Moneybeat: Election 2024 and economics

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

NICK EICHER, HOST: It’s time to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. He’s head of the wealth management firm The Bahnsen Group, and he’s here now.

David, good morning!

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

EICHER: Alright. So, we've been planning this conversation now for several weeks, but you have finished up your special dividend Cafe commentary on election 2024. Let's talk through some of the big themes in there, David. Let me start with my major takeaway. If I boil it all down, I'd say it is this: that markets are far more resilient than whoever wins the next election. How does that do as a summary?

BAHNSEN: Well, that is a very true statement. And what I tried to do, Nick, was use history to make the point that over a long period, you know, anybody could cherry pick a certain four year term, a certain president, a certain event, and say, See, look, this, you know, happened because of this here. What you get over 100 years, what you get since the Great Depression, since World War II, you know, long periods of time is almost undeniable evidence that things wash. That markets, for one thing, go up more than they go down, which is why people invest in things like the stock market. But also that the returns end up being more or less the same regardless of the political party that's been in office. And that's a very different statement than saying that the outcomes we get for as a country, or the policies we get, or the adherence to the Constitution or the types of judges, there's all sorts of categories in which I believe that a civic-minded Christian is going to have strong opinions and a stake in the outcome. But investors have historically done well with certain presidents of the blue party and done well with certain presidents of the red party in power, and had periods where they didn't do well.

The thing that I want to point out, though, is gridlock, divided government. There's been a two year period here and a four year period there, but very rarely has it been uni party control. And the returns during a Reagan–O'Neill, Tip O'Neill, the famous Democrat Speaker of the House in the 1980s, during the Bill Clinton–Newt Gingrich period in the 90s, and even more recently, Barack Obama with Speaker John Boehner, and Donald Trump with Speaker Nancy Pelosi. There's been divided government that has produced very strong returns. We've seen it throughout the Biden Administration. The 2023 and 24 you've had a Republican majority of the House, a Democrat in the White House, and massive gains in stock market. Now, is any of this related to divided government? Is it directly correlated? Well, that's sort of the other point is we overthink even the causation of all of this. Policy matters, but profits really drive stocks, and companies have an incredibly impressive way of maintaining their path to profitability, even when they have to overcome political obstacles.

EICHER: So, there are also political realities, realities of our system of government that mean, even though you may hear a policy position from the lips of a candidate, that doesn't translate automatically into that position becoming actual policy. But all that said you would never, David, want to be interpreted to be saying that policy debates don't matter, or who wins elections doesn't matter.

BAHNSEN: That's right. And let's start with policy. I believe policy does matter, and the policy that matters is the policy that becomes policy. And that is, as you just pointed out, very different than campaign promises. I'm doing some alliteration right now, totally on accident, because it just seems to work. But promises are not policy. And by my little informal study, which I'd be willing to take to the bank, 94% of things that presidential candidates say on the campaign trail never become policy. So you're talking about something in the range of five or 6% that ends up happening. The biggest reason for that is not because it gets voted down, but because it never even gets off the launching pad at all. It's just bluster. It's just kind of rhetoric. And then there is a significant part that doesn't because of the reality of how our system of government works. Thank you, founding fathers that the separation of powers and the process that back in the good old days, we learned in high school civics of how a bill becomes a law. That keeps a lot of things from becoming law

Policy matters, but I would argue that when it comes to the president and the economic well being of the country, that it is pretty limited. Tax policy, energy regulation are the three major categories. And then what I ultimately conclude with in my article is that if someone was looking for low hanging fruit as to where you're going to see markets and the economy impacted by this election, it's personnel. Personnel is policy, because whether it is current Vice President Kamala Harris or former President Donald Trump, there are a lot of things both of them said on this campaign trail that are just absolutely never going to happen. We are not going to tax unrealized gains, the idea that there's not going to be any tax on overtime or tips or Social Security, those things aren't going to happen. However, the President does appoint the Treasury Secretary, and the Treasury Secretary does appoint hundreds of economists and officials: the National Economic Council, the chair of Economic Advisors, the head of the FDA, the head of the FTC. You know, one of the most impactful people in the Biden administration, I would argue, negatively, but it was a Biden appointment at the Federal Trade Commission trying to break up so many big businesses and block mergers and all sorts of other things, sometimes with a prima facie reason, sometimes really quite an egregious overreach of state power. And so personnel is policy, and that's where I would argue it matters the most.

EICHER: And so, before we go David, I'd like to circle one big topic area that you covered in that Dividend Cafe, that's debt and deficits, where neither side, neither candidate, is proposing a real solution. You argue that the debt is the most significant long term economic issue facing the U.S., but the least discussed by political leaders. And yet, here we are on this unsustainable path. It's going to require serious attention at some point, and you're sounding an alarm now.

BAHNSEN: Yeah, I think that the idea of me sounding the alarm should be differentiated from the way others that have sounded the alarm in this issue have done so, because I think others have had a real agenda in sounding the alarm for pending apocalypse or a pending catastrophic moment, a bang. I am completely open to the idea that there could be some catastrophic moment, but I find it less and less probable. I think it's worse what I'm saying, is that there isn't a catastrophic moment. There's a whimper over time, years and years and decades, that the escalating debt, the escalating size of government as a percentage of the economy, the escalating level of government spending, which misallocates resources, all put downward pressure on economic growth, and that, much like the 30 year story that played out in Japan. That United States may not have this moment at which all of a sudden we're “Oh, wow! POP! We're in a Great Depression. Oh, wow, our whole country's on fire.” I think that that's what a lot of people that are playing the Jeremiah of the day around this issue, have written books and tried to get famous talking about and they've mostly been false prophets from decades.

What I'm suggesting is that this is right now taking a toll on economic growth. I'm not predicting it merely in the future. It's happening. And yet, people still feel like they're living their lives. Things are still pretty good. Our economy isn't shrinking, it just isn't growing at the way it used to. But see, I find that unacceptable. I believe us telling our kids, a bunch of 50 and 60 and 70 year olds that have lived in the prosperity of this country, that our post war economic boom generated now being content to leave our kids and grandkids a 1% growing economy is totally unacceptable. That's the issue that has to be dealt with that will, of course, require political dealing, and it is not going to happen in this election.

EICHER: Alright. David Bahnsen, founder, managing partner and chief investment officer of The Bahnsen Group. Of course, we mentioned Dividend Cafe last week, and this, if you'd like to see David's double issue election special Dividend Cafe, we'll link to it in the program transcript. Or you can visit dividend cafe.com. David, I hope you have a great week.

BAHNSEN: Thanks so much, Nick.

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