Moneybeat: Detox economics

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

EICHER: 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. David, good morning.

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

EICHER: All right, I know you prefer not to look to a single month of jobs numbers … that a three-month moving average is the better figure. It’s funny, though, that the 151-thousand jobs added in February … according to the figure we got on Friday … that that number is exactly the average of the last three months. But the reason I bring this one up in isolation is because of the administration spin on the report, pointing to the loss of government jobs … about 10-thousand jobs lost … as a positive step. Do you think that’s misplaced? What do you think this report tells us about the actual health of the labor market?

BAHNSEN: Yeah, I mean I think it was a pretty boring jobs report. Ten thousand isn’t very many. When they talk about “oh, well, good, we’re getting rid of some of these government jobs,” I mean, first of all, there’s going to be a lot more than 10,000 that will have to go in the end. But whatever the number is, they can’t assume that all of them are going to be replaced in the private sector. I’m not sure that the right approach is to be supporting any job loss.

It’s more getting the right size of government and that’s different. I think that you hire to what it is your need is. So there’s sort of a reversal of the conversation.

The expected number was 160,000 total. It came in at one fifty, so it was just a little bit light. And then to the extent that the government jobs went down and the administration wants to celebrate that, we have to remember that 25% of job growth last year was in the governmental governmental adjacent sector, so a lot of these things are smoothing out from excesses of last year.

There’s a lot of nuance in it. I’m more focused, as you know, on the weekly jobless claims. We’re going to get a third week this coming week to give me an average based on that first number that had come in a couple of weeks ago that was noticeably higher.

Do I think we’re potentially in early signs of a little bit of weakness in labor market? I do, but it’s a little premature to make the conclusion, although there is certainly a little, you know, preliminary evidence of it.

EICHER: Treasury Secretary Scott Bessent spoke to the Economic Club of New York and then sat for an interview with C-N-B-C the day after. Bessent described the economy as needing a “detox” from government spending, implying short-term pain for long-term gain. Here’s that clip from C-N-B-C Squawk Box.

BESSENT: The market and the economy have just become hooked. We’ve become addicted to this government spending, and there's going to be a detox period. We’ll see whether there’s pain, what we are trying to do—I talked about it at the economic club of New York yesterday—there’s going to be a natural adjustment as we move away from public spending to private spending.

Do you see this messaging as honest economic analysis or more of political spin—and how realistic is this detoxification strategy?

BAHNSEN: Yeah, I think that my interpretation of that was this: If you are going to do tariffs for protectionism and other private sector interference that hurts the economy, it would be good to try to tee up in advance that you want to blame it on reducing the size of government. So, I thought that there was a little preemptive spin potentially there.

I don’t think markets necessarily fell for that, obviously. However, there is a sense in which it’s true that there would always be a detox to have to come off of a dependence on governmental transfer payments. And I think that Secretary Bessent is a very savvy person.

But he can’t blame this entirely on the transfer payments that were at play here when the majority of them started in the latter portion of President Trump’s first term out of COVID. When we talk about the economy being dependent on governmental spending, I don’t think anyone believes that growth, real economic growth, and productivity is coming from these various projects we’re trying to cut out of government right now. If we were to cut them, it’s gonna hurt the economy for a little bit, but then we go through detox and then we’re better off.

The things that we have to sort of wean off of are various transfer payments that started out of the COVID moment, and there hasn’t been a continuation of some of them yet.

Secretary Bessent has such a strong command of financial markets, but he has a very, very difficult job, Nick, because he has to appease his boss, he has to appease markets, and he has to try to drive a policy solution to a number of different things—some of which I’m very convinced he’s working on and has a rather intelligent plan behind it. But the messaging along the way is very difficult to take seriously because they have to navigate all these things at once.

EICHER: David, on markets … all the major indexes fell in a range from 1.5% to 2.3% on the week … the S&P 500 and the Nasdaq falling for the third week in a row.

What we’d seen to this point is the markets veering back and forth based on where the president was on tariffs … falling on tariff announcements but then rebounding whenever tariffs were canceled or walked back. Karate Kid-style, kind of wax-on, wax-off.

But they didn’t swing this time around. What changed this week, and do you think this suggests anything about investors’ deeper economic concerns?

BAHNSEN: So on one hand, there is the tariff issues themselves—which are wax on, wax off, you know, being told different things all the time. This was to me, noteworthy this last week that for the first time you had yet another reversal of big tariff threats that they walked back again, only this time markets didn’t rally from the walk back they continued to sell off.

My argument here was that markets are now not responding to, “will there be or not be tariffs?” It’s very clear whatever tariffs we do get are going to be riddled with exceptions, carve outs, exemptions, favors, and all of this type of stuff—a lot of the reasons that, as you know, I’m so opposed to the policy.

But what the markets are responding to in my opinion is what regardless of what happens and regardless of what doesn’t happen, it is going to end up impacting real economic growth. So, what I tried to do in Dividend Café is show how the bond market is showing this, that essentially bond yields have dropped a lot, but inflation expectations have not been much of a driver. So a lot of the tariff defenders are saying, “look, inflation exportations haven’t gone up with the threat of tariffs.” In fact, bond yields are coming down, and my point is, yes, they’re entirely going down because real growth expectations have dropped by half of a percentage point per year for the next 10 years.

So that’s what I think markets are responding to is the possibility, after inflation, of a much lower growth expectation than at the point of the inauguration. So, we had a good move up and expectations from the election to the inauguration since then, it’s given all of that back and then some. I think that’s partially a little bit of concern about where we’re going with tax policy, tax cuts, tax extensions. I think markets are a little uncertain about that process and then certainly the looming issues around tariffs.

EICHER: Friday was the Bitcoin summit at the White House … featuring leading cryptocurrency and tech enthusiasts … and chaired by the White House crypto-czar David Sacks. The president was there and he had this to say.

TRUMP: Last year, I promised to make America the Bitcoin superpower of the world and the crypto capital of the planet and we’re taking historic action to deliver on that promise, as you know, around the table. Yesterday I signed an executive order officially creating our strategic Bitcoin reserve, and this will be a virtual Fort Knox for digital gold to be housed within the United States Treasury. That's a big thing, Scott [Bessent]. The federal government is already among the largest holders of Bitcoin, as you know.

By the way, the reference to Scott … was to the Treasury Secretary we heard just a minute ago … Scott Bessent. But David, what should we take from the administration’s moves on Bitcoin, and do you see it as a shift?

BAHNSEN: Yeah, it’s interesting. Bitcoin was at 86,000 a few days after the election, and as we’re sitting here talking, it’s 86,000 now. But I strongly suspect by the time people are listening, it could be a lot higher, a lot lower because it has just exploded in volatility.

It all shows the folly of believing that regulation around the exchanges is supposed to affect the underlying price. And that was the big takeaway from that summit last week.

It’s a very sociological investment and that’s fine. It just isn’t a economic investment. And so, you know, sometimes the sociology behind it is going to drive a price higher and hopefully people do what you’re supposed to do in that situation.

Many times it drives it lower, but every single thing I’ve said for the last decade about Bitcoin and cryptocurrency, I think continues to play out exactly as described and I stand by it.

I was utterly amused by David Sacks—billionaire venture capitalist, heavy crypto enthusiast, member of Trump’s AI and cryptocurrency advisory council—make the comment that crypto should not be relying upon government to be buying it. Yet, you hear all the times from Bitcoin people, “well, they’re going to make a big strategic reserve and that’s going to push the price up.”

All I’ve heard for the last few years is it’s supposed to be an anti-governmental investment, and now I’m being told that its government is going to add to the value. So I have a hard time keeping it straight and that was some of the mixed messaging at the summit that you’re referring to from a few days ago.

EICHER: David Bahnsen, founder, managing partner, and chief investment officer of The Bahnsen Group. David writes at dividendcafe.com and regularly for WORLD Opinions. David, thanks! Have a great week!

Thanks so much, great to be with you.

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