Moneybeat: Chaos meets reality

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning to you, David.

JOHN STONESTREET: Well, good morning, Nick. Good to be with you.

EICHER: Well, I don’t think we’ve ever seen an orderliness to these end-of-year, end-of-session scrambles in Congress, David. All the brinkmanship around approving government spending and averting a government shutdown. That said, this seemed especially chaotic this year—with a president elect waiting not in the wings, really, but a lot more front and center—and then a high-profile adviser who happens to be the richest man in the world. Have a quick listen to Speaker of the House Mike Johnson after Congress okayed a spending extension that kicks the can down the road as far as March … not clear how much money it is, but it’s a lot.

JOHNSON: I was in constant contact with President Trump throughout this process, spoke with him most recently about 45 minutes ago. He knew exactly what we were doing and why, and this is a good outcome for the country. I think he certainly was happy about this outcome as well. Elon Musk and I talked within about an hour ago, and we talked about the extraordinary challenges of this job. And I said, hey, you want to be Speaker of the House? I don't know. He said, this may be the hardest job in the world. I think it is.

Even-keeled guy, the speaker, but what do you think: trouble in paradise?

BAHNSEN: Well, I think that you're right. I don't think people should be surprised. There was probably a little honeymoon phase after the election results that was never likely to be sustained. Now that's not to say that things are completely and totally broken and that the entire agenda of Trump, 2.0 administration has been derailed.

It is, though, from the vantage point of markets, a clear indicator that much of the stuff on the agenda, including things we've talked about on this very program, are highly unlikely to happen with the simplicity and ease that many had hoped for. Getting this budget impasse situation handled this week is a reasonably small task compared to some of the things that are ahead. If they've had this kind of problem with a reasonably small task, then I think it should be indicative that there's going to be more issues ahead.

Now, some of the tension between certain people, whether it's Speaker Johnson, Elon Musk, other key congressmen, congresswomen, of course, the president himself, the vice president—let's not forget that bills don't become law without the Senate as well, and senators are much more immune to the political pressures of the White House than congressmen are, just by nature of a six-year term versus a two-year term. So there's going to be some rocky roads ahead for a lot of this stuff.

That's not to say that all of it won't come together. It's just not going to be as easy as people hoped.

EICHER: David, you wrote about this in Dividend Cafe, addressing the long losing streak in the markets, making the point that an 11-hundred point drop, mathematically, isn’t as much as it seems, as a percentage. But still a losing streak is a losing streak.

BAHNSEN: Well, I do actually think that this week's Dividend Cafe is a pretty good one for WORLD listeners to check out, because both of those points are made. When you're talking about, you know, an 11-day-in-a-row down streak in the Dow that's 50 years old, the record goes back 50 years, that is something.

You know, you had a bit of a comeback in the market on Friday, but nevertheless, you're still looking at a couple thousand points down. You're still looking at being higher than you were before the election.

So both sides of this lesson need to be understood for market actors, for investors, for those looking to the market, as if it were some kind of indication about what's happening in the economy. Things that go up very quickly can go down very quickly.

Do people believe that the fundamentals and the real life situation changed that quickly, up and down? Or do they believe it more reflects—I use the word stupidity, but just the silliness—the emotions, too much euphoria behind an election result that many people liked? Too much panic behind other setbacks indicates a misunderstanding of the way where we are in the cycle. Nick, things are very expensive in markets, and so they don't require a good reason to go up or go down.

And those things will happen quickly at times, as we've seen here in the last couple weeks.

EICHER: Let’s talk about shiny objects, David, that seem to mesmerize the markets at times. A few years ago, all the rage was anything that helped remote work, and I remember how you said so many of these things were way overvalued. For example, Peloton … what you called exercise bike with an iPad built in … that attracted billions in investment. Now the new shiny object is everything A-I, artificial intelligence. Is this the same phenomenon?

BAHNSEN: Well, look it is not quite like it was in 2022. A lot of the shiny object critique I had was around things that were inexplicably stupid, the $50 billion valuation on an exercise bike with an iPad that quickly became a $1 billion valuation. It was hyper predictable. A lot of these so-called SPACs, single purpose acquisition companies that go public easy, they were not viable companies worthy of their valuation.

The work-from-home moment, it's—

You know, I get a lot of things wrong even as a financial professional, but my insistence was that we were not changing, in some cases tens of years, in some cases, thousands of years of human behavior because of the pandemic and the way that people were looking at companies like Zoom and DoorDash and, obviously, Peloton, fit in there too. You know, the world was going to reopen, and market prices should reflect that. Some temporary changes were going to be just that temporary. So that stuff got corrected in 2022 and unfortunately, it did it to people who didn't know better.

But now I think what you're dealing with is a little different in that the biggest shiny object is AI.

This is the issue that is all at once going to be a big deal and yet going to inflict a lot of damage on people along the way in markets. It can't become a big deal without a graveyard of companies along the way that fail—without miscalculation as to what the big deal actually looks like, what the real use will end up being.

You know the way in which some of these big technological advancements of the last 25 years have played out. I can't think of a single one going back to the web browser, so I guess I'm aging myself. But really, that's 30 years old now when Netscape went public, and people believed AOL would be the dominant email user and Netscape would be the dominant web browser. Well, guess what? Email is big and the web browser is big, and it's not Netscape or AOL.

So that's just, to me, the story of technology. I think people are wildly overconfident that this thing is going to take place without some pain along the way.

EICHER: David Bahnsen, founder, managing partner, and chief investment officer of The Bahnsen Group. David’s Dividend Café is available to you for free at dividendcafe.com. David, thank you, hope you and the family have a Merry Christmas … and we’ll talk again once more before the end of the year for a wrap-up of 2024.

BAHNSEN: Thanks so much, Nick. Merry Christmas.

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