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We begin this out with Trump's treasury pick still very much up in the air, following meetings with Apollos, Mark Rowan and former FED Governor Kevin Walsh. Investors still waiting for President elect Donald Trump to make a final decision on the individual who will go into twenty twenty five facing down a huge to do list. Joining us around a table, the IBM Vice chair, the former National Economic Council Director Gary Cone. Gary, good morning, Good morning, Thanks
se Yah, thanks for being here. I think we need to take a big step back. In fact, go several years back to twenty sixteen, twenty seventeen. Just frame for us what you had to face down in sixteen going into seventeen and how long the to do list was back then.
So I think we should take even a bigger step back and remember what the environment was. If you go back to the economic environment as we were going through this exact period, we had a environment where we had just started just barely started to come out of the fed's zero interest rate policy, quantitative easing, and a decade of Fed articles would ever be inflation again. We were
just starting to turn that corner. We had come through an Obama four years or eight years of basically saying, you know, there's been a very tough business environment, highly regulated. You know, how do we get business re engaged in Trump won this victory. It looks very similar where we are today, except you know, FED funds were seventy six basis points back then. They're four and a half percent today. National debt was about twenty trillion. We're thirty five trillion
dollars right now. So we're in a pretty fundamentally different place. And then as you look where we are today, not only have we a pretty decisively different position in rates and debt, I think the President elect is walking into an environment with that high interest rate vironment where housing prices have gotten really out of touch for most Americans and there's a real push to try and make housing more affordable. You look at the way Treasury has decided to fund.
That additional debt.
They've been very short dated on the curve, which I think provides an enormous amount of risk in refunding. And we all worry about refunding of Treasury. So I think we've got to have a a real refunding situation where we roll out maturities. I remember talking to the president like eight years ago by doing a fifty year and one hundred year. I still think we should have done a fift year one hundred year when rates were low. And then you think about the situation with state and
local government. State and local governments were not in great position eight years ago. Now, think of what's going on with the migrant population. How much money some of these cities and states have spent on immigrants.
Now, they didn't say anything.
Prior to the election, but I will be shocked if there's not a huge outcry from some of the major cities in this country about the of money they've spent and how much help they're going to need from Washington to make their budgets come together. So that's you know, that's where you start. That's literally day one. That's January twenty of twelve noon you walk into that.
Yep.
So there's a fundamental difference from where we are. But there's a similarity to coming off of the Obama administration versus the Biden administration. The excitement of business, the opportunity going forward, those are the excitements.
You know.
Then you go back eight years ago and say Okay, what did.
We walk into as well?
Well, Look, the number one policy that we really wanted to get done initially was tax reform. Tax reforms are number one objective. Unfortunately, you know, the House had sort of gotten ahead of the White House during the last few weeks of the prior administration. The House had gone ahead with repeal of Obamacare, So we walked into repeal and replace without really a replace.
Which I have to admit I totally forgot about. I totally forgot about the McCain. Yeah, totally forgotten that you'd walked into that back in seventeen. How did that complicate things to get taxes done?
Well, a highly complicated thing. You know.
We all thought on the economic team that we were walking in, we were going to, you know, January twentieth, we were going to start on tax policy, tax policy, tax policy. I think all of us got thrown into healthcare, healthcare, healthcare, trying to figure out healthcare. None of us were really healthcare experts, none of us had been doing work on healthcare for the prior three months. Trying to get ready to walk in, we'd all been working on tax policy
and trying to figure that out. So everyone got derailed for.
The better part of I would say.
Two months or three months, knowing that we wanted to go through taxes in year one because we wanted to use that budget that existed and we wanted to use budget reconciliation to get taxes done that year. So every day we were spending on healthcare, we were losing a day of tax policy, which was you know, it was anxiety creating, let's put it that way. So we were trying to get rid of the healthcare issuess quickly as we could.
It's going to be the priority when they walk in January this time around. Is it going to be tariffs or is it going to be cutting taxes?
So I think there's two priorities day one on the economic side, and you'll argue there's both economics. I think it's going to be taxes because again you've got a deadline.
Remember the personal side.
Of the tax policy ends at twelve midnight December thirty first, twenty twenty five. So there is a forcing function, and Washington operates really.
Well with a forcing function. They need deadline, they need deadlines, they need that.
Journalists, well I don't know about journalists, but I know about Washington.
They need a deadline.
There is a hard and fast deadline. Now, look, they could extend it, but that would be another Act of Congress to extend it. So they have a firm deadline in play. So Number one thing on the I would say the economic policy front is they're going to deal with taxes. Number two is I think simultaneously we could argue this is this is economics as well.
They need to deal with the immigration policy.
I think we will see Trump come back to many of the executive orders and many of the policies that he had going out on January twentieth. He will reinstate all of those policies to shut the border and at least stop the flow of illegal immigrants in the United States. So I think they will work on both of those simultaneously.
I do think there will be some.
Tariff policy going in there as well, and I think the tariff policy that will be relatively easy for them to go on is to tear iff things that we are currently manufacturing in the United States. Where you would put tariffs in place to protect jobs and protect the products that we are currently making for the United States.
Okay, so if personal's policy, we have two out of the three, we have a borders are he's announced, and we also have Howard Latnett going over as to commerce. What is going on with the treasury pick. We have three men who I've been told the President thinks of a high caliber Scott Besson, Mark Rowan, Kevin Walsh in Palm Beach yesterday, having these conversations with the president sident, you know how he operates. Why is this pick taking so long? If he ran an economic agenda campaign.
So I think you just answered a little bit. He ran an economic agenda campaign. This is in his opinion, this is one of the most important, if not the most important pick he is going to make, so getting it right is important. I'll also remind you something. We'll go back to eight years ago. The economic picks were made the week after Thanksgiving. I was hired the week after Thanksgiving. When Neutrient was put into his job the
week after Thanksgiving. So the transition team is a couple weeks and probably a month ahead on most of the picks. So we've all got this anxiety because this is a second term president, so he knows how to get stuff done quickly. But if you think of what happened eight years ago. Those picks were made in the last week of November, first week in December, and we were all ready to go in our chairs in place by twelve years in January twenty. So there's plenty of time to
get it right. And I think the president knows. The President like knows, getting the right person is more important right now than getting the pick done today or tomorrow.
Do you think it's a name that I have not reported on.
I look, I'm not involved in the process. I think the President will put any in every name that he thinks can do the job well on the list, and he will choose what he thinks is the best person.
To do the job.
Do you think it's feasible for President elect Donald Trump to achieve his goals of the tariffs that he's put out there while acquiescing or creating some calm in the bond market.
We will see what actually happens in policy. You know, I always remind people what you say to get elected and what you do in actual policy are two different things. You know, Americans like to hear what your ultimate idea is to get done. But we've got a very rigorous policy process in the United States. We've got a House, we've got a Senate, We've got lots of constituencies, and when it comes down to actually executing implementing policy, it
is not exactly what the president wants. In fact, every piece of legislation is a compromise. There's no perfect piece of legislation in America because at some point people have to compromise. So we'll see what the president can get done. I think we're all confident there'll be something on taxes. We're one hundred percent confident there'll be something on immigration, and there'll be something on tariffs. But again, each of
these will be a compromise. No one is going to get one hundred percent.
Of what they want.
I guess the reason why people are so interested in the Treasury pick is because people want to understand what that compromise might look like, and the individual might give some insight into that. Do we have a sense and will this sort of be the ultimate test for you how much Congress pushes back on some of the picks that have already been announced that are controversial even among Republicans. Will that be sort of a test of just whether
the checks and balances will work. At the same time, when a lot of people are saying this time is different and that this president elect actually has something of a mandate that is very different than in twenty sixteen.
I think every Congress and every president, when they come in and they pick, they put their nominations through, and they go through the consent process. It's different. Every four years. Every president goes through a different process. You have a different makeup of a Senate. You have a different sort of body.
And by the way, the body will.
Be different at the end of this year, and then it will transition. I think it's January third is the swearing of the new Senate. It will change January third in the middle of the process. So some of these nominees could actually go through an approval process with this current sitting.
Senate, some may go through with a new Senate.
That probably the vast majority will go through with the new Senate, because it takes time to get the paperwork through, it takes time to get the vetting through. But every one of these events is unique, and it's uniquely different because they're different personalities involved. There's different people went through
different elections. Certain states changed, they became redder, So the center may may or may not be more comfortable taking a certain point of view, so you literally have to watch each.
Of these as an individual, unique event.
So you did mention the financing of the deficit, and that's very interesting to me, especially at a time where you talked about the short term nature of a lot of the financing. Do you expect that to change, for there to be a lot more longer dated issuance regardless of where yields are at with the next Treasure Secretary, whoever that might be.
But I think it's really prudent risk management to start elongating the debt of the United States and not have to live off very large short term auctions and not have to live off a short term demand for treasuries. Like we're always worried about financing the deficit and what could happen. Like as a person that grew up as a risk manager running a large balance sheet for a large percentage of my life, you would want to de risk that. How do you de risk that from a
treasury standpoint? You roll out maturities as long as you can, so you cut down the amount that you have to fund at each of these auctions. So I would think that this administration would want to get that done and roll out maturities.
You've been in the room with President elect Donald Trump maney a time, including to interview. What's it like to interview.
With Donald Trump?
Well, look, look, it's always a stressful experience. You know, you're sitting there with the President elect and a large amount of his team.
Like usually when you're in the room.
With the President elect doing these interviews, there's multiple other people in the room.
You know.
I always reminded myself, I'm speaking of the President elect. I'm not speaking to other people in the room, so you've got to sort of block out the other people in the room. But he's rigorous in his questions, and he tends to go multiple different directions, so you know, he'll go from from topic A to topic B, to topic C, back to topic A.
It's interesting.
You've got to be on your game when you're in there. You've got to be on your game. And he's thinking, you know, in multiple directions, and it's very interesting and he's always got a interesting.
Spin on things. You know.
I think the president like Trump, is one of the best marketers and branders there is I've ever seen. So when I'm always talking about an answer and how I would think of something from a policy standpoint.
He's talking about.
It, how is he going to sell this to America and how's it going.
To affect people?
And how's it good for the country, And he's thinking in that term. So we're always having an interesting conversation where I'm thinking about it from an economic policy, markets policy standpoint, and he's thinking about it from how do I sell this and how do I get momentum for this.
Some space in the media are describing this process as looking for a yes man, someone who would just say yes to some of his policy proposals, including the trade. You had disagreements with him on trade. You were very open about that. We're all aware of it at the time in the first term. How open is he to those disagreements.
Look, I believe.
It's the job and an advisor in the White House to tell the president the truth and tell them things that he.
Doesn't want to hear.
Now you get to tell him plain of things he does want to hear, you know, Like it was, it was always fun to go in there with the economic data. You know, you get the economic data of the night before it's released, and there are many nice where I got to go in there and talk to him about the economic data, what it was, how good it was, how the markets were going to react. Those are great conversations.
But along with those great conversations, you get to go in there and have conversations that say, hey, look, if we do X, I think I don't know, I think the reaction is going to be this. Are we prepared for this intended or unintended consequence?
And I think those are the.
Jobs of the people that sit in the White House's advisors to make sure when the president does something they understand the intended and unintended consequences. They should never a president should never be blindsided by a.
Decision when it comes to the check and the pushback on Trump two point zero, John talked about this his first four years. All the time the Trump put it was a stock market that he cared about. He would reverse core some potentially something he want to do in executive order, just because he saw the fallout of the financial markets. What's going to be that check this time?
I think think Trump is going to care as much about the stock market these next four years as he did the first four years. That is a benchmark that he will measure himself. It's a very public benchmark. It's one that he uses. He talks about it in every speech. He's already started talking about it in the transition. How well the market's done since election night. I don't think that will change over the next four years.
Do you think the bond market takes on additional importance? We started this whole conversation about the difference between now versus say, twenty sixteen to seventeen, certainly in fixed income in a very different position.
I think the bond market deserves a long discussion here. I think there's a lot going on. When I talked it, when I talked a little bit ago. You know where FED funds were at seventy six spaces points where they're four and a half percent. Now, that's only half the story. You know, we had a flat yield curve and then we've gone through an inverted yield curve over the last
four years because everyone's worried about a recession. And now we're going back to something that we forgot what it is called a normal yield curve.
How stafe is a normal year?
Yeah, at least you've been around long enough to ask a question, how steep is a normal yield curve, because a lot of people don't even remember a normal yield curve is steep.
You know, we've seen since.
The Fed started cutting interest rates, ten years have gone up sixty to seventy basis points.
I'm not surprised by that.
I think we're renormalizing a yield curve. If we've taken recession fears off the table, and the ten years is going to go to a normalized rate of let's call it three, three and a half percent, you know, there has to be at least one hundred, one hundred and twenty five basis points of steepness in FED funds ten years. I think it's at least one hundred and twenty five. If we're going to three, that's at least four and a quarter.
If we're going to three and a half, you.
Know, we're talking four to seventy five, and we're going to continue steepness out the curve. And that's before we get to what I consider a pretty large refinancing wall coming up in twenty five and beyond. You know, I think many people forgot that. You know, twenty twenty, the COVID year, we did a lot of refinancing in the market, but they were all most of them were five year refinance, so a lot of that COVID paper that was done.
At pretty favorable rates because.
The Fed again went into very accommodated policy. A lot of that COVID paper comes as due next year, so we've got a lot of refinancing coming due in twenty twenty five. So I think the yieldker smartly and normally starting to renticipate what's going to happen in the bond market.
We could sell cool morning, Let's do it for now. Next time. It's going to see you, sir, great singing. I appreciate it. Gary Cone, the IBM Vice chairman and former Director of the National Economic Council under Donald Trump.