Moneybeat: Waiting on clarity

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JENNY ROUGH, 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 heads up the wealth management firm the Bahnsen Group, and he is here now. Good morning to you, David. 

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

EICHER: Well David, following up on our thorough coverage of the Supreme Court and Federal Reserve governor Lisa Cook and the president’s legal authority to fire her or any Fed officials for that matter, I do want to get into the economics side of that, and we’ll do that in just a moment.

But first, something the Supreme Court did NOT do we were expecting that it would do; we'd been looking for a decision last week on the scope of the president’s tariff authority.

Instead, the Court left the case unresolved and pushed a decision into at least mid-February.

But, David, from an economic standpoint, what is the effect of that kind of delay—especially for businesses and markets that were counting on clarity sooner and not later?

BAHNSEN: Well, I actually understand it’s going to be the very end of February, and it’s mostly just mysterious. I mean, yeah, the delayed ability to get some sort of certainty and clarity is problematic for an awful lot of businesses. Especially those that are waiting to place orders or make capital investments on their belief, or at least their hope, that there will be a pushback on this particular rationale of the tariffs, which does not cover all of them, but covers a pretty good portion of them. 

And so the main issue is not what it does to those already paying them, because I’m not totally convinced that even if the Supreme Court does rule that this rationale is unconstitutional—which I believe it is—the issue of whether or not they’re going to require refunds and rebates to those who have already paid—I’m not sure that will happen.

The issue is that a lot of people are waiting, and then you suspend certain activity, and I think markets would like to just sort of get this done.

And by the way, I think the administration would like to get it done, even if there’s an unfavorable ruling, they already have contingency plans for how they plan to move around different rationales, and they would rather just get to it than kind of have this continued limbo.

So I just really can’t imagine why they’ve chosen to delay it.

EICHER: Well, you know David, you had started to answer the question I was going to follow up with about clawing back that tariff money. But I do want to stay on this: If the Court does ultimately rule that the president lacked authority to impose these tariffs under the legal theory the White House was using, I am curious about the specifics of what would happen next.

So David, is there a realistic scenario where tariff revenues already collected would have to be refunded—and what would the economic consequences of that be?

BAHNSEN: Well, the effect would be wonderful. It would be great for businesses to get hard-earned money back in their pocket. But the question that you ask about mechanics is just as unknown as whether or not there will be a ruling for rebates, because there’s a ton of different ways they could do it as well.

What I do believe is that it would end up requiring some type of protocol that an awful lot of smaller businesses are not going to be able to do—the complexity, the resources, the access to the people to sort of navigate the process. 

So I think that’s going to be kind of a mess, and it’s one of the reasons I’m disappointed that the appeals court made a ruling that this is just overtly unconstitutional, and yet they’ve allowed to continue collecting the tariffs through this appeal process to the high court. I think it would have been far better for everyone to do the opposite.

Say, fine, if the White House wants to appeal to the Supreme Court, we can do it, but the appellate court ruling stands in the meantime. Because now what you’ve done is you’ve allowed a lot of these collections to take place, and it represents a very arduous process to get it undone.

But it is very interesting. I have people ask me, like, "oh, what a mess it would be if they have to give the money back." And I’ve never understood that. I think it’s a lot better for the economy for the government to give money back to the businesses than for the businesses to give money to the government.

EICHER: Right. Well David, now to Lisa Cook: not the legal issues but the economic issues. You were not in favor of Lisa Cook being appointed in the first place when President Biden appointed her—but you've also said that there is some benefit for an independent Fed versus a Fed that simply carries out the wishes of the president, regardless of who the president is. But why is that? So why is that important?

BAHNSEN: Okay, let me make this real simple. I do not believe Lisa Cook should have been appointed to the Fed, just in my own assessment of her qualifications, but she was legally appointed by a president, confirmed by the Senate.

I do not believe that it is clear she broke any law on a mortgage application. It is absolutely clear that she hasn’t even been indicted or arrested or accused of such—that we’re only allegedly in the middle of some preliminary investigation. So nobody could even come close to claiming, with a straight face, that there’s been the due process.

I am totally open to the idea that people do not believe the Fed’s personnel should be immune from being fired by the executive branch. There are a lot of people believe, no, they should be allowed to be fired without cause, at the discretion of the president. But that is not the way it is set up now, and so there would have to be legal adjustments and clarity to this part of the way the Federal Reserve Act works. 

But with all that said, I also don’t believe that anything should be done pre-textually. In other words, if the reason it’s being done is just merely because she’s voting a way we don’t like and so we go find a rationale like, oh, she called a vacation home a primary, allegedly, then that also undermines due process and truth in the court system.

And of course, President Trump was a victim of such things. And so the sort of disingenuity and law-fare of it is troublesome to me.

But your question is the important one economically—is that why is that independent Fed issue important to begin with? And the high-level answer there is just that, in theory, and we’ve never had a president who, all things being equal, wouldn’t love a central bank to goose the economy to their favor.

That there are long-term things that bad monetary policy does, but short-term benefits from monetary policy. 

And presidents do four-year terms. And so President Clinton was livid with Alan Greenspan for raising rates in 1994, and President Nixon was livid with Arthur Burns in 1971. And no one’s really taken it as far as President Trump in terms of public critique, but the notion of not even a pretense of separation between fiscal and monetary policy is where you get Japan; where the Bank of Japan and the president of Japan are kind of one and the same.

And I believe that in America, it isn’t totally separated now, but regardless, I think that there’s a real benefit in not going all the way. That’s why this issue is important, even though Lisa Cook’s situation is kind of a small part of the whole story.

EICHER: Well David, before we go, I do want to ask about the World Economic Forum in Davos. There was plenty of drama, obviously, no shortage of headlines on it. 

But filtering out all of the political, geopolitical noise, do you think Davos actually delivered any meaningful economic signal this year — or was it mostly a showcase of elite anxiety disconnected from what the markets are doing?

BAHNSEN: No, not substantively economic. There were a lot of things said, and I think some of the more significant parts of the week were primarily geopolitical and just speaking to various shifts in the rules-based order.

But on the economic side, because President Trump kind of pivoted away from what he had announced he was going to speak on—which he was going to use Davos to release a lot of a housing plan is what had been sort of leaked from the White House—and then it ended up being all about Greenland and this other stuff, I think that more than likely the next speech we’ll get with any economic meat on the bone is likely to be the State of the Union.

EICHER: All right.

David Bahnsen is founder, managing partner, and chief investment officer of The Bahnsen Group. He writes at DividendCafe.com and at WORLD Opinions.

David, hey, I'm glad you’re able to duck the weather out there in California … so we’ll just slog through it here on our own. I hope you have a great and productive week and we will talk to you next time, Lord willing. 

BAHNSEN: Thanks so much, Nick.

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