War, priced in

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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 BAHNSEN: Good morning. Good to be with you.

EICHER: Well, David, the new inflation report for the month of March came in. The headline number was hot. No big surprise, given roughly three quarters of the increase driven by energy. That’s my quick look under the hood of this report. But when you step back, David, and look at the broader picture, the core, the trend, everything we’ve been seeing over the past year, what do you think this report is actually telling us?

BAHNSEN: Well, that’s what the point of core inflation, Core CPI versus headline is. Headline includes food and energy, and that’s a perpetual dynamic, that food and energy have more lumpiness and more idiosyncratic things that affect them. And that’s why it’s not always as idiosyncratic as the March oil spike caused by the Iran war and Strait of Hormuz closing. But we look at core to try to get a feel for what things are like outside of energy.

And I think even in core, you’re still looking at 2.6% versus a year ago, just higher than it was at the end of 2024. It increased point two in March. So I’ve always said this, Nick, that you have to look at it with the political inflation and the monetary inflation. What I’m about to say about the monetary side is irrelevant to the political side.

On the political side, all people care about is if they’re paying more, and if gas prices are higher, they’re going to call it inflation. They’re going to say 3.3%. It’s going to have an impact because prices are higher. But we do have to look economically at what is actually related to the overall price level.

And in this case, there is such an easy cause and effect to find that indicates to me it is not from an increase in money supply or excessive monetary policy or government activity, that there are certain goods that have seen price increases that have had tariffs applied, and then there is this energy factor. And so that’s happening, and can be thought of in the realm of public policy, but I don’t think it’s relevant to the realm of monetary policy.

EICHER: David, I want to switch to Dividend Café, something you wrote there. We had a lot of volatility tied to Iran over the past month, easily, big moves in oil, sharp swings in markets. But your point is, a lot of it is simply reaction, not necessarily lasting signal. So when people see these day-to-day moves, stocks down hard one day, bouncing back the next, and sometimes it just happens intraday, what should be taken seriously and what should be just tuned out?

BAHNSEN: Well, look, I want to say it specifically to our listeners right now, the overall issues with Iran may very well get a little worse before they get better. They may get better before they get worse. There is not any way to really assess where things exactly are.

I find it very uncomfortable that there are people rooting against it to a point where that affects their reporting. And I find it bothersome that people do the opposite, that they are so determined to declare a victory that they ignore things that are quite relevant that should give us pause.

And I don’t find it contradictory to objectively say that there’s been some really big victories obtained, some really good progress. But there’s a whole lot of things that if they don’t get better, then it’s going to be really hard for people to call it the victory we’re after with a straight face.

But I think from a market standpoint, what I wrote in Dividend Cafe is almost indisputable, no matter who people like politically and what they’re rooting for in this particular military exercise. The President wants this thing to be over.

And we may get an outcome on a scale of one to 10—10 being best—that ends up being an eight. I doubt you get a 10. Most things in life don’t go that way. And it may be less than an eight, I don’t know.

But what I do know is, regardless of the number, he wants it over. And I think markets are beginning to feel that it is better to price something on the other side of it than assuming it stays on for good.

My question would be: oil prices at some point—Strait of Hormuz experiencing some form of reopening—are we going to see oil prices come back down to 65–70? I’m very skeptical. But at what point do they dip back at least below 95 into the 80s?

Because markets recovered a little bit last week, Nick, and oil prices came from 113 to 100. But markets really should not be rallying much on $95 to $100 oil. What they’re rallying on is that some of the tail risk has come off, that we might see $150. So this remains volatile. It remains unpredictable.

And I’m going to be pretty committed in the weeks ahead to separating in my analysis what it is I hope happens geopolitically versus what is happening economically and for markets, because those are two different stories. You could end up getting an outcome that markets like that is not necessarily a total victory for our geopolitical objectives.

EICHER: I’m curious about that, David. Wouldn’t it seem that a best-case geopolitical outcome—an Iran that’s no longer a nuclear threat, an Iran no longer a major destabilizing force, exporter of terror—wouldn’t that also be clearly a positive economic outcome?

BAHNSEN: Oh, it is. That would be. I totally agree with you, that outcome would not only be great for markets, it would be great geopolitically. But it’s the idea that we may end up having a less than satisfactory geopolitical outcome, but that still does result in oil flows resuming.

Let’s put it this way: markets are probably less concerned with Iran’s uranium right now than they are the Strait of Hormuz. And I think that the overall military objectives—one of the problems with this whole discussion is that very few people are discussing it in good faith.

There are so many discussing it wanting to give a premature victory to the president, or wanting to dunk on him and troll him and say he didn’t succeed. Here, I’m suggesting that we don’t know exactly what the outcome is going to be, but it’s probably not going to be binary. It’s going to have some sort of gradation to the way we report card it.

But with markets, it’s the main issue, of course, for those who read Dividend Cafe. I’m getting to a point of saying, let’s assume everything in Iran is over. And exactly how you say—a really great end outcome. Well, what does that mean?

We still go back to where we were before, which is an expensive market in a questionable economy with an AI vulnerability. So even that may not necessarily mean, okay, Iran is done, we’re now full steam ahead, the S&P’s about to go up 20%. I don’t believe that at all.

EICHER: David, I want to end by talking about a regulatory shift that caught my attention this week, and the only place I saw it reported was in an editorial in The Wall Street Journal.

Federal banking regulators are now saying that supervising banks for so-called reputational risk is too subjective and open to abuse, and they’re moving to prohibit examiners from pressuring banks to drop customers based on political or social or even lawful but disfavored activity.

Banks have said for years that they have felt that pressure. What do you make of that change, David, and how significant is it?

BAHNSEN: Yeah, well, I follow it very closely, Nick. I’ve been involved with it for a long time, and there’s sort of two different things.

I agree that the language that exists now about reputational risk is too subjective. I do believe that there ought to be the right for financial firms to choose who they want to work with in terms of reputational risk.

I recall, when I was managing director at Morgan Stanley, we made a decision to fire a very large client who had been involved in what would amount to some very high-profile pornographic video content. And I wanted the firm to get rid of the client, not merely because I found what he did personally offensive, but also because I thought it was damaging and beneath us as an institution to work with someone so unreputable.

And then the problem with that is, is there a slippery slope to saying they don’t want to work with gun owners or this or that? Look, banks and financial wealth management firms are different.

We might need to have a conversation on this distinguishing between banks and wealth management firms—depository institutions that are providing something more commoditized versus a more relational and advisory business. I want to be able to say that I’m not going to work with certain organizations, and that means that a left-wing person can say, “I don’t want to work with a pro-life cause.” But I don’t think that’s the same in banking as it is in relational wealth management.

They need to have clear lines. There will always be some need for interpretation around the lines. But what was happening before was clearly just firms being afraid of the woke police coming after them, and I think that’s what they’re putting an end to.

And even before trying to fine-tune the rules, my consultant, Jerry Boyer, and I have been working on this for years, and I can assure you that the companies have been coming the right direction for a number of years now. They did not like the negative press, and they want to work with most organizations, and they don’t want someone else telling them who’s okay to work with and not work with.

The amount of companies that were using the Southern Poverty Law Center, which is an overtly discriminatory anti-Christian organization, as a means of screening certain things—the number of companies that were using them that no longer are is unbelievable. And that’s a great thing, if you ask me.

EICHER: All right. David Bahnsen—founder, managing partner, and chief investment officer of The Bahnsen Group. He writes at DividendCafe.com and at WORLD Opinions. David, hope you have a great week.

BAHNSEN: Thanks so much Nick.

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