May 5, 2025 • 59 mins
Brian Wesbury shares his views on why the Trump Administration is upending global trade, why tariffs may be an insufficient cure for problems created by big government, and where the US economy is headed for the rest of 2025.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ryan (00:09):
Hi, welcome to the First Trust ROI podcast.
I'm Ryan Isakainen, etsStrategist at First Trust.
This episode, I'm joined byBrian Westbury, chief Economist
at First Trust.
We discuss the US economywhether or not we'll head into a
recession at some point in 2025.
We discuss tariff policies,what the Trump administration is
(00:30):
trying to achieve and Brian'sthoughts on why tariffs might
not be the best way to achievethose objectives.
Thanks for joining us on thisepisode.
You came on the podcast in.
I think it was late January.
Early February, stock marketwas in a much different place
than it is today as we'rerecording this.
There's a ton of volatility,right, but it seems to be kind
(00:52):
of toggling around your year-endforecast, right, which was
5,200 on the S&P 5,200,.
yeah, I mean, are you doing aWestbury victory lap?
Brian (01:02):
Do you think that we?
Ryan (01:04):
where do we go from here?
I guess Is the market fairlyvalued at this point.
Brian (01:08):
Yeah, no, it's still a little overvalued and it all
depends.
Interest rates have been movinga lot.
So just to remind everybody,our model is pretty simple.
We take profits and I use IRSprofits like treasury profits,
not S&P reported.
I figure if you reported to theIRS you really did make the
money because you owe taxes, allright.
(01:29):
So that's the number we use.
It comes out with a little bitof a lag, but we have 70 years
worth of profits by quarter.
We have 70 years of 10-yeartreasury by quarter and then all
you do is the math and thencompare it to the S&P 500.
So one thing I remind everybodyis that this model is 30,000
(01:50):
feet.
It's not a trading model.
Just because it says we'reovervalued, don't go short the
market.
If it says we're undervalued,you know.
I mean I'm not telling people,you know, go triple long or
triple short or buy options.
That's not what this is not atrading model.
It just gives an indication ofwhether we're over or
(02:11):
undervalued.
So when we talked, the S&P wasover 6,000.
Fair value at a four and aquarter 10 year, which I think
we had back then, was about4,800.
And so our forecast this year Idon't just forecast the fair
value because it's an estimateand I figure we're going to get
(02:35):
tax cuts this year.
We're probably going to getmore Fed rate cuts, which we
didn't get, and so that's why Ionly went down to 5,200.
But at this moment, I'm notgoing to change it because, even
though it still says themarket's slightly overvalued,
it's within the range of error.
I mean, this is a 30,000 footview and all I do know is that
(02:58):
we're no longer undervalued likewe were from 2009 all the way
through 2021-22.
That's when I was bullishforever People called me a
permable and now, for the lastcouple of years, I've been more
bearish because the model sayswe're overvalued and so it's
worked out this year.
(03:19):
And no, I'm not doing a victorylap.
I try not to do that becauseit's a humbling business being
in the forecasting business.
Ryan (03:27):
You were definitely an outlier and it seems like
there's a lot more forecastersthat have kind of moved in your
direction.
Yep, and you know, I guessthat's because the market has
moved and they've updated theirforecasts.
Right, how much of yourforecast I know it's just purely
quantitative as you described,but as you're kind of coming up
with that final number how muchof that has to do with your view
(03:50):
on the economy?
And I guess the bigger questionis do you think we're headed
into a recession at some pointthis year?
Brian (03:56):
I do.
I've been waiting for arecession basically since COVID
ended, and what I think kept usout of a recession is massive
federal budget deficits, evenwith the unemployment rate at 4%
.
And so, for example, just theother day I saw a stat 12% of
(04:18):
all the jobs in New York Cityare Medicaid, paying people to
stay at home to take care oftheir relatives.
oh, wow and so that's thedeficit adding to job growth,
and I I think we would havegrown much slower if we hadn't
not have had those big deficits.
Now, with doge, and congress isabout to pass up well, they're
(04:40):
going to put a budget forwardwe'll see if it gets passed that
actually cuts spending.
I think those deficits aregoing to come down not a lot,
but as long as they're notgrowing anymore, then that, then
that takes it away.
So, at the same time, thefederal reserve monitor, the m2
money supply today is lower thanit was at the peak in 2022.
(05:02):
And interest rates today arelike inflation plus one and a
half.
They're maybe even a little bittoo high.
And so I would argue the era ofeasy everything is over,
because all we were doing isspending and printing and
holding interest rates down, andnow that's come to an end.
(05:23):
So I do think a recession Nowit's going to be a normal
recession.
This is not a crash.
We're not in dot-com bubbleterritory.
We're not in 08.
There aren't any major excessesin the world that I can look at
like housing in 08.
And as a result, it's kind of anormal recession.
(05:43):
I expect about a half a percentdecline in GDP.
That's about it.
Unemployment maybe goes to sixpercent and so, and then we can
adjust the knobs at that pointand come out of it, and so that
is part of my forecast, becausethe consensus was 10 percent
earnings growth this year.
In 2025.
I think it's going to be 5% orless, and people are now
(06:06):
adjusting their earningsforecast and that's why they're
bringing down their stock marketforecast.
Almost the whole street had themarket going up and I think we
were a true outlier this year,and so in that way, I feel good
that we helped advise investorsto be cautious and it turned out
(06:28):
that was the right way to be.
Ryan (06:29):
Yeah, it seems like the volatility has really picked up
as the tariff policies that were.
You know they've been discussedfor a long time, so it
shouldn't be that new.
But when they've actually kindof hit the date the liberation
date as Trump would call it orwhatever you want to call it it
seems like there's a lot ofuncertainty Some would call it
(06:50):
chaos surrounding what the goalsare and how it's going to be
implemented, and that seems likeit would slow down decision
making and maybe the economy.
Brian (06:58):
No doubt about it.
Ryan (06:59):
So I guess my question for you is where do you think we
land with all the tariff?
I guess my question for you iswhere do you think we land with
all the tariff?
In your view, what are thegoals that the administration is
trying to achieve and where doyou think we end up as the year?
Because eventually the chaoshas to get solved, right yeah?
Brian (07:17):
Well, that's the thing about rules.
Once you set the rules,businesses can handle it.
They'll deal with it.
Even if you don't like therules, they'll deal with it.
Even even if you don't like therules, you still deal with it,
right and and so?
So that's.
The problem is that we keepchanging, seems, day to day,
hour to hour.
You know, my joke now when I goup to the podium is I have to
literally I'm checking Twitterand Wall Street Journal and
(07:39):
Bloomberg like two minutesbefore I go up, because
everything changes so much.
So, to really get to the heartof your question, what we have
done in America for at least 60years, you could probably go
back to the Great Depression.
But really, since the GreatSociety is, we have followed
Keynesian economic policies, andKeynesian policies say hey,
(08:03):
we're going to tax people with ahigh marginal propensity to
save.
I know that's academic speak,but in other words, savings is a
drain on the economy.
In the Keynesian world, whathelps boost growth is
consumption, because consumptionis 70% of GDP.
(08:24):
That's what people will say allthe time.
And so redistribution taxingpeople that have a high marginal
propensity to save, giving themoney to people that have a high
marginal propensity to consume.
They say that will boost growth.
Well, it hasn't.
In fact, it goes the oppositeway.
But what it has done is boostconsumption massively.
(08:47):
And so since 2007,.
Consumption of goods in Americaand I'm adjusting for inflation
, so this is real, like theamount of goods people buy is up
62%, and the most aggressivemeasure of manufacturing output
that we have it's calledvalue-added manufacturing is up
(09:11):
12%.
So consumption up 62%,manufacturing output up 12%.
How do you consume 50percentage points more than you
produce?
Well, you import.
And so what's happened is theKeynesian economics has led to
these massive trade deficits andthe Trump tariffs.
(09:33):
I always say Trump has spideysenses, so he knows something's
wrong.
All right, but he doesn't, andhis advisors are telling him
it's tariffs.
I believe what's really wrongis government's too big.
We need.
We shouldn't be redistributingthis much money.
(09:54):
Government shouldn't be as bigas it is.
And basically what we're doingis we're causing the United
States to consume more, produceless because we regulate and tax
production heavily.
And by doing that we'rebasically, if you think about it
, we're buying quarter zips andsneakers and giving them dollars
(10:17):
and in turn, they're buying ourfarmland, like we're literally
trading consumption forinvestment, foreign investment
and that's not sustainable overthe long period of time.
So I think the heart and soul ofthe tariffs is to try and fix
that.
Here's the problem with that.
It's like um maha, make americahealthy again.
(10:40):
Yeah, so the the people whotalk about that.
They will say it's our foodsupply, the way we grow food,
that is making people obese andhave diabetes and immune
disorders.
And then what we do is we treatthe symptoms right.
So now we're treating obesity,we're treating diabetes, rather
than going back and fixing thefood supply, and I would argue
(11:03):
tariffs are the same thing.
We're treating the problem,which is big, big, massive,
overly big trade deficits, butwe're using a tool that doesn't
really fix the underlyingproblem to begin with.
And so my hope is that thecraziness that all of this and
(11:24):
so my hope is that the crazinessthat all of this creates and we
don't know why we're doing it,who we're going after for, what
the rates are going to be that Ihope that what that makes
people do is rethink theoriginal policies that caused it
.
And then, at the same time,there's a whole other side
(11:45):
Foreign countries do havetariffs against us that we don't
have against them and, as aresult, we want them to get rid
of their tariffs, and so part ofwhat's happened is Israel,
ireland, vietnam I mean the listis pretty long Countries who
are willing to lower theirtariffs, and that's going to be
(12:05):
a really good outcome.
And then, I think also, in theend Trump wants to go after
China, just like Reagan wentafter Russia.
Reagan broke Russia.
And the question is can webreak China?
And I mean, they're anadversary, they clearly don't
(12:27):
like us and and, as a result,kind of going after them isn't a
bad idea.
So there's a whole bunch ofthings involved in this tariff
thing, but the root of it isthat for 60 years we've been I
mean, the savings rate in theUnited States has come from 15%
all the way down to 4% Like wedon't save anymore and we import
(12:50):
all this stuff and foreignersare buying more and more of
America.
That can't, that's notsustainable, and so, if Congress
won't fix it, the executivecan't cut spending on his own
completely, can't cut taxes onhis or her own completely, but
they can put tariffs on.
And so I know it's treating thesymptom of the problem, but
(13:14):
it's still heading in the rightdirection.
Ryan (13:18):
So, brian, to extend your metaphor, the medicine of
tariffs is, in your view, maybethe wrong medicine for the
underlying condition, right?
So the right medicine is what?
Cutting the size of government?
Brian (13:34):
Cut the size of government, stop redistributing
and I mean literally.
We paid people to sit at homeduring COVID.
I mean massive trillions ofdollars, and most of the people
that we paid to sit at homearen't big savers.
The savings rate went upimmediately because we flooded
so many trillions into it, butthen it came right back down and
(13:57):
then went below where it was in2019.
So this Keynesian idea thattaking from savers and giving it
to spenders boosts growth, it'snot.
I mean the last 20 years inAmerica, our growth rate, real
GDP growth rate 2%, in spite ofunbelievable technologies you
(14:19):
think about the cell phone andthe internet and the cloud and
AI and all these things 0%interest rates.
For nine of those years,tripling in the money supply,
the federal budget went from $3trillion to $6.5 trillion.
So we spent all this money,printed all this money, held
interest rates at zero and cameup with unbelievable new
(14:40):
technologies, and we only grew2% a year.
After World War II, before theGreat Society, we grew 2% a year
.
After World War II, before theGreat Society, we grew 4% a year
.
When Reagan and Clinton were inoffice and they cut the size of
government, we grew 3.8% a yearand now we're growing two.
This is European-style growth,and no wonder houses aren't
affordable, like we're just notgrowing fast enough and incomes
(15:05):
aren't rising and livingstandards aren't rising, and
it's all because government istoo big.
So the way you really fix it isyou cut the size of government,
you cut tax rates and you cutregulation, and I mean
regulation is disastrous becauseyou can't produce anything here
anymore.
Because you can't produceanything here anymore.
I mean, try to build a plant,you know a new factory, and they
(15:27):
find some weevil that liveslike wherever and you can't
build it.
My example lately is have youbought a gas can lately to fill
up your lawnmower, yoursnowblower?
Like you can get gas in them,but you can't get gas out of
them, like because of all theregulations over the environment
(15:48):
.
It's the craziest thing and umand and we do that to our
manufacturing and so we need toreverse all of that.
But this has been 60 years inthe building and no one wants to
cut.
I mean, in fact, doge is tryingto cut and they're demonizing
them like for you know, for likefor any kind of cutting,
(16:10):
because evidently if you cutspending you're going to hurt
somebody.
Yeah, and I believe you'rehurting everybody by spending so
much.
Ryan (16:17):
All right, I want to ask you more about Doge, but before
we get to that, I want to finishoff on tariffs, because the
conventional wisdom that here onyou know all the talking heads
and embedded in a lot of thethinking on tariffs is that it's
inflationary in itself.
Yeah, do you view tariffs asbeing an inflationary force, or
is that just going to sloweconomic growth because they're
(16:39):
more of a tax?
Brian (16:40):
Yeah, it's more of a tax and no, it's not inflationary.
So the items that would go upin price.
If you still bought all thequarter zips with 122% tariff or
whatever it is, you would paymore for quarter zips, but that
means that if you kept buyingthe same number of quarter zips,
you'd have less to spend ongoing out to dinner or new
(17:05):
appliances for your kitchen orwhatever.
So the price of some thingswill go up, but the price of
other things will come down.
The only thing that causesinflation is money printing, and
right now the Fed isn'tprinting money like they did
during COVID.
So in fact, the money supply islower today than it was in 2022
(17:27):
.
So and I get it, jerome Powellcan say whatever he wants, but
tariffs by themselves are notinflationary.
It will make some prices go up,but other prices come down.
Ryan (17:42):
Okay, so back to Doge.
And, by the way, I have way toomany quarter zips, so I think
I'm part of the problem.
Me too, if you look in mycloset it's just filled with
quarter zips.
Okay, back to Doge.
I think there's a lot of hopethat that will actually end up
making things more efficient.
Cut regulation.
When will that actually bearfruit, though?
(18:04):
How long does that take?
Brian (18:05):
Yeah, I think it's already bearing fruit.
You know, there are all kindsof charts all over the internet
that show government spending in2025 versus 2024, versus 2023.
And we haven't, you know.
It basically shows thatgovernment spending hasn't
really come down from 2024.
Right, well, there's a coupleof reasons for that.
(18:26):
Number one Social Security andMedicare automatically increase
just because we have an agingpopulation.
So that's number one.
Number two our debt hascontinued to grow, so our
interest costs have gone up.
So once you take those thingsout, doge has actually begun to
cut some spending.
(18:48):
Remember, we put a lot ofgovernment employees on furlough
and after six or nine monthsthat will run out, so then that
expense starts to go down.
Usaid, I mean, there's stillcourt cases and all kinds of
stuff, but that would besignificant, especially if you
add it up.
Over 10 years, we found fraudand abuse in some systems that
(19:10):
we're getting rid of, and soright now, if you look at the
macro data how much thegovernment is spending it's hard
to see the impact, but it ishaving an impact, and I wish I
could quantify it exactly foryou, but I can't.
An impact, and I wish I couldquantify it exactly for you, but
I can't.
And Doge has a website and youcan go and they claim to have
this many billions cut, and Iknow they have cut some but it
(19:34):
gets hidden because of,especially, the cost of net
interest.
Our debt keeps going up and itjust costs us more every month
to just pay the interest on ourdebt and so that's government
spending and it hides thebenefits of Doge.
But I know the benefits arethere.
Ryan (19:56):
You mentioned M2 and its relationship to inflation a
minute ago.
Last time we talked on thepodcast, you were talking about
the analogy of the embers ofinflation and right, you know
the need to make sure they werefully stamped out and buried and
you know all the other extendedanalogy that you had are the
embers still burning?
Brian (20:16):
yeah, they are, they're.
The inflation is not gone.
If we were to print money,lower interest rates too much, I
think inflation would come back.
However, right now it appears,especially last month, in spite
of all these tariffs and allthis crazy stuff going on, the
CPI the Consumer Price Index andthe Producer Price Index both
(20:38):
fell in the month of March, andthat's pretty good news, and so
I would argue that inflationisn't dead.
The embers aren't out, but it'scalmed down, and Powell seems
to be in transient about cuttinginterest rates and letting the
(21:00):
money presses go.
So that would mean inflation'sgonna continue to come down.
The only there's a problem withthat, and that is if inflation
is going to continue to comedown.
There's a problem with that,and that is if it's tight enough
to bring inflation down.
It's also tight enough to causea recession.
Ryan (21:12):
Okay.
So I'm glad you brought upJerome Powell and the Fed,
because you look at what'spriced into the market and it's
two cuts, three cuts, four cuts,three cuts.
It seems like it goes all overthe place by what's expected to
be cut this year.
So two-part question One shouldthe Fed be cutting rates this
(21:33):
year?
And two will they cut rates andany idea how much?
Brian (21:38):
Yeah.
So I would argue three, fourmonths ago I argued that
inflation itself was 3%, andthen you need a real return.
If you're an investor, you getpaid back for inflation, or if
you're a borrower, you need topay for inflation.
But then you also have to pay areal return for somebody to
(22:01):
invest in you, to save theirmoney and put it in your bond,
and it all depends on theriskiness of the bond, et cetera
, et cetera.
But let's just talk abouttreasuries.
So 3% plus one and a half, Ithink if you buy a treasury bond
you ought to get inflation plusone and a half.
That's about where it should beHistorically, that's about
(22:23):
where it's been.
So three plus one and5 is 4.5.
So four months ago I saidinterest rates are about right.
The federal funds rate is at4.5.
The 10-year treasury is 4.3,4.4, 4.5, somewhere right in
there.
Well now, especially afterthose March numbers, inflation
(22:43):
looks to me like it's down toabout 2.5.
2.5 plus 1.5 is 4.
I would argue the Fed could cuttwice.
It makes some sense.
They wouldn't be super easy.
Ryan (22:57):
In other words, they wouldn't be inflationary at 4,
but they would be reflecting thecurrent inflation rate, which
is about two and a half percentnow, and so, yeah, I think the
Fed should be cutting and youknow, I think a lot of the
narrative that's been it seemslike it's a relatively recent
(23:18):
narrative, but that has reallytaken root has been that Trump
is trying to push Jay Powell andhe's going to fire Jay Powell.
And you know, can he do this?
The Fed needs to be independent.
What's your take on that?
Is Trump actually going to fireJerome Powell?
He?
Brian (23:34):
talked about it last time he was president.
He never fired him.
Ryan (23:37):
Yeah, and is that something that the president
should or shouldn't try to do?
Brian (23:42):
Yeah, I do believe that monetary policy itself should be
independent of the politicalworld.
The last time that it reallygot violated, if you will, was
in the 1970s.
Richard Nixon pounded the Fed,pounded the Fed and actually the
(24:06):
Federal Reserve followed amonetary policy that was easier
than it should have.
Because if you're a politician,you want interest rates low,
you want them to print a lot ofmoney because it makes everybody
feel better.
And I mean this last sinceCOVID.
I mean everybody should realizethis.
I mean since 2007,.
We've tripled the money supply.
(24:26):
No wonder if you own houses andassets, you won.
I mean because we just explodedthe money supply and so anybody
with assets won.
And when you have low interestrates, if you're a borrower, an
investor, you love that, allright, and remember Trump's in
real estate.
So so what does he want?
(24:47):
He wants like maybe he doesn'tthink about it like the
president should, but but ifyou're in real estate, you want
low rates and lots of moneyprinting, you know, because it
makes it a lot easier to build abuilding and fill it up and
make it cheap and pay for it.
All right, so I get that.
But that's the problem is thatpoliticians always want an
(25:11):
easier monetary policy than weshould have.
Here's where I kind of agreewith Trump, not maybe that he
should have control of monetarypolicy, but that the Fed has
gone off the rails a little bit.
They've tripled the M2 moneysupply.
The Fed's balance sheet isliterally 10 times bigger than
(25:34):
it was into the year 2000.
10 times bigger, and the Fed isbigger than the top 10
sovereign wealth funds of theworld all added together.
It's insane how big theirbalance sheet is.
And then what they've donebecause of that is because all
(25:57):
that money they're printingcould be inflationary.
They are now regulating bankslike they never have before,
raising capital requirements,and they keep using 2008 as the
excuse to do this.
But what they've done isthey've taken all this power
that they really weren't givenand consolidated at the Fed.
(26:21):
I would argue the Fed's had amission creep problem.
The way they're moving istoward a national bank.
We don't need these banksbecause we got all the money,
and that's a scary thing.
On top of it, the Fed's gotteninvolved in climate change, in
community development.
The Chicago Federal Reserve isinvolved in taking lead out of
(26:45):
water pipes, like they'reworried about lead water pipes,
and I'm like, isn't that theEPA's job, like why is the
Chicago Fed doing this?
And it's because they've runout of things to do, and so what
I would argue is the Fed needsto be controlled.
They only really have.
Their independence depends onthem doing their job well, and
(27:08):
they've expanded their job intoareas that have nothing to do
with monetary policy, and so Ido think the Federal Reserve
should be reined in.
Now, who should do it?
Congress should do it, and thenall Trump has to do is wait for
13 months, and then Powell'stenure is over and he's gone and
he can appoint a new Fedchairman.
(27:30):
But the Fed should beindependent, but at the same
time, it shouldn't have grownitself as much as it did.
I hope that makes sense topeople, because what I say is
they only have themselves toblame for politicians being mad
(27:50):
at them Because they went intoareas that they shouldn't have.
It's just like USAID going inand working with all these NGOs
and nobody knows where any ofthis money is going or how it's
getting there or who's makingthe decisions.
Well, the Fed's doing a lot ofthe same kinds of things, and
they do it under the guise thatyou know we're independent.
(28:11):
Well, yeah, keep the value ofthe dollar stable and you failed
because the inflation rate wentup, and yet you don't want to
take blame for it and you wantto keep all this power.
They need to be shrunk, theyneed to be pulled back, but at
the same time, monetary policyshould be independent, just not
(28:33):
independent under this currentsystem.
Ryan (28:35):
Yeah, Well, I mean all of what you're describing.
Predates Jerome Powell right.
Brian (28:39):
Right.
Ryan (28:40):
Bernanke started it.
I mean yeah, and so I guess myskepticism is whoever the next
appointed Fed chair is are theygoing to?
Do anything different.
Brian (28:51):
Yeah well, arthur Burns did things different from
Richard Nixon.
That's a good point so I hopethat doesn't happen.
I do hope that doesn't happen.
But Bernanke started it, yellenkept it going.
She was chair of the Fed for awhile and then Powell kept it
going and he really juiced itduring COVID.
So Bernanke was the juicer andthen Powell was the juicer.
(29:13):
Yellen kind of was the statusquo in the middle.
I think all of them should betrying to get us back to where
we were in 2007, before all thischanged.
I've written extensively on theabundant reserves versus scarce
reserves.
We've talked about it before.
We should be going back toscarce reserves, and that would
(29:37):
take.
The Fed has grabbed so muchpower, so many resources, so
many new employees and it's gotmission creep, and so Powell
isn't doing that.
He's you know.
People always say well, how dowe get the Fed to go back?
I mean, why won't they go back?
(29:58):
I speak to a lot of financialadvisors.
I'm like this room is full offinancial advisors.
If you had $6.7 trillion undermanagement, do you want to go
back to $900 million?
Like no, neither does he.
So these people that work forgovernment are human, just like
everyone else.
We want to be bigger, we wantto be better, we want to be
(30:21):
stronger we want to be.
You know, they're the same, andthat's the problem with
government entities is that,even if they're not doing their
own job well, they find ways togrow in other areas because
because they just have so manyresources and and it's human
nature to want to grow like thatthey're they're not angels, you
(30:42):
know, and and so I think theFed has completely lost its way.
It should be reined in.
I think Trump wants to firePowell because he won't cut
rates, which is not what I'mtalking about.
But again, he has spidey senses.
You know, there's somethingwrong with these people and he
just doesn't know how to containit all and fix it.
Ryan (31:03):
So is there a mechanism that the Fed could reduce the
size of its balance sheetwithout just dumping money into
the system?
Brian (31:11):
Yeah, they, well they.
So here's the problem if theyreduce their balance sheet.
So remember.
So what they did is theyprinted all this money, right,
and then they bought governmentbonds.
So to reduce that size of thebalance sheet, they have got to
get the banks to trade theirreserves, which is all the money
the Fed printed for these bonds.
(31:33):
But because of the way they'veset all this up, capital rules
today and liquidity rules say,if I put all these bonds on
banks' balance sheet, they'llall be in violation of these
rules.
So they can't.
So when the Fed flooded thesystem with money, it was going
(31:55):
to be inflationary.
So how do you stop it frombeing inflationary?
Well, you force the banks tohold on to it all, and you do
that with capital rules,liquidity rules, and you pay
them to hold those reserves.
Well, you can get the banks totrade Fed funds for bonds, but
at that point now they're inviolation of the capital rules.
(32:17):
So you're going to have to easethe capital rules.
Jamie Dimon, in I don't knowthree weeks ago now, something
like that said look, thegovernment needs to finance its
debt and you, at the same time,want us to hold more bonds, but
these capital rules andliquidity rules don't allow us
to do it, and today the Fed isdebating whether they should
(32:40):
lower the liquidity rules tohelp fix this.
But this is a crazy debate.
We shouldn't be having it inthe first place, and the only
reason we're having it isbecause they handle monetary
policy with regulation now, andso the way you have to do it is
go back to the way the bankingsystem was before.
(33:01):
But boy oh boy, we're 17, 18years down this road.
You know this is one of the bigproblems.
You know welfare, for example,and I know that's a complete
change of topic, but give me achance to come back around.
We have seven generations ofpeople on welfare.
We knew four generations agothere were problems with this
(33:22):
system, but in order to fix it,you've got to take it away from
people, which nobody wants done,and then you might lose votes
or they might, you know, be inpain because they don't get paid
by the government anymore.
But this system has failed, butbecause it's got so much
(33:42):
momentum, nobody knows how tofix it, and I think that's the
deal with the Fed.
Right now it's hard to fixbecause they've grown the Fed so
much, they've grown the moneysupply so much that going back
to the way it was is going tohave some pain Probably some
higher interest rates to get thebanks to hold all those
(34:03):
treasuries.
Right now, the Federal Reserveis paying private banks $200
billion a year to hold on to allthis money that the Fed made,
created during COVID and during2008.
And all I can ever say isElizabeth Warren must not know
(34:25):
this, because she'd have a cow.
She hates private banks.
So, but our government ispaying banks $200 billion a year
and, by the way, if we stopdoing that, that's $2 trillion
over 10 years of savings for thetaxpayer.
And so, but that's the systemwe've created, and it sounds
(34:46):
crazy, but that's what theycreated.
And how do you get out of itwithout creating pain?
Ryan (34:51):
So if you stop paying the banks to hold that cash,
wouldn't they just lend it out?
Yeah, that's inflationary.
Brian (34:58):
That would be the concern .
Right, yeah, right, and that'sthe problem.
They printed all this money,then they bottled it up in the
banks by making higherregulatory costs, like capital
rules, liquidity rules.
So what I always say is, whatthey do is they're storing
gasoline next to the waterheater, and that may be fine if
(35:21):
you go check the gas every fiveminutes, but you leave gasoline
next to a fire, you're stupid.
And so what they've done isthey've put all the gasoline in
the banks that's inflationary,and then they're fighting to
contain it, and in order to dothat, they're regulating banks
(35:41):
like never before.
Ryan (35:42):
Yeah, another narrative that I've heard a lot recently
has to do with the idea ofAmerican exceptionalism.
I keep hearing this meme thatyou know the era of American
exceptionalism is over.
What do you think Is Americanexceptionalism coming to an end
(36:03):
and what actually is the sourceof that exceptionalism?
Yeah, the exceptionalism comingto an end and what actually is
the source of thatexceptionalism?
Brian (36:08):
Yeah, the exceptionalism of America really goes back to
the Declaration of Independenceand the US Constitution.
There are no documents likethat anywhere in the world, and
those documents give individualsthe right to be free and pursue
happiness.
And then they set up the rulesof property rights and the rule
(36:32):
of law, and that's what makesAmerica exceptional.
We haven't always been perfect.
When we founded this country,slavery existed, not in every
state, but abolitionists quicklyum, we're the second country in
the world to abolish slavery,and um, and I believe that's a
(36:52):
sign of them, I mean a sign ofamerican exceptionalism.
And I know people would arguewith me and yell and scream at
me about saying that, but but atleast we ended it all right and
and we, we only did thatbecause of the constitution, and
so that's what it is Now.
I think today, I mean,everybody's talking about
(37:13):
democracy is on trial and we'renot democratic anymore and all
of these things, but what reallyleads to it is is adherence to
the constitution, and right nowwe see, actually the play out
right now between Trump and thecourts and the Supreme Court.
That's just more proof.
We're exceptional Because in alot of countries that stuff
doesn't happen and I you know ifit comes down.
(37:38):
I don't want economic war withanybody, all right, I don't all
right.
But if we catch recession,other countries are going to
catch depression.
China basically survivesexporting to the United States,
and and they can't live withoutus.
The world can't live without us, and so I I do not think the US
(38:00):
exceptionalism is under.
You know, I guess it's alwaysunder attack, but but it I do
not expect it to go away, not atall.
Yeah.
Ryan (38:11):
You know the relationship with China.
I think over the last coupledecades it has evolved and
changed so much.
It seems like it used to be thethinking in Washington and
maybe changes from group togroup but that if you had a
closer trade relationship, whereyou're more interdependent,
(38:32):
then you're less likely to havemilitary conflict.
And it seems like maybe thethinking is evolving and
shifting because now it's likewell, we want to decouple the
economies and so why is thatshift?
Why is that taking place?
Brian (38:49):
Yeah, I think in order to understand our relationship
with China, you have to go backto Reagan.
You know, reagan looked atChina.
There's a billion peopleearning a dollar a day.
I mean it was true poverty,like, I mean China was in
terrible shape.
And he's like look, look andI'm paraphrasing history here
(39:09):
and nixon broke it.
I'm I'm forgetting a lot ofthings, but I'm just like 50 000
foot view of this.
He's like look, would youplease join the global trade
system?
Like, like, please.
Like, help your citizens byjoining the global trade system,
not not being isolationist, andwe'll allow you to be part of
(39:32):
our global system, even thoughyou're a communist and we don't
agree with that.
And basically that brought abillion people out of poverty.
I mean, you go to Shanghai inthe 70s, you get run over by
bicycles, like they were tensand hundreds of thousands of
bikes.
Now, there now there's no bikes, it's all cars, like it's.
(39:54):
Cuba went the other way.
They went from cars back tobikes, like China went from
bikes to cars.
And in other words, reagan wassuccessful.
And then you couple that withwhat we talked about before.
The US has literally subsidizedconsumption by increasing
(40:14):
redistribution to incredibleamounts.
It's almost 20% of all incomenow and therefore we've become
the consumer of the world'sproduction and China's like hey,
look at how much wealth wecreated by exporting to the rest
of the world.
The US is perfectly willing tobuy everything we produce
(40:35):
because we make it so cheap.
We don't care about ourconsumers, like America, all
they care about is consumption.
We don't care, and so it wentfrom a point of us helping them
to a point where they tookadvantage of it, and I believe
that's what's going on.
They have very high tariffs on alot of different goods.
(40:57):
They know full well that ourconsumers have an insatiable
appetite to buy stuff, and nowthey're taking advantage of it
and slowly but surely this iswhat I mean we're trading
quarter zips.
We're buying quarter zips fromChina, giving them our dollars,
and then they're turning aroundand buying our farmland, our
(41:19):
treasury bonds, our shares ofstock in the US companies,
warehouses, you know, making allkinds of investments, and it
worked for them to get out ofpoverty.
So that's the story.
They'll just keep going with itand I believe they're now
(41:43):
abusing it, especially with veryhigh tariffs.
Also, if you thinkstrategically, we can't make all
our own antibiotics or even allour own military equipment
without imports from the rest ofthe world, and so we've made
ourselves vulnerable to someonewho is willing to use that as a
tool, and I think we need to bereally careful about that as
well.
Ryan (42:02):
Yeah, and that, I think, became more and more apparent
during the COVID period, whenyou couldn't source certain
chips that you needed for anautomobile, or ingredients or
things for different medicines.
I'm not sure how.
And again back to tariffs forjust a second.
The concern is, if you puttariffs on that, you're not sure
(42:24):
they're going to last.
Are you going to incentivizebusinesses to actually make
investments for reshoring?
Brian (42:29):
Yeah.
Well that's what I mean by ifyou set the rules, then
everybody adjusts, but you haveto set the rules and hold the
rules.
Ryan (42:36):
Yeah, they've got to be consistent.
Brian (42:38):
Yeah, and so far we aren't there.
They put them on, they takethem off.
I read a story the other daythat Peter Navarro happened to
be out of the office one morningand he's the champion of
tariffs in the Trumpadministration, and the Treasury
Secretary Besant and theCommerce Secretary Lutnick took
(43:02):
advantage of the fact thatNavarro wasn't there and that's
why we had the 90-day pause.
And so I mean I don't like.
It's almost like reading Peoplemagazine about politics and
finance, but I read that and I'mlike, oh my gosh, it just
depends on who's at a breakfastmeeting and can run into the
Oval Office, because that seemsa little.
(43:26):
If you're really going to investa half a billion dollars in a
factory, or a billion dollars,how can you do it when things
change like that?
And I think we have to set therules and stick with them,
otherwise there's going to betoo much uncertainty.
Right now, the number of shipscoming from China is plummeted,
shipping containers are down,first quarter is going to be
(43:51):
close to zero growth and I'mworried about second quarter too
.
I think we might be seeing therecession I thought was going to
come this year.
Ryan (44:04):
It's kind of surprising.
The first quarter would be lowbecause I think that you would
have a lot pulled forward to thefirst quarter because that's
before the April, you know whenthose Liberation Day tariffs and
all that uncertainty I think alot of companies may have
hoarded some of the inputs fortheir goods and things.
Well, that's why it's going tobe so slow, because, import so
(44:27):
gross so the second quarter willbe so slow because they pulled
it forward.
Brian (44:30):
First quarter too, because gross domestic product
domestic is the key word.
If you import, it's a negative,and so we imported all this
stuff to beat the tariffs Right,and then that counts as a
negative in GDP, and then thesecond quarter may be negative.
I think people are still,imports from different places
(44:54):
are going to probably still beup, but at the same time, I
think business investment isgoing to slow, and so is
consumption, because when peopleget uncertain, they just hold
back.
So we're there.
Plus, as I said, the moneysupply hasn't grown since 2022.
Deficits are not going to be asbig or they're not going to be
(45:15):
growing, and all of that meansthat there's the era of easy
everything is over.
Ryan (45:21):
So the other piece of uncertainty that's likely to get
resolved as the year progresseshas to do with tax policy.
The administration's trying torenegotiate along with Congress
to figure out what personal taxrates will be, what corporate
tax rates will be, whetherthere'll be tax on tips and all
the other promises that Trumpmade during the campaign.
(45:41):
When do you think that getsresolved and any views on where
we end up with tax policy?
Brian (45:47):
Yeah, well, we already have the blueprint.
It looks like the Trump taxcuts will be extended no extra
tax cuts at this point, butthat's already been passed and
they can move it through theSenate with 51 votes.
So I don't even know how totalk about all this because I'm
not the politics expert.
That's bob stein, but, but it'srecord.
(46:08):
It's called reconciliation.
So as long as you don't need 60votes, you can get a lot done.
Yeah, and, and so they did passthe framework for that.
But there is a really importantruling coming up um, the all the
budget scores like so the trumptax cuts were put in place for
10 years.
At the end of that 10 years oreight years, whatever the number
(46:31):
was they they're scheduled togo back up, right, so so
according to this congressionalbudget office, that is a, a tax
hike that's built into thesystem like so that's where
revenues are going to be in thefuture.
If we don't do that tax hike,then it's going to cost us this
(46:51):
amount of revenue.
So then they would sayextending the Trump tax cuts
cost us money, right?
What Republicans are trying todo is to get the parliamentarian
to rule that keeping currentlaw is not a tax cut or a tax
hike Interesting, yeah, and soit's.
(47:12):
It's.
It's.
It's a like, like.
If you really look at the waythey score our budget, what they
mean is you know like we'regoing to?
These are taxes are doing thisSpending is going to do that.
We're going to add to SocialSecurity, so we score the budget
we.
This is you know like we'regonna.
These are taxes are doing thisspending's going to do that.
We're going to add to socialsecurity.
So we score the budget we.
This is what the budget will be.
They're always wrong by the wayum and and number one, but it's
(47:32):
always biased against tax cutsand for spending increases the
way they do it.
And so what the republicans aretrying to do is say, no, this
is just current law, this is notgoing to cost us anything.
So we're it's your figment ofimagination that we were going
to have a tax hike.
We're just going to keepcurrent law.
Yeah and so, anyway, it'll be avery interesting ruling by the
(47:55):
parliamentarian and a debatethat's taking place, and a lot
of it's so back roomsmoke-filled room stuff inside
baseball that nobody really evenknows I think the whole
language of saying that I payless in taxes and that costs
somebody, yeah, like that seemslike it's the wrong word, yeah
that's what I mean by it'sbiased for tax hikes and against
(48:17):
spending does it cost you if Idon't give you money?
it doesn't cost you somethingyes, it costs me to give you the
money yes, but it doesn't costyou to not get it.
That's exactly right and it'sthe same with you.
Know, the problem is, if youwant to cut the size of
government, you're taking moneyfrom people, and if you want to
cut tax rates, you're givingmoney to people, and it's just
the language that we use.
(48:38):
It really come and and, by theway, they built that into these
mathematical scoring models thatthey use and and that's why
it's just, it's biased againsttax cuts and for spending
increases, and and thatKeynesian economics is why we're
consuming so much.
Ryan (48:57):
So I was talking with Bob Stein.
He's the episode before thislaunches, and my hope is the
SALT deduction living in NewYork State is as big as it can
possibly be, but that's fullyself-interested.
Brian (49:09):
I'll put that out there right now, exactly.
Ryan (49:11):
And I guess everyone's self-interested when it comes to
tax policy to some degree.
Okay, so that seems like itwould be potentially a positive
catalyst for investors laterthis year if you do have some
certainty with some of thesethings, including tax policy,
coming into this year, as wetalked about.
You're pretty bearish on stocksas you kind of look out of the
(49:33):
next six to 12, 18 months.
Maybe I'm pushing you beyondyour 5,200 year-end target what
happens next year?
Brian (49:41):
Yeah, well, let me just put it this way I wouldn't be
surprised to see the market gobelow 5,200.
Fair value is closer to 4,800right now it really is.
But one of the reasons I stayedat 5,200 is I thought these tax
cuts, the Trump tax rates, weregoing to end up being extended.
So that's a positive, and sothat's why I'm at 5,200.
(50:06):
I would argue that if we dowell, I do expect a recession, a
minor one, it's not huge, notan 08 or 2001.
That the Fed will cut rates andthat that will help investors
as well.
(50:26):
So I'm going to stick with5,200 for now.
I could change, but it's just ajudgment, and so my argument.
Well, here's the way I thinkabout it.
I don't think we're going tohave a V-shaped recovery in
stocks and it's just been anormal correction so far.
I mean, technically, I guesswe're in a bear market.
(50:46):
If you look at the NASDAQ, Ialways get confused about what
is and what isn't.
Market's down, all right, andso is it going to go straight up
from here V?
I don't think so.
I think it's a tilted L Like.
I think things will continue toget better, like, profit-wise,
investor-wise, in the yearsahead.
We have too many great newtechnologies that are adding to
(51:14):
productivity and profitability.
But it's a tilted L, it's not aV, and so I wouldn't be
surprised to see us go below5,200 for a while.
If the Fed cuts rates, I thinkwe could come back up, but I
don't see us hitting the oldhighs anytime soon.
So the next couple of years, sonext year, depending on where
we end this year, I might be alittle bullish, but I don't see
myself as being massivelybullish unless somehow we were
(51:38):
able to really cut the size ofgovernment, and that's up to
Congress and they just seemunwilling to do that.
Ryan (51:45):
Okay.
So, brian, previous podcasts,I've always asked you for a book
recommendation.
I'm going to shift gears alittle bit for my last question
for you and, by the way, thisquestion comes directly from
Grok.
I asked Grok if I was going toask Brian Westbury a specific
question on a podcast.
Give me some options, and thisis one of the options Grok says
to ask you if you could talk toa historical economist, who
(52:09):
would it be and what would youask them?
Brian (52:11):
Yeah, you know, I don't know if you can see this book in
the back behind me here, butMilton Fried, you know.
I asked Grok what historicalfigure I?
If you read all my tweets andposts, what historical figure do
I sound the most like?
Okay, and it said MiltonFriedman.
Ryan (52:31):
And I was like whoa that was unbelievable to me.
Brian (52:36):
But, and so now here's the deal.
I have met Milton Friedman.
He's passed away now.
So has his wife.
I met he and his wife a numberof times.
I'm a member of the MontPelerin Society and he helped
found that with Friedrich Hayek.
And Friedrich Hayek was taughtby an Austrian economist named
Ludwig von Mises.
He wrote the densest most likeif you need to sleep, it'll help
(53:04):
you for six months.
It's so big and long and dense,but I've read it multiple times
a book called Human Action.
In my view, without him,friedman would have never been
as powerful as he was, hayekwould have, and both of them won
the Nobel Prize.
Hayek and Friedman, they wereboth students of his.
(53:26):
I would want to.
I would want to hang out withLudwig von Mises and and and
here's the.
This may sound weird, but thequestion I want to ask him the
most is does he believe in God?
Okay, because when I read hisbooks he talks about
(53:48):
entrepreneurship and he buildsthe economy up from the root
cause and human action is howhumans act, and I feel he always
kind of claimed that he wasagnostic.
I don't believe it, and Iactually talked to Hayek's son
(54:08):
about this, who has now passedaway himself even but I got a
chance to ask him and he said,oh no, he wasn't agnostic.
I don't believe that, becausewhen you read about the economy
and how humans interact and thebest way for that interaction to
(54:30):
be, it just smells and tasteslike God, like it really does.
And the way he writes he's sobrilliant that I cannot believe
he didn't believe in God.
And yet there's really.
No, he didn't write about it.
In fact, he kind of calledhimself an agnostic, but I
(54:53):
wonder if he did that forintellectual, academic reasons
or really.
Yeah interesting, because whenyou, I mean the free market is
such an amazing thing, billionsand billions and he actually
called entrepreneurs angels.
So you know, they just they'reangels, they're not normal.
(55:13):
And I wonder you know what thatmeant to him.
Ryan (55:16):
So let me ask you a follow-up question.
Do you think the way that theeconomy works and the economy is
?
You know there's differentlevels of the economy, but is
that a reflection, in youropinion, of how some image of
God?
Yes?
Brian (55:28):
like God.
God, I mean read the Bible.
God created man in his image.
What was God?
He was a creator.
So what's man supposed to be?
A creator?
And and so that's, and in theend that goes back to this
Keynesian economics.
It's all about consumption, notcreation, and I believe growth
(55:52):
comes from creation.
It's also where we get the termsupply side, supply side
economics, demand side economics, creation, consumption, and so
so, yes, I, I absolutely believethat the, the, that the way
people interact in a, in a freemarket, is is is like I I don't
(56:16):
want to go too far because Idon't know I never know whether
I'm blasphemy or not, getting toblasphemy or not but that God
wanted us to interact that way.
And when you read the parableof the talents, I mean it's so
clear, there's so much in theBible that sounds like free
markets to me.
(56:36):
And then when I read Mises, andhe describes free markets so
beautifully but without everusing God, I just want to know.
I want to put those two thingstogether Interesting.
Ryan (56:51):
Yeah, it does seem like you're talking about innovation,
creativity.
That is some sort of areflection of if you believe in
God, that God created people andwe're creating things all the
time.
Brian (57:03):
Well, one last point on this.
Like you come up with a newidea, I mean, you know, where
did it come from?
Like I, like those footballplayers who mean it when they
get into the end zone and theygo and they point up, like I
mean NFL football or collegefootball, it's hard to get in
the end zone, like you know, andand and yes, you've worked your
(57:25):
tail off, you've, you've got agreat team, you do.
There's a lot of reasons foryou to be there, but a lot of
people go like this.
Well, so when I'm writing andand I I'm searching for a way to
say something, and then or, orI'm looking for something to say
, and then, all of a sudden, anidea pops in my head.
Did I do that?
(57:46):
I call it manna from heaven.
I don't know that I've ever satit in front of my computer and
gone like that, but I havethought it.
I'm like, oh, thank you, thankyou, lord, and that's creation.
And a lot of people start tobelieve.
(58:08):
It's all them.
And I'm not going to pretendthat I, yeah, I studied, yeah, I
read, yeah, I but but I didn'tmake my brain and and then it
came up with this idea.
(58:29):
So where did that come from?
Yeah, and so I think it camefrom outside of me.
Ryan (58:33):
All right Well uh, we're finishing up the ROI podcast
with theology corner here.
So, brian, thank you once againfor coming on the podcast
Really appreciate it.
We'll do it again very soon,hopefully.
Absolutely, ryan.
All right, and thank you allfor joining us on this episode
of the First Trust ROI podcast.
We will see you next time.
Hi, welcome to the First Trust ROI podcast.
I'm Ryan Isakainen, etsStrategist at First Trust.
This episode, I'm joined byBrian Westbury, chief Economist
at First Trust.
We discuss the US economywhether or not we'll head into a
recession at some point in 2025.
We discuss tariff policies,what the Trump administration is
(00:30):
trying to achieve and Brian'sthoughts on why tariffs might
not be the best way to achievethose objectives.
Thanks for joining us on thisepisode.
You came on the podcast in.
I think it was late January.
Early February, stock marketwas in a much different place
than it is today as we'rerecording this.
There's a ton of volatility,right, but it seems to be kind
(00:52):
of toggling around your year-endforecast, right, which was
5,200 on the S&P 5,200,.
yeah, I mean, are you doing aWestbury victory lap?
Brian (01:02):
Do you think that we?
Ryan (01:04):
where do we go from here?
I guess Is the market fairlyvalued at this point.
Brian (01:08):
Yeah, no, it's still a little overvalued and it all
depends.
Interest rates have been movinga lot.
So just to remind everybody,our model is pretty simple.
We take profits and I use IRSprofits like treasury profits,
not S&P reported.
I figure if you reported to theIRS you really did make the
money because you owe taxes, allright.
(01:29):
So that's the number we use.
It comes out with a little bitof a lag, but we have 70 years
worth of profits by quarter.
We have 70 years of 10-yeartreasury by quarter and then all
you do is the math and thencompare it to the S&P 500.
So one thing I remind everybodyis that this model is 30,000
(01:50):
feet.
It's not a trading model.
Just because it says we'reovervalued, don't go short the
market.
If it says we're undervalued,you know.
I mean I'm not telling people,you know, go triple long or
triple short or buy options.
That's not what this is not atrading model.
It just gives an indication ofwhether we're over or
(02:11):
undervalued.
So when we talked, the S&P wasover 6,000.
Fair value at a four and aquarter 10 year, which I think
we had back then, was about4,800.
And so our forecast this year Idon't just forecast the fair
value because it's an estimateand I figure we're going to get
(02:35):
tax cuts this year.
We're probably going to getmore Fed rate cuts, which we
didn't get, and so that's why Ionly went down to 5,200.
But at this moment, I'm notgoing to change it because, even
though it still says themarket's slightly overvalued,
it's within the range of error.
I mean, this is a 30,000 footview and all I do know is that
(02:58):
we're no longer undervalued likewe were from 2009 all the way
through 2021-22.
That's when I was bullishforever People called me a
permable and now, for the lastcouple of years, I've been more
bearish because the model sayswe're overvalued and so it's
worked out this year.
(03:19):
And no, I'm not doing a victorylap.
I try not to do that becauseit's a humbling business being
in the forecasting business.
Ryan (03:27):
You were definitely an outlier and it seems like
there's a lot more forecastersthat have kind of moved in your
direction.
Yep, and you know, I guessthat's because the market has
moved and they've updated theirforecasts.
Right, how much of yourforecast I know it's just purely
quantitative as you described,but as you're kind of coming up
with that final number how muchof that has to do with your view
(03:50):
on the economy?
And I guess the bigger questionis do you think we're headed
into a recession at some pointthis year?
Brian (03:56):
I do.
I've been waiting for arecession basically since COVID
ended, and what I think kept usout of a recession is massive
federal budget deficits, evenwith the unemployment rate at 4%
.
And so, for example, just theother day I saw a stat 12% of
(04:18):
all the jobs in New York Cityare Medicaid, paying people to
stay at home to take care oftheir relatives.
oh, wow and so that's thedeficit adding to job growth,
and I I think we would havegrown much slower if we hadn't
not have had those big deficits.
Now, with doge, and congress isabout to pass up well, they're
(04:40):
going to put a budget forwardwe'll see if it gets passed that
actually cuts spending.
I think those deficits aregoing to come down not a lot,
but as long as they're notgrowing anymore, then that, then
that takes it away.
So, at the same time, thefederal reserve monitor, the m2
money supply today is lower thanit was at the peak in 2022.
(05:02):
And interest rates today arelike inflation plus one and a
half.
They're maybe even a little bittoo high.
And so I would argue the era ofeasy everything is over,
because all we were doing isspending and printing and
holding interest rates down, andnow that's come to an end.
(05:23):
So I do think a recession Nowit's going to be a normal
recession.
This is not a crash.
We're not in dot-com bubbleterritory.
We're not in 08.
There aren't any major excessesin the world that I can look at
like housing in 08.
And as a result, it's kind of anormal recession.
(05:43):
I expect about a half a percentdecline in GDP.
That's about it.
Unemployment maybe goes to sixpercent and so, and then we can
adjust the knobs at that pointand come out of it, and so that
is part of my forecast, becausethe consensus was 10 percent
earnings growth this year.
In 2025.
I think it's going to be 5% orless, and people are now
(06:06):
adjusting their earningsforecast and that's why they're
bringing down their stock marketforecast.
Almost the whole street had themarket going up and I think we
were a true outlier this year,and so in that way, I feel good
that we helped advise investorsto be cautious and it turned out
(06:28):
that was the right way to be.
Ryan (06:29):
Yeah, it seems like the volatility has really picked up
as the tariff policies that were.
You know they've been discussedfor a long time, so it
shouldn't be that new.
But when they've actually kindof hit the date the liberation
date as Trump would call it orwhatever you want to call it it
seems like there's a lot ofuncertainty Some would call it
(06:50):
chaos surrounding what the goalsare and how it's going to be
implemented, and that seems likeit would slow down decision
making and maybe the economy.
Brian (06:58):
No doubt about it.
Ryan (06:59):
So I guess my question for you is where do you think we
land with all the tariff?
I guess my question for you iswhere do you think we land with
all the tariff?
In your view, what are thegoals that the administration is
trying to achieve and where doyou think we end up as the year?
Because eventually the chaoshas to get solved, right yeah?
Brian (07:17):
Well, that's the thing about rules.
Once you set the rules,businesses can handle it.
They'll deal with it.
Even if you don't like therules, they'll deal with it.
Even even if you don't like therules, you still deal with it,
right and and so?
So that's.
The problem is that we keepchanging, seems, day to day,
hour to hour.
You know, my joke now when I goup to the podium is I have to
literally I'm checking Twitterand Wall Street Journal and
(07:39):
Bloomberg like two minutesbefore I go up, because
everything changes so much.
So, to really get to the heartof your question, what we have
done in America for at least 60years, you could probably go
back to the Great Depression.
But really, since the GreatSociety is, we have followed
Keynesian economic policies, andKeynesian policies say hey,
(08:03):
we're going to tax people with ahigh marginal propensity to
save.
I know that's academic speak,but in other words, savings is a
drain on the economy.
In the Keynesian world, whathelps boost growth is
consumption, because consumptionis 70% of GDP.
(08:24):
That's what people will say allthe time.
And so redistribution taxingpeople that have a high marginal
propensity to save, giving themoney to people that have a high
marginal propensity to consume.
They say that will boost growth.
Well, it hasn't.
In fact, it goes the oppositeway.
But what it has done is boostconsumption massively.
(08:47):
And so since 2007,.
Consumption of goods in Americaand I'm adjusting for inflation
, so this is real, like theamount of goods people buy is up
62%, and the most aggressivemeasure of manufacturing output
that we have it's calledvalue-added manufacturing is up
(09:11):
12%.
So consumption up 62%,manufacturing output up 12%.
How do you consume 50percentage points more than you
produce?
Well, you import.
And so what's happened is theKeynesian economics has led to
these massive trade deficits andthe Trump tariffs.
(09:33):
I always say Trump has spideysenses, so he knows something's
wrong.
All right, but he doesn't, andhis advisors are telling him
it's tariffs.
I believe what's really wrongis government's too big.
We need.
We shouldn't be redistributingthis much money.
(09:54):
Government shouldn't be as bigas it is.
And basically what we're doingis we're causing the United
States to consume more, produceless because we regulate and tax
production heavily.
And by doing that we'rebasically, if you think about it
, we're buying quarter zips andsneakers and giving them dollars
(10:17):
and in turn, they're buying ourfarmland, like we're literally
trading consumption forinvestment, foreign investment
and that's not sustainable overthe long period of time.
So I think the heart and soul ofthe tariffs is to try and fix
that.
Here's the problem with that.
It's like um maha, make americahealthy again.
(10:40):
Yeah, so the the people whotalk about that.
They will say it's our foodsupply, the way we grow food,
that is making people obese andhave diabetes and immune
disorders.
And then what we do is we treatthe symptoms right.
So now we're treating obesity,we're treating diabetes, rather
than going back and fixing thefood supply, and I would argue
(11:03):
tariffs are the same thing.
We're treating the problem,which is big, big, massive,
overly big trade deficits, butwe're using a tool that doesn't
really fix the underlyingproblem to begin with.
And so my hope is that thecraziness that all of this and
(11:24):
so my hope is that the crazinessthat all of this creates and we
don't know why we're doing it,who we're going after for, what
the rates are going to be that Ihope that what that makes
people do is rethink theoriginal policies that caused it
.
And then, at the same time,there's a whole other side
(11:45):
Foreign countries do havetariffs against us that we don't
have against them and, as aresult, we want them to get rid
of their tariffs, and so part ofwhat's happened is Israel,
ireland, vietnam I mean the listis pretty long Countries who
are willing to lower theirtariffs, and that's going to be
(12:05):
a really good outcome.
And then, I think also, in theend Trump wants to go after
China, just like Reagan wentafter Russia.
Reagan broke Russia.
And the question is can webreak China?
And I mean, they're anadversary, they clearly don't
(12:27):
like us and and, as a result,kind of going after them isn't a
bad idea.
So there's a whole bunch ofthings involved in this tariff
thing, but the root of it isthat for 60 years we've been I
mean, the savings rate in theUnited States has come from 15%
all the way down to 4% Like wedon't save anymore and we import
(12:50):
all this stuff and foreignersare buying more and more of
America.
That can't, that's notsustainable, and so, if Congress
won't fix it, the executivecan't cut spending on his own
completely, can't cut taxes onhis or her own completely, but
they can put tariffs on.
And so I know it's treating thesymptom of the problem, but
(13:14):
it's still heading in the rightdirection.
Ryan (13:18):
So, brian, to extend your metaphor, the medicine of
tariffs is, in your view, maybethe wrong medicine for the
underlying condition, right?
So the right medicine is what?
Cutting the size of government?
Brian (13:34):
Cut the size of government, stop redistributing
and I mean literally.
We paid people to sit at homeduring COVID.
I mean massive trillions ofdollars, and most of the people
that we paid to sit at homearen't big savers.
The savings rate went upimmediately because we flooded
so many trillions into it, butthen it came right back down and
(13:57):
then went below where it was in2019.
So this Keynesian idea thattaking from savers and giving it
to spenders boosts growth, it'snot.
I mean the last 20 years inAmerica, our growth rate, real
GDP growth rate 2%, in spite ofunbelievable technologies you
(14:19):
think about the cell phone andthe internet and the cloud and
AI and all these things 0%interest rates.
For nine of those years,tripling in the money supply,
the federal budget went from $3trillion to $6.5 trillion.
So we spent all this money,printed all this money, held
interest rates at zero and cameup with unbelievable new
(14:40):
technologies, and we only grew2% a year.
After World War II, before theGreat Society, we grew 2% a year
.
After World War II, before theGreat Society, we grew 4% a year
.
When Reagan and Clinton were inoffice and they cut the size of
government, we grew 3.8% a yearand now we're growing two.
This is European-style growth,and no wonder houses aren't
affordable, like we're just notgrowing fast enough and incomes
(15:05):
aren't rising and livingstandards aren't rising, and
it's all because government istoo big.
So the way you really fix it isyou cut the size of government,
you cut tax rates and you cutregulation, and I mean
regulation is disastrous becauseyou can't produce anything here
anymore.
Because you can't produceanything here anymore.
I mean, try to build a plant,you know a new factory, and they
(15:27):
find some weevil that liveslike wherever and you can't
build it.
My example lately is have youbought a gas can lately to fill
up your lawnmower, yoursnowblower?
Like you can get gas in them,but you can't get gas out of
them, like because of all theregulations over the environment
(15:48):
.
It's the craziest thing and umand and we do that to our
manufacturing and so we need toreverse all of that.
But this has been 60 years inthe building and no one wants to
cut.
I mean, in fact, doge is tryingto cut and they're demonizing
them like for you know, for likefor any kind of cutting,
(16:10):
because evidently if you cutspending you're going to hurt
somebody.
Yeah, and I believe you'rehurting everybody by spending so
much.
Ryan (16:17):
All right, I want to ask you more about Doge, but before
we get to that, I want to finishoff on tariffs, because the
conventional wisdom that here onyou know all the talking heads
and embedded in a lot of thethinking on tariffs is that it's
inflationary in itself.
Yeah, do you view tariffs asbeing an inflationary force, or
is that just going to sloweconomic growth because they're
(16:39):
more of a tax?
Brian (16:40):
Yeah, it's more of a tax and no, it's not inflationary.
So the items that would go upin price.
If you still bought all thequarter zips with 122% tariff or
whatever it is, you would paymore for quarter zips, but that
means that if you kept buyingthe same number of quarter zips,
you'd have less to spend ongoing out to dinner or new
(17:05):
appliances for your kitchen orwhatever.
So the price of some thingswill go up, but the price of
other things will come down.
The only thing that causesinflation is money printing, and
right now the Fed isn'tprinting money like they did
during COVID.
So in fact, the money supply islower today than it was in 2022
(17:27):
.
So and I get it, jerome Powellcan say whatever he wants, but
tariffs by themselves are notinflationary.
It will make some prices go up,but other prices come down.
Ryan (17:42):
Okay, so back to Doge.
And, by the way, I have way toomany quarter zips, so I think
I'm part of the problem.
Me too, if you look in mycloset it's just filled with
quarter zips.
Okay, back to Doge.
I think there's a lot of hopethat that will actually end up
making things more efficient.
Cut regulation.
When will that actually bearfruit, though?
(18:04):
How long does that take?
Brian (18:05):
Yeah, I think it's already bearing fruit.
You know, there are all kindsof charts all over the internet
that show government spending in2025 versus 2024, versus 2023.
And we haven't, you know.
It basically shows thatgovernment spending hasn't
really come down from 2024.
Right, well, there's a coupleof reasons for that.
(18:26):
Number one Social Security andMedicare automatically increase
just because we have an agingpopulation.
So that's number one.
Number two our debt hascontinued to grow, so our
interest costs have gone up.
So once you take those thingsout, doge has actually begun to
cut some spending.
(18:48):
Remember, we put a lot ofgovernment employees on furlough
and after six or nine monthsthat will run out, so then that
expense starts to go down.
Usaid, I mean, there's stillcourt cases and all kinds of
stuff, but that would besignificant, especially if you
add it up.
Over 10 years, we found fraudand abuse in some systems that
(19:10):
we're getting rid of, and soright now, if you look at the
macro data how much thegovernment is spending it's hard
to see the impact, but it ishaving an impact, and I wish I
could quantify it exactly foryou, but I can't.
An impact, and I wish I couldquantify it exactly for you, but
I can't.
And Doge has a website and youcan go and they claim to have
this many billions cut, and Iknow they have cut some but it
(19:34):
gets hidden because of,especially, the cost of net
interest.
Our debt keeps going up and itjust costs us more every month
to just pay the interest on ourdebt and so that's government
spending and it hides thebenefits of Doge.
But I know the benefits arethere.
Ryan (19:56):
You mentioned M2 and its relationship to inflation a
minute ago.
Last time we talked on thepodcast, you were talking about
the analogy of the embers ofinflation and right, you know
the need to make sure they werefully stamped out and buried and
you know all the other extendedanalogy that you had are the
embers still burning?
Brian (20:16):
yeah, they are, they're.
The inflation is not gone.
If we were to print money,lower interest rates too much, I
think inflation would come back.
However, right now it appears,especially last month, in spite
of all these tariffs and allthis crazy stuff going on, the
CPI the Consumer Price Index andthe Producer Price Index both
(20:38):
fell in the month of March, andthat's pretty good news, and so
I would argue that inflationisn't dead.
The embers aren't out, but it'scalmed down, and Powell seems
to be in transient about cuttinginterest rates and letting the
(21:00):
money presses go.
So that would mean inflation'sgonna continue to come down.
The only there's a problem withthat, and that is if inflation
is going to continue to comedown.
There's a problem with that,and that is if it's tight enough
to bring inflation down.
It's also tight enough to causea recession.
Ryan (21:12):
Okay.
So I'm glad you brought upJerome Powell and the Fed,
because you look at what'spriced into the market and it's
two cuts, three cuts, four cuts,three cuts.
It seems like it goes all overthe place by what's expected to
be cut this year.
So two-part question One shouldthe Fed be cutting rates this
(21:33):
year?
And two will they cut rates andany idea how much?
Brian (21:38):
Yeah.
So I would argue three, fourmonths ago I argued that
inflation itself was 3%, andthen you need a real return.
If you're an investor, you getpaid back for inflation, or if
you're a borrower, you need topay for inflation.
But then you also have to pay areal return for somebody to
(22:01):
invest in you, to save theirmoney and put it in your bond,
and it all depends on theriskiness of the bond, et cetera
, et cetera.
But let's just talk abouttreasuries.
So 3% plus one and a half, Ithink if you buy a treasury bond
you ought to get inflation plusone and a half.
That's about where it should beHistorically, that's about
(22:23):
where it's been.
So three plus one and5 is 4.5.
So four months ago I saidinterest rates are about right.
The federal funds rate is at4.5.
The 10-year treasury is 4.3,4.4, 4.5, somewhere right in
there.
Well now, especially afterthose March numbers, inflation
(22:43):
looks to me like it's down toabout 2.5.
2.5 plus 1.5 is 4.
I would argue the Fed could cuttwice.
It makes some sense.
They wouldn't be super easy.
Ryan (22:57):
In other words, they wouldn't be inflationary at 4,
but they would be reflecting thecurrent inflation rate, which
is about two and a half percentnow, and so, yeah, I think the
Fed should be cutting and youknow, I think a lot of the
narrative that's been it seemslike it's a relatively recent
(23:18):
narrative, but that has reallytaken root has been that Trump
is trying to push Jay Powell andhe's going to fire Jay Powell.
And you know, can he do this?
The Fed needs to be independent.
What's your take on that?
Is Trump actually going to fireJerome Powell?
He?
Brian (23:34):
talked about it last time he was president.
He never fired him.
Ryan (23:37):
Yeah, and is that something that the president
should or shouldn't try to do?
Brian (23:42):
Yeah, I do believe that monetary policy itself should be
independent of the politicalworld.
The last time that it reallygot violated, if you will, was
in the 1970s.
Richard Nixon pounded the Fed,pounded the Fed and actually the
(24:06):
Federal Reserve followed amonetary policy that was easier
than it should have.
Because if you're a politician,you want interest rates low,
you want them to print a lot ofmoney because it makes everybody
feel better.
And I mean this last sinceCOVID.
I mean everybody should realizethis.
I mean since 2007,.
We've tripled the money supply.
(24:26):
No wonder if you own houses andassets, you won.
I mean because we just explodedthe money supply and so anybody
with assets won.
And when you have low interestrates, if you're a borrower, an
investor, you love that, allright, and remember Trump's in
real estate.
So so what does he want?
(24:47):
He wants like maybe he doesn'tthink about it like the
president should, but but ifyou're in real estate, you want
low rates and lots of moneyprinting, you know, because it
makes it a lot easier to build abuilding and fill it up and
make it cheap and pay for it.
All right, so I get that.
But that's the problem is thatpoliticians always want an
(25:11):
easier monetary policy than weshould have.
Here's where I kind of agreewith Trump, not maybe that he
should have control of monetarypolicy, but that the Fed has
gone off the rails a little bit.
They've tripled the M2 moneysupply.
The Fed's balance sheet isliterally 10 times bigger than
(25:34):
it was into the year 2000.
10 times bigger, and the Fed isbigger than the top 10
sovereign wealth funds of theworld all added together.
It's insane how big theirbalance sheet is.
And then what they've donebecause of that is because all
(25:57):
that money they're printingcould be inflationary.
They are now regulating bankslike they never have before,
raising capital requirements,and they keep using 2008 as the
excuse to do this.
But what they've done isthey've taken all this power
that they really weren't givenand consolidated at the Fed.
(26:21):
I would argue the Fed's had amission creep problem.
The way they're moving istoward a national bank.
We don't need these banksbecause we got all the money,
and that's a scary thing.
On top of it, the Fed's gotteninvolved in climate change, in
community development.
The Chicago Federal Reserve isinvolved in taking lead out of
(26:45):
water pipes, like they'reworried about lead water pipes,
and I'm like, isn't that theEPA's job, like why is the
Chicago Fed doing this?
And it's because they've runout of things to do, and so what
I would argue is the Fed needsto be controlled.
They only really have.
Their independence depends onthem doing their job well, and
(27:08):
they've expanded their job intoareas that have nothing to do
with monetary policy, and so Ido think the Federal Reserve
should be reined in.
Now, who should do it?
Congress should do it, and thenall Trump has to do is wait for
13 months, and then Powell'stenure is over and he's gone and
he can appoint a new Fedchairman.
(27:30):
But the Fed should beindependent, but at the same
time, it shouldn't have grownitself as much as it did.
I hope that makes sense topeople, because what I say is
they only have themselves toblame for politicians being mad
(27:50):
at them Because they went intoareas that they shouldn't have.
It's just like USAID going inand working with all these NGOs
and nobody knows where any ofthis money is going or how it's
getting there or who's makingthe decisions.
Well, the Fed's doing a lot ofthe same kinds of things, and
they do it under the guise thatyou know we're independent.
(28:11):
Well, yeah, keep the value ofthe dollar stable and you failed
because the inflation rate wentup, and yet you don't want to
take blame for it and you wantto keep all this power.
They need to be shrunk, theyneed to be pulled back, but at
the same time, monetary policyshould be independent, just not
(28:33):
independent under this currentsystem.
Ryan (28:35):
Yeah, Well, I mean all of what you're describing.
Predates Jerome Powell right.
Brian (28:39):
Right.
Ryan (28:40):
Bernanke started it.
I mean yeah, and so I guess myskepticism is whoever the next
appointed Fed chair is are theygoing to?
Do anything different.
Brian (28:51):
Yeah well, arthur Burns did things different from
Richard Nixon.
That's a good point so I hopethat doesn't happen.
I do hope that doesn't happen.
But Bernanke started it, yellenkept it going.
She was chair of the Fed for awhile and then Powell kept it
going and he really juiced itduring COVID.
So Bernanke was the juicer andthen Powell was the juicer.
(29:13):
Yellen kind of was the statusquo in the middle.
I think all of them should betrying to get us back to where
we were in 2007, before all thischanged.
I've written extensively on theabundant reserves versus scarce
reserves.
We've talked about it before.
We should be going back toscarce reserves, and that would
(29:37):
take.
The Fed has grabbed so muchpower, so many resources, so
many new employees and it's gotmission creep, and so Powell
isn't doing that.
He's you know.
People always say well, how dowe get the Fed to go back?
I mean, why won't they go back?
(29:58):
I speak to a lot of financialadvisors.
I'm like this room is full offinancial advisors.
If you had $6.7 trillion undermanagement, do you want to go
back to $900 million?
Like no, neither does he.
So these people that work forgovernment are human, just like
everyone else.
We want to be bigger, we wantto be better, we want to be
(30:21):
stronger we want to be.
You know, they're the same, andthat's the problem with
government entities is that,even if they're not doing their
own job well, they find ways togrow in other areas because
because they just have so manyresources and and it's human
nature to want to grow like thatthey're they're not angels, you
(30:42):
know, and and so I think theFed has completely lost its way.
It should be reined in.
I think Trump wants to firePowell because he won't cut
rates, which is not what I'mtalking about.
But again, he has spidey senses.
You know, there's somethingwrong with these people and he
just doesn't know how to containit all and fix it.
Ryan (31:03):
So is there a mechanism that the Fed could reduce the
size of its balance sheetwithout just dumping money into
the system?
Brian (31:11):
Yeah, they, well they.
So here's the problem if theyreduce their balance sheet.
So remember.
So what they did is theyprinted all this money, right,
and then they bought governmentbonds.
So to reduce that size of thebalance sheet, they have got to
get the banks to trade theirreserves, which is all the money
the Fed printed for these bonds.
(31:33):
But because of the way they'veset all this up, capital rules
today and liquidity rules say,if I put all these bonds on
banks' balance sheet, they'llall be in violation of these
rules.
So they can't.
So when the Fed flooded thesystem with money, it was going
(31:55):
to be inflationary.
So how do you stop it frombeing inflationary?
Well, you force the banks tohold on to it all, and you do
that with capital rules,liquidity rules, and you pay
them to hold those reserves.
Well, you can get the banks totrade Fed funds for bonds, but
at that point now they're inviolation of the capital rules.
(32:17):
So you're going to have to easethe capital rules.
Jamie Dimon, in I don't knowthree weeks ago now, something
like that said look, thegovernment needs to finance its
debt and you, at the same time,want us to hold more bonds, but
these capital rules andliquidity rules don't allow us
to do it, and today the Fed isdebating whether they should
(32:40):
lower the liquidity rules tohelp fix this.
But this is a crazy debate.
We shouldn't be having it inthe first place, and the only
reason we're having it isbecause they handle monetary
policy with regulation now, andso the way you have to do it is
go back to the way the bankingsystem was before.
(33:01):
But boy oh boy, we're 17, 18years down this road.
You know this is one of the bigproblems.
You know welfare, for example,and I know that's a complete
change of topic, but give me achance to come back around.
We have seven generations ofpeople on welfare.
We knew four generations agothere were problems with this
(33:22):
system, but in order to fix it,you've got to take it away from
people, which nobody wants done,and then you might lose votes
or they might, you know, be inpain because they don't get paid
by the government anymore.
But this system has failed, butbecause it's got so much
(33:42):
momentum, nobody knows how tofix it, and I think that's the
deal with the Fed.
Right now it's hard to fixbecause they've grown the Fed so
much, they've grown the moneysupply so much that going back
to the way it was is going tohave some pain Probably some
higher interest rates to get thebanks to hold all those
(34:03):
treasuries.
Right now, the Federal Reserveis paying private banks $200
billion a year to hold on to allthis money that the Fed made,
created during COVID and during2008.
And all I can ever say isElizabeth Warren must not know
(34:25):
this, because she'd have a cow.
She hates private banks.
So, but our government ispaying banks $200 billion a year
and, by the way, if we stopdoing that, that's $2 trillion
over 10 years of savings for thetaxpayer.
And so, but that's the systemwe've created, and it sounds
(34:46):
crazy, but that's what theycreated.
And how do you get out of itwithout creating pain?
Ryan (34:51):
So if you stop paying the banks to hold that cash,
wouldn't they just lend it out?
Yeah, that's inflationary.
Brian (34:58):
That would be the concern .
Right, yeah, right, and that'sthe problem.
They printed all this money,then they bottled it up in the
banks by making higherregulatory costs, like capital
rules, liquidity rules.
So what I always say is, whatthey do is they're storing
gasoline next to the waterheater, and that may be fine if
(35:21):
you go check the gas every fiveminutes, but you leave gasoline
next to a fire, you're stupid.
And so what they've done isthey've put all the gasoline in
the banks that's inflationary,and then they're fighting to
contain it, and in order to dothat, they're regulating banks
(35:41):
like never before.
Ryan (35:42):
Yeah, another narrative that I've heard a lot recently
has to do with the idea ofAmerican exceptionalism.
I keep hearing this meme thatyou know the era of American
exceptionalism is over.
What do you think Is Americanexceptionalism coming to an end
(36:03):
and what actually is the sourceof that exceptionalism?
Yeah, the exceptionalism comingto an end and what actually is
the source of thatexceptionalism?
Brian (36:08):
Yeah, the exceptionalism of America really goes back to
the Declaration of Independenceand the US Constitution.
There are no documents likethat anywhere in the world, and
those documents give individualsthe right to be free and pursue
happiness.
And then they set up the rulesof property rights and the rule
(36:32):
of law, and that's what makesAmerica exceptional.
We haven't always been perfect.
When we founded this country,slavery existed, not in every
state, but abolitionists quicklyum, we're the second country in
the world to abolish slavery,and um, and I believe that's a
(36:52):
sign of them, I mean a sign ofamerican exceptionalism.
And I know people would arguewith me and yell and scream at
me about saying that, but but atleast we ended it all right and
and we, we only did thatbecause of the constitution, and
so that's what it is Now.
I think today, I mean,everybody's talking about
(37:13):
democracy is on trial and we'renot democratic anymore and all
of these things, but what reallyleads to it is is adherence to
the constitution, and right nowwe see, actually the play out
right now between Trump and thecourts and the Supreme Court.
That's just more proof.
We're exceptional Because in alot of countries that stuff
doesn't happen and I you know ifit comes down.
(37:38):
I don't want economic war withanybody, all right, I don't all
right.
But if we catch recession,other countries are going to
catch depression.
China basically survivesexporting to the United States,
and and they can't live withoutus.
The world can't live without us, and so I I do not think the US
(38:00):
exceptionalism is under.
You know, I guess it's alwaysunder attack, but but it I do
not expect it to go away, not atall.
Yeah.
Ryan (38:11):
You know the relationship with China.
I think over the last coupledecades it has evolved and
changed so much.
It seems like it used to be thethinking in Washington and
maybe changes from group togroup but that if you had a
closer trade relationship, whereyou're more interdependent,
(38:32):
then you're less likely to havemilitary conflict.
And it seems like maybe thethinking is evolving and
shifting because now it's likewell, we want to decouple the
economies and so why is thatshift?
Why is that taking place?
Brian (38:49):
Yeah, I think in order to understand our relationship
with China, you have to go backto Reagan.
You know, reagan looked atChina.
There's a billion peopleearning a dollar a day.
I mean it was true poverty,like, I mean China was in
terrible shape.
And he's like look, look andI'm paraphrasing history here
(39:09):
and nixon broke it.
I'm I'm forgetting a lot ofthings, but I'm just like 50 000
foot view of this.
He's like look, would youplease join the global trade
system?
Like, like, please.
Like, help your citizens byjoining the global trade system,
not not being isolationist, andwe'll allow you to be part of
(39:32):
our global system, even thoughyou're a communist and we don't
agree with that.
And basically that brought abillion people out of poverty.
I mean, you go to Shanghai inthe 70s, you get run over by
bicycles, like they were tensand hundreds of thousands of
bikes.
Now, there now there's no bikes, it's all cars, like it's.
(39:54):
Cuba went the other way.
They went from cars back tobikes, like China went from
bikes to cars.
And in other words, reagan wassuccessful.
And then you couple that withwhat we talked about before.
The US has literally subsidizedconsumption by increasing
(40:14):
redistribution to incredibleamounts.
It's almost 20% of all incomenow and therefore we've become
the consumer of the world'sproduction and China's like hey,
look at how much wealth wecreated by exporting to the rest
of the world.
The US is perfectly willing tobuy everything we produce
(40:35):
because we make it so cheap.
We don't care about ourconsumers, like America, all
they care about is consumption.
We don't care, and so it wentfrom a point of us helping them
to a point where they tookadvantage of it, and I believe
that's what's going on.
They have very high tariffs on alot of different goods.
(40:57):
They know full well that ourconsumers have an insatiable
appetite to buy stuff, and nowthey're taking advantage of it
and slowly but surely this iswhat I mean we're trading
quarter zips.
We're buying quarter zips fromChina, giving them our dollars,
and then they're turning aroundand buying our farmland, our
(41:19):
treasury bonds, our shares ofstock in the US companies,
warehouses, you know, making allkinds of investments, and it
worked for them to get out ofpoverty.
So that's the story.
They'll just keep going with itand I believe they're now
(41:43):
abusing it, especially with veryhigh tariffs.
Also, if you thinkstrategically, we can't make all
our own antibiotics or even allour own military equipment
without imports from the rest ofthe world, and so we've made
ourselves vulnerable to someonewho is willing to use that as a
tool, and I think we need to bereally careful about that as
well.
Ryan (42:02):
Yeah, and that, I think, became more and more apparent
during the COVID period, whenyou couldn't source certain
chips that you needed for anautomobile, or ingredients or
things for different medicines.
I'm not sure how.
And again back to tariffs forjust a second.
The concern is, if you puttariffs on that, you're not sure
(42:24):
they're going to last.
Are you going to incentivizebusinesses to actually make
investments for reshoring?
Brian (42:29):
Yeah.
Well that's what I mean by ifyou set the rules, then
everybody adjusts, but you haveto set the rules and hold the
rules.
Ryan (42:36):
Yeah, they've got to be consistent.
Brian (42:38):
Yeah, and so far we aren't there.
They put them on, they takethem off.
I read a story the other daythat Peter Navarro happened to
be out of the office one morningand he's the champion of
tariffs in the Trumpadministration, and the Treasury
Secretary Besant and theCommerce Secretary Lutnick took
(43:02):
advantage of the fact thatNavarro wasn't there and that's
why we had the 90-day pause.
And so I mean I don't like.
It's almost like reading Peoplemagazine about politics and
finance, but I read that and I'mlike, oh my gosh, it just
depends on who's at a breakfastmeeting and can run into the
Oval Office, because that seemsa little.
(43:26):
If you're really going to investa half a billion dollars in a
factory, or a billion dollars,how can you do it when things
change like that?
And I think we have to set therules and stick with them,
otherwise there's going to betoo much uncertainty.
Right now, the number of shipscoming from China is plummeted,
shipping containers are down,first quarter is going to be
(43:51):
close to zero growth and I'mworried about second quarter too
.
I think we might be seeing therecession I thought was going to
come this year.
Ryan (44:04):
It's kind of surprising.
The first quarter would be lowbecause I think that you would
have a lot pulled forward to thefirst quarter because that's
before the April, you know whenthose Liberation Day tariffs and
all that uncertainty I think alot of companies may have
hoarded some of the inputs fortheir goods and things.
Well, that's why it's going tobe so slow, because, import so
(44:27):
gross so the second quarter willbe so slow because they pulled
it forward.
Brian (44:30):
First quarter too, because gross domestic product
domestic is the key word.
If you import, it's a negative,and so we imported all this
stuff to beat the tariffs Right,and then that counts as a
negative in GDP, and then thesecond quarter may be negative.
I think people are still,imports from different places
(44:54):
are going to probably still beup, but at the same time, I
think business investment isgoing to slow, and so is
consumption, because when peopleget uncertain, they just hold
back.
So we're there.
Plus, as I said, the moneysupply hasn't grown since 2022.
Deficits are not going to be asbig or they're not going to be
(45:15):
growing, and all of that meansthat there's the era of easy
everything is over.
Ryan (45:21):
So the other piece of uncertainty that's likely to get
resolved as the year progresseshas to do with tax policy.
The administration's trying torenegotiate along with Congress
to figure out what personal taxrates will be, what corporate
tax rates will be, whetherthere'll be tax on tips and all
the other promises that Trumpmade during the campaign.
(45:41):
When do you think that getsresolved and any views on where
we end up with tax policy?
Brian (45:47):
Yeah, well, we already have the blueprint.
It looks like the Trump taxcuts will be extended no extra
tax cuts at this point, butthat's already been passed and
they can move it through theSenate with 51 votes.
So I don't even know how totalk about all this because I'm
not the politics expert.
That's bob stein, but, but it'srecord.
(46:08):
It's called reconciliation.
So as long as you don't need 60votes, you can get a lot done.
Yeah, and, and so they did passthe framework for that.
But there is a really importantruling coming up um, the all the
budget scores like so the trumptax cuts were put in place for
10 years.
At the end of that 10 years oreight years, whatever the number
(46:31):
was they they're scheduled togo back up, right, so so
according to this congressionalbudget office, that is a, a tax
hike that's built into thesystem like so that's where
revenues are going to be in thefuture.
If we don't do that tax hike,then it's going to cost us this
(46:51):
amount of revenue.
So then they would sayextending the Trump tax cuts
cost us money, right?
What Republicans are trying todo is to get the parliamentarian
to rule that keeping currentlaw is not a tax cut or a tax
hike Interesting, yeah, and soit's.
(47:12):
It's.
It's.
It's a like, like.
If you really look at the waythey score our budget, what they
mean is you know like we'regoing to?
These are taxes are doing thisSpending is going to do that.
We're going to add to SocialSecurity, so we score the budget
we.
This is you know like we'regonna.
These are taxes are doing thisspending's going to do that.
We're going to add to socialsecurity.
So we score the budget we.
This is what the budget will be.
They're always wrong by the wayum and and number one, but it's
(47:32):
always biased against tax cutsand for spending increases the
way they do it.
And so what the republicans aretrying to do is say, no, this
is just current law, this is notgoing to cost us anything.
So we're it's your figment ofimagination that we were going
to have a tax hike.
We're just going to keepcurrent law.
Yeah and so, anyway, it'll be avery interesting ruling by the
(47:55):
parliamentarian and a debatethat's taking place, and a lot
of it's so back roomsmoke-filled room stuff inside
baseball that nobody really evenknows I think the whole
language of saying that I payless in taxes and that costs
somebody, yeah, like that seemslike it's the wrong word, yeah
that's what I mean by it'sbiased for tax hikes and against
(48:17):
spending does it cost you if Idon't give you money?
it doesn't cost you somethingyes, it costs me to give you the
money yes, but it doesn't costyou to not get it.
That's exactly right and it'sthe same with you.
Know, the problem is, if youwant to cut the size of
government, you're taking moneyfrom people, and if you want to
cut tax rates, you're givingmoney to people, and it's just
the language that we use.
(48:38):
It really come and and, by theway, they built that into these
mathematical scoring models thatthey use and and that's why
it's just, it's biased againsttax cuts and for spending
increases, and and thatKeynesian economics is why we're
consuming so much.
Ryan (48:57):
So I was talking with Bob Stein.
He's the episode before thislaunches, and my hope is the
SALT deduction living in NewYork State is as big as it can
possibly be, but that's fullyself-interested.
Brian (49:09):
I'll put that out there right now, exactly.
Ryan (49:11):
And I guess everyone's self-interested when it comes to
tax policy to some degree.
Okay, so that seems like itwould be potentially a positive
catalyst for investors laterthis year if you do have some
certainty with some of thesethings, including tax policy,
coming into this year, as wetalked about.
You're pretty bearish on stocksas you kind of look out of the
(49:33):
next six to 12, 18 months.
Maybe I'm pushing you beyondyour 5,200 year-end target what
happens next year?
Brian (49:41):
Yeah, well, let me just put it this way I wouldn't be
surprised to see the market gobelow 5,200.
Fair value is closer to 4,800right now it really is.
But one of the reasons I stayedat 5,200 is I thought these tax
cuts, the Trump tax rates, weregoing to end up being extended.
So that's a positive, and sothat's why I'm at 5,200.
(50:06):
I would argue that if we dowell, I do expect a recession, a
minor one, it's not huge, notan 08 or 2001.
That the Fed will cut rates andthat that will help investors
as well.
(50:26):
So I'm going to stick with5,200 for now.
I could change, but it's just ajudgment, and so my argument.
Well, here's the way I thinkabout it.
I don't think we're going tohave a V-shaped recovery in
stocks and it's just been anormal correction so far.
I mean, technically, I guesswe're in a bear market.
(50:46):
If you look at the NASDAQ, Ialways get confused about what
is and what isn't.
Market's down, all right, andso is it going to go straight up
from here V?
I don't think so.
I think it's a tilted L Like.
I think things will continue toget better, like, profit-wise,
investor-wise, in the yearsahead.
We have too many great newtechnologies that are adding to
(51:14):
productivity and profitability.
But it's a tilted L, it's not aV, and so I wouldn't be
surprised to see us go below5,200 for a while.
If the Fed cuts rates, I thinkwe could come back up, but I
don't see us hitting the oldhighs anytime soon.
So the next couple of years, sonext year, depending on where
we end this year, I might be alittle bullish, but I don't see
myself as being massivelybullish unless somehow we were
(51:38):
able to really cut the size ofgovernment, and that's up to
Congress and they just seemunwilling to do that.
Ryan (51:45):
Okay.
So, brian, previous podcasts,I've always asked you for a book
recommendation.
I'm going to shift gears alittle bit for my last question
for you and, by the way, thisquestion comes directly from
Grok.
I asked Grok if I was going toask Brian Westbury a specific
question on a podcast.
Give me some options, and thisis one of the options Grok says
to ask you if you could talk toa historical economist, who
(52:09):
would it be and what would youask them?
Brian (52:11):
Yeah, you know, I don't know if you can see this book in
the back behind me here, butMilton Fried, you know.
I asked Grok what historicalfigure I?
If you read all my tweets andposts, what historical figure do
I sound the most like?
Okay, and it said MiltonFriedman.
Ryan (52:31):
And I was like whoa that was unbelievable to me.
Brian (52:36):
But, and so now here's the deal.
I have met Milton Friedman.
He's passed away now.
So has his wife.
I met he and his wife a numberof times.
I'm a member of the MontPelerin Society and he helped
found that with Friedrich Hayek.
And Friedrich Hayek was taughtby an Austrian economist named
Ludwig von Mises.
He wrote the densest most likeif you need to sleep, it'll help
(53:04):
you for six months.
It's so big and long and dense,but I've read it multiple times
a book called Human Action.
In my view, without him,friedman would have never been
as powerful as he was, hayekwould have, and both of them won
the Nobel Prize.
Hayek and Friedman, they wereboth students of his.
(53:26):
I would want to.
I would want to hang out withLudwig von Mises and and and
here's the.
This may sound weird, but thequestion I want to ask him the
most is does he believe in God?
Okay, because when I read hisbooks he talks about
(53:48):
entrepreneurship and he buildsthe economy up from the root
cause and human action is howhumans act, and I feel he always
kind of claimed that he wasagnostic.
I don't believe it, and Iactually talked to Hayek's son
(54:08):
about this, who has now passedaway himself even but I got a
chance to ask him and he said,oh no, he wasn't agnostic.
I don't believe that, becausewhen you read about the economy
and how humans interact and thebest way for that interaction to
(54:30):
be, it just smells and tasteslike God, like it really does.
And the way he writes he's sobrilliant that I cannot believe
he didn't believe in God.
And yet there's really.
No, he didn't write about it.
In fact, he kind of calledhimself an agnostic, but I
(54:53):
wonder if he did that forintellectual, academic reasons
or really.
Yeah interesting, because whenyou, I mean the free market is
such an amazing thing, billionsand billions and he actually
called entrepreneurs angels.
So you know, they just they'reangels, they're not normal.
(55:13):
And I wonder you know what thatmeant to him.
Ryan (55:16):
So let me ask you a follow-up question.
Do you think the way that theeconomy works and the economy is
?
You know there's differentlevels of the economy, but is
that a reflection, in youropinion, of how some image of
God?
Yes?
Brian (55:28):
like God.
God, I mean read the Bible.
God created man in his image.
What was God?
He was a creator.
So what's man supposed to be?
A creator?
And and so that's, and in theend that goes back to this
Keynesian economics.
It's all about consumption, notcreation, and I believe growth
(55:52):
comes from creation.
It's also where we get the termsupply side, supply side
economics, demand side economics, creation, consumption, and so
so, yes, I, I absolutely believethat the, the, that the way
people interact in a, in a freemarket, is is is like I I don't
(56:16):
want to go too far because Idon't know I never know whether
I'm blasphemy or not, getting toblasphemy or not but that God
wanted us to interact that way.
And when you read the parableof the talents, I mean it's so
clear, there's so much in theBible that sounds like free
markets to me.
(56:36):
And then when I read Mises, andhe describes free markets so
beautifully but without everusing God, I just want to know.
I want to put those two thingstogether Interesting.
Ryan (56:51):
Yeah, it does seem like you're talking about innovation,
creativity.
That is some sort of areflection of if you believe in
God, that God created people andwe're creating things all the
time.
Brian (57:03):
Well, one last point on this.
Like you come up with a newidea, I mean, you know, where
did it come from?
Like I, like those footballplayers who mean it when they
get into the end zone and theygo and they point up, like I
mean NFL football or collegefootball, it's hard to get in
the end zone, like you know, andand and yes, you've worked your
(57:25):
tail off, you've, you've got agreat team, you do.
There's a lot of reasons foryou to be there, but a lot of
people go like this.
Well, so when I'm writing andand I I'm searching for a way to
say something, and then or, orI'm looking for something to say
, and then, all of a sudden, anidea pops in my head.
Did I do that?
(57:46):
I call it manna from heaven.
I don't know that I've ever satit in front of my computer and
gone like that, but I havethought it.
I'm like, oh, thank you, thankyou, lord, and that's creation.
And a lot of people start tobelieve.
(58:08):
It's all them.
And I'm not going to pretendthat I, yeah, I studied, yeah, I
read, yeah, I but but I didn'tmake my brain and and then it
came up with this idea.
(58:29):
So where did that come from?
Yeah, and so I think it camefrom outside of me.
Ryan (58:33):
All right Well uh, we're finishing up the ROI podcast
with theology corner here.
So, brian, thank you once againfor coming on the podcast
Really appreciate it.
We'll do it again very soon,hopefully.
Absolutely, ryan.
All right, and thank you allfor joining us on this episode
of the First Trust ROI podcast.
We will see you next time.
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