Moneybeat: Confidence game

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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 advisor David Bahnsen. David heads up the wealth management firm, the Bahnsen Group, and he is here now. Good morning, David.

DAVID BAHNSEN: Well, good morning, Nick. Good to be with you.

EICHER: Well, David, the White House lifting its 50% tariffs on Canadian products that are important to businesses in, of all places, the state of Maine, apparently this is to help out Republican Senator Susan Collins of Maine ahead of the election. Now, at the same time, it’s imposing tariffs on different Canadian products, and you’ve long said that exemptions like this acknowledge that tariffs impose real costs.

So, is this actually shifting the burden here, or do you see this as a genuine tariff cut at the end of the day? I guess what does this accomplish economically?

BAHNSEN: Well, I would start wondering what it accomplishes politically. A week before the election, it seems a little too little, too late. But the net net of this is a full 50% tariff cut. They said that they’re replacing certain things, but when you look under the hood, the actual dollar impact is almost negligible, and they’re just capitulating on these 50% tariffs.

Now, of course, I’m all for it. I think it’s better for Americans to not have that higher tax burden, and I do believe that it is—I guess it’s implicit—but I think it’s a pretty loud, implicit admission that the administration sees these tariffs coming at a cost. And when we can remove that cost to help Americans, I think that’s a good thing, and they should be commended for doing that.

EICHER: Well, David, The Wall Street Journal reporting foreign investors, including buyers in Japan, are becoming less willing to finance the government debt of France, and French bond yields have gone up. And at the same time, France, very deep in debt, and now dealing with continued unrest in the streets. Do you think there’s a signal here that there may be a risk of default, or is the economic problem something else?

BAHNSEN: Well, let’s be very clear to tell the whole story here. France’s yield has gone much higher than it had been. You know what France’s 10-year cost is right now? It’s 5%. You know the United States’s 10-year cost is right now 5%. So this is by no means a dire straits situation. It’s just much more expensive than it had been, and yet there has not been a total freeze-up, a total cutoff from foreign investment, and in fact, there’s actually a lot within the European Union.

But it is higher, and probably will go higher, and should go higher to the extent that it represents a unsustainable fiscal reality in France. But much like the U.S., are we actually talking about default risk? Of course not.

So we basically have an unsustainable situation in France that has crowded out their private sector, that has left them without real economic growth, that has deprived their younger generation of economic opportunity. But then some are looking at it like, “Oh no, they may default on debt,” and I think that’s the wrong way to look at it. The other stuff I said is the real consequences, and to me, that’s far worse.

There is a lot going on with their riots. They’re trying to crack down now. But I do believe the fiscal social safety net of France is unsustainable, and it was what the French people wanted that they voted for, and it just so happens to be a percentage of GDP that is nothing like we’ve ever seen. And so I don’t want to conflate it all with the riots, but there is an awful economic situation there. The bond markets responded, but I think we need to point out that their bond yield and our bond yield are the exact same.

EICHER: Well, we’re about a week away from Election Day. Lots going on, but also an interesting question in California: a proposed billionaire wealth tax is on the ballot. And David, the Journal is reporting that Mark Zuckerberg, a prominent Californian, has considered leaving the state over this. And Meta has arranged some non-voting shares of the company that would allow him to raise the cash that he might need for a possible tax bill without losing control of the company. Do you think this is a genuine business response to this particular negative incentive, the tax?

BAHNSEN: Yeah, Nick, I think it was a PR stunt. And Mark already had super-voting shares, but it was a really effective way. Facebook, Meta, are no dummies when it comes to PR to get out publicly how against this thing they are and how threatened they are by it, and how difficult it could be for Facebook employees, without having to sound overtly political.

But at the general level of incentives and how people respond, the very reason that 15 out of 17 European countries that did a wealth tax and got rid of it is why Gavin Newsom and Larry Summers and most liberal Democrats are opposed to this, because it not only is horrifically wrong on so many levels, but it fails on its own measure. It doesn’t generate revenue, and that’s why you have different unions within California fighting with each other about it. Because some even say to the ones that support it, “Hey, this is going to hurt us in the grand scheme of things.” And so certainly the Zuckerberg Facebook posturing here is indicative of that wider and broader message.

EICHER: All right, David, I think you’re going to like this one. The University of Michigan has its Consumer Sentiment Index saying now that the consumer sentiment is at its second lowest reading in more than 70 years. I think the interesting thing is to look at the partisan breakdown here. Democrats have a consumer sentiment of 37. Republicans have it at 83. So, same economy, but very different numbers now.

Everybody may be sincere in the rating; they may come by it honestly. But it sure sounds to me like politics dressed up as economic data. Who actually relies on this index?

BAHNSEN: Journalists (laughs).

EICHER: Touché (laughs). Touché.

BAHNSEN: So this is not a new phenomena. First of all, everybody does politicize any economic data metric they can, so that part is well baked in. But as far as consumer sentiment and consumer confidence, I long ago realized that they are terrible leading indicators.

That the only thing that tells you what the consumer is doing is what they do, and that what they do is itself not an unpredictable measure, because they do spend all the time, no matter what, unless they run out of access to credit and money. And that’s why credit conditions and financial conditions are the leading indicator I’ve followed for 20-plus years, and not what people say.

The Republicans are not being honest when they say it’s the best economy ever, and the Democrats are not being honest when they say it’s the worst economy ever. But they both are doing what they love to do, and I would just argue that there’s better economic data than the University of Michigan’s consumer confidence.

EICHER: Well, that’s what I get for reading the paper. David Bahnsen, founder, managing partner, and chief investment officer of the Bahnsen Group. David writes weekly at dividendcafe.com, and for WORLD Opinions, we’ve got links to David’s latest Dividend Cafe. Just tap the episode headline in your podcast player. That opens up episode notes. You’ll find those links right there. If you’d like to dig a little deeper—and by dig, I mean just tap—pretty easy. David, thank you. We’ll talk to you next time.

BAHNSEN: Thanks so much, Nick.

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