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Moneybeat: Fiscal resolution


WORLD Radio - Moneybeat: Fiscal resolution

Resolving the debt ceiling fight, tracking inflation’s downward drop, and the probable outcome of JPMorgan’s shareholder meeting vote

The New York Stock Exchange is seen in New York, Wednesday, May 3, 2023. Associated Press Photo/Seth Wenig

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

NICK EICHER, HOST: It's time now to talk business, markets, and the economy with financial analyst and advisor David Bahnsen. David is head of the wealth management firm, the Bahnsen Group. He joins us now. David, good morning.

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

EICHER: Well, David, I'd like to start with something we're hearing over and over and that is the political drama unfolding in Washington over the debt ceiling. There's a ton of brinkmanship here, Republicans taking the position they should be able to extract some modest spending restraint before they agree to an increase in the debt ceiling, Democrats saying effectively, this is economic hostage taking. David, you've got really good Washington sources. What are you hearing? What do you think will happen?

BAHNSEN: Yeah, I think almost everybody believes it's media drama, not Washington drama, not market drama. Bond yields fell this week; you know, when you're worried about something defaulting, you want a higher yield, not a lower yield. The bond market is laughing it off, the stock market's laughing it off. There is brinksmanship, and I don't think you get like a total resolution anytime soon. I think that there was progress behind the scenes. The fact that there was a second meeting scheduled that was put off as staffers were continuing to work through more details in Washington is generally a good sign. They weren't putting it off because they're at a standstill, they're putting it off because there was a little more work to be done.

So ultimately, the key moment, we've talked about this before, was when Speaker McCarthy got the Republicans to agree to raise the debt ceiling in exchange for certain spending cuts and so forth. Had he gone to Washington and said, We will not raise the debt ceiling, and we have nothing to offer, then the White House would have laughed it off, and the whole country would have blamed the Republicans. But once speaker McCarthy passed that, then it put the burden on the White House to negotiate. And you're right, there's a lot in the White House saying nope, too bad, we just want what we want anyways. But plenty of Democrats are telling the White House, hey, you're gonna have to negotiate now - they've raised the debt ceiling. So I don't know how exactly it shakes out. I don't know when exactly, but I do know that it shakes out. And along the way, I expect a fair amount of media hysteria.

EICHER: So David, just to be clear, the reason you think that is because you're expecting someone to cave in?

BAHNSEN: Well, not only that, but the Treasury has $4 trillion of revenue. So you don't, you don't have to default on debt when you have revenue to pay it. Now, if you have 5 trillion of expenses and 4 trillion in revenue, there's a trillion of something that doesn't get paid. And that's over the course of an entire year. We're talking about what will be a week or two, I think one time it went 20-something days. We're not talking, so you know, a billion here, a billion there. Yeah, it's real money. It's not defaulting on the debt. And everybody knows that.

EICHER: Alright. Last week, we received the consumer price index for April, the producer price index for April as well. Was there big news in those reports, David, or would you point to any other indicators for how the economy is going at this point?

BAHNSEN: Yeah, it was huge news that inflation is continuing to drop like a rock. And if it weren't for the just utter nonsense of the shelter component of CPI, which came in at 8.1% - and that represents 34% of CPI - so there was a 4.9% year over year inflation in CPI, which is the lowest it's been in two years, and that was 2.75% of that 4.9% is coming from the shelter component. And I believe that the real annual inflation right now of rents and houses and so forth is anywhere from negative two to positive two, not positive eight. So soaking wet, my guess is inflation is down to 3%, and probably something with a two in front of it. The PPI is now only showing at 2.3% year over year, so it's collapsed. And in fact, intermediate unprocessed goods are 19% lower than they were a year ago. And intermediate processed goods are down 3%. So you have actual deflation on the wholesale side of goods. The annual inflation on core goods is flat. So the numbers in CPI and PPI this week clearly show the downward trend of inflation. But luckily for the people who want to use it as an excuse for ongoing monetary tightening, the shelter component with its huge lag it's still measuring rents from a year ago, not right now, is enabling the number to look higher than it really is.

EICHER: Right David? I know you saw this the, Wall Street Journal over the weekend had a big splash on conservative efforts to fight big corporations taking sides in political and religious debates and specifically siding with the secular left most of the time. JPMorgan Chase is the case in point, that big bank is accused of debanking some customers because of the views that they hold. Now for background, that is something that one of our listeners to The World and Everything in It brought to your attention last year; now you're doing something about it, introducing a resolution at the annual shareholders meeting of JPMorgan Chase. The meeting is scheduled for tomorrow, and you have an argument that you've made in favor of the resolution. And that's going to be played for the shareholders prior to a vote. So first of all, David, thank you for doing it. And thanks for sharing this recording, which I'd like to play a bit of, toward the conclusion, when you're noting that the company is trying to deny this problem simply by saying that it has no quote unquote, explicit policy of viewpoint discrimination. Let's have a listen.

BAHNSEN: That's the point of this resolution to respectfully ask the company to investigate this matter of great importance and report the results to us, the owners of the company. If all is good, the report will demonstrate that and if it is not, the report is an opportunity to fix it.

EICHER: Alright. So David, the big day is tomorrow, what do you expect?

BAHNSEN: Well, I certainly don't expect that the resolution will actually pass. I mean, the way that this stuff works is the board has voted against it. And there are institutional shareholders, that the vast majority of them, that proxy their votes to the shareholders services that go along with what the board says. And yet, I think that has gotten a massive amount of support that where even if they don't formally adopt the resolution, it's forced the board - and certainly the “C suite” - to have to respond, I'm still not convinced to this day, that Park Avenue, you know, where the actual leadership headquarters of JP Morgan are, was behind any of this debanking of either conservative or religious groups. I think it's happening on a regional level, and that they do not have the controls in place to keep this political and religious discrimination from happening. And I believe that this has now brought a significant amount of attention to it, to the C suite. And I'm modestly optimistic that there's going to be big changes, and I don't think it would have happened without this resolution and the buzz that came from the resolution. That's the key is we just got a big gift that they turned down this resolution from being on the docket, because then that forced us to be able to appeal and win on appeal with the SEC. That became the story that shined a light on the underlying story of what's going on and why. And really, we've had good conversations with the C suite where I believe that there will be change. But I think that this will fail and yet get more votes than some of the other left wing resolutions that are on the docket as well from groups like the Sierra Club and other radical environmentalists, and then kind of make a statement that will hopefully lead to ongoing conversation and action. We have no intention of letting this thing go after the shareholder vote.

EICHER: Well, David Bahnson is founder managing partner and Chief Investment Officer at the Bahnsen group, his personal website bahnsen.com, his weekly Dividend Cafe you can find at dividendcafe.com. We will certainly be praying the Lord's will be done at JPMorgan Chase tomorrow. David, thank you again for doing it. And I hope you have a great week. We'll talk to you next time.

BAHNSEN: Thanks so much, Nick. Appreciate that.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.


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