MARY REICHARD, HOST: Next up on The World and Everything in It, it’s 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, and he is here now. David, good morning to you.
DAVID BAHNSEN, GUEST: Good morning, Nick. Good to be with you.
EICHER: Well, before we get to listener questions, and I'd like to do several here today, David, I do want to touch on the CPI report for December that came out last week, the Consumer Price Index. It was a drop from November into December and by the Wall Street Journal's reading it was the first month on month decline since April of 2020. How do you read the CPI report, David?
BAHNSEN: Yeah, it was almost perfectly in line with consensus expectations and, certainly with my own. No question that there's been disinflation across the board. And in fact, overall, on the headline number, there was deflation in December, prices actually dropping. But the most substantive thing is that core goods inflation—year over year—was 2.1%. That's now down from when it was up in the 7% range. Total inflation and the CPI had gotten up to nine and then it's come down to 6.5. And I would think that when the shelter component normalizes, you're really going to get down to three quite easily. And the reason for that is that the way in which they measure housing is still showing housing prices and rents going higher, which everybody knows it is not. And yet it's the way that as measured that takes into account leases signed a year ago when prices were most certainly higher. So I think that the consumer number was interpreted in the bond market accurately. Bond yields collapsed, interest rates dropped, and I think that the good news is this inflation story is well on its way out. And the bad news is that the story of pre-COVID is coming back, which is the story here to stay, that we are going to be in a very difficult time to get economic growth as a result of the downward pressure on growth, which is reflected on downward pressure on bond yields, as a result of excessive indebtedness in the economy.
EICHER: All right, well, let's jump into listener questions. David, this one I think you'll appreciate—Dan Hoyt. He and his family are listeners in Illinois.
DAN HOYT: Hi friends. My family regularly watches World Watch together, and then discusses any questions that kids may have about the stories. My two and a half year old wanted in on the action. He asked, how does the government give people money? First, I laughed. Then I marveled at his insight in recognizing wealth transfer as a central theme in the political discourse of our country. Then I realized he had stumped me. I'm aware of some methods such as tax credits, Social Security checks, and food stamps. However, I'm guessing there are many other mechanisms the government can use to transfer wealth. So, Mr. Bahnsen, what are all the ways the government gives people money? Thank you for your regular investment in my family through this program.
BAHNSEN: Yeah, I love the question. And let's start with two distinctions. There is a way in which the government gives people their own money back. Those are things like tax refunds and even a form of tax credits, which is basically money that someone will not have to pay in taxes that they otherwise would have, because of some form of a tax credit. There's different things people do. But when you're talking about actually just giving people money—and quite specifically giving people someone else's money—there are things called transfer payments. And the mechanism for doing that in our country is largely through entitlement payments, which are Social Security, Medicare, Medicaid, and Obamacare or the Affordable Care Act. And now, of course, people can point out people pay for Medicare and Social Security. And that is correct. There are premiums that are charged through payroll taxes that both employers and employees pay throughout their lifetime, and then one gets a payment back in retirement. The reason it's called a transfer payment is that there's no connection between what one pays in and what they end up getting out that is quantifiable. There are people that are higher income subsidizing those lower income, hence the term transfer payment. It's a redistribution. Now there obviously are things that are just direct needs-based payments such as food stamps and welfare. The Welfare Reform Act of 1995 did provide a sort of work requirement that is largely been either altered or eliminated in recent times, not entirely. But those are the mechanisms by which someone can receive money from the government. And, again, there's different political views and so forth around which of these are acceptable and which are not. But that's the mechanical answer how the government goes about giving people money.
EICHER: Okay. David, here is listener, Donald Smith.
DONALD SMITH: Hello, David. I'm a retired elevator mechanic and I'd like to hear your opinion regarding right to work laws. It seems to me contrary to the free market system for the state to interfere with contracts freely entered into between labor and management.
EICHER: All right, David, how do you evaluate ‘right to work’ laws?
BAHNSEN: Yeah, the question is whether or not they're contrary to a free market system. But I think people need to remember what ‘right to work’ laws are. All they are, are laws that prohibit someone from requiring somebody to pay dues for a union. So, somebody is very free to not join the union and therefore not have to pay dues. And so there's a sort of presupposition in the question that is circular. Freely entered into between labor and management, but the whole point is that the employee didn't enter into the agreement and therefore all right to work laws do is say you don't have to. But the right to work laws do not require or allow someone to have their cake and eat it too. They cannot refuse to pay union dues, and then get the benefits of union. They simply get to pick if they want to have to join the union. And so if we weren't talking about organized labor, if we're talking about any other type of affiliation or so forth, if we said, you can come to our church, but in order to worship here, you have to tithe. You can imagine what constitutional questions that would bring up. At the end of the day, the law that allows an individual to not have to be subjected to a market intervention by forcing something, that is the way I would be interpreting right to work laws. And I think it is a very good example of non-intervention by the state, not forced intervention.
EICHER: Here is listener Jamie Lorenz.
JAMIE LORENZ: I have a question regarding investment strategy based upon which political party comes to power and news headlines. I suppose the crux of the question is, Can investors realize reliable profits based upon people's reaction to the headlines and who gets elected? For instance, with the recent downturn in Tesla's stock price, there seems to be a very heavy correlation to Musk's purchase of Twitter and the leftist backlash against that. Thank you. I appreciate you taking the time.
BAHNSEN: This is going to be the easiest one for me to answer. I want to emphatically beg listeners to hear me. The answer is no. There is no correlation between political parties in power, headlines, and what one can expect in investment markets.
First of all, the idea that there was political opposition to Elon Musk buying Twitter and now Tesla's stock price has gotten hit is what we call the post hoc fallacy: after this, therefore, because of this. Google's stock is way down in that same time period. Apple stock is way down. And by the way, almost every stock is down: tech and NASDAQ and so forth. And so no, I don't believe it's connected at all. And I think that it has caused more damage to investors than almost anything I've seen. Republicans who assumed that the stock market would tank under President Obama and it went up every single year he was president. Democrats who assumed the market was going to tank under President Trump and it rallied huge both right after he got elected and throughout his presidency. So, again, you just cannot correlate what happens in one's political preferences to what happens in markets. This is a really important lesson.
STEVEN HAMPSHIRE: Hi David. I'm Steven Hampshire, a chaplain serving on a warship in San Diego, California. With immigration making headlines, I recently read Roy Beck's newest book Back of the Hiring Line: 200 Year History of Immigration Surges. Beck argues that periods of low immigration were actually good for the black community, which I find fascinating. My question for you is twofold: Who do you tend to agree with in this line of thinking? And second, could this also be a contributing factor to the number of workers who are increasingly opting out of the workforce?
BAHNSEN: Yeah, I really do not agree with the premise and I've studied this a great deal, but a lot of it's just basic economics. What I'm not commenting on is immigration policy, where how the government secures the border, the legalities that need to happen for one to enter the country, national security interest. Those things are all very important. There's different opinions around them. That's not the focus of my comment.
My comment is on the question, which is economically, do you think less immigrants coming in could be better for a particular group? And my answer is that there's absolutely no historical precedence that anytime you have less workers it is better for an economy. Because I am a supply-sider and believe in the Christian idea of work being the driver of economic growth, I think more workers creates more goods and services. And then it allows for more choice for consumers. Each immigrant represents both a new producer and a new consumer. And this is true whether they're black, brown, white, or anything else. And so I don't think that there is racial significance in this issue. And in fact, Ellis Island immigration, which again, many point out that they were coming in legally, there was a significant process, and a lot of assimilation culturally, so that's different in that regard.
But economically, everybody understands that Ellis Island immigration was radically beneficial to economic growth in the country. And so the premise that by having less immigrants come in, you could have one particular group—regardless of who that group is—benefit, by less competition in the workforce, I think is a really anti-market presupposition. I do not believe that you benefit a particular community racially or any other category of community. I don't think you benefit them by trying to stave off competition.
And I just want to point out that we are having less children in America right now and I wish that that was not true. But if we are going to have less children than is the breakeven rate, and you're going to have less immigration, then you're going to have a declining population, which obviously is negative for economic growth. And economic growth going down is bad for all classes of people—socioeconomically, racially, whatever the case may be. I hope that's helpful.
EICHER: All right. Well, if you have a question for David Bahnsen, please do get in touch with us at firstname.lastname@example.org. I can summarize your question for you if you email it to me, but I think as you heard today, it was so much better to have you appear on the program. So if you have a smartphone, I'd ask you to make use of your Voice Memo app. Then make a recording of yourself asking your question. You can email the file to that same address email@example.com.
Thank you to Dan Hoyt, and of course his inquisitive son, also to Donald Smith, Jamie Lorenz and Stephen Hampshire. And again, special thanks to David Bahnsen. For thoughtful answers to thoughtful questions.
David is founder managing partner and chief investment officer of the Bahnson group. His personal website is Bahnsen.com. Thank you, again for your questions. You keep sending them, we will keep answering them.
David, thank you, and we'll talk again next week.
BAHNSEN: Thanks so much, Nick.
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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