Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the litigation and policy team at Bloomberg Intelligence, the
Speaker 1: investment research platform of Bloomberg LP. This podcast series examines
Speaker 1: the intersection of business policy and law. I'm Elliott Stein,
Speaker 1: an analysts with Bloomberg Intelligence covering financials litigation.
Speaker 2: And my name is Nathan Deanan. I'm an analyst with
Speaker 2: Bloomberg Intelligence covering financials policy.
Speaker 1: So our topic for today is one of the subjects
Speaker 1: that is going to dominate the news headlines throughout the year, Washington,
Speaker 1: d C. And President Trump. So, with President Trump starting
Speaker 1: the second term, what can we expect from the White House,
Speaker 1: from Congress, from regulators? Will Congress be able to pass
Speaker 1: a big, beautiful bill that extends the twenty seventeen Trump
Speaker 1: era tax cuts, where we have a debt ceiling, how
Speaker 1: will regulators deregulate in their sectors, and probably most importantly,
Speaker 1: how should investors think about President Trump and his approach
Speaker 1: to policy. So joining us today to help answer these
Speaker 1: questions are some of my favorite people distributing policy research
Speaker 1: and analysis to Wall Street, and I could not be
Speaker 1: more delighted to have them on our podcast for a
Speaker 1: second time. We had them around this time last year
Speaker 1: in January, so I'm extremely excited to welcome these two
Speaker 1: guests back. First, I'd like to introduce Henrietta Treys, director
Speaker 1: of Economic Policy Research with Veda Partners. Henrietta has provided
Speaker 1: investors with economic policy analysis for over fifteen years on
Speaker 1: a broad array of topics, including financial services and healthcare reform.
Speaker 1: She's also in a lum of Congress, having worked for
Speaker 1: the Senate Finance Committee and a research fellow for a
Speaker 1: congressional member. And Henrietta is also a frequent contributor to
Speaker 1: Bloomberg TV and Radio, and I'm always excited to get
Speaker 1: her insights. So welcome back to the podcast, Henrietta.
Speaker 3: I'm so happy to be here.
Speaker 1: Thanks for having me and also joining us is another
Speaker 1: very frequent contributor to Bloomberg TV and Radio. Isaac Boltanski
Speaker 1: Managing director and Director of Policy Research at BTIG, where
Speaker 1: he's responsible for coordinating the firm's Washington policy analysis and
Speaker 1: forecasting how potential policy shifts could impact investors, corporations, and
Speaker 1: other market participants. Prior to BTIG, Isaac was the director
Speaker 1: of policy Research at Compass Point Research and Trading, and
Speaker 1: he also served as a research analyst on TARP, the
Speaker 1: Troubled Asset Relief Program Congressional Oversight Panel. So Isaac, welcome
Speaker 1: back as well to the Votes and Verdicts podcast.
Speaker 4: You know, that reminds me that TARP was back. Seven
Speaker 4: hundred billion was a big bailout. You know, it's crazy
Speaker 4: to think of Now that's change under the couch cushion. Now,
Speaker 4: nice to be with you.
Speaker 1: So for our regular listeners, we're going to do things
Speaker 1: a little bit differently for this episode because we have
Speaker 1: this great panel of Washington experts, which also includes our
Speaker 1: very own Nathan Dean from b I. So we're gonna
Speaker 1: sort of do a round robin of some of the
Speaker 1: key questions that we've been getting from clients and colleagues
Speaker 1: and investors. So without further ado, let's jump right into it.
Speaker 1: This is a question for all three of you, and
Speaker 1: Henriette want to we start with you and then we'll
Speaker 1: go to Isaac and then Nathan. We started this episode
Speaker 1: last year as well with sort of the same question,
Speaker 1: and that is, you know, is there one thing in
Speaker 1: twenty twenty five a key prediction that you think the
Speaker 1: market is out of consensus on, or that the market
Speaker 1: is not paying enough attention to and it can be legislative, regulatory,
Speaker 1: or from the executive branch.
Speaker 3: Henrietta, Yeah, thanks for asking. And it's a pleasure to
Speaker 3: be with all of you, especially Isaac and Nathan.
Speaker 5: I get to see you guys all the time on TV,
Speaker 5: so it's lovely to be in the same room.
Speaker 3: I feel very strongly that these tariffs are real.
Speaker 5: The market's been pretty blase about it and taking a
Speaker 5: lot of optimism for some reason from sec Treasury Secretary
Speaker 5: Scott Besson. I don't know why there's any reason for
Speaker 5: optimism there when you say that you want to start
Speaker 5: tireffs two and a half or five percent and escalate
Speaker 5: by five percent every month, which is what Beson said
Speaker 5: on the campaign trail and relate to members during his
Speaker 5: nomination hearing, that is wildly consistent with the first Trump term.
Speaker 5: And we see that we've had now twenty five percent
Speaker 5: tyres on two hundred and fifty billion dollars worth of
Speaker 5: goods from China and seven and a half percent on
Speaker 5: another one hundred and forty billion dollars. I think all
Speaker 5: that will escalate, and then furthermore, I think the tax
Speaker 5: bill is going to take all year to write. We
Speaker 5: are looking at some very bold projections from Speaker Johnson
Speaker 5: going into the release or the final conclusion to their
Speaker 5: members retreat this week. The President is scheduled to give
Speaker 5: a State of the Union address on March fourth. I
Speaker 5: would just make one correction in your injury, he said.
Speaker 5: I was on the Senate Finance Committee. I worked mostly
Speaker 5: with Senator Lautenberg's budget committee responsibilities, and I will say,
Speaker 5: as a budget nerd, the reconciliation instruction that you need
Speaker 5: from the fiscal year twenty five or twenty six budget
Speaker 5: resolution needs to be a hard and fast document, not
Speaker 5: just this blueprint that Speaker Johnson is talking about. We
Speaker 5: need the real deficit number, We need the hard votes.
Speaker 5: We need the awful voter rama process, maybe not once,
Speaker 5: but twice. That's going to take a real long time.
Speaker 5: I think they're in a bit of a Kumbaya moment
Speaker 5: right now, and that's going to be very short lived
Speaker 5: in my pin.
Speaker 6: And I should apologize. I was the one who wrote
Speaker 6: your bios.
Speaker 2: So if you come to the Bloomberg office, I will
Speaker 2: buy you a Bloomberg coffee. And for our listeners, just
Speaker 2: know Bloomberg coffees are always free, but.
Speaker 1: I will say the price also reflects the quality of
Speaker 1: that coffee. But it did give you an opportunity to
Speaker 1: give a shout out to a new Jersey senator and
Speaker 1: as a new Jersey resident, I always appreciate that. All right, Isaac,
Speaker 1: let's turn to you. You know, any what do you
Speaker 1: think the market is potentially missing this coming year?
Speaker 4: So you know, I feel like I'm going to agree
Speaker 4: with Henrietta a lot because she's usually right, so I
Speaker 4: think her two points there were spot on. Maybe I'll
Speaker 4: take it to more of a company specific call here
Speaker 4: because I agree with those macro points. And this is
Speaker 4: something near and dear to Nathan's heart because I know
Speaker 4: he's worked on it. I think Wells Fargo finally gets
Speaker 4: out from it's almost seven years under the FED and
Speaker 4: posed asset cap. This is a pretty unprecedented penalty that
Speaker 4: was levied on this bank for good reason. For good reason,
Speaker 4: to be clear, but it's pretty incredible what they've done
Speaker 4: over the past seven years to turn the boat around.
Speaker 4: The investment they've made in compliance, the shifts they've made
Speaker 4: in structure, the new leadership, as I think, really righted
Speaker 4: the ship and I think that they are very very
Speaker 4: close to being out. And if there's one thing that
Speaker 4: I would want to review with you in a year,
Speaker 4: I think it's the call that Wells Fargo will finally
Speaker 4: be out from underneath this asset cap.
Speaker 1: And just this morning we had news that a twenty
Speaker 1: twenty two consent ordered by the CFB on Wells was terminated,
Speaker 1: so that you probably further helps them moving.
Speaker 4: I mean I felt confident before knowing that, because you
Speaker 4: just told me that, so I feel even better now.
Speaker 4: That's perfect, Ellie, Thank you.
Speaker 1: I feel good breaking news to you Isaac on this podcast.
Speaker 1: And we've also said that we think it's either going
Speaker 1: to happen this year or potentially next year, but it
Speaker 1: sounds like you're a little more bullis.
Speaker 4: If I could just throw this on top. I think
Speaker 4: that we now know that these asset caps are part
Speaker 4: of the regulatory toolbox for banks, right, We've seen it elsewhere.
Speaker 4: But in order to make them useful tools, you need
Speaker 4: to be able to also exit from out of them.
Speaker 1: Right.
Speaker 4: In order for these to be reliable, regularly used tools,
Speaker 4: you need a way out. And so I think that
Speaker 4: that's what we're going to see with Wells Fargo.
Speaker 1: That's a good point, all right, Nathan, What do you
Speaker 1: think the market's missing?
Speaker 2: So I just let me first by saying that I
Speaker 2: completely agree with Henrietta and Isaac.
Speaker 6: I love that call.
Speaker 2: Yeah, I know the folks listening can't see me smile
Speaker 2: when I say that, but I love that call because
Speaker 2: you know, our Wells Fargo investors are really going to
Speaker 2: be paying.
Speaker 6: Attention to that in twenty twenty five.
Speaker 2: And I'm gonna stick with the deregulatory theme here, and
Speaker 2: I'm just going to say that I think there's a
Speaker 2: lot of sentiment about, especially in the financial services sector,
Speaker 2: about deregulation, and a lot of folks think that there's
Speaker 2: this magical wand that President Trump can just weave and
Speaker 2: say go forth and deregulate and that magic wand just
Speaker 2: I don't see how it exists in the financial services
Speaker 2: sector because you know, if you say that, you know
Speaker 2: Michael Barr, who's the current Advice Chair Supervision, if he
Speaker 2: leaves on February twenty eighth, Well, the Democrats still have
Speaker 2: a four to three majority on the FED Board, and
Speaker 2: one of those Republicans is Jerome Powell, and so it's
Speaker 2: going to take time for President Trump to influence FED
Speaker 2: policy actions. I don't want to talk about monetary policy.
Speaker 6: That's different.
Speaker 2: But in terms of the regulatory side, I think twenty
Speaker 2: twenty five is going to be what I call the
Speaker 2: Great Pause for financial regulation because I just don't see
Speaker 2: a lot of the deregulatory effort taking place. Maybe at
Speaker 2: the end of this year they'll start the process of
Speaker 2: trying to figure out what it looks like. But in
Speaker 2: terms of like stress, capital buffer and liquidity and capital
Speaker 2: review and so forth, I think that's a twenty twenty
Speaker 2: six more likely a twenty twenty seven story.
Speaker 1: So let's you know, Henriette, you mentioned tariffs, and you
Speaker 1: also mentioned the tax bill. We're going to talk about
Speaker 1: that in a little bit as well. But's let's jump
Speaker 1: frightens of tariffs. I mean, you know, this weekend we
Speaker 1: had like a six hour trade war with Columbia, and
Speaker 1: you know, just yesterday Scott Besen was talking about the
Speaker 1: universal tariffs at you know, two and a half percent
Speaker 1: that will then retcht up over time. I think President
Speaker 1: Trump said he wants a higher number, you know, in
Speaker 1: your mind. And we can start with Henriette and then
Speaker 1: go around the horn again. You know, how should markets
Speaker 1: prepare for Trump's tariffs? You know, it sounds like in
Speaker 1: your mind it's not just a negotiating tactic, or maybe
Speaker 1: it is, but you think it's it's a real threat.
Speaker 1: Is it just hard talk? Are we going to see these?
Speaker 1: And you know, besides Canada, Mexico and China, what other
Speaker 1: areas of the world should we be thinking about? Yeah?
Speaker 5: I think what investors are looking out right now for
Speaker 5: the most part, and certainly in the broad strokes if
Speaker 5: you're just reading the news. This idea of a universal
Speaker 5: tariff is a perfect example of how President Trump is
Speaker 5: proposing something dramatic and wide ranging. And I think it's
Speaker 5: a mistake and it's inconsistent with his first term, which
Speaker 5: was guided by the highly confident hand of USTR Lightheiser
Speaker 5: and will be continued by Jamison Greer, Lightheiser's former chief
Speaker 5: of staff. What I would encourage folks to look for
Speaker 5: is using the trade law as your template for how
Speaker 5: to invest. So as opposed to universal tariffs, which are
Speaker 5: very inconsistent with his first term, consider instead AIBA against Canada,
Speaker 5: Mexico and China. Consider Section two thirty two against the EU,
Speaker 5: which has a hard deadline or not a deadline necessarily,
Speaker 5: more like a catalyst for raised tariffs on the EU
Speaker 5: via Section two thirty two, the suspension of the steel
Speaker 5: and aluminum tariffs that we levied on the EU during
Speaker 5: Trump's first term. The suspension expires on March thirty first.
Speaker 5: That's a perfect opportunity for the USTR and Commerce to
Speaker 5: come in and say, you know what, we have a
Speaker 5: continued problem with steel aluminum, but we also have a
Speaker 5: bone to pick with you on agriculture and autos. I
Speaker 5: think autos from the EU are a tremendously underappreciated risk.
Speaker 5: If you watch Trump on the campaign trail, he loves
Speaker 5: to go to the mat about how awful it is
Speaker 5: that the EU produces their high skilled transmission and battery
Speaker 5: components and produces and creates those in the EU, and
Speaker 5: then effectively we're a chop shop that puts the hood
Speaker 5: on the car. And they say that in various sort
Speaker 5: of derogatory terms. I think that's a material risk that
Speaker 5: we should expect at the end of March.
Speaker 3: And then with Section.
Speaker 5: Three oh one on China, not only do I expect
Speaker 5: Trump to pull out of the Phase one trade deal,
Speaker 5: my only question is whether they adhere the enforcement mechanism
Speaker 5: that would put tariffs on maybe five months after in
Speaker 5: April conclusion to the review process, But do they pull
Speaker 5: out earlier than that and just immediately start implementing higher tariffs.
Speaker 5: The number one area that I want to look out
Speaker 5: for in the buzzwords in my mind are anything to
Speaker 5: do with List four B. This is heavily consumer facing items.
Speaker 5: This is smartphones, laptops. But then just your basic everyday purchases.
Speaker 5: When you go to the grocery store, anything with a
Speaker 5: powdered milk component or an alcohol preservative, that's everything you're buying,
Speaker 5: not just at Walmart, but at Dollar General. So I
Speaker 5: think the way to drilled down on tariffs and take
Speaker 5: Trump literally as opposed to, you know, figuratively or whatever
Speaker 5: the phrase is, is to really pay attention to the
Speaker 5: specific statutes of Trade lamp and appreciate that it's not
Speaker 5: going to I don't think a universal tariff is coming.
Speaker 5: If anything like a universal tariff is going to come,
Speaker 5: it's going to be through something called a Balance of
Speaker 5: Payments authority, which allows the President, at his discretion with
Speaker 5: any nation that has a trade deficit with US, to
Speaker 5: put edval orem tireffs in fifteen percent for one hundred
Speaker 5: and fifty days on any nation he sees fit. The
Speaker 5: first Trump term had a very unilateral approach to specific nations.
Speaker 5: It doesn't make any sense to me that they'd put
Speaker 5: a blanket, you know, earthwide tarifon when their real strategy
Speaker 5: is to go one by one through offending nations. In
Speaker 5: the longer term, I think that India is an area
Speaker 5: where there will be material risk in the future, maybe
Speaker 5: you know, twenty six, twenty seven to twenty eight to
Speaker 5: out years after we get past the tax bill, pharmaceuticals
Speaker 5: and chemicals are already coming up.
Speaker 3: That's a major issue we have with India.
Speaker 5: And I would be surprised if there's not a Section
Speaker 5: three oh one investigation lunch there as well.
Speaker 1: That's a pretty good survey of all the different countries
Speaker 1: and sectors, Isaac, anything you want to add.
Speaker 4: To that, Yeah, Look, I'll just say, and to amplify
Speaker 4: Henrietta's point, you know, you should take Donald Trump seriously,
Speaker 4: even if you don't take him literally, which is the
Speaker 4: phrase that she mentioned and one that has been surprisingly
Speaker 4: forgotten by a lot of clients over the past few days. Right,
Speaker 4: just because he didn't immediately levy these tariffs on day
Speaker 4: one doesn't mean they're not coming. Of course, they're coming.
Speaker 4: It takes time, and you know, when you promise as
Speaker 4: many things as we're promised for day one, of course
Speaker 4: some of them are going to slip to day ten
Speaker 4: and day twenty and day fifty. Right, that's just the
Speaker 4: reality of it. I think the interesting question for me,
Speaker 4: and I'd be interested in Harry Ott's response to this, is,
Speaker 4: you know, how much does the White House care about
Speaker 4: broader economic conditions and the impact on the consumer. And
Speaker 4: you mentioned that list for b for example. Is that
Speaker 4: something where they're going to be a little bit more
Speaker 4: caut just take a little bit more time because of
Speaker 4: the consumer impact. That's an interesting question. I know, I
Speaker 4: don't know the answer to I would probably argue the
Speaker 4: White House doesn't know yet, but by an interest in
Speaker 4: where that comes out.
Speaker 5: Yeah, I mean, the Biden administration made it very clear
Speaker 5: to me during their term that if it wasn't painful,
Speaker 5: if it wasn't as hard, they would have done it.
Speaker 5: I think that the Trump administration and all of the
Speaker 5: cabinet secretaries have laid a tremendous amount of groundwork with
Speaker 5: the American voter and Trump supporters in particular, who have
Speaker 5: a fifty seven percent support threshold for tariffs is remarkable,
Speaker 5: not just because you have a plurality a majority of
Speaker 5: those voters who support tariffs, but it's the change that's
Speaker 5: so interesting to me. The Republican Party used to be
Speaker 5: the party of free trade, which is effectively zero percent
Speaker 5: tariff rates, and now they've swung all the way to
Speaker 5: mostly being the party of fair trade, which apparently now
Speaker 5: implies tariffs. So it's not just that if seven percent threshold,
Speaker 5: it's the fact that it's swung from negative one hundred
Speaker 5: to now plus fifty seven.
Speaker 3: It's material.
Speaker 5: So I think there's a tremendous amount of support for
Speaker 5: imposing tires, regardless of.
Speaker 3: The pain that it imposes on the consumer.
Speaker 5: And if you can get out on the media and
Speaker 5: say inflation's not real and stop talking about eng crisis,
Speaker 5: I think you can get away with murder.
Speaker 4: Yeah, And look, I think I throw on top of it.
Speaker 4: It's another reminder that this is not our collective Grandfather's
Speaker 4: Republican Party, right. I mean, I've seen things, and I
Speaker 4: know Nathan stumbwork on this. If you look at what
Speaker 4: this CFTC has done with sports gambling, for example, now
Speaker 4: we have a federal mandate effectively allowing sports gambling in
Speaker 4: states where they have purposely not allowed it. I would
Speaker 4: also say, and this is something Henrietta's worked on. I mean,
Speaker 4: my goodness, they're progressive. Excuse to me populous Republicans who
Speaker 4: are pushing aggressively for a child tax credit expansion, right,
Speaker 4: and so let's throw that into the mix. It's just
Speaker 4: it's different than what we all grew up with fifteen
Speaker 4: years ago.
Speaker 3: A love of spending coming our way to massive.
Speaker 1: For sure, Nathan, anything you want to add.
Speaker 2: The only thing I would add is is that you know,
Speaker 2: presidents in their second term tend to become lame dunk
Speaker 2: sooner than they think. And when they become a lame duck,
Speaker 2: and we saw this under a President Obama, we saw
Speaker 2: this under George W.
Speaker 1: Bush.
Speaker 2: They focus on the areas that they have the power
Speaker 2: of the presidency is more powerful, and a lot of
Speaker 2: those international relations, foreign security and trade and tariffs. And
Speaker 2: so I think this is a four year issue and
Speaker 2: I wouldn't be surprised that even if Europe right now
Speaker 2: is not in President Trump's I mean Obviously we saw
Speaker 2: in the speech in Davos he repeated his remark about
Speaker 2: GDP spending.
Speaker 6: As a part of defense and so forth.
Speaker 2: But I just if you have any type of trade
Speaker 2: relationship with the United States, which I think all one
Speaker 2: hundred and ninety seven countries in the United Nations do,
Speaker 2: there's going to be some pretty awkward questions asked over
Speaker 2: the next four years.
Speaker 1: All right, so let's pivot slightly and talk about the
Speaker 1: Federal Reserve. Obviously one of the concerns with terroris is
Speaker 1: the risk of increasing inflation. You know, just this week,
Speaker 1: I think Trump insinuated that he knows more about interest
Speaker 1: rates than Federal Reserve chair. It's your own Powell. And
Speaker 1: you know there's been during the campaign or maybe after
Speaker 1: the election, there was talk about some sort of like
Speaker 1: shadow FED chair that Trump could sort of put in place.
Speaker 1: But you know, curious to get your thoughts on how
Speaker 1: this dynamic plays out. Do you think that we see
Speaker 1: a situation in twenty twenty five where Trump, you know,
Speaker 1: proactively tries to influence FED policy beyond just public statements.
Speaker 1: What does he do? You know, does he try to
Speaker 1: remove Powell? I've written a little bit about the legality
Speaker 1: around that. But I'm curious to get your thoughts. Maybe, Isaac,
Speaker 1: why don't why don't we start with you on this one.
Speaker 4: Yeah, Look, I'll say this. I think it's going to
Speaker 4: be messy. I think it's going to be unpleasant. I
Speaker 4: think it's going to be uncomfortable for investors given the
Speaker 4: deficit realities that Henrietta mentioned, and I think all of
Speaker 4: us are preparing for right. You want a strong independent
Speaker 4: central bank. But I think I am heartened by the
Speaker 4: fact that it appears to me that Trump, at least
Speaker 4: for now, does not appear likely to go after Powell himself.
Speaker 4: It seems like they got their win with bar exiting
Speaker 4: the vice chair for supervision. I think that that should
Speaker 4: be enough to satiate those concerns, at least in the
Speaker 4: near term. So, look, this is something that I think
Speaker 4: is concerning over the medium and longer term, just in
Speaker 4: terms of when we are in the position we're in.
Speaker 4: You want a strong independent central bank, and I'm always
Speaker 4: always concerned of interference with that and and politicians challenging
Speaker 4: this central bank. But at least for now, I think
Speaker 4: that we should all understand that. Getting bar to step
Speaker 4: down from the Vice chair for supervision. Spot was seen
Speaker 4: as a meaningful win, and I think that that's going
Speaker 4: to let them focus on replacing him and then see
Speaker 4: what's next.
Speaker 1: Nathan, why don't we go to you any thoughts on
Speaker 1: this and who you think might replace Bar in that role?
Speaker 2: Well, I mean, obviously, I think Michelle Bowman is the
Speaker 2: current name that everybody's floating out. You know, she is
Speaker 2: a former state banking supervisor I believe from Kansas. And
Speaker 2: you know, when you have only two Republicans you can
Speaker 2: choose from. Obviously, I think you know, with Bar leaving
Speaker 2: or sorry Bar remaining a member of the board, you're
Speaker 2: sort of handcuffed in terms of who you can pick.
Speaker 2: But I've also thought, you know what, you know, can
Speaker 2: you essentially run the FED without a vice Chair of Supervision?
Speaker 2: I mean, you know, if you don't need a vice
Speaker 2: chair of Supervision and you can still I mean think
Speaker 2: of Dan Trula when he was there. You know, he
Speaker 2: effectively played the role even though he wasn't the confirmed
Speaker 2: FED vice chair. You know, I certainly think if you're
Speaker 2: going to get held up over a title, the Republicans
Speaker 2: could just come back and say, you know what, forget
Speaker 2: about the FED?
Speaker 6: Vice chair.
Speaker 2: Let's just do something, Let's just have the governor, or
Speaker 2: let's just shape the governors as we see fit, and
Speaker 2: then we'll see what it plays out. But again, all
Speaker 2: this leads to that idea that I just mentioned of
Speaker 2: the great pause of twenty twenty five, Henrietta, anything to add.
Speaker 5: I think the market is still trying to really understand
Speaker 5: where Scott Bessant is and Treasury.
Speaker 3: There's you know, a.
Speaker 5: March fifth meeting that'll give a lot more clarity to
Speaker 5: investors to get a sense of what we should expect.
Speaker 5: But for right now, Jay Powell really has his hand
Speaker 5: on the rudder. I think he has a smooth hand
Speaker 5: the market's trust. They really liked what they heard from
Speaker 5: him when he's stressed that he was going to remain
Speaker 5: independent after Trump won the administration and that he would
Speaker 5: not be stepping down free antipulate. The market really likes that.
Speaker 5: I hear that time and time again and from investors,
Speaker 5: you know, in big lunches and small one on ones.
Speaker 5: I also get a sentence from the administration that going
Speaker 5: to toe to toe with j Powell is not necessarily
Speaker 5: seen as something they have a strong fight in. Right now,
Speaker 5: you know, his term is up halfway through next year.
Speaker 5: Let's fine, you know, let it be, Let it lie.
Speaker 5: We have a lot of other disruptive things that we're
Speaker 5: going to do. We saw the LMB report from last
Speaker 5: night going into effect at five o'clock today that they're
Speaker 5: going to try to you know, freeze all federal grants
Speaker 5: and spending programs across a host of red meat issues
Speaker 5: that we saw in Project twenty twenty five. There's a
Speaker 5: lot of disruption around the spending and deficit side that's
Speaker 5: going on externally. I don't think they need to bring
Speaker 5: the FED into that in a personnel.
Speaker 3: Change kind of way.
Speaker 1: Yeah, and talking about that pause and all the FED
Speaker 1: funding and stuff that. I mean, I wonder if we're
Speaker 1: going to see litigation around the Impoundment Act guaranteed, Yeah,
Speaker 1: guaranteed exactly. Looking forward to that. My hot take on
Speaker 1: Powell and Ump is that, uh, for Trump, it's a
Speaker 1: win win if he keeps him there because of the economy.
Speaker 1: You know, turns out you can just point his finger
Speaker 1: at Powell and say it's his fault. And if the
Speaker 1: economy is good, he said, look, how smart I am.
Speaker 1: I kept him in place. So and it's only like
Speaker 1: you said another little bit over a year before Powell's
Speaker 1: term even runs out. All right, next issue, let's talk
Speaker 1: about deregulation. You know, Trump's reorganization of the federal government
Speaker 1: includes obviously new regulatory leadership, and we've heard a lot
Speaker 1: about deregulation among Trump supporters, among Wall Street groups as
Speaker 1: something that that could spur business growth over the next
Speaker 1: few years. Nathan, why don't we start with you on
Speaker 1: this one? You know, how how do you see this
Speaker 1: deregulation process playing out? You sort of touched upon it
Speaker 1: with you know, talking about the Great Pause. But beyond that,
Speaker 1: what what you foresee? You know, what can happen quickly
Speaker 1: and what may take longer? You know, is there a
Speaker 1: magical wand of some sort that the president can wave,
Speaker 1: a regulatory leadership can wave, you know it? Give us
Speaker 1: your thoughts on how you see this all playing that.
Speaker 2: Yeah, so, you know, I'll talk about the Administrative Procedures Act,
Speaker 2: which means I'm putting our listeners to sleep right now.
Speaker 2: But then I will let you know, maybe Henrietta and
Speaker 2: Isaac can talk about DOGE a little bit, just because
Speaker 2: you know, no, you know, it's just it's one of
Speaker 2: those things where I think that when it comes to deregulation,
Speaker 2: in particular the Procedures Act, the APA has a process.
Speaker 2: You have a proposed rule, you have a comment period,
Speaker 2: you have a final rule, and it takes time.
Speaker 6: I mean the fastest I've ever seen it done.
Speaker 2: In the fifteen years i've been tracking, it is probably
Speaker 2: about nine months for anything substantial. And that's for both
Speaker 2: regulation and also deregulation. And so when President Trump said
Speaker 2: I want to get rid of ten regulations for every
Speaker 2: new regulation.
Speaker 6: That's fine.
Speaker 2: Believe me, the Federal Registry has so many different regulations
Speaker 2: they can get rid of. This is a true story.
Speaker 2: I found that there's actually an import ban on hogs
Speaker 2: from Liechtenstein.
Speaker 6: I've been to Liechtenstein.
Speaker 2: I have not seen any pigs there, but there is
Speaker 2: a regulation on the books that bans hogs from being
Speaker 2: imported into licten signs.
Speaker 6: So that certainly is something there.
Speaker 2: But if you're talking about like financial services or even energy,
Speaker 2: even these executive orders that we saw in the energy sector,
Speaker 2: a lot of these executive orders say you have to
Speaker 2: then go study the issue and then conduct replace that
Speaker 2: regulation with a different regulation. And so there's going to
Speaker 2: be a couple of lawyers over at FERK or the
Speaker 2: FED or the SEC or in particular, they're going to
Speaker 2: have to write this two hundred page rule. There's only
Speaker 2: so many lawyers that we have. And so I think,
Speaker 2: you know, first you need the regulatory leadership in place,
Speaker 2: which still going to take time, let me call it
Speaker 2: a couple months. Once you get the regulatory leadership in place,
Speaker 2: then you're going to need to propose these rules at
Speaker 2: least come up with the idea of it, and then
Speaker 2: you're gonna have to move forward.
Speaker 6: So you're looking at probably a two to three year process.
Speaker 2: And you know, just my only thoughts on the DOGE Committee,
Speaker 2: if you will, and I call it a committee because
Speaker 2: the Department of Government Efficiency in the Executive Order was
Speaker 2: renaming of the US Digital Service. This is a part
Speaker 2: of the White House that has been around since the Internet,
Speaker 2: and they renamed it the DOGE you know service.
Speaker 6: You know.
Speaker 2: But ultimately, when the DOGE Committee provides its report, it's
Speaker 2: July fourth, twenty twenty six. That's three months before appropriations
Speaker 2: through the fiscal year, four months before the election. You
Speaker 2: don't need to be any of us to know that
Speaker 2: Congress is not going to be able to turn around
Speaker 2: twelve appropriation bills within three months, and so it's I
Speaker 2: think it's very much a good political exercise.
Speaker 6: I mean, look, I think most people.
Speaker 2: Believe that there is areas that can be cut from
Speaker 2: the federal government. But the challenge is how do you
Speaker 2: do it without touching mandatory spending? And how do you
Speaker 2: do it? So I certainly think it's a lotly certainly
Speaker 2: more of a PR exercise, but again PR exercises have
Speaker 2: the ability to turn its way into policy.
Speaker 6: So we'll see what happens.
Speaker 1: Henrietta, any thoughts to add on this on you know,
Speaker 1: deregulation in general, on the executive orders, you know, the
Speaker 1: flurry of executive orders that we saw last week.
Speaker 5: The executive orders I think really stem from some very seasoned,
Speaker 5: very headstrong, politically motivated and policy motivated folks that the
Speaker 5: President has installed across the White House, Russ Bought being
Speaker 5: number one amongst them at LMB.
Speaker 3: As we saw last.
Speaker 5: Night, these guys have very hard and fast views about
Speaker 5: what should occur. We should get you know, transgenders funding out,
Speaker 5: gay and lesbian funding out, all that kind of red
Speaker 5: meat stuff is fine, but they want to they.
Speaker 3: Are doing this explicitly knowing that it is against the
Speaker 3: Impoundment Act.
Speaker 5: Congress does has the power of the purse that has
Speaker 5: been litigated repeatedly by the Supreme Court in myriad different ways,
Speaker 5: and they want to go to this court. If you
Speaker 5: watch the nomination hearing of O and B Director a
Speaker 5: couple of weeks ago, it made very clear that you know,
Speaker 5: Rand Paul does not support a lot of what just
Speaker 5: happened last night, and we'll go to the mat and sue.
Speaker 5: And the purpose is to be sued so the Supreme
Speaker 5: Court can come up with a different conclusion and they
Speaker 5: want a different answer. They want the power of the
Speaker 5: person to be with the executive branch. So I think
Speaker 5: there's going to be more stuff like this, but they
Speaker 5: will be sued.
Speaker 3: It will be stopped.
Speaker 5: I think the most plain thing I can say is
Speaker 5: you have got to get your math to work. As
Speaker 5: Nathan just sort of illustrated, you're going to need at
Speaker 5: least ten Democrats to support any government funding bill or
Speaker 5: the government will shut down.
Speaker 3: That means you just lost fifty House Republicans.
Speaker 5: You're going to need anywhere between fifty and one hundred
Speaker 5: and fifty House Dems to vote for any spending bill,
Speaker 5: I would say, maybe to go back to your other
Speaker 5: question of what's a major theme for this year, Federal
Speaker 5: spending is going to rise. It will not drop, and
Speaker 5: it most certainly will not drop four months before a
Speaker 5: midterm election, when the president's party usually gets slacked in
Speaker 5: a midterm, and that's what we're going into in twenty
Speaker 5: twenty six. So to have any forecast of spending coming down,
Speaker 5: I think misreads and miscounts.
Speaker 3: How math works.
Speaker 1: Incompressed Isaac Anthony, you want to add, yeah, a bunch
Speaker 1: of stuff.
Speaker 4: You know, Look number one, and it's a general point deficit.
Speaker 4: Hawks are the most endangered species in DC. So I
Speaker 4: couldn't agree more spending is going up. That's just the
Speaker 4: easiest and an absolutely dead right call. That's that's number one,
Speaker 4: number two in terms of deregulation, I think just for investors,
Speaker 4: it's important to highlight that just two points. Number one
Speaker 4: is obviously there's certain parts of the alphabet soup that
Speaker 4: I think are going to move more quickly, and I
Speaker 4: think more cleanly, Like, for example, I think the EPA
Speaker 4: has more of a capacity under Lee's Elden to move
Speaker 4: relatively quickly on some of these issues within the financial
Speaker 4: ecosystem financial services couldn't agree with Nathan Moore. Like I remember,
Speaker 4: at the end of Trump one, the groups that were angriest,
Speaker 4: the most disappointed were bank lobbyists. They thought they were
Speaker 4: going to get a lot more out of Trump one
Speaker 4: than they did, and I think that's going to be
Speaker 4: true again here I'll end on this in Elliott. I'm
Speaker 4: really punting it back to you. But you know, what
Speaker 4: we've seen from the Supreme Court over the past few
Speaker 4: years is an unwinding of the administrative state. And really
Speaker 4: we can just talk about what it's like in a
Speaker 4: post Chevron world as a as a general framework, but
Speaker 4: I'm interested to see how, you know, a post Chevron
Speaker 4: world cuts both ways. Why couldn't we have reform advocates
Speaker 4: suing to stop a federal reserve capital rule changes, for example,
Speaker 4: so dumb that up? And so I think that you
Speaker 4: could have lawsuits from both sides of the debate that
Speaker 4: ultimately delay not just relief but also the imposition of
Speaker 4: new roles. So it cuts both ways.
Speaker 1: It's just massive. Yeah, I think that's right, and not
Speaker 1: just reform groups, but blue states like California, New York.
Speaker 1: We'll likely see as well. All right, but let's turn
Speaker 1: to Congress, you know, and tax, tax bill, reconciliation, things
Speaker 1: like that. Henrietta, you mentioned at the outset that you
Speaker 1: didn't think Congress would be able to pass anything big
Speaker 1: until you know, closer to the end of the year.
Speaker 1: You know, right now it sounds I think Mike Johnson's
Speaker 1: majority in Congress in the House is I think it's
Speaker 1: two hundred and eighteen to two hundred and fifteen now
Speaker 1: that Gates and Waltz are not in Congress anymore. Once
Speaker 1: a least Staffanic is confirmed, she's not in Congress in
Speaker 1: the House anymore, so there'll be, you know, a two
Speaker 1: seat majority, which gives any representative veto power essentially. How
Speaker 1: do you how do you see you know, this whole
Speaker 1: effort in Congress via reconciliation and a potential tax bill
Speaker 1: to play out. As you know, Trump has said he
Speaker 1: doesn't care if it's one bill or two bills, just
Speaker 1: get it done. There's different views of that, I think,
Speaker 1: just even within the GOP. You know, what are your
Speaker 1: thoughts on that?
Speaker 5: I thought is that when you leave the House and
Speaker 5: Senate to fight amongst each other, the Senate wins as
Speaker 5: such the Senate and their approach, which is a two
Speaker 5: reconciliation bill strategy, is most likely to win out. My
Speaker 5: odds on that started at a very high ninety percent
Speaker 5: early on in this year, and I'm now at seventy
Speaker 5: percent just based off what I'm seeing from how Speaker
Speaker 5: Johnson is really digging in. That's not a good thing.
Speaker 5: What it really means is that the House Ways and
Speaker 5: Means Committee Chair Jason Smith does not have the votes
Speaker 5: for the tax bill, and they need the border spending,
Speaker 5: they need the military spending, they need the energy permitting
Speaker 5: to sweeten the pot and get chip Roy and other
Speaker 5: massive deficit hawks on board with what will ultimately be
Speaker 5: two to three trillion dollars in deficit increases from a
Speaker 5: tax bill.
Speaker 3: So why will the Senate win number one?
Speaker 5: Because they always do a number two because it is
Speaker 5: going to be a legislative victory that they can point
Speaker 5: to in the first six months this year. Otherwise, Republicans
Speaker 5: will not pass a partisan reconciliation bill until December. The
Speaker 5: last many Democrats tax bills that Congress has passed period,
Speaker 5: whether VI A reconciliation or not, have passed during the
Speaker 5: week of December seventeenth through the twenty second. That's what
Speaker 5: we're going to see this time around as well. This
Speaker 5: is massively difficult stuff. If you watch the members meeting
Speaker 5: in the Ways the Means Committee last week, you saw
Speaker 5: members come out to say we must have a higher
Speaker 5: salt cap and members come out and say absolutely not.
Speaker 5: On what the child tax credit expanded, you saw members
Speaker 5: come out and say, no way can you repeal the
Speaker 5: Inflation Reduction Acts. Seventy percent of that funding is going
Speaker 5: to my state, which it is going to red states.
Speaker 5: So we're going to have a year's worth of fights
Speaker 5: over the tax bill. I think maybe to take this
Speaker 5: in a positive tone, I see no problem with that.
Speaker 5: You know, so the odds rise that you get a
Speaker 5: short term tax extension with Democrats that kicks the can
Speaker 5: for a year or two. We did the same thing
Speaker 5: on under Obama. It's a great way to campaign in
Speaker 5: twenty twenty six. Well, for me, I'll extend your tax cuts.
Speaker 5: Democrats won't.
Speaker 3: Why not?
Speaker 5: So I don't see a lot of imperative to get
Speaker 5: this tax bill done, certainly not before December thirty first.
Speaker 5: It could easily be a punt. I think the odds
Speaker 5: are rising to now twenty five percent. In my view
Speaker 5: that Dems ultimately need to provide some of the votes
Speaker 5: for that bill at the end of the year. So
Speaker 5: if you strip out a border, military and energy package
Speaker 5: and pass that sometime in the first half, as you
Speaker 5: pointed out the election schedule, those special elections to replace
Speaker 5: those members are the first week in April, you'll have
Speaker 5: a bigger buffer and you can pass the reconciliation bill.
Speaker 3: Then the issue there is that I see that package growing.
Speaker 5: When we started that bill was going to be maybe
Speaker 5: twenty billion dollars, it's now in the five hundred and
Speaker 5: even seven hundred billion dollar range. That's going to grow
Speaker 5: and grow and grow. The deficit increases will be incurred.
Speaker 5: I think there's a lot of really interesting things for
Speaker 5: investors to be looking at. Taxes on remittances is a
Speaker 5: big one, So if you're interested in Western Union or
Speaker 5: money Gram or those even crypto and peer to peer payments,
Speaker 5: those are all going to be on the chopping block.
Speaker 3: I think that's interesting.
Speaker 5: And visa fees going up for banks that are getting
Speaker 5: H one B visa participants. You know, there's a lot
Speaker 5: of different ways to play it. But the two reconciliation
Speaker 5: bill strategy is what I expect to win the day,
Speaker 5: and that will be something that we see in the
Speaker 5: next couple weeks, probably not confirmed before the State of
Speaker 5: the Union on March fourth, but sometime thereafter. I think
Speaker 5: we're going to get this blueprint from the Speaker in
Speaker 5: the next four days or so, and then the House
Speaker 5: Budget Committee next week. But as I mentioned, having worked
Speaker 5: closely with the Budget Committee, which my boss is on,
Speaker 5: a blueprint is not a real thing.
Speaker 3: You need to have real votes. It needs to hurt.
Speaker 3: It's gonna stink.
Speaker 5: They got to go through vot rama on the House
Speaker 5: and the Senate side, and that is not a process
Speaker 5: that we're teeing.
Speaker 3: Up right now.
Speaker 1: Vote Rama is always one of my favorite political terms. Isaac,
Speaker 1: your thoughts you think the two bill strategy is likely
Speaker 1: to win out?
Speaker 4: I don't think I care, Elliott, I don't think I care.
Speaker 4: I think that it's fun for us to talk about,
Speaker 4: But from an investor standpoint, I don't. I don't know
Speaker 4: how much it matters. Are they going to get something
Speaker 4: done that includes border funding that's good for companies like
Speaker 4: c XW d O, Yes, Are they going to allow
Speaker 4: the TCJA provisions that are set to expire at the
Speaker 4: end of the year to expire, no, right, and and well,
Speaker 4: we'll spend We'll spend a year, and we're going to
Speaker 4: figure that out. Couldn't agree more that. I think it's
Speaker 4: going to be a long year on the tax front.
Speaker 4: I don't think that they're going to get a quick
Speaker 4: agreement there either way. But I think I just look
Speaker 4: at the landscape and say, what's the forcing mechanism here.
Speaker 4: The only forcing mechanism I have is the expiration of
Speaker 4: those tax cuts at the end of the year.
Speaker 1: That's it.
Speaker 4: That's the one I got right. So I still circle
Speaker 4: that and think that no matter what Speaker Johnson says, Look,
Speaker 4: it's great, he would love for them to pass something
Speaker 4: by you know, early this. I would love if I
Speaker 4: would go to the gym this afternoon. That's not going
Speaker 4: to happen. Neither is Speaker Johnson's incredibly aggressive schedule. So
Speaker 4: let's talk about what's real here. And again, I think
Speaker 4: Henrietta's point for investors and everybody listening is incredibly important.
Speaker 4: The Senate Senate always wins out. I think that's such
Speaker 4: an important point to highlight. And then I just add
Speaker 4: to it the forcing mechanism, right, The real forcing mechanism
Speaker 4: is the expiration of the tax cuts at the end
Speaker 4: of the year. So I put that together and that's
Speaker 4: what influences my timeline, and you know, we'll find out.
Speaker 4: That's why we're not theoretical physicists. Luckily, we're going to
Speaker 4: find out to see if it's one or two. But
Speaker 4: either way, I think that forcing mechanism is what I'm
Speaker 4: telling my folks.
Speaker 1: We'll focus on Nathan any any thoughts on this, and
Speaker 1: maybe you can also address you know, whether you've you know,
Speaker 1: is there any risk to Speaker Johnson? You know, probably
Speaker 1: not in the media future, but maybe towards the end
Speaker 1: of the year dealing with all that. But also we
Speaker 1: haven't even talked about a debt ceiling, a government shutdown,
Speaker 1: things like that.
Speaker 2: Yeah, thoughts and all this, you know, so I don't think,
Speaker 2: you know, Isaac was talking about forcing mechanisms.
Speaker 6: I mean, there's really three that I think that are
Speaker 6: coming up the series.
Speaker 2: You have the government shutdown in March fourteenth, it's going
Speaker 2: to force Congress to do something. You have the X
Speaker 2: date for the debt ceiling, probably June July. We'll find
Speaker 2: out more after the text after April fifteenth, and then
Speaker 2: you go at the end of the year. The question
Speaker 2: I have is how involved is President Trump going to
Speaker 2: be in this? Because you know, if you believe the
Speaker 2: report's coming out of the Republican conference done in Dorale,
Speaker 2: at the moment President Trump walked in there and said,
Speaker 2: here's my wish list.
Speaker 6: Now you guys go figure it out.
Speaker 2: And that's not exactly what the Republicans wanted, because the
Speaker 2: Republicans wanted President Trump to say, do this, do this,
Speaker 2: do this, because then it gives them ability to try
Speaker 2: and you know, get closer to this this blueprint, if
Speaker 2: you will. And so my question is is that you know,
Speaker 2: we've heard President Trump. We heard this reporting that President
Speaker 2: Trump potentially would want to meet every single remember of
Speaker 2: the Republican caucus in the House face to face. And
Speaker 2: that's President trum way of saying, are you going to
Speaker 2: derail my deal? Or tell me what's going on? Because
Speaker 2: if you're going to do reel my deal, then let's
Speaker 2: talk about it now so I can run against you.
Speaker 2: So you know, we even saw President Trump go after
Speaker 2: Chip Roy on this debt ceiling issue, and so you know,
Speaker 2: I completely agree with Isaac and Henrietta in terms of
Speaker 2: the process and the timing and so forth. My main
Speaker 2: question is what is President Trump's response to this and
Speaker 2: can that influence policy.
Speaker 6: So for Speaker Johnson, you know, he's done.
Speaker 2: He's survived longer than I think a lot of people
Speaker 2: in Washington thought initially would give him. So I certainly
Speaker 2: don't want to bet against him, but it's just time
Speaker 2: will tell.
Speaker 5: Can I just say one thing on that point that
Speaker 5: Nathan made, Please, Trump might have gotten ship Roy to
Speaker 5: vote for Speaker, he did not get him to vote.
Speaker 3: For the dead ceiling. Yeah, one of those things was important.
Speaker 3: The other is not.
Speaker 6: There's forty three members.
Speaker 2: There's forty three members of the Republican Party in the
Speaker 2: House that have never voted for the dead ceiling. And
Speaker 2: I can and imagine that you're going to be able
Speaker 2: to get, you know, enough votes amongst that group that
Speaker 2: you can pass for it.
Speaker 6: So you're going to need Democrats for this.
Speaker 5: Yeah, thirty eight of whom voted against it while Trump
Speaker 5: was elected president.
Speaker 1: All Right, we're running a little short in time, so
Speaker 1: let's just hit one more topic, and that is China
Speaker 1: and Russia. Henrietta and Isaac I'll leave it to you
Speaker 1: as to who wants to go first on this, But
Speaker 1: you know, what are some of the key concerns that
Speaker 1: you think markets should be thinking about in terms of
Speaker 1: foreign policy towards both of these countries? In twenty twenty five,
Speaker 1: feels like geopolitical risk has been high, it continues to
Speaker 1: be high. But what do you see as some of
Speaker 1: the key catalysts coming down the pipe.
Speaker 5: I'll start off, I think pulling out of the Phase
Speaker 5: one trade deal is going to be pretty swift. Not
Speaker 5: only was that agreement had nothing to do with any
Speaker 5: force tech transfer components or intellectual property theft, or the
Speaker 5: speed with which they're developing AI and semiconductor chip capabilities
Speaker 5: and all those things.
Speaker 3: It was just to do with agriculture purchases eighty billion
Speaker 3: dollars more over two years.
Speaker 5: And not only could they not reach that threshold, but
Speaker 5: they actually purchased less than they did in twenty seventeen.
Speaker 5: So I don't see Phase one being something that they
Speaker 5: continue to speak proudly about the way they did.
Speaker 3: In the run up to the twenty twenty election.
Speaker 5: And I think that there are no guards on what
Speaker 5: President Trump should be expected to do visa each China
Speaker 5: going forward, because as we've said so many times during
Speaker 5: this podcast, he is a lame duck president. It takes months,
Speaker 5: if not years, just to get in the same room
Speaker 5: with Chinese officials and have a meaningful negotiation that isn't
Speaker 5: just translators talking back and forth at each other repeating
Speaker 5: what the same person is said for forty five minutes.
Speaker 5: This is going to take all four years. I think
Speaker 5: Jamison Greer is going to get off the ground running.
Speaker 5: Commerce Secretary Lutnik is going to have to be involved,
Speaker 5: Treasury Secretary Bennett, and President Trump personally. I think it's
Speaker 5: going to take all four years, and we should expect
Speaker 5: material estilation.
Speaker 1: And Isaac anything you want to add on a Russian
Speaker 1: China look me.
Speaker 4: Of course, Henri, I was right about all that. I
Speaker 4: would just say that when talking to Trump folks over
Speaker 4: the past few days, man, they are excited about what
Speaker 4: happened with Columbia. They think that the threats there proved
Speaker 4: there are a case theory proven right in the real world.
Speaker 4: So of course I agree with the material ram Great.
Speaker 1: All right, I think in the interest of time, we
Speaker 1: will wrap up here and conclude this episode of Votes
Speaker 1: and verdicts. Again, we are extremely grateful to both of you,
Speaker 1: Henrietta and Isaac for appearing on this episode. I believe
Speaker 1: you are our first repeat guests, so congratulations.
Speaker 5: Wow.
Speaker 1: This was a very informative discussion about some of the
Speaker 1: most important years ahead in Washington, and we want to
Speaker 1: thank you the listener for taking the time to join us,
Speaker 1: as well as the reminder you can read all of
Speaker 1: our Bloomberg intelligence research on the Bloomberg terminal at b
Speaker 1: I Go. Thank you again, have a great Jame,