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