of them, but that's okay because I promise you, Pete would not like me very much either. With all that said, thank you for listening. Thank you for watching. And thank you for reading The Dividend Cafe. And we will be with you next week from Newport Beach. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC,

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