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Yesterday, I'm coming out of the ocean, get back to my little group of people. Buddy looks up and says, Biden's out. They're like, oh boy, here we go.
I have a better one for you. Yes, we were at the Bloomberg event at the Botanical Gardens and you could just see like all the media people were like on their phones and my daughter's like, Mommy, don't worry about it. It's Sunday. And I'm like that, I don't know.
We're all working now, so the real question is and we're all just trying to start to figure out what could all this mean. Fortunately, we have a person that we pay to do this, Nathan Dean. He's a senior policy analyst at Bloomberg Intelligence.
He's in DC.
He's really good.
Nathan.
And what's in your sourcing and the people you talk to down in DC? What's the feeling today about what happened to the Democratic ticket over the last twenty four hours.
Well, I mean, look, there's been a lot of pressure on President Biden over the last couple of weeks to drop out, and you know, I think this just culminated with this effort that you know, Vice President Kamala Harris has filled that void. Now, look, she's not the nominee. You know, that doesn't happen until either there's a virtual
roll call or to the convention. But we've seen so many endorsements over the last few hours, and you know, just so forth that you know, we're presuming that she is the nominee in our research, in our notes, and so we put out actually a big note on the terminal this morning talking about what would life be like under a Harris presidency. And it's a lot of status quo for banks, evs, big tech and so forth like that.
The one caveat is on taxes.
We've often said that this election is rally the two major things about this election are tariffs and taxes, and Kamala Harris's record in her tax you know, aspect of it has been a little bit more you know, i'd say progressive than what President Biden has said, but ultimately we viewed President.
Or as Kamala Harris.
I'm sorry, we viewed President Biden as moving more towards Kamala Harris's policies when he became president, rather than Kamala Harris moving towards Biden's policies. So a lot of this if she becomes president will be status quo.
Oh that's really interesting. So I was going to ask, where is Vice President Harris farther left than President Biden? Where is that biggest daylight?
So the one thing that we actually hung down on was her record as Attorney General, And you know, just indicative of one of her actions is she joined about forty seven other states, including the District of Columbia, on a twenty five billion dollar settlement on home foreclosure practices. And a lot of her campaign speeches when she was running president in twenty twenty was talking about how she
took on big banks. Now, you know, to us, that means there's a lot more consumer protection coming in the cards, whether it's the Consumer for Financial Protection Bureau, or whether it comes through acts of Congress, or maybe it's even executive orders like continuing President Biden DoD debt relief pans. But I think there's going to be a lot of focus on this idea of load to middle income consumers, protections against big corporations, and a lot more in terms
of disclosures and so forth like that. Now, is this a material impact on big tech or on the big banks.
Probably not.
A lot of it has to get pass through Congress, but ultimately it's certainly a headline risk that I would keep in mind for those sectors in particular, is just to keep in mind, you know that if she were to focus on this, and specifically it was just pick on anti trust, If she were to focus on anti trust, there's a lot of you know, intense scrutiny, more scrutiny than she could put there than a Biden administration could.
All Right, a lot of my M and A banker buddies are wondering what would a Harris administration mean for antitrust? Because Biden's been nobody into the M and A world. What's the is a feeling status quo there as well?
You know, this is one of those situations where I think, whoever wins as president's probably not going to be helpful to your M and A banker buddies. Because on one hand you have the continuation of the Biden presidency with Lena Khan at the FTC and taking a very skeptical, skeptical look at mergers. I mean just in the financial space alone. You know, some of these merger reviews go over a year, if not longer, and you know we saw it certainly with the TD Financial merger. They pulled
out as a result of this. But then on the flip side, you have Senator Advance and President Trump. And remember this idea of economic popularism is ramped through that. You know that RNC agenda at the moment. So you know, Senator Vance even came down to a Bloomberg event here in Washington and called Lena Kahan, the FTC chairwoman Biden's best picked and insinuated that President Biden would even probably
are President Trump should even keep around. Now, I don't think this is going to happen, but for unfortunately Paul, for your M and A banker buddies, I don't think any other way this gets around, whether it's Harris or Trump, it's going to be a very skeptical world for anti trust in M and A.
So Paul's talking to his ma buddies. I'm thinking about my energy buddies, because one area where it feels like President President Harris could be farther left, of course his energy. I was telling Paul earlier that she's been kind of anti fracking, she's been anti offshore. California is notoriously not loving any fossil fuels. How much of that do you think we have to really start considering.
I think it's important to consider it.
In fact, our colleague Rob Barnett just put out a note about forty minutes ago talking about this in the importance it has on the renewable sector. So, you know, a Senator sorry, I was going to say Senator Harris. Vice President Harris, you know, certainly has pursued a clean energy agenda. And one of the things we see in you know, her presidency is a boosting of the Inflation Reduction Act. I don't want to say going back to the build back better three point zero, you know, some
of the ideas that were floating around. She'll have her own ideas here, but this idea of the Inflation Reduction
Act needs to be protected and enhanced. So if you're in the renewable sector or solar sector, it certainly could be a boon idea if you know, Vice President Harris wins, but I would also just recommend it, or you know, I would also just offer this that A lot of it also depends on who takes up Congress, because if Vice President Harris wins and the Republicans take one, if not two members chambers of the House, then a lot of those initiatives are going to be scaled down and
actually dramatically lowered and so forth like that.
All right, we know Elon Musk is a big supporter of Trump, but it sounds like, what's what would a democratic Harris administration mean for the Elon muscle of the world and the evs.
So, you know, for the EV side, I think it's actually a continuation of the Inflation Reduction Act tax credit, if not an enhancement of that. You know, Look, tax reform is going to have to happen next year no matter what, because the Trump era tax cuts for individuals expires at the tail end of twenty twenty five. And whether it's Vice President Harris or a President Trump, neither of them are going to want to increase taxes for low and middle and income you know, Americans.
So for the EV's of the world.
I would say, under a Harris presidency, you'll certainly have protection from that tax credit in the IRA, You potentially could have an enhancement of that. You certainly will have regulatory policies.
Trying to boost EV usage and so forth like that.
Comparing it against the President Trump presidency, where you know, he said that he doesn't like electric vehicles. Obviously he has Elon Musk whispering in his ear and providing forty five million dollars a month in PAC funding. But ultimately I think the Republicans you probably would see a scaling back of those tax credits, maybe you know, just additional you know, restrictions on EV's and so forth like that.
But you know, with the Trump presidency, we'll have to see if he wins and also if the Elon Musk is whispering in his ear in come January and February taxes.
If former President Trump were to get a second term, is there any consensus in Washington given the makeup of Congress. I guess we have to see how Congress shakes out. But what, if anything could Trump administration get done on taxes?
Yeah, So, you know, the way I think about the tax debate with my colleague Andrew Silverman is really print some timing.
So the first thing you'll note is the election.
If the Republicans take the House and the Senate and the Presidency, then they have this opportunity for reconciliation. This is how they got the Trump era tax cuts through in twenty seventeen. It allows them to actually move forth and enhance or you know, essentially conduct reform, and they can bypass the Democrats. So if the Republicans win the House of the Senate and the Presidency, then this President Trump's idea of lowering corporate tax rates is certainly in the carts.
Now. I have seen statements from House Republicans saying.
Maybe we don't want to do that so much, but I do think that this would be President Trump driving this. Now, if you get more of a gridlock Congress, well, then the power of Congress, the power of Congress is going to come out and the House in ways and means committee, whoever controls it, is certainly going to want to play here and tell the Presidency this is what we think.
And so if you get a.
Gridlock Congress, a lot of the tax reform or tax relief ideas that are out there are going to be scaled down or narrowed, but with one objective not to increase the individual tax relief or tax cuts.
For that individual.
If you get President Harris, you may see tax increases for individuals who make greater than four hundred thousand dollars, but I think most individuals in the United States at the end of twenty twenty five probably won't have their taxes altered all that much.
Literally, my head hurts from all the different possibilities. I do not know how you do this, naythan on a daily base of all the individ sectors. Okay, before I let you go, now what like now are you paying attention for what is most on your radar? Now as you go talk to clients, so you.
Know, the most important thing for us is obviously say, you know, does Kamala Harris become the vice president or presidential nominee.
I think she will.
Just remember the Democrats have to have a virtual roll call to get their person on the ballot for the state of Ohio. I would anticipate that starting in August. First next thing would be, you know, Kamala Harris's vice presidential pick. We're cautioning clients. Look, she has plenty of time. She's going to do this in a way that it's politically advantageous to her, and she doesn't have to name somebody until the convention in Chicago in mid to late August.
So you know, those are the probably the two most important things. But also just remember, on the flip side, the tariff argument for President Trump is real, and it's certainly a risk that I think investors should pay attention to.
All Right, Nathan, thank you so much. We appreciate you really really great stuff. Nathan Dean Bloomberg Intelligence Senior Policy Research. I cannot recommend his research enough because it can go into all the different sectors as well as kind of game out the different possibilities and where we kind of go up from here.
So I guess that virtual role call thing or the virtual that's a key date, right.
Yeah, apparently that happens between August first and August seventh. That's what I was reading about yesterday, And I'm just my mind is also spinning as to what winds up going to the courts in terms of where the money is accessed and who was able to get control of all that fundraising money also in terms of getting the ticket on the ballot in all the states.
I don't know.
I feel like these snap elections that the UK and your holds, it just gets it done really quickly.
You know what I like about the UK is that you're not allowed to campaign for a long period of time. You have like very strict campaign today.
How about the signs on the lawn thing? Is there any rules on that? Guess that's a big issue for us at in suburbia.
I don't think you can do that. I mean, I'm kind of making that up, but I mean they have some strong restrictions. Anyway.
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Let's continue the conversation of what President Biden dropping out of the presidential race for twenty twenty four means. Wendy Schiller, professor at Brown University and interim director of the Watson Institute, is standing by. She joins us from Providence Rhode Island. Professor, I have so many questions, but one basic one is will whoever becomes the next presidential nominee and VP make it on all the ballots in all the states? Is that a foregone conclusion.
No, Alex, it's a great question, and good morning to you, to Paul, because Republicans are already gearing up to try to block access to these ballots in particular states. Now, some of the largest states we have maylen blue, like California, New York, Illinois, and you know they're democratic. Legislators will
take care of this. But the Freme Court a long time ago your two thousand rules that parties essentially have control over their own nominating processes, that even though states controlled ballot access, parties can really do whatever they need to do to change primaries or nominate people. So it's I think it's going to be a tough call if it actually got all the way up to the Supreme Court and exped out of review for them to go back on that and all of a sudden say that
state legislators can actually determine what political parties do. So this is going to be the legal wrangling Republicans have to decide whether it's worth it to spend the money on this, given that the likelihood of prevailing and enough states to make a difference right now doesn't look all that great.
All right, Wendy. We are all in uncharted territory here in terms of this process, the campaign here for the Democrats. Can you leg out how it might plug out? Ie? When will the Democratic Party decide whether they are fully behind Vice President Harris or they may open it up to a grit wider competition. How does that work? Do you think?
Well, you know, a long time ago, or even twenty years ago, it was a hierarchy that ran the Democratic Party, but just doesn't exist anymore, mostly due to the fact that the donor class is now independent of party leaders. People can give as much money independent of a party, so it really is weakened centralizing forces in the party. You can have a Trump campaign and Trump himself centralizes
the party, but otherwise systematically very difficult to do. I think you've got some loan voices, particularly President Obama formed President Obama's loud voice sort of saying wait a minute, but a lot of the people who are in an elected office right now around the States are now gearing towards Harris, and delegates themselves who are already pledged to Biden they're saying at the convention they'll vote for Harris. So I think they'll be somewhat of an organic kind
of organization of a party at the state level. And the more elected leaders, especially those running for House and Senate, saying they're buying Harris really pushes the party at the convention towards Harris. But they want to stay open to voices and engage people who have felt disengaged by Biden's refusal.
To step aside planned tightrope to be walked. To be sure, now, before we get to the DNC, there's apparently this virtual role called vote between August first and August seventh. What is that and if there isn't a consensus behind Harris at that point, what happens?
Well, Alex, this was really pushed by Ohio, the state of Ohio that said, you know, you're not going to meet our deadline. We're not putting Biden on the ballot for president. So they you know, they tried to fix it. Mike Dewayne, Republican governors tried to fix it, but nonetheless they're up against a very tight deadline that state set
for determining the ballot. So I think that is the problem, and I think this is going to be where Harris and whoever she appoints to run her campaign has to really literally get on the phone with state party chairs who typically know most of the delegates, and the DNC has the list of all those names, and you've got to get surrogates and yourself to be on the phone literally or virtually and talking to people saying, vote for
me on the first ballot. It's possible she doesn't win the nomination on the first ballot, but if it looks quite likely and she's almost there, you can see that how depending on the second ballot. So it's unclear who steps forward to be an alternative. You know who's really going to launch a challenge against her? And let's not forget core constituency for the Democratic Party, black voters, particularly in swing states, and suburban female voters, and you know
who else fits the bill other than Kamala Harris. And that's what the people who don't want to launch support for her now have to say to themselves if they want to really be viable going against Donald Trump and dat events.
Are you surprised that we've not heard an endorsement from President Obama?
You know, the generous interpretation I like to say is that you know, he liked to make sure that disaffected voices we saw almost what one hundred thousand uncommitted or something in Michigan for Biden in the primary, that those voices feel that they're being heard in the platform, and who the VP pick might be, I think he's what he's trying to do is make sure that people feel engaged. And if it just looks like the elites in Washington picked Kama Harris, which is not what's happening right now.
The elites in Washington are not doing that. It's the great roots in state level that are doing that. But if that's what it looks like, he's worried. I think that people won't feel as consulted as he needs them to be. If he's a Democrat and he wants to make sure he is a Democrat, wants to make sure to elect Kamala Harris. But it increasingly looks right now that he is out of step with where the party is moving quite quickly publicly to support and rally around Harris.
But that would make sense of why not only Obama, but PELUSI is also not setting mum on all of this. Before we let you go, we know you got a heart out in just about a minute. What kind of lawsuits do you think we're going to see to prevent whatever ticket we do have for the Democrats lack of access to the campaign funds. What do you think is going to play out there?
I mean, I think Republicans will launch every and any lawsuit that they can to gum up the system, make Democrats spend money to defend what they're doing, even transferring the money. It was a Biden Harris ticket, there shouldn't be any issue there. They're going to do a lot of that because mechanically on the ground, the Democrats are much better organized with their infrastructure then the Republicans that have relied on the Trump sort of charisma to get
people out the door. So whatever they can do to com it up, they will, and that could hurt some of the states. But in terms of re engaging the party, it seems as if the Democrats see an opportunity to get back on the road, be viable and generate the kind of enthusiasm that they've been unable to generate for the last six months.
Wendy, thank you so much. We very much appreciate you. When you Schiller, Professor, Brown University and interim Director of the Watston Institute.
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And for now we go to Christopher Smart. He's a managing partner at Ubroth Capital sorry Aubroath Group, and former Special Assistant to the President for International economics and he joins us from Boston, Massachusetts. Christopher is great to get your perspective. So we looked at last week as the Trump trade. At least some people did right. Steeper curve bid into crypto tech was selling off. You had to
move into small caps. Is that trade now said to reverse with the change on the ticket from the Democratic Party.
I would say it looks like it might be getting a little bit push of pushback this morning and maybe over the next couple of days. But I would side with that clip you just played from Jim Bianco that the Trump trade, as it has been pushed out or talked about over the last week or so has probably
been overblown. A lot of the moves you've seen in the market, whether it's the yields curve, the Heald curve steepening, the move in the dollar, the move in the equity markets, I think even without any of this background noise from the political world, it's not really background noise, it's very
important noise. But had we not had any of that, the fundamentals of interest rates being cut, maybe some disappointing earnings, maybe a little hiccup over at CrowdStrike, that does a lot more to explain the recent dynamics that we've seen in the markets, and maybe other than the bitcoin price, there really are very few pure plays on the election outcome.
Right now, Hey, Chris, before we get the president Biden stepping back here, what did you take away from the Republican Convention last week.
Well, my takeaway is this is not the Republican Party that I grew up with or that maybe most of us have come to know over the last twenty thirty forty years since President Reagan. This is a party that has very much shifted its focus towards tariffs over free trade, towards workers over big corporations, and towards pulling back. Frankly, a lot of our or international commitments abroad are now under question, whether it's in Europe, whether it's defending Taiwan.
The Republican Party wants to put more money into defense, but it's not clear really when and how it intends to use that in some of these key hotspots around the world. So I think it's a big shift in the debate, and no matter who wins the election in the fall, that debate is shifted to new sets of questions that the candidates will be will.
Be arguing, which kind of brings us to the broader economic landscape, like this is a very different economy than we saw back in twenty sixteen when President Trump was elected the first time, Right, I mean, we're sort of at the end cycle of the economic cycle. You have fed funds rates are high. Yes they'll be cut, but they're still relatively high. The deficit is so much larger,
and the massive amount of stimulus that we've had. What does this wind up meaning on an economic front to whomever is in the White House.
Well, and it's interesting that the Republican Party and indeed, you know some extent the Democratic Party are bringing the same proposals to the table that they brought us four years ago. So I think that or eight years ago. So I think that says something about where our political leaders are taking us. But having said that, I think the real issue is, as you point out, that there isn't a lot of room for maneuver whoever wins this election.
You know, President Trump, at least in one interview last week with Business Week, started walking back or talking a little bit about how big tax cuts might be more difficult this time around. And I think regardless of who wins the White House, the deficit next year is more or less going to.
Be the same.
There's not a lot of app there's not a lot of appetite to cut either spending or to raise taxes significantly. So I think that's again why the market right now now is not reacting too much to the potential election outcome as much as it's reacting to the current macro news, the prospect of inflation coming down, rate cuts next year, and earnings that have been weaker this time around, but certainly not anything that would signal that we're headed into a big recession.
So, Chris Rhy, you mentioned that debt deficits in the national debt. Those have been issues that have been with us for decades. When when does the market care? When do politicians care?
You know, you've stumped me there, that guy. I wish I had a great answer for you. I mean, politicians will care when markets care. You know, when when when the interest rate starts really biting and hurting and crowding out a lot of other spending priorities, then politicians will
care markets. It's really not clear because the US, you know, for all of its drama, for all of its debt, for all of its deficit laxness or weakness, and approaching the deficit, for all of that, it remains the largest, most creative, most innovative economy in the world, and the most likely to grow in any given year, you know, cycles, notwithstanding so you know, this is still your best bet
for putting money to work. And certainly these days, when a riskless bet gets you four and a half percent, you know, why would you go howling out into unknown and risk your risk your.
Shores When we take a look at and I appreciate that you're saying that the markets doesn't really mean anything when it comes to the candidates right now, But are there where are the areas that have the biggest binary reactions, Like I'm thinking of crypto, I'm thinking of energy when it comes to Harris Trump debate.
No, I think within the stock market there are clearly some plays that are reflective of some of this. So as you say, defense, crypto, energy, to some extent, bank stocks, but the way the way of Republicans were talking about Wall Street bankers last week, I'm not sure that that's
a clean play from from my perspective. So I think there are clear there are there are and then and then on the flip side, you know, maybe clean energy stocks, clean energy companies get fewer subsidies, less attention from the government, and so that's where you would sort of see things playing out one way or the other. But again, I think at the macro level. I'll go back to what I said before, the fundamentals of interest rates and inflation or what's driving things all.
Right, Christopher, thank you so much. We really appreciate it. Christopher Smart. He's a managing partner to our Growth Group and a former Special Assistant to the President for International economics. Joining us from this little town up there. They have a baseball team. I think it's Red Sox up there in Boston.
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What a lot of folks are trying to do today in the aftermath of President Biden pulling out, is trying to get a sense of, you know, the other differences or to what extent are the differences between President Biden and Vice President Harris's key policy issues and positions. So one of the folks we're really concerned are one of the areas a lot of folks are concerned about his taxes. Andrew Silverman, senior policy analyst for Bloomberg Intelligence. He looks
at this tax stuff. He joins us here on our Bloomberg Interactive Broker studio. So we got Nathan Dean for all the crazy policy stuff don on Washington. We got Andrew Silverman, who looks at the taxes because that is a huge issue here. Andrew, thanks so much for joining us. What do we know about Vice President Harris's thoughts about taxes and how that may differ from President Biden?
Right?
So I think at least initially, there's a sense that Kambala is excuse me, is Joe Biden two point out, and that she's just taking over his tax policies where he left off. But I think it's important to note two things. First that when vice presidents become president, they tend to have much different tax policies than their predecessor.
For example, Lyndon Johnson enacted one of the largest tax increases in US history during his presidency, but Kennedy had cut taxes drastically, and Reagan famously cut taxes twice from seventy percent that was the top tax rate in nineteen eighty two, seventy percent he cut it all the way down to twenty eight percent. And then when George H. W. Bush became president, if you remember, he said, read my lips, no new taxes, and then he enacted a tax increase.
So and you know, people change. Obviously, the Nixon of nineteen sixty had different tax policies in the Nixon of nineteen sixty eight, but when Kamalo was in the Senate, she was significantly to the left of Biden. Certainly in the Senate, she proposed a refundable tax credit for home rental payments. She wondered if provide systems the tax assistance to low income tax payers small businesses as well in lower income communities. She proposed an excess profits tax on
pharmaceutical companies, a banking tax. And I'd also note that the two Senators with whom she sponsored bills most frequently were Elizabeth Warren and Bernie Sanders.
So for a lot of votes, that feels like enough said. But at the same time, a lot of companies are going to be investing in the US through programs like the Chips Act or the Infrastructure Act or the IRA. Wouldn't high taxes like mess that up? Like wouldn't that counter and be encounterintuitive then to them actually spending money?
Right?
And you know, I think a lot of the way that the tax policy will progress after the election is going to be dictated by who wins in Congress. So certainly, you know, Congress is not going to repeal the Inflation Reduction Act if we have a majority Democratic House. They're not going to let the Tax Cuts and Jobs Act fade out at the end of twenty twenty five if we have majority Republicans and the Senate in the House.
So you know, if we have a President Trump next year in twenty twenty five, but we have you know, Democrats in the in the House and Republicans you know, in control of the Senate, chances are we're going to have pretty much the same tax policy that we have today because we're going to have gridlock certainly, And and Harrison is Harrison as well, you know, if she's if she's president, but we have just you know, Democrats barely in control of the House and maybe even Republicans in
control of the Senate. She's even if she wanted to raise taxes on corporations, that's not something she'd be able to do.
How about on the other side of the aisle. What did we learn from the Republican convention last week about what President Trump and the Republicans might try to do from a tax policy. Again, in mister Trump's first term, big tax cut was enacted. How about if you were to have a second term.
Well, I you know, again, to depends on what kind of cotails he has if he wins. But certainly I think priority number one, absolutely without a doubt, is that Tax Cuts and Jobs Act. If he has enough of a majority, he would like to make it permanent. If he doesn't have enough of a majority, he'd like to at least extend it. And if he doesn't even have that, he'd like to extend certain portions of the Tax Cuts and Jobs Act. I think number one on that list
would be corporate expensing, permanent expensing. So and I've even heard some Republicans say that if they can get capital expensing made permanent, that they would even be willing to increase the corporate tax rate.
Well, that's interesting. We are keeping our eye on what's happing at the White House in the South lawne Remember that a VP Kamala Harris is going to be delivering some remarks. They're celebrating the National Collegiate Athletic Association Championships teams. We are currently looking at the teams coming out in the individuals. We will bring a part of that to
you live. Hey, Andrew, when you're looking at what's next, what are some key words phrases like what are you going to be king in on to like help you guide and sort of where we should be looking at in terms of direction? Yeah, I mean I certainly, as in like, if there's a VP pick potentially for Kamala Harris that is more moderate or more left or like, what are the key things?
Oh?
Yeah, absolutely, I think her VP pick is going to indicate which direction she's going. And if she picks somebody, you know, as progressive as she was in the Senate, certainly that's going to that's going to indicate that she wants to move a little bit leftward. But if she picks somebody more moderate, then certainly she would tack back to the positions of Biden.
All Right, We're looking right now at this south long of the White House, and I believe Vice President Kamala Harris is walking towards the stage with a group of other folks and a get in the backdrop are all many of the athletes who won titles in twenty twenty three, in twenty twenty four. So keeping an eye on that. So when the Vice President does take a podium and delivererates, marks will certainly dip into that.
We will bring that to live Andrew. Okay, what else are you looking at? So you were looking at VP pick, We're obviously looking at taxes. What else is on your radar?
So so I'm writing a note right now actually on JD. Vance. And I think just as the Vice President is being mischaracterized in terms of what her tax policies might be, I think that Jadvance's tax policies are being mischaracterized. I think for to a great extent, he's being portrayed as
an arch conservative, but he's very much a populist. And a great example of that is him co sponsoring a bill with Sheldon Whitehouse on corporate acquisitions and mergers, saying that corporations that earn enough profits would be barred from being able to do tax free acquisitions. So, I mean, that's an extraordinarily progressive position for tax purposes, and you know he's totally on board.
For that.
He wants to tax college endowments and use that to find Yeah, and you said to fund non college training programs. So so you know, not exactly a conservative tax policy he wants to He wouldn't join the rest of the conservatives in trying to get rid of a gun tax. He actually only wants to repeal a portion of that gun tax.
So all right, attention too, So we appreciate that. Andrew Silverman, Senior Policy anlyst for Bloomberg Intelligence, really looking at the tax implications of different administrations.
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A little bit of it, YEA, a little bit of unwinding of that Trump trade a little bit. Perhaps we'll have to see how that plays out. Brian Jacobson, he joined a series of Chief economist for Annex Wealth Management, joins us from Brookfield, Wisconsin via zoom.
Brian love to.
Get just from your perspective, like from an economic perspective, has anything changed or if at all, over the past twenty four to thirty six hours with the change in the Democratic Party in terms of this upcoming.
Election, Yeah, thanks for having me. I think that it really has changed quite a bit as far as just the probabilities of the different outcomes. If you look at some of the prediction markets, you know, Trump's probability of winning the election went from about sixty five to sixty
six percent down to sixty percent. And still you know, I guess better than even odds that he's going to win, but that has come down, and so now it's a matter of what is the policy environment likely going to be for the next four years?
A little bit more.
Uncertain here at annex, we think that it's still quite likely that we do see some sort of extension of those Trump era tax cuts. Really, what's kind of on the chopping block, perhaps if Harris wins, is that the tax cuts for those making four hundred thousand dollars or more.
And then also as far as what's going on with the corporate tax rate, there's a state tax issues as well, and then the regulatory environment, we're seeing a bit of the reversal of that rotation towards small caps and value, but we think that this might be an opportunity to continue to add to those types of positions, not necessarily based upon the election outcome, but more based upon just that's where in the market we think there's a little bit more value to be had.
So based on that, I wonder, though, if the curve is the one where we're really going to wind up seeing more of the action based on whether it's a President Harris or a President Trump. And this is even assuming that Vice President Harris is the nomine because it feels like the steeper curve is what we're going to get, but the why we're getting it steeper maybe different depending on who's in the White House.
That's absolutely right, and I think it's actually a little bit maybe wrong to think that either one cares that much about the debt or deficit, mainly because that's not
really part of their platforms. It really seems like it's about revenues as far as you know, with Trump wanting to increase revenues through tax cuts and more growth, perhaps Harris or whoever's on the Democrats side, to increase revenue through taxing those making four hundred thousand dollars or more year corporate taxes, And really what seems to be lacking is a discussion around what the government can actually control,
which is the spending side of things. Right, revenue is really driven by economic activity, which isn't completely under the government's control. So I think that in either scenario, the moves in the yield curve are just as uncertain.
So, Brian, given what we know about the politics, which is a lot of things are unknown here, what's your economic call here? How do you think this economy is faring and how do you think the next six or twelve months are looking for this US economy.
I think things are looking pretty good. You know, on our Investment committee we discuss about all the incoming data that we get from Bloomberg, and it really does look like we had a decent recovery with manufacturing and retail sales over the last two months. We have to see if there's a little bit of carry through. We do
know that lower end consumers are feeling the pinch. They're beginning to be a little bit more prudent as far as instead of the yolo you only live once attitude towards spending they're becoming a little bit more price sensitive, but we think that there's enough economic momentum to keep the consumer plowing things forward here, and we think the recession risk is fairly low. A lot does hinge on whether or not the FED will cut rates in time or not, and for us that does mean a September ratecut.
We think the data will dictate that they can cut, and so if they end up not, then we'll have to revise our estimates.
So based on that, do you like small caps here?
Yeah, we do. We've actually been overweight small caps and mid caps more on the quality side, so we prefer those that are more profitable because as you probably know, forty percent of small caps aren't profitable, so we prefer sort of having that profitability along with that valuation lens. That has led us towards small and mid caps. But then also like industrials, energy, and we're warming up to financials.
It's an area that we've been very underweight for a long time, and that's an area where if we get the credit conditions continuing as they are as opposed to deteriorating, we think financials could stand to benefit from this.
What do you guys make about these concentration risk Brian, in the marketplace that we've seen in these magnificent seven, How concerning is that to you? Do you fade that, you try to find value outside of that? How do you guys deal with that?
Yeah, we've been really focused on concentration risk for a while, and to an extent, it's led us to underweight those names just because we don't necessarily want to put all of our or most of our eggs in that one particular basket, especially when that basket isn't particularly diverse in terms of sector exposures or thematic exposures. And we think that this is a period of time in which that rotation trade can come back in it broadens out. A
lot is going to hinge on the fundamentals. We do need to see that improvement in the small cap and mid cap earnings. They have gone through periods of recession earnings recessions over the last three years. It's almost like they kind of get above water and then they have a quarter on quarter decline in earnings once again. So we do want to see a little bit more traction.
But a lot of those companies have right sized for economic slowing, not an economic stop, but we're economic slowing, and so we think that they can actually move higher. Have those fundamentals support those valuations to actually have a pretty decent end of the year and twenty twenty five and beyond.
What's weird though, is that the reason why the FED is going to cut is because the economy is slowing, which in theory shouldn't that be bad for small caps? But where's the nuance there that I'm clearly missing.
No, you're absolutely right. Historically the FED has cut mainly because they held rates too high for too long and they were late to respond to economic slowing. Now there's a difference in going from great growth to good growth as opposed to going from good growth to horrible growth, right, and so we went from great growth in twenty twenty three to more sustainable and that will be the key thing is whether or not we do tip into a recession.
So if the FED is cutting because the inflation data allows them to, as opposed to the growth data telling them that they have to, I think that's going to make all the difference in the world. It also will make a huge difference in say the fixed income space, with credit spreads how tight they are.
We can have those.
Spreads widen, but mainly because not that corporate yields are moving higher, but treasure yields are moving lower.
What do you need to see out of earnings here? What do you think the market needs to see out of earnings here? Brian? Do we need to have a big beat to continue to support this market?
You know, I don't think we need to see a big beat. I think it really is about they just need to have a more pleasant tune or attitude towards the future. It's more about the guidance that they give. You know, last week we saw asml TSMC report, those fundamentals were fine, but then people had to reassess what that outlook looked like when it was announced that the US government was going to crack down on the ability to export that technology to China, or with Candidate Trump's
comments about the relationship between the US and Taiwan. So it's really more about that longer term future. It's not about what have you done for me lately with the earnings numbers, But it's more about that guidance. Are there signs that the new orders are gaining to pick up, are they actually going to be able to meet in some areas what seemed like perhaps unrealistically lofty growth expectations
in the tech area. That's why we prefer more MidCap and small cap tech just seems like those growth expectations are a little bit more modest and there's less risk with some sort of negative guidance going forward.
Just one more point on that, when you talk about small caps and mid caps, is it value or is it growth? Within those areas.
You know, we've been overweight small cap more on the value side of things. On the growth side, you do tend to get it more dominated by like biotech and some of the areas where it might be a little bit more speculative.
We do believe.
Firmly in balance having the exposure there, but in terms of if you put on that profitability filter, that would lead you more towards the value side of things. But you don't necessarily want to only look at that profitability. You also want to incorporate other dimensions of quality, like
the leverage that those companies have. Now, I guess that is one of the dangers is if you are in let's say small MidCap quality where they have pristine balance sheets, then you don't necessarily get these rip roar and runs higher in the stock price when it looks like the FED is getting closer to cutting, because that then tends to favor those areas that have more of the highly
levered balance sheets. But when we're constructing portfolios looking more for that longer term holding, putting those two together, the profitability, valuation, reasonable leverage, it does tend to move us a little bit more towards the value side as opposed to the growth side of the spectrum.
All right, we really appreciate it, Brian, Thank you so much. Brian Jacobson to me chief economists and NEX Wealth Management, a really great perspective. Joining us from Wisconsin.
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