Moneybeat: President Biden’s economic vision

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

NICK EICHER, HOST: All right 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 Bahnson group, and he is here now, David. Good morning.

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

EICHER: Well, David, the State of the Union, there was some economic messaging in that message. And I'm glad we got out in front of the big story last week, David, you may remember the Neo logicism “shrinkflation,” and I'm a little bit surprised that the Cookie Monster wasn't in the gallery at the State of the Union. But you know, you don't always get what you deserve. But quite seriously, there's going to continue to be messaging on this, I expect and I think we ought to touch on it again. Especially given that the President gave a shout out during his address to a piece of proposed legislation by Senator Casey of Pennsylvania, proposed piece of legislation to brand packaging changes of fraudulent practice. Can you talk about the market impact of things like that?

BAHNSEN: Well, the market impact of that is nothing, because it's never going to happen. But the market impact to the discussion and the overall subject is once again, markets having to price in the desire for an increased regulatory state. And I want to be clear here, this is at a federal level. You're talking about the United States Senate, talking about how people package and the requirements they'll have when it comes to chips and cookies. So this would be the kind of thing I would have made up as a like, example of how ridiculous things would be in a slippery slope. If I were trying to reduce the opponents argument to absurdity, this is the kind of thing I would have made up 25 years [ago], sort of a satire. And now it's now it's become real.

EICHER: Yeah. Yeah. We also had a cap on late fees that was brought up midweek last week, which has got to be good news, I guess, to people who get hit with late fees on credit cards. But then there's those thorny, unintended consequences that no one ever considers. Can you think of a handful of those on the late fee, which is going to happen by the way, that is in place?

BAHNSEN: So, I don't know. I don't know that it will happen, because the Supreme Court still hasn't ruled on the very existence of the Consumer Financial Protection Bureau.

So this statute was put through by the CFPB, which is in a very bizarre way under the executive branch. And so this is a Biden administration policy, and they have stated that the new policy for credit card companies is that the limit that they can charge, the maximum for a late fee, is $8, unless they want to go through a whole process by which they explain and get approval to be able to charge more.

But your question to me was about unintended consequences. And I want to be clear, that people who think okay, well, I pay my credit card late every month. So now the fee will go down from $20 to $8, should not be celebrating, because they will end up paying for it through higher interest. The credit card companies will simply increase the interest rate, and they're very likely could be people that get credit canceled or do not get approved for cards. So your use of the term unintended consequences is exactly right, Nick. This one is just screamingly obvious. And it's not just unintended consequences, where they take the cost of one policy and move it to somebody else. In this case. This will be paid by the people they think they're trying to protect.

EICHER: Anything else in the president's speech in terms of tax policy or economic vision or anything else that you notice that you want to comment on?

BAHNSEN: Well, there was the standard class warfare. It was a bit more preposterous than normal. The notion of the corporate income tax rate being a handout to the rich, America was paying one of the least competitive business tax rates in the country—35%. And the Trump administration lowered that to 21%. But also through that legislation, allowed what has turned out to be over a trillion and a half dollars to be repatriated back on shore that had been profits earned offshore that were staying offshore. So I was shocked to see the venom by which he went after the business tax cuts knowing that the great beneficiaries of that were small businesses, were wage earners, most certainly as a reason, one of the reasons that we have had reasonably low unemployment. So the class warfare, I thought, was not only immoral, but really economically misguided. And I think that the overall speech indicated a lot of affection for the regulatory state. You know, I can make fun of this stuff with Cookie Monster in translation. But it isn't funny. I mean, that, the credit card fee stuff, this is just egregious overreach by the federal government and the economy at a time when growth and productivity are desperately needed.

EICHER: David, the day after the president speech came up very good jobs report, again outpacing expectations by economists and better than the average. And here we go with more job creation. Talk a little bit about the jobs report.

BAHNSEN: Yeah, unlike the last report that had upward job revisions from prior months, this did have downward revisions from past months, which is perhaps why bond yields dropped, didn't didn't go higher. However, it was, again, a very good headline number. The household survey did not verify it, so there wasn't a real strong validation in one of the other methodologies. But there just simply isn't any question that they're right now most people who want to have a job are able to get one. And of course, the data still continues to be unable to deal with the two metrics I think that are most pressing, which is the unfilled jobs, which speaks to a skills gap and an inability to meet the skills gap, and then really, the labor participation force, which if I sound like a broken record on The World and Everything in It, it's by design, because somebody's got to talk about this. The idea, it's such a huge focus in my new book Full-Time, you can't have 10 million people leave the workforce and not have it impact your culture. And I want people who are looking for a job to be able to find one. But I also want more people to be looking for a job.

EICHER: Right. So David, before we go, I'm going to propose a defining terms this week of ”“bubble.” And the reason for that is I've heard you talking about some overvalued stocks.

BAHNSEN: Yeah, I think the word bubble is one of the most important terms to understand in any kind of financial lexicon. And there is a general sense in which bubble could be a reference to something that is overvalued. But I think that the way I like to define bubble is something that is more macro, more systemic, affects a broader part of the population, and that by definition, involves leverage and involves debt. If something is overpriced, and it comes down the person who held it or owned it suffers from the price dropping. But if an entire asset class, let's take housing up until the Financial Crisis, is in a bubble, and it is largely financed with debt, the values have to drop but the debt doesn't drop, and so it leaves people upside-down. And then that causes prices to drop further, when you have to liquidate the bad debt. That is systemic, a lot of ".com" back in the late 1990s, going into 2000, was owned on margin. People had borrowed money from their broker to buy really stupid ".com" stocks. So the systemic selling that went into all of it, it was said to be a bubble that burst.

The most famous ones, Nick in my lifetime, are Japan, which I've talked about a lot written about a lot, the housing crisis, ".com,". A more narrow version was what happened to crypto in 2022, where so much of the violence of that price drop was because so much of that crypto had never been paid for. It was people who were borrowing, and in some cases, borrowing from criminal you know, outfits to buy it as we now know. Debt and leverage is really the key behind a bubble. In a more generic sense, you could say anything overpriced is a bubble. The problem though, with a bubble, Alan Greenspan used to say and I don't fully agree with him, you don't know something was a bubble until after it burst. I don't think that's true. I think there are valuation metrics that can speak to reality. But it is true that you don't know when it's gonna burst. And so there's certain things that we can identify as being in a bubble, but that doesn't mean the bubble can't blow bigger before it eventually pops.

EICHER: All right. David Bahnsen is founder, managing partner, and chief investment officer of the Bahnsen group. You heard David mention it just a moment ago, but as well latest book is Full Time: Work and the Meaning of Life you can find out more about that by visiting fulltimebook.com, fulltimebook.com. David, I hope you have a terrific week. We'll talk to you next time.

BAHNSEN: Thanks so much, Nick.

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