Moneybeat: Market power plays

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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 adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning, David!

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

EICHER: Well, David, late on Friday, a federal appeals court struck down President Trump’s global reciprocal tariffs. The court saying that the President had stretched his emergency powers too far. It’s going to allow the tariffs to stay in place at least through mid October, and that gives the administration some time to appeal to the Supreme Court, the White House saying that there’s real money on the line here, that unwinding these tariffs could cost billions of dollars. So while the legal fight plays out, it’s going to be status quo. But David, how do you think the markets will react? We’re not going to know, obviously, because today being a holiday, but when markets open back up, what do you expect to see?

BAHNSEN: There won’t be any response from markets about this because markets have already known that there was a very high likelihood that the appeals court would rule this way, and inevitability that they weren’t going to stay anything yet, that ultimately this is likelihood of the Supreme Court. And then I’ll do you one further for listeners, even if the Supreme Court ultimately rules that these are, in fact, unconstitutional. The White House already has contingency plans to just pivot their rationale to a different legal reasoning that would then allow a lot of these tariffs to continue in a different way.

And so I don’t think that the markets believe that there’s much likelihood of these tariffs going away quickly. Now, there are certain hiccups and uncertainties that they will generate if ultimately this is continued, but the courts ruling against the constitutional tariffs but allowing them to continue in the meantime, sort of allows this whole thing to kind of continue as it is.

I think it would be more interesting if they were ruling the way they’ve ruled legally, and then putting an end to it immediately, which I think would create a significant amount of activity, of people trying to get certain trade transactions done in a window that they believed could prove to be temporary. That’s not happening. So look, I have a hard time understanding how anyone believes this isn’t black and white based on what the Constitution says about the power to tax, but I also understand that the White House has three or four different ways they plan to pivot to keep the tariffs going. So I think that’s the path we’re headed here, and we’ll see when and how the Supreme Court takes this up.

EICHER: Well, lots of news to get through today. David, I do want to talk about the White House finalizing the deal to take that 10% equity stake in Intel using nearly $9 billion in Chips Act grants that hadn’t been paid out, it will instead be converted to stock, making the US government Intel’s largest shareholder, with even the option to buy more under certain conditions. Supporters framed that deal as a national security move. Critics call it a step to socialism.

Now you gave this the full Dividend Cafe treatment, and regular listeners are not going to be surprised where you land on the question. But what I’d like to know is, how do you distinguish between the government taking an equity stake in a company versus simply awarding contracts for things like military hardware or building roads. Isn’t it all just taxpayer money flowing to private companies? Or explain the difference between the two?

BAHNSEN: The latter is categorically different, because in the extended contract, it’s an exchange of goods and services. The government’s a customer. And so the issue of the government being a customer is the inevitability of there being different goods and services that have to be provided. And roads and military equipment are pretty good couple examples.

But of course, the former, the idea of them taking equity stakes, is problematic on a whole lot of fronts, the first one being how they’re going to pay for it, what money they’re going to use to take equity stakes. And by definition, the government has no revenue source other than taxing, and so the government is using our money. And so that means they’re supposed to represent the public good and to take an equity stake in company ABC, but not company XYZ is not in the public good.

What it means is that the government has a favorite, and then other companies that do business with ABC versus XYZ, they probably better end up having a favorite, too. Or they become exposed to potential actions, because the government, in addition to, apparently now becoming an equity owner of certain companies and not others, the government is also the regulator of all of these companies at one form or another, whether it’s just taxing authority or various agency regulatory oversight.

It should go without saying that the government has a lot of power, and that’s generally why conservatives have always believed that the government’s role in private industry ought to be minimal, because of the power the government has. They have the ability to interfere, in effect, in transactions, in ways that are really problematic, and most are understandably focused, Nick, on the funding the government’s paying for it with borrowed money. If the government had extra money sitting around to buy stock in Intel, they should instead just be reducing their debt. However, there are other issues that are really problematic too, and some of them are visible effects, and some are invisible effects.

EICHER: All right, David. Well today, Fed Governor Lisa Cook is fighting to keep her job. Last week, President Trump fired her for cause, citing his housing finance regulator, who says that he found irregularities in some mortgage applications that she made. The Wall Street Journal calling this nasty business, saying it’s lawfare and the president shouldn’t be doing it. And it’s interesting, the Journal also opposed Cook’s appointment back in the Biden years, saying she was unqualified and unfit to serve as a member of the Fed. What’s your sense of all of this? We’ve talked about the pressure he’s been putting on the Fed chairman, but this kind of seems to take the fight to a whole new level.

BAHNSEN: It does, and I think it is not interesting that the Wall Street Journal opposed her appointment, as I did, and opposes this lawfare as I do, because that, to me, is a consistent view that I don’t believe she should have been appointed, and I don’t believe that she should be removed this way. That’s not to say, Nick, that she’s not guilty of this. It’s to say that it is absolutely undoubtable that the reason for this is pretextual as a mechanism to try to force the removal, and that if she is guilty, she’s entitled to due process. I just believe that we need to do the right thing for the right reason.

And I’m not trying to say that she didn’t list two residences as her primary—you know, I have two primary residences. There are people who do. I doubt she does. I wouldn’t imagine that that’s the case here, but I have a very hard time believing that anyone actually thinks that’s the basis for the removal and that President Trump himself is very concerned about mortgage application technicalities.

So again, we have a bad Fed governor who was appointed for bad reasons, in my opinion. But, you know, I just am kind of a stickler. I really, really, really hated it when the left went after President Trump, using lawfare and going after silly things with his business record and this and that. And so I do have a hard time with it, no matter what side is doing it and for what reasons.

But really, if they are successful in getting her removed, it is a big deal, because that will mean that there are four out of seven Fed governors. You know, we’re used to thinking about the Reserve Bank presidents that make up the Federal Open Market Committee. There’s 12 there, and they vote on monetary policy. And they can’t be removed at will. They can only be removed for cause. However, the Fed governors can remove Reserve Bank presidents at will. So this would theoretically give the possibility of four, a majority of the Fed governors, being able to do something different with the Open Market Committee.

I’m really skeptical they would. I mean, it would be absolutely unprecedented. We’ve never had one removed ever, let alone a majority of them, to go change the balance of the Federal Reserve. But that’s kind of out there as a possibility, and so I’m watching it closely.

EICHER: David, really looking forward to the September 15 event in person in Houston. We find ourselves talking on Labor Day, and we’re going to be talking about work. You’re going to be talking about work. I’ll be asking you some questions, and audience members will get the opportunity to put some questions to you as well and meet you. But on this Labor Day, David, what do you want to say about the theological underpinnings of work? Just a quick meditation and what we ought to be thinking about today.

BAHNSEN: Hopefully, a lot of people are thinking about work as a blessing in their life and maybe even doing that if they don’t always like their job, not just because work is a blessing in that it provides for our daily bread. And there are people in the world who can’t find work and struggle because of that. And so all of us who have sustainable work have a blessing.

But in addition to the fact that it provides our daily bread, in our work we have something that feeds our soul, that God made us with a soul. And one of the unique elements about the way God made us is our productive capacity for work and how it feeds us, fuels us and allows us to be of service to others.

And I think that the miracle of work is that it captures more than anything else in creation, that which we share as image bearers of God. That God was a creator, and he made us to be creators, to go build things, do things, make things. Work is a blessing in every spiritual and material sense, and it really captures the totality of the human person and God’s creative design for our lives.

EICHER: Well, seats are filling up, and if you have interest at all, you better head to wng.org/theworldstage and reserve your spot today. No charge for this. But again, space is limited, and as I say, filling up quickly. Two weeks from tonight, September 15, you get to meet David Bahnsen taking to the WORLD Stage. And we’ll put a link to the sign up page in today’s transcript.

David Bahnsen, founder, managing partner and Chief Investment Officer at The Bahnsen Group. He writes regularly for WORLD Opinions, and at dividend-cafe.com. David, thanks. Great to talk to you. We’ll talk to you next week, and really looking forward to seeing you in Houston.

BAHNSEN: Likewise. Nick, thanks so much.

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