August 11, 2025 • 41 mins
Bob Stein breaks down 2028 presidential contenders, 2026 midterm odds, Trump’s fiscal agenda, tariffs’ impact, and the economic forces shaping America’s political and financial future.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ryan (00:09):
Hi, welcome to this episode of the First Trust ROI
podcast.
I'm Ryan Isakainen, etsstrategist at First Trust.
Today, I'm joined by DeputyChief Economist at First Trust,
bob Stein.
Bob and I are going to talkabout what's going on in the US
economy.
We'll talk a little bit about atoo early take on the midterm
elections, as well as the 2028presidential election, and we've
(00:33):
got a lot of other things totalk about.
It's always great to have BobStein on the First Trust ROI
podcast.
Thanks for joining us.
I want your early call as youlook in your crystal ball a
little bit further down the road, starting off with the
presidential election.
We're a ways away, still right,but I'm curious what you think
of who are the likeliestcandidates to succeed this
(00:58):
presidential administration?
On the Republican side, who arethe heir parents to run, and
then also on the Democrat side.
Bob (01:05):
Remember it's three and a half years away, Three and a
half years to the actualpresidential election, so a lot
can change Every six months.
Things can change dramatically,but here's the way I see it on
the Republican side.
It's really easy.
Okay, so the prediction marketsare giving JD Vance maybe a 40,
42, 43 percent chance ofgetting the nomination.
(01:26):
I would take the over on that.
I think JD Vance has about a 65percent chance of being that
nominee.
I think he's smart enough tostay close enough ideologically
and politically with DonaldTrump, the president, and that
he is the heir apparent and hewill be the nominee as long as
he remains loyal and Trumpremains reasonably popular with
(01:48):
the Republican side of theelectorate, because all he has
to do again is win the primariesto get that nomination.
So I think it's JD Vance 65percent.
Everybody else combined MaybeNikki Haley, Mike Pompeo, Glenn
Youngkin, Tom Cotton, whomeverEverybody else combined 35%.
And I think if JD Vance is thenominee, I already know who his
(02:10):
running mate is going to be.
It's going to be Little Marcofrom 2016.
Little Marco's all grown up, sothey're close.
Personally, Vance and Rubio.
Picking Rubio would entrenchHispanic support for the
Republican Party.
They've made substantialinroads with Hispanic voters
around the country Over the pastfew cycles.
(02:32):
That should continue byselecting Rubio and entrench
that support.
Rubio is a very smart,articulate spokesman for
Republicans and conservatives,both domestic and international
affairs, so you could have likeyour attack dog with you.
(02:54):
Like Rubio will be assigned thejob of attacking the Democratic
nominee, whomever that turnsout to be.
And last and very importantly,probably the most important
factor is that Rubio has anattribute that many of these
other potential vicepresidential running mates on
the Republican side don't have,which is that he's shorter than
JD Vance, and I know people kindof scoff at that, but that's
important.
Like Tom Cotton and GlennYoungkin are both like 6'5".
(03:18):
Does JD Vance want to be at theRepublican convention?
Are we standing up on thecampaign trail with his running
mate towering over him?
Ryan (03:24):
I don't think so how tall is JD Vance?
Bob (03:26):
I think JD Vance is maybe 6'1 or 6 feet or something like
that.
Ryan (03:30):
So he's not below average, but he's not way above average.
Bob (03:34):
No, exactly Exactly.
He's shorter than Donald Trump.
Yeah, so JD Vance is going topay it forward by picking
someone shorter than himself,and that would be Marco.
Marco would fit the billperfectly.
So Tom Cotton and GlennYoungkin they might be on the
list, on the short list, butthey're not on the true short
(03:57):
list because they're too tall.
Democratic side there's absolutechaos.
There is no clear frontrunner,none.
I mean.
It is wide open.
Everybody from Gavin Newsom toPete Buttigieg to Gretchen
Whitmer to Pritzker fromIllinois, who's loaded with
(04:17):
money.
He doesn't have to raise moneyas aggressively as some of these
other people.
There are just tons ofcandidates.
So let me bring up two peoplewho will not be on my list as
running Okay and maybe I'll endup with egg on my face, but I'm
pretty confident of this.
Bernie Sanders ain't runningOkay.
The guy would be 88 when hegets inaugurated 88.
(04:39):
He'd be running to remainpresident in just his first term
, until his 90s.
The American public, includingthe Democrats, having
experienced Joe Biden, are notgoing to nominate someone who's
going to be a nonagenarian inthe Oval Office.
That's just not going to happen.
I don't think he runs.
(04:59):
I think he passes the torch toAOC in terms of the hard left
and that's been ongoing wherethey're together at rallies.
Ryan (05:08):
Can she articulate what he articulates, though it seems
like he's a very whether youlike him or dislike him, or
agree or disagree.
It seems like he can articulatehis views in a consistent way
and I'm not sure that she hasthe political experience or
background to be able to do that, Correct.
But she's physically moreattractive.
She does it with salsa and I'mnot sure that she has the
political experience orbackground to be able to do that
Correct.
Bob (05:25):
But she's physically more attractive.
She does it with salsa, youknow, and that's fine.
Ryan (05:31):
I mean you have candidates who are— In a world of clips.
Maybe it's not as important.
Bob (05:35):
It's not as important.
He's basically a guy whohoneymooned in the Soviet Union
like when he got married and hasnever apologized for it.
He's like an old-time Marxistand I think where, as AOC, might
(05:55):
be not as intellectuallyrigorous in her leftism as
Bernie Sanders, it's certainlypart of her authentic self and
she has pizzazz that BernieSanders doesn't necessarily have
.
Ryan (06:09):
Could she go on a podcast and talk for three hours to Joe
Rogan?
No, actually she could, becauseI think that's where Kamala had
, like it was one of the reasonswhy she wasn't able to get
across.
I think this was in our lastpodcast.
Bob (06:22):
Yeah, harris was a uniquely vapid candidate and I don't
think we'll probably see thelikes of her running for the
presidency anytime soon, orcertainly not getting the
nomination and participating ina general election battle for
the presidency.
But I think AOC is not nearlyas vapid as Harris.
(06:42):
But I think AOC is not nearlyas vapid as Harris and I think
she could attempt to do so.
Bernie Sanders I could seegoing on Rogan and doing
intellectual battle with Rogan.
I'm not sure about AOC itremains to be seen but I don't
think she would shy away from itthe way Harris would.
(07:04):
But I don't think she would shyaway from it the way Harris
would.
I'm not sure Harris canmaintain a substantive
conversation on any topicwithout sounding vapid for like
more than 15 minutes.
So, in terms of the othercandidate who you will not see
on the Democratic side isMichelle Obama, and I know
people have talked aboutMichelle Obama for years, but
she was never going to run forpresident.
(07:26):
She will never run forpresident.
Best evidence of this that thepublic saw is that Jimmy Carter,
our longest-lived president anda Democratic president to boot,
passes away at age of 100.
And all the former presidentsgo to the funeral and all the
former first ladies go to thefuneral, with the one exception
(07:48):
of Michelle Obama, whoapparently needed a little me
time, I mean.
That to me makes it very clearshe doesn't have the fire in the
belly, the desire to bepresident of the United States.
She's never going to run.
I think it was just aWashington rumor mill about
Obama making fundraising callson her behalf and people were
just regurgitating what theyheard.
I don't see any evidence ofthat actually having happened.
(08:11):
She will never run forpresident.
So the two people who I thinkget scoffed at the most on the
Democratic side in terms oftheir odds of getting the
nomination and I'm not sayingthey're the front runners, but
if they throw their hat in thering and they might not, both
might not, but if they throwtheir hat in the ring they're
going to be formidable.
One is AOC, who might end upbeing the only hard left Bernie
(08:35):
Sanders acolyte on theDemocratic side in this race.
And if she is, she walks intoevery primary with about 35% of
the vote already sewn up, maybea little less, maybe a little
more, depending on the state.
Well, you know she has a hardtime getting from 35 to 45 or 50
, but I don't think thesuperdelegates on the Democratic
(08:56):
Party are going to stand in herway.
They're not going to say, ohyou know, we have a white
candidate or we have a malecandidate who we want to
nominate.
Instead, I think they wouldkind of accept that she gets the
nomination if she can get like45% of the delegates, because
all the other delegates would besplit among other candidates.
So she's got a shot.
If she is the only hard leftcandidate in the race Remains to
(09:19):
be seen, but that's her shot.
The other guy is Stephen A Smith, and yes, I'm talking about the
guy from ESPN.
I know all he does is talk, butthat's a skill set.
He can call into MSNBC, foxNews, he can call into CNN, just
like Donald Trump did in 2015and 2016,.
Talk off the top of his head,spontaneously, extemporaneously,
(09:39):
without conveying to the publicthat he has a list of talking
points that he's reading infront of him, without conveying
to the public that he has a listof talking points that he's
reading in front of him, withoutconveying to the public that
he's trying to remember what hisadvisors told him to say and
not to say about that particulartopic.
He can talk off the top of hishead.
Quite refreshing with Trump andquite refreshing also, I think,
(10:00):
with Stephen A Smith.
Trump answered a lot ofquestions differently from all
the other Republicans.
Iraq war they said it wasessentially a noble cause, even
if it might not have been foughtright.
He said it was full of junk.
He said it was like fake newsWMD, whether you agree with him
or not.
It was different for theRepublican Party.
(10:21):
All the other candidates werefree traders.
He's a protectionist.
All the other candidates wantedto make big changes to Social
Security or Medicare.
He said no, I'm not going totouch those.
All the other candidates wantedto immediately cut Planned
Parenthood to the bone.
He said no, they do some goodwork.
That was his position back then.
So all the other candidateswere fighting over the cookie
(10:41):
cutter positions that theRepublican elite in DC was
telling primary candidates tohave over the course of the
previous couple of decades, andhe didn't buy any of it and he
was more popular than all thoseother candidates.
Stephen A Smith, could youimagine a debate in 2027, you
know, late in 2027, early 2028,where all of the candidates on
(11:05):
stage, if he runs, includingStephen A Smith, are asked about
boys participating in girls'sports.
All the other candidates aregoing to say it's complicated or
they're okay with it in certaincircumstances.
Stephen A Smith is going to saythis is utterly ridiculous,
it's a competitive advantage andthey should not be doing that.
No boys and girls sports.
(11:25):
No men and females sports.
No, we're not going to do that.
So I actually think hisposition would be more popular
than the other position, evenamong most Democrats not Beltway
or academia Democrats, butactual voting Democrats.
I think they will gravitate tohis position rather than the
position of, like the inside thebeltway Democratic crew, and he
(11:47):
may find himself unusuallypopular, like Donald Trump did
back in 2015 and 2016.
So it remains to be seen.
If he runs, it's certainlypossible.
He won't.
If you look at the predictionmarkets, he probably won't.
But if he does, he's going tobe more formidable than people
give him credit for.
Ryan (12:03):
That's interesting I think Gavin Newsom is.
I don't know where he is in theprediction markets, but he has
started a podcast.
I've noticed I don't know ifyou've seen his podcast where
he's had a bunch of guests fromthe right, from the Republican
side, and tried to haveconversations that sound more
pragmatic and more balanced andit seems like he's trying to
(12:25):
maybe tack a little bit fromwhat might be perceived as a
hard left position towards thecenter a bit and I think he's
trying to get practice onpodcasts.
Bob (12:34):
Yeah, I think that's true as well.
I also think that some of therecent unrest going on in Los
Angeles doesn't necessarilyinure to his benefit.
It may be inures to his benefitin terms of getting the
nomination, but not in terms ofwinning a general election.
Same with the mismanagement ofLos Angeles regarding the fires
(12:56):
that have happened over the pastsix months.
That, combined with the unrest,kind of leaves a picture in the
image of the mind of the medianvoter to some extent of
distasteful things going on inCalifornia associated with his
governorship.
But he's pretty smart, he cantalk on his feet and he's got
(13:17):
great hair.
I mean he really fits the suit.
He's like Greg Brady in that.
Brady episode where we didn'tpick you because you could sing.
We picked you because you fitthe suit.
Okay, well, Gavin Newsom fitsthe suit, you know.
Ryan (13:30):
Yeah, is he tall.
Bob (13:32):
He's tall enough.
Yeah, I don't think he can beatJD Vance's running mate, so
he's too tall for that.
Ryan (13:38):
Okay, so what about?
We're a year away from themidterms and actually it's
closer than that, when peoplewill start talking about it in
2026.
Yeah, what's your take on howthe midterms shake out and some
of the significance of how it'sgoing to shake out?
Bob (13:55):
So in 2026, we saw what we can call in boxing terms, a
unanimous decision where theRepublicans won the House, the
Senate and the presidency In2024.
I'm sorry, 2024.
So 2026, it's going to be asplit decision.
So it's the Senate and theHouse.
I think the Democrats are verylikely to take the House.
I think about 85% likely, andthat's higher than the
(14:16):
prediction markets currentlyhave them Not by leaps and
bounds, but it is higher why?
Well, number one, theRepublican majority is razor
thin.
Back in 2024, they won theHouse 220 to 215.
So all the Democrats would haveto do is gain three seats
compared to what they did backin 2024 last year, and they get
a narrow majority, only three.
(14:39):
Historically speaking, the partynot occupying the White House
tends to win more seats thanthey previously did.
Not always.
If you look back at the 20midterm election cycle since the
end of World War II, startingin 1946, the out party has won
three seats or more 90% of thetime.
So just like kind of like toestablish some sort of prior,
(15:04):
democrats probably win the House.
In addition, this is not yourfather's Republican Party.
The old Republican Party got alot of their support from highly
educated voters.
Now the Democrats do betterwith highly educated voters.
Now lower educated voters havegravitated to the Republicans,
but they show certain votingpatterns.
In terms of their turnout ratesthey do turn out like everybody
(15:26):
else in presidential elections,but not so much in special
elections or midterm cycles.
Because of that I think theRepublicans are behind the hate
ball Now.
That doesn't mean they can'tkeep the House.
I just think it's unlikely,only a 15% chance.
But you know it happened in1998 and 2002, the in party, the
(15:47):
Democrats in 1998 orRepublicans in 2002, made gains.
So it's not impossible.
But the issue cluster has toshift a little bit more towards
concern about urban disturbancesand things like that than it is
right now and I already thinkthat the level of concern about
those issues is higher thannormal.
(16:08):
In terms of the Senate,republicans today control 53
seats.
I think they keep the SenateNow.
That might seem odd to somepeople because the vast majority
of seats that are up for grabsnext year have to be defended by
the Republican Party.
For grabs next year have to bedefended by the Republican Party
, but 20 of the 22 seats theyhave to defend are in red states
(16:30):
that consistently tiltRepublican presidential cycles
relative to the country as awhole.
Those are what I would labelred states, and because of that
I think I already know, amongthose 20 states where the
Republicans have to defend, inthose Republican states, that
the Democrats will pick upeither one or zero seats.
(16:52):
One or zero, I'd be verysurprised by two or more, very
surprised.
So remember, the Democrats haveto pick up four seats to take
the Senate.
Even a 50-50 tie leaves it innominal control by the
Republicans because JD Vance canbreak ties.
So that will leave theDemocrats really focusing in on
Maine and North Carolina, andthey'll be competitive in both.
(17:15):
If you look at the predictionmarkets each of them, the
Democrats have a higher chanceof winning than the Republican
incumbent does.
But the key word is incumbentbecause the Republican
incumbents are running forreelection in both seats Tom
Tillis in North Carolina, susanCollins in Maine, and so I
actually think the Republicansshould be slightly favored, not
vice versa.
Susan Collins always looks likea goner in her previous cycles
(17:39):
and then pulls it out at the end, and usually resoundingly so.
So my best guess is that maybethe Democrats win one of those
two and then they have problemsof their own, because in New
Hampshire, minnesota andMichigan.
They have to defend seatswithout the incumbent because
the incumbents have retired GaryPeters in Michigan, tina Smith
in Minnesota and Gene Shaheen inNew Hampshire.
(18:02):
Now they'll probably win eachof those states, but it gets a
little tougher for them to do so.
It's not as easy or as much ofa slam dunk or a layup again
with these basketball analogiesbecause they're open seats
rather than the incumbentdefending his or her own seat.
So net-net, I think theRepublicans now 53, end up with
(18:24):
52, maybe 51 seats in the USSenate, 51 or 52, still with
control of the US Senate.
And why does this matter, ryan?
It's because, if I'm rightabout the outcome, then Donald
Trump has four years to be ourforeign policy president,
including potentially on theissue of tariffs.
Four years to appoint prettymuch whomever he wants to the
(18:45):
federal courts, including,should there be a vacancy, to
the Supreme Court.
Four years to run roughshodwhich he loves over the
executive agencies anddepartments, hiring and firing,
especially firing whomever hewants.
But he's only got two years tolegislate, just two years.
Legislation runs out in 17months.
And the reason I say that isbecause, if I'm right about the
(19:08):
outcome, starting in January2027, every single piece of
legislation getting to his deskis going to have to be
bipartisan, everything at leastpartially bipartisan to get
there.
Ryan (19:18):
So one of the pieces of legislation that's most
important in being it'sdefinitely what's in the
headlines and it's beingnegotiated now is the taxing and
the tax and spending bill, thereconciliation, the one big
beautiful bill.
So where are we at with thatbill?
(19:39):
What's your best guess on thelikely outcome when it comes to
some of the main parts of that?
Are we going to have anextension of the Trump tax cuts
for individuals?
Is the spending being cut atall, or is it just an illusion
that it's maybe going to be cut?
Bob (19:59):
What's your take On the spending?
You're going to see changes toentitlements, definitely on
Medicaid not a majortransformation, but a small and
perhaps on Medicare, some minorchanges to that as well.
That will reduce spending onthose entitlement programs out
into the future, combined withTrump meeting some of his
(20:19):
campaign promises to spend extramoney on, like border
enforcement and courts andthings like that, to process
immigration, stuff like that,but those are part of his
campaign promises.
Here is the key.
Some people on the Republicanside Freedom Caucus people, elon
Musk are saying this is likethe porculus bill and they're
spending so much they're notdoing enough.
Side, freedom Caucus people,elon Musk are saying this is
like the porculous bill andthey're spending so much they're
(20:41):
not doing enough.
It is true that there's a caseto be made that the Republicans
are not using this for enoughentitlement spending cuts.
Okay, there's a legitimate case.
I'm not saying it's right orwrong, but it's based on your
political preferences.
If you want to see a smallergovernment, they're not doing a
(21:02):
lot on entitlements, onentitlement cuts, but they're
doing as much as they can doBecause, remember, it's 220 to
215 in the House ofRepresentatives, roughly
speaking, based on deaths thathave happened and stuff like
that, since resignationswhatever.
That gives the Republicans verylittle wiggle room and that
means the moderates in the Housecan say no, no, no, you're
(21:23):
going too far with the spendingcuts.
They're doing as much as theycan on the entitlement cuts.
In terms of other cuts, this isnot the annual appropriations
process.
The budget bill affects revenueand entitlements and it's the
direct spending to meet Trump'simmigration-related proposals
(21:51):
during the campaign.
But overall spending over thenext 10 years is going to be
lower.
But here's the key.
This is totally underreportedby all sides.
Nobody really has a stronginterest in reporting this yet,
but the Congressional BudgetOffice at the beginning of this
year thought that socialdiscretionary spending so not
(22:11):
defense, not entitlements, notnet interest only that social
discretionary spending wassupposed to be a trillion
dollars in the fiscal year thatstarts October 1.
Trump requested less than $700billion for that spending.
That's a 32% cut.
Now he might not get everythinghe wants.
It's possible there's anemergency along the way, an
(22:32):
earthquake somewhere, ahurricane, tornado, whatever
that generates extra spending.
But this may end up to be a 20%or 25% social discretionary
spending, not defensediscretionary.
It's social discretionaryspending which is massive.
It is just a massive cut and ifyou amortize that over 10 years
because it resets the baseline,that's saving $2 trillion to $3
(22:56):
trillion over the next decade.
Ryan (22:57):
Do you have an example of what would fit in that category?
Bob (22:59):
Well, it's the education department.
Ryan (23:01):
Okay.
Bob (23:01):
A lot of state department-related stuff with
USAID Could be money for thecorporation for public
broadcasting.
Ryan (23:10):
Okay, so is that where Doge actually, you think had an
effect?
Bob (23:14):
So I think Doge took a lot of credit and heat for doing
things that just things Trumpwanted, and you needed the
expertise of the people put inDoge to accomplish these things
and apparently, like they've.
You know they and others haveworked on things like speeding
up the federal retirementprocess, like in terms of like
(23:37):
actually being able to fill outthe forms and know that the
federal government is ready topay your pension and everything
like that for the employees.
But USAID, department ofEducation, doge was involved in
those things.
But ultimately these aredecisions made out of the White
House and in the executiveagencies themselves, like DOGE
(23:57):
by itself could research things,could reveal things, could go
in-depth into their budgets andthings like that.
But the real meat of thelayoffs on the federal
government side and we havestarted to see that in the data
to some extent really weredecisions out of the White House
(24:18):
and made by the executiveagencies themselves.
And you do see the effect Ifyou look at federal government,
excluding the post office andcensus workers which fluctuate
for their other reasons, I thinkfederal employment is down over
the past four months at thesteepest four-month rate in
(24:39):
20-plus years and so we arestarting to see traction and I
think we're going to see more ofit over the next several months
.
Ryan (24:47):
So last year you called the, or maybe last episode you
called this year's budget one ofthe most irresponsible budgets
of your lifetime, do you?
Bob (24:58):
Actually, it was the last two.
Ryan (24:59):
The last two.
The last two.
Bob (25:01):
So I can't say that yet about this one.
Ryan (25:04):
Okay, so do you think that the budget is that they're
talking about is going to.
Are we improving in that regard?
Bob (25:13):
My guess is that the deficit relative to GDP should
be at or below where it was theprevious two years.
Okay, at or below.
Ryan (25:25):
So it's not growing.
Bob (25:26):
Yeah, it's not growing anymore like it did over the
previous two years, and thereason I said the last because
we've had bigger budget deficitsthan we've had over the
previous two fiscal years.
But I think the last twodeficits under Biden were so
irresponsible because we werenot at war, we were not in some
sort of health emergency withCOVID anymore and the
(25:46):
unemployment rate was 4% onaverage over those two budget
years.
Like, just to put it inperspective, reagan's biggest
deficit in the 1980s that's apresident who took a lot of heat
for deficits His biggestdeficit was 5.9% of GDP in
fiscal 83 when we were fullyfunding defense during the Cold
War, and the unemployment ratethat year, that fiscal year was
(26:07):
10%.
So we had a bigger budgetdeficit the past two years when
the unemployment rate was at 4%than we did under Reagan when it
was 10%.
That makes no sense to me.
That's why it was soirresponsible.
If you run a big deficit for agood reason like you're in
recession, whatever that Iunderstand.
But there was no reason to giveBiden a dispensation for the
(26:27):
past two years.
So it remains to be seenBecause, remember, trump came in
in the middle of the fiscalyear.
My best guess is that we don'tsee any more backsliding on that
deficit, but it remains to beseen.
Let's see what happens by theend of the fiscal year.
You always have to makeadjustments for calendar effects
, like does the end of thefiscal year happen on a weekend
(26:51):
so that the payments are made inthat fiscal year rather than
the following fiscal year?
So you have to look at it.
The CBO will actually tell youoh, without these calendar
effects the deficit would havebeen this other number for last
year and it would be this numberfor this year.
So you have to adjust to thosecalendar effects to get a true
underlying trend in the deficit.
My guess is it'll be slightly.
(27:12):
It'll be flat to down.
Ryan (27:14):
Okay, so a few weeks ago the final credit rating agency
downgraded the US Treasury debtfrom AAA to the next notch down,
and I guess I have a coupleparts to my question for you.
One is if we were in an erawith deficits that were really
irresponsible for the last fewyears couple years why did they
(27:37):
do that now?
Why didn't they do it a coupleyears ago?
And they saw some of the samesort of deteriorating?
Bob (27:42):
credit conditions.
You'd have to ask them for anexplanation, because it makes no
sense to me.
Ryan (27:46):
Yeah, there's nothing that drastically changed.
It doesn't seem Okay.
So that's good.
Part one to the question.
Part two is you know peopleraise the question well, does
that mean that the dollar isgoing to lose its special status
as a reserve currency?
Is the US borrowing costs goingto climb out of control?
What's your take on that?
Bob (28:07):
So we're not going to lose our reserve currency status
anytime in the foreseeablefuture.
Are we going to lose it to theChinese yuan?
People aren't going to trustthe Chinese to maintain the
value of their currency if theyrun into an economic emergency.
Every time there's a financialcrisis, people will be worried
(28:27):
about the euro.
I mean, in terms of globalreserves by other central banks,
gold is now a bigger reservethan the euro.
At this point.
My understanding is it's stillwell behind the dollar.
Point.
My understanding is I'm stillwell behind the dollar.
So in the land of the blind,the one-eyed man is king and in
the world as it is, the dollaris like the one-eyed currency.
There's nothing going to takeour place Now.
(28:48):
Is Bitcoin or some other kindof crypto going to come along
and take our place?
I'm doubtful on that, becausegovernments are jealous gods and
if crypto was moving in thatdirection, the US government
would just regulate it to deathif it had to.
So I don't think that's goingto happen.
We're not going to lose ourreserve currency status.
Ryan (29:08):
Okay.
So that brings me to somethingwe haven't really talked much
about, and that's tariffs.
We won't get into currencyrelationships too much, even
though the dollar has weakenedas Liberation Day came, but
tariffs have been, I think,misunderstood by the public, and
(29:29):
part of that is maybe thecommunication hasn't been as
clear on what's trying to beachieved but what the objectives
are.
Bob (29:35):
Well, I think the problem with the public perception is
that the policy is so erratic,not just because of who's
imposing them the presidenthimself is erratic in his
selection of terrorists butbecause you also have the
involvement of the courts atthis point, and so now we don't
know whether the Liberation Dayterrorists are going to remain
in law much longer, and how muchlonger, and if they are
(30:00):
rescinded by the courts oroverruled by the courts, whether
or not and how long it wouldtake for the Trump
administration to gin up somesimilar tariff regime based on
other laws that Congress haspassed in the past.
So I think that's part of whyit's so erratic.
And you really don't.
If there's a benefit fromtariffs and I'm not saying the
(30:20):
net benefits or the benefitsoutweigh the cost, but if
there's a benefit from tariffs,it's only going to be if tariff
policy is consistent enough,which it hasn't been yet so that
firms can assume those tariffsremain in place so they bring
production home to the UnitedStates.
And I'm not again, I'm notsaying there is a net benefit
(30:43):
from tariffs, but if you'regoing to get a benefit, you need
some consistency in the policy,and we haven't gotten that yet
Now, in terms of the short run.
The economy shrank in the firstquarter because firms were
front-running tariffs.
And so basically, like, imaginethat you run a furniture store.
You sell sectional sofas thatare built in the USA.
(31:05):
You also sell sectional sofasthat are built abroad.
So you know the Trump tariffsare coming.
He's elected, he's talkingabout tariffs and imposing them
later in the year.
You're going to front-run thosetariffs.
You're going to boost yourorders from your foreign sources
and you're going to front runthose tariffs.
You're going to boost yourorders from your foreign sources
and you're going tocorrespondingly cut your orders
from your domestic sources.
(31:26):
So you don't want to pile upmassive amounts of inventory.
So you're going to tell your USfurniture makers hold off on my
orders for now, don't make them.
You're going to tell yourforeign producers to boost their
production.
Your inventory stays roughlythe same, but you get most of
your action.
You're servicing your customersfrom your foreign stuff because
you know that price is going togo up soon, right?
(31:48):
So that, in a nutshell, is whathappens to the US economy in the
first quarter.
That's why output went down inthe US.
It really did go down.
But it's going to rebound inthe second quarter because now
that the tariffs are more inplace, you're going to tell your
farm producers yeah, we orderedextra last quarter.
Now we're back to normal ormaybe even temporarily below
(32:09):
normal because the tariffs makeit tougher for me to buy.
Oh yeah, domestic producers, wewant more from you to make up
for last quarter when we orderedfewer, okay, and to balance it
out, because now we're orderingless from our foreign producers,
we're going to order more fromyou guys again, okay.
So we're going to get 4% plus,in my view, economic growth in
the second quarter.
(32:30):
I know the Atlanta Fed issaying 3.8 right now, but I
still think they're low-ballingtrade because they don't
exercise judgment in the waythey do their modeling.
There's no Trump tariff erraticbehavior variable in their
model, and so I think importscontinue to be low throughout
the second quarter and thatApril was not an aberration.
(32:52):
And because of that, they'regoing to keep on revising their
GDP number higher, not everydata report, but on a
month-over-month basis.
They're going to revise theirsecond quarter number higher.
So I think it's going to be atleast 4%.
I wouldn't be shocked by 5% orso for the second quarter and
then we'll get back to trend.
Whatever it is more like 2% or3% for the second half of the
(33:16):
year.
For the second half of the yearexactly.
Ryan (33:19):
Because tariffs are perceived as temporary, on the
potential for influencingreshoring of manufacturing, for
example.
So, in order for tariffs to bemore permanent, do they have to
be legislated or can they rightnow?
They're all executive orders.
Bob (33:34):
If they are legislated they would be more permanent.
But that might not be the onlyavenue to actually.
You have to be careful how wesay permanent.
It's not permanent in thelegislative sense.
In the legislative sense Eventhen, it's not truly permanent
(33:56):
in the philosophical sense, ifyou will.
So when they say it's permanent, a permanent change to the tax
policy, that just means untilCongress passes another law
which can change it.
So it's not like metaphysicallypermanent if you will.
Yes, okay, so permanent in termsof the regulations.
(34:16):
You can get permanence in termsof Trump regulations as long as
it goes through the legalprocess and the courts say no,
he can do it this way.
Okay, which he doesn't havethat yet.
Later in the administration,maybe later this year or next
(34:39):
year, where he can either usethe current process he's used or
a different process to impose acertain level of tariffs and
then it's permanent until hepersonally changes his mind,
wakes up on the wrong side ofthe bed or maybe the right side
of the bed, but at least thatwould be more permanent than it
is now when it's still goingthrough the judicial process.
Ryan (34:57):
When Trump was initially elected, one of the bullish
cases for businesses and marketswas that there would be a lot
of regulatory cuts at leastpotentially, but we haven't
really heard much about that yet.
Do you think that that's goingto have an impact as we go
through the next few years?
Bob (35:16):
To some extent, the process of issuing new regulations is
substantially slower.
We have the decision from theSupreme Court last year
overturning Chevron, which makesthe process slower even if
there were a Democrat in officeor subject to judicial oversight
or subject to judicialoversight.
(35:36):
And we have seen theannouncements, especially at the
EPA, for example, makingcoal-fired plants a little bit
easier to run, and I expect alittle bit more of that over
time.
I think the regulators andderegulators in the Trump
administration thisadministration rather than the
(35:57):
first Trump administration aredoing things more deliberately.
And I'll give you a totallydifferent topic ban on travel
(36:17):
from a select few number ofcountries, where the process for
getting passports and likebackground checks and the people
coming over was just totallyhaphazard.
He did that right away withlittle legal grounding.
Well, he just came out with adifferent ban covering more
countries, but notice that hedid it in May or June, not in
January.
They went through a moredeliberate process at the White
(36:41):
House and through theinteragency executive branch
process of policymaking in orderto generate a ban that's going
to be more widespread and moreeffective and more likely to
hold legal muster than theoriginal ban back in 2017.
So I think the Trumpadministration generally like
(37:02):
that's in a microcosm suggeststhat they're more deliberate and
are thinking through in abetter way how to make their
policies sustainable whenthey're objected to through the
court system.
Ryan (37:15):
Yeah, that makes sense because when Trump first came
into office, he had zeroexperience as president and I'm
sure he's learned a lot, and thepeople around him and you know,
supporting his policies haveactually learned a lot since
then.
Yeah, that's right, and so nowthey're able to be more
permanent and deliberate, likeyou said.
That's interesting.
Bob (37:37):
Yeah, basically, those four years out of office were a
blessing for the people whosupport Trump, because they were
able to get their ducks in arow in terms of what do we have
to do to actually implement thepolicies we say we want to
implement, like they've spokento legal experts about it.
Like they've spoken to legalexperts about it, people
(38:00):
understand the regulatoryprocess and, to some extent, the
legislative process to try toimplement the policies in a more
effective way.
Ryan (38:04):
Okay, All right, Bob, I'm again looking at the clock and
time has flown by.
Final question for you, and Ihaven't run this by you, so this
is going to be great.
The answer is no.
Bob (38:16):
No.
Ryan (38:18):
All right.
So right now there are a lot ofyounger people kind of going
into internships.
We're in the beginning ofsummer.
You've got kids that are aroundthat age, so pass along some
wisdom from a senior economistto someone who's maybe a little
bit earlier on in their economicroad.
What would be the mostimportant advice that you would
(38:42):
give to somebody who is going tobe an economist and they're
trying to figure out, like, howdo I separate the signal from
the noise?
Bob (38:48):
Wow, that's great.
Read as much as you can.
I would advise reading NateSilver's book the Signal and the
Noise from years ago.
I'd also read carefully,depending upon what field of
economics you're going into.
If you're doing a lot offorecasting of indicators, which
I do a lot of other stuff, butforecasting of indicators is
(39:10):
something I really enjoy andthat's part of what I do.
By now, brian Westbury, ourchief economist, kind of laughs
about it sometimes because he'slike you've been here 18 and a
half years.
This would be something done bya more junior accountant.
I'm like no, I'm not lettingthis go.
I love like forecasting, likeretail sales or industrial
production every single month.
I just I can't give it up.
(39:32):
So focus on the data.
Let the data speak for itself.
Don't get too tied down inideology, but it's important to
have a view of the way the worldworks.
That is 30,000 to 40,000 feet.
Be willing to revisit thatworldview every so often when
you see data that contradictthat worldview, which is
(39:54):
perfectly fine.
Hone your worldview over time.
Don't assume that the worldviewyou have today is the worldview
you're going to have 20 yearsfrom now.
Like you can't project yourselfinto the future that way, or
project your mind into thefuture that way.
So be open-minded.
Let the data speak for itself.
Don't assume that whatpoliticians and political actors
(40:23):
say about policy or what'sgoing on in Washington generally
in terms of the federal budgetis the truth.
It's not that they say what'sin their personal interest.
Assume that when policymakersare making policy, that they are
as self-interested based ontheir personal goals as
everybody else is in the privatesphere.
There's nothing special.
No one pours angel dust on you.
Angel dust might not be thewrong word.
Ryan (40:45):
Sprinkles dust on you to turn you into, like, as Milton
Friedman used to say, where arethese angels?
That's the yeah exactly.
Bob (40:53):
Angel dust might be the wrong thing to say.
Different connotation yes, sono one turns you into an angel
when you walk into a publicbuilding, whether you're elected
or appointed or otherwise, sodon't assume that what they're
saying is the actual fact.
Ryan (41:08):
They're self-interested as well.
Yeah, as well, as everyone is.
Bob (41:11):
Pursue interpretations that are contrary to your own about
public events.
Ryan (41:15):
All right, great advice.
It's always great to have youon the podcast.
Thank you for coming on onceagain, bob.
Bob (41:21):
Hopefully I'll be here in a few months.
Sounds good.
Ryan (41:24):
And thanks to all of you who have joined us on this
episode of the First Trust ROIPodcast.
We'll see you next time.
Hi, welcome to this episode of the First Trust ROI
podcast.
I'm Ryan Isakainen, etsstrategist at First Trust.
Today, I'm joined by DeputyChief Economist at First Trust,
bob Stein.
Bob and I are going to talkabout what's going on in the US
economy.
We'll talk a little bit about atoo early take on the midterm
elections, as well as the 2028presidential election, and we've
(00:33):
got a lot of other things totalk about.
It's always great to have BobStein on the First Trust ROI
podcast.
Thanks for joining us.
I want your early call as youlook in your crystal ball a
little bit further down the road, starting off with the
presidential election.
We're a ways away, still right,but I'm curious what you think
of who are the likeliestcandidates to succeed this
(00:58):
presidential administration?
On the Republican side, who arethe heir parents to run, and
then also on the Democrat side.
Bob (01:05):
Remember it's three and a half years away, Three and a
half years to the actualpresidential election, so a lot
can change Every six months.
Things can change dramatically,but here's the way I see it on
the Republican side.
It's really easy.
Okay, so the prediction marketsare giving JD Vance maybe a 40,
42, 43 percent chance ofgetting the nomination.
(01:26):
I would take the over on that.
I think JD Vance has about a 65percent chance of being that
nominee.
I think he's smart enough tostay close enough ideologically
and politically with DonaldTrump, the president, and that
he is the heir apparent and hewill be the nominee as long as
he remains loyal and Trumpremains reasonably popular with
(01:48):
the Republican side of theelectorate, because all he has
to do again is win the primariesto get that nomination.
So I think it's JD Vance 65percent.
Everybody else combined MaybeNikki Haley, Mike Pompeo, Glenn
Youngkin, Tom Cotton, whomeverEverybody else combined 35%.
And I think if JD Vance is thenominee, I already know who his
(02:10):
running mate is going to be.
It's going to be Little Marcofrom 2016.
Little Marco's all grown up, sothey're close.
Personally, Vance and Rubio.
Picking Rubio would entrenchHispanic support for the
Republican Party.
They've made substantialinroads with Hispanic voters
around the country Over the pastfew cycles.
(02:32):
That should continue byselecting Rubio and entrench
that support.
Rubio is a very smart,articulate spokesman for
Republicans and conservatives,both domestic and international
affairs, so you could have likeyour attack dog with you.
(02:54):
Like Rubio will be assigned thejob of attacking the Democratic
nominee, whomever that turnsout to be.
And last and very importantly,probably the most important
factor is that Rubio has anattribute that many of these
other potential vicepresidential running mates on
the Republican side don't have,which is that he's shorter than
JD Vance, and I know people kindof scoff at that, but that's
important.
Like Tom Cotton and GlennYoungkin are both like 6'5".
(03:18):
Does JD Vance want to be at theRepublican convention?
Are we standing up on thecampaign trail with his running
mate towering over him?
Ryan (03:24):
I don't think so how tall is JD Vance?
Bob (03:26):
I think JD Vance is maybe 6'1 or 6 feet or something like
that.
Ryan (03:30):
So he's not below average, but he's not way above average.
Bob (03:34):
No, exactly Exactly.
He's shorter than Donald Trump.
Yeah, so JD Vance is going topay it forward by picking
someone shorter than himself,and that would be Marco.
Marco would fit the billperfectly.
So Tom Cotton and GlennYoungkin they might be on the
list, on the short list, butthey're not on the true short
(03:57):
list because they're too tall.
Democratic side there's absolutechaos.
There is no clear frontrunner,none.
I mean.
It is wide open.
Everybody from Gavin Newsom toPete Buttigieg to Gretchen
Whitmer to Pritzker fromIllinois, who's loaded with
(04:17):
money.
He doesn't have to raise moneyas aggressively as some of these
other people.
There are just tons ofcandidates.
So let me bring up two peoplewho will not be on my list as
running Okay and maybe I'll endup with egg on my face, but I'm
pretty confident of this.
Bernie Sanders ain't runningOkay.
The guy would be 88 when hegets inaugurated 88.
(04:39):
He'd be running to remainpresident in just his first term
, until his 90s.
The American public, includingthe Democrats, having
experienced Joe Biden, are notgoing to nominate someone who's
going to be a nonagenarian inthe Oval Office.
That's just not going to happen.
I don't think he runs.
(04:59):
I think he passes the torch toAOC in terms of the hard left
and that's been ongoing wherethey're together at rallies.
Ryan (05:08):
Can she articulate what he articulates, though it seems
like he's a very whether youlike him or dislike him, or
agree or disagree.
It seems like he can articulatehis views in a consistent way
and I'm not sure that she hasthe political experience or
background to be able to do that, Correct.
But she's physically moreattractive.
She does it with salsa and I'mnot sure that she has the
political experience orbackground to be able to do that
Correct.
Bob (05:25):
But she's physically more attractive.
She does it with salsa, youknow, and that's fine.
Ryan (05:31):
I mean you have candidates who are— In a world of clips.
Maybe it's not as important.
Bob (05:35):
It's not as important.
He's basically a guy whohoneymooned in the Soviet Union
like when he got married and hasnever apologized for it.
He's like an old-time Marxistand I think where, as AOC, might
(05:55):
be not as intellectuallyrigorous in her leftism as
Bernie Sanders, it's certainlypart of her authentic self and
she has pizzazz that BernieSanders doesn't necessarily have
.
Ryan (06:09):
Could she go on a podcast and talk for three hours to Joe
Rogan?
No, actually she could, becauseI think that's where Kamala had
, like it was one of the reasonswhy she wasn't able to get
across.
I think this was in our lastpodcast.
Bob (06:22):
Yeah, harris was a uniquely vapid candidate and I don't
think we'll probably see thelikes of her running for the
presidency anytime soon, orcertainly not getting the
nomination and participating ina general election battle for
the presidency.
But I think AOC is not nearlyas vapid as Harris.
(06:42):
But I think AOC is not nearlyas vapid as Harris and I think
she could attempt to do so.
Bernie Sanders I could seegoing on Rogan and doing
intellectual battle with Rogan.
I'm not sure about AOC itremains to be seen but I don't
think she would shy away from itthe way Harris would.
(07:04):
But I don't think she would shyaway from it the way Harris
would.
I'm not sure Harris canmaintain a substantive
conversation on any topicwithout sounding vapid for like
more than 15 minutes.
So, in terms of the othercandidate who you will not see
on the Democratic side isMichelle Obama, and I know
people have talked aboutMichelle Obama for years, but
she was never going to run forpresident.
(07:26):
She will never run forpresident.
Best evidence of this that thepublic saw is that Jimmy Carter,
our longest-lived president anda Democratic president to boot,
passes away at age of 100.
And all the former presidentsgo to the funeral and all the
former first ladies go to thefuneral, with the one exception
(07:48):
of Michelle Obama, whoapparently needed a little me
time, I mean.
That to me makes it very clearshe doesn't have the fire in the
belly, the desire to bepresident of the United States.
She's never going to run.
I think it was just aWashington rumor mill about
Obama making fundraising callson her behalf and people were
just regurgitating what theyheard.
I don't see any evidence ofthat actually having happened.
(08:11):
She will never run forpresident.
So the two people who I thinkget scoffed at the most on the
Democratic side in terms oftheir odds of getting the
nomination and I'm not sayingthey're the front runners, but
if they throw their hat in thering and they might not, both
might not, but if they throwtheir hat in the ring they're
going to be formidable.
One is AOC, who might end upbeing the only hard left Bernie
(08:35):
Sanders acolyte on theDemocratic side in this race.
And if she is, she walks intoevery primary with about 35% of
the vote already sewn up, maybea little less, maybe a little
more, depending on the state.
Well, you know she has a hardtime getting from 35 to 45 or 50
, but I don't think thesuperdelegates on the Democratic
(08:56):
Party are going to stand in herway.
They're not going to say, ohyou know, we have a white
candidate or we have a malecandidate who we want to
nominate.
Instead, I think they wouldkind of accept that she gets the
nomination if she can get like45% of the delegates, because
all the other delegates would besplit among other candidates.
So she's got a shot.
If she is the only hard leftcandidate in the race Remains to
(09:19):
be seen, but that's her shot.
The other guy is Stephen A Smith, and yes, I'm talking about the
guy from ESPN.
I know all he does is talk, butthat's a skill set.
He can call into MSNBC, foxNews, he can call into CNN, just
like Donald Trump did in 2015and 2016,.
Talk off the top of his head,spontaneously, extemporaneously,
(09:39):
without conveying to the publicthat he has a list of talking
points that he's reading infront of him, without conveying
to the public that he has a listof talking points that he's
reading in front of him, withoutconveying to the public that
he's trying to remember what hisadvisors told him to say and
not to say about that particulartopic.
He can talk off the top of hishead.
Quite refreshing with Trump andquite refreshing also, I think,
(10:00):
with Stephen A Smith.
Trump answered a lot ofquestions differently from all
the other Republicans.
Iraq war they said it wasessentially a noble cause, even
if it might not have been foughtright.
He said it was full of junk.
He said it was like fake newsWMD, whether you agree with him
or not.
It was different for theRepublican Party.
(10:21):
All the other candidates werefree traders.
He's a protectionist.
All the other candidates wantedto make big changes to Social
Security or Medicare.
He said no, I'm not going totouch those.
All the other candidates wantedto immediately cut Planned
Parenthood to the bone.
He said no, they do some goodwork.
That was his position back then.
So all the other candidateswere fighting over the cookie
(10:41):
cutter positions that theRepublican elite in DC was
telling primary candidates tohave over the course of the
previous couple of decades, andhe didn't buy any of it and he
was more popular than all thoseother candidates.
Stephen A Smith, could youimagine a debate in 2027, you
know, late in 2027, early 2028,where all of the candidates on
(11:05):
stage, if he runs, includingStephen A Smith, are asked about
boys participating in girls'sports.
All the other candidates aregoing to say it's complicated or
they're okay with it in certaincircumstances.
Stephen A Smith is going to saythis is utterly ridiculous,
it's a competitive advantage andthey should not be doing that.
No boys and girls sports.
(11:25):
No men and females sports.
No, we're not going to do that.
So I actually think hisposition would be more popular
than the other position, evenamong most Democrats not Beltway
or academia Democrats, butactual voting Democrats.
I think they will gravitate tohis position rather than the
position of, like the inside thebeltway Democratic crew, and he
(11:47):
may find himself unusuallypopular, like Donald Trump did
back in 2015 and 2016.
So it remains to be seen.
If he runs, it's certainlypossible.
He won't.
If you look at the predictionmarkets, he probably won't.
But if he does, he's going tobe more formidable than people
give him credit for.
Ryan (12:03):
That's interesting I think Gavin Newsom is.
I don't know where he is in theprediction markets, but he has
started a podcast.
I've noticed I don't know ifyou've seen his podcast where
he's had a bunch of guests fromthe right, from the Republican
side, and tried to haveconversations that sound more
pragmatic and more balanced andit seems like he's trying to
(12:25):
maybe tack a little bit fromwhat might be perceived as a
hard left position towards thecenter a bit and I think he's
trying to get practice onpodcasts.
Bob (12:34):
Yeah, I think that's true as well.
I also think that some of therecent unrest going on in Los
Angeles doesn't necessarilyinure to his benefit.
It may be inures to his benefitin terms of getting the
nomination, but not in terms ofwinning a general election.
Same with the mismanagement ofLos Angeles regarding the fires
(12:56):
that have happened over the pastsix months.
That, combined with the unrest,kind of leaves a picture in the
image of the mind of the medianvoter to some extent of
distasteful things going on inCalifornia associated with his
governorship.
But he's pretty smart, he cantalk on his feet and he's got
(13:17):
great hair.
I mean he really fits the suit.
He's like Greg Brady in that.
Brady episode where we didn'tpick you because you could sing.
We picked you because you fitthe suit.
Okay, well, Gavin Newsom fitsthe suit, you know.
Ryan (13:30):
Yeah, is he tall.
Bob (13:32):
He's tall enough.
Yeah, I don't think he can beatJD Vance's running mate, so
he's too tall for that.
Ryan (13:38):
Okay, so what about?
We're a year away from themidterms and actually it's
closer than that, when peoplewill start talking about it in
2026.
Yeah, what's your take on howthe midterms shake out and some
of the significance of how it'sgoing to shake out?
Bob (13:55):
So in 2026, we saw what we can call in boxing terms, a
unanimous decision where theRepublicans won the House, the
Senate and the presidency In2024.
I'm sorry, 2024.
So 2026, it's going to be asplit decision.
So it's the Senate and theHouse.
I think the Democrats are verylikely to take the House.
I think about 85% likely, andthat's higher than the
(14:16):
prediction markets currentlyhave them Not by leaps and
bounds, but it is higher why?
Well, number one, theRepublican majority is razor
thin.
Back in 2024, they won theHouse 220 to 215.
So all the Democrats would haveto do is gain three seats
compared to what they did backin 2024 last year, and they get
a narrow majority, only three.
(14:39):
Historically speaking, the partynot occupying the White House
tends to win more seats thanthey previously did.
Not always.
If you look back at the 20midterm election cycle since the
end of World War II, startingin 1946, the out party has won
three seats or more 90% of thetime.
So just like kind of like toestablish some sort of prior,
(15:04):
democrats probably win the House.
In addition, this is not yourfather's Republican Party.
The old Republican Party got alot of their support from highly
educated voters.
Now the Democrats do betterwith highly educated voters.
Now lower educated voters havegravitated to the Republicans,
but they show certain votingpatterns.
In terms of their turnout ratesthey do turn out like everybody
(15:26):
else in presidential elections,but not so much in special
elections or midterm cycles.
Because of that I think theRepublicans are behind the hate
ball Now.
That doesn't mean they can'tkeep the House.
I just think it's unlikely,only a 15% chance.
But you know it happened in1998 and 2002, the in party, the
(15:47):
Democrats in 1998 orRepublicans in 2002, made gains.
So it's not impossible.
But the issue cluster has toshift a little bit more towards
concern about urban disturbancesand things like that than it is
right now and I already thinkthat the level of concern about
those issues is higher thannormal.
(16:08):
In terms of the Senate,republicans today control 53
seats.
I think they keep the SenateNow.
That might seem odd to somepeople because the vast majority
of seats that are up for grabsnext year have to be defended by
the Republican Party.
For grabs next year have to bedefended by the Republican Party
, but 20 of the 22 seats theyhave to defend are in red states
(16:30):
that consistently tiltRepublican presidential cycles
relative to the country as awhole.
Those are what I would labelred states, and because of that
I think I already know, amongthose 20 states where the
Republicans have to defend, inthose Republican states, that
the Democrats will pick upeither one or zero seats.
(16:52):
One or zero, I'd be verysurprised by two or more, very
surprised.
So remember, the Democrats haveto pick up four seats to take
the Senate.
Even a 50-50 tie leaves it innominal control by the
Republicans because JD Vance canbreak ties.
So that will leave theDemocrats really focusing in on
Maine and North Carolina, andthey'll be competitive in both.
(17:15):
If you look at the predictionmarkets each of them, the
Democrats have a higher chanceof winning than the Republican
incumbent does.
But the key word is incumbentbecause the Republican
incumbents are running forreelection in both seats Tom
Tillis in North Carolina, susanCollins in Maine, and so I
actually think the Republicansshould be slightly favored, not
vice versa.
Susan Collins always looks likea goner in her previous cycles
(17:39):
and then pulls it out at the end, and usually resoundingly so.
So my best guess is that maybethe Democrats win one of those
two and then they have problemsof their own, because in New
Hampshire, minnesota andMichigan.
They have to defend seatswithout the incumbent because
the incumbents have retired GaryPeters in Michigan, tina Smith
in Minnesota and Gene Shaheen inNew Hampshire.
(18:02):
Now they'll probably win eachof those states, but it gets a
little tougher for them to do so.
It's not as easy or as much ofa slam dunk or a layup again
with these basketball analogiesbecause they're open seats
rather than the incumbentdefending his or her own seat.
So net-net, I think theRepublicans now 53, end up with
(18:24):
52, maybe 51 seats in the USSenate, 51 or 52, still with
control of the US Senate.
And why does this matter, ryan?
It's because, if I'm rightabout the outcome, then Donald
Trump has four years to be ourforeign policy president,
including potentially on theissue of tariffs.
Four years to appoint prettymuch whomever he wants to the
(18:45):
federal courts, including,should there be a vacancy, to
the Supreme Court.
Four years to run roughshodwhich he loves over the
executive agencies anddepartments, hiring and firing,
especially firing whomever hewants.
But he's only got two years tolegislate, just two years.
Legislation runs out in 17months.
And the reason I say that isbecause, if I'm right about the
(19:08):
outcome, starting in January2027, every single piece of
legislation getting to his deskis going to have to be
bipartisan, everything at leastpartially bipartisan to get
there.
Ryan (19:18):
So one of the pieces of legislation that's most
important in being it'sdefinitely what's in the
headlines and it's beingnegotiated now is the taxing and
the tax and spending bill, thereconciliation, the one big
beautiful bill.
So where are we at with thatbill?
(19:39):
What's your best guess on thelikely outcome when it comes to
some of the main parts of that?
Are we going to have anextension of the Trump tax cuts
for individuals?
Is the spending being cut atall, or is it just an illusion
that it's maybe going to be cut?
Bob (19:59):
What's your take On the spending?
You're going to see changes toentitlements, definitely on
Medicaid not a majortransformation, but a small and
perhaps on Medicare, some minorchanges to that as well.
That will reduce spending onthose entitlement programs out
into the future, combined withTrump meeting some of his
(20:19):
campaign promises to spend extramoney on, like border
enforcement and courts andthings like that, to process
immigration, stuff like that,but those are part of his
campaign promises.
Here is the key.
Some people on the Republicanside Freedom Caucus people, elon
Musk are saying this is likethe porculus bill and they're
spending so much they're notdoing enough.
Side, freedom Caucus people,elon Musk are saying this is
like the porculous bill andthey're spending so much they're
(20:41):
not doing enough.
It is true that there's a caseto be made that the Republicans
are not using this for enoughentitlement spending cuts.
Okay, there's a legitimate case.
I'm not saying it's right orwrong, but it's based on your
political preferences.
If you want to see a smallergovernment, they're not doing a
(21:02):
lot on entitlements, onentitlement cuts, but they're
doing as much as they can doBecause, remember, it's 220 to
215 in the House ofRepresentatives, roughly
speaking, based on deaths thathave happened and stuff like
that, since resignationswhatever.
That gives the Republicans verylittle wiggle room and that
means the moderates in the Housecan say no, no, no, you're
(21:23):
going too far with the spendingcuts.
They're doing as much as theycan on the entitlement cuts.
In terms of other cuts, this isnot the annual appropriations
process.
The budget bill affects revenueand entitlements and it's the
direct spending to meet Trump'simmigration-related proposals
(21:51):
during the campaign.
But overall spending over thenext 10 years is going to be
lower.
But here's the key.
This is totally underreportedby all sides.
Nobody really has a stronginterest in reporting this yet,
but the Congressional BudgetOffice at the beginning of this
year thought that socialdiscretionary spending so not
(22:11):
defense, not entitlements, notnet interest only that social
discretionary spending wassupposed to be a trillion
dollars in the fiscal year thatstarts October 1.
Trump requested less than $700billion for that spending.
That's a 32% cut.
Now he might not get everythinghe wants.
It's possible there's anemergency along the way, an
(22:32):
earthquake somewhere, ahurricane, tornado, whatever
that generates extra spending.
But this may end up to be a 20%or 25% social discretionary
spending, not defensediscretionary.
It's social discretionaryspending which is massive.
It is just a massive cut and ifyou amortize that over 10 years
because it resets the baseline,that's saving $2 trillion to $3
(22:56):
trillion over the next decade.
Ryan (22:57):
Do you have an example of what would fit in that category?
Bob (22:59):
Well, it's the education department.
Ryan (23:01):
Okay.
Bob (23:01):
A lot of state department-related stuff with
USAID Could be money for thecorporation for public
broadcasting.
Ryan (23:10):
Okay, so is that where Doge actually, you think had an
effect?
Bob (23:14):
So I think Doge took a lot of credit and heat for doing
things that just things Trumpwanted, and you needed the
expertise of the people put inDoge to accomplish these things
and apparently, like they've.
You know they and others haveworked on things like speeding
up the federal retirementprocess, like in terms of like
(23:37):
actually being able to fill outthe forms and know that the
federal government is ready topay your pension and everything
like that for the employees.
But USAID, department ofEducation, doge was involved in
those things.
But ultimately these aredecisions made out of the White
House and in the executiveagencies themselves, like DOGE
(23:57):
by itself could research things,could reveal things, could go
in-depth into their budgets andthings like that.
But the real meat of thelayoffs on the federal
government side and we havestarted to see that in the data
to some extent really weredecisions out of the White House
(24:18):
and made by the executiveagencies themselves.
And you do see the effect Ifyou look at federal government,
excluding the post office andcensus workers which fluctuate
for their other reasons, I thinkfederal employment is down over
the past four months at thesteepest four-month rate in
(24:39):
20-plus years and so we arestarting to see traction and I
think we're going to see more ofit over the next several months
.
Ryan (24:47):
So last year you called the, or maybe last episode you
called this year's budget one ofthe most irresponsible budgets
of your lifetime, do you?
Bob (24:58):
Actually, it was the last two.
Ryan (24:59):
The last two.
The last two.
Bob (25:01):
So I can't say that yet about this one.
Ryan (25:04):
Okay, so do you think that the budget is that they're
talking about is going to.
Are we improving in that regard?
Bob (25:13):
My guess is that the deficit relative to GDP should
be at or below where it was theprevious two years.
Okay, at or below.
Ryan (25:25):
So it's not growing.
Bob (25:26):
Yeah, it's not growing anymore like it did over the
previous two years, and thereason I said the last because
we've had bigger budget deficitsthan we've had over the
previous two fiscal years.
But I think the last twodeficits under Biden were so
irresponsible because we werenot at war, we were not in some
sort of health emergency withCOVID anymore and the
(25:46):
unemployment rate was 4% onaverage over those two budget
years.
Like, just to put it inperspective, reagan's biggest
deficit in the 1980s that's apresident who took a lot of heat
for deficits His biggestdeficit was 5.9% of GDP in
fiscal 83 when we were fullyfunding defense during the Cold
War, and the unemployment ratethat year, that fiscal year was
(26:07):
10%.
So we had a bigger budgetdeficit the past two years when
the unemployment rate was at 4%than we did under Reagan when it
was 10%.
That makes no sense to me.
That's why it was soirresponsible.
If you run a big deficit for agood reason like you're in
recession, whatever that Iunderstand.
But there was no reason to giveBiden a dispensation for the
(26:27):
past two years.
So it remains to be seenBecause, remember, trump came in
in the middle of the fiscalyear.
My best guess is that we don'tsee any more backsliding on that
deficit, but it remains to beseen.
Let's see what happens by theend of the fiscal year.
You always have to makeadjustments for calendar effects
, like does the end of thefiscal year happen on a weekend
(26:51):
so that the payments are made inthat fiscal year rather than
the following fiscal year?
So you have to look at it.
The CBO will actually tell youoh, without these calendar
effects the deficit would havebeen this other number for last
year and it would be this numberfor this year.
So you have to adjust to thosecalendar effects to get a true
underlying trend in the deficit.
My guess is it'll be slightly.
(27:12):
It'll be flat to down.
Ryan (27:14):
Okay, so a few weeks ago the final credit rating agency
downgraded the US Treasury debtfrom AAA to the next notch down,
and I guess I have a coupleparts to my question for you.
One is if we were in an erawith deficits that were really
irresponsible for the last fewyears couple years why did they
(27:37):
do that now?
Why didn't they do it a coupleyears ago?
And they saw some of the samesort of deteriorating?
Bob (27:42):
credit conditions.
You'd have to ask them for anexplanation, because it makes no
sense to me.
Ryan (27:46):
Yeah, there's nothing that drastically changed.
It doesn't seem Okay.
So that's good.
Part one to the question.
Part two is you know peopleraise the question well, does
that mean that the dollar isgoing to lose its special status
as a reserve currency?
Is the US borrowing costs goingto climb out of control?
What's your take on that?
Bob (28:07):
So we're not going to lose our reserve currency status
anytime in the foreseeablefuture.
Are we going to lose it to theChinese yuan?
People aren't going to trustthe Chinese to maintain the
value of their currency if theyrun into an economic emergency.
Every time there's a financialcrisis, people will be worried
(28:27):
about the euro.
I mean, in terms of globalreserves by other central banks,
gold is now a bigger reservethan the euro.
At this point.
My understanding is it's stillwell behind the dollar.
Point.
My understanding is I'm stillwell behind the dollar.
So in the land of the blind,the one-eyed man is king and in
the world as it is, the dollaris like the one-eyed currency.
There's nothing going to takeour place Now.
(28:48):
Is Bitcoin or some other kindof crypto going to come along
and take our place?
I'm doubtful on that, becausegovernments are jealous gods and
if crypto was moving in thatdirection, the US government
would just regulate it to deathif it had to.
So I don't think that's goingto happen.
We're not going to lose ourreserve currency status.
Ryan (29:08):
Okay.
So that brings me to somethingwe haven't really talked much
about, and that's tariffs.
We won't get into currencyrelationships too much, even
though the dollar has weakenedas Liberation Day came, but
tariffs have been, I think,misunderstood by the public, and
(29:29):
part of that is maybe thecommunication hasn't been as
clear on what's trying to beachieved but what the objectives
are.
Bob (29:35):
Well, I think the problem with the public perception is
that the policy is so erratic,not just because of who's
imposing them the presidenthimself is erratic in his
selection of terrorists butbecause you also have the
involvement of the courts atthis point, and so now we don't
know whether the Liberation Dayterrorists are going to remain
in law much longer, and how muchlonger, and if they are
(30:00):
rescinded by the courts oroverruled by the courts, whether
or not and how long it wouldtake for the Trump
administration to gin up somesimilar tariff regime based on
other laws that Congress haspassed in the past.
So I think that's part of whyit's so erratic.
And you really don't.
If there's a benefit fromtariffs and I'm not saying the
(30:20):
net benefits or the benefitsoutweigh the cost, but if
there's a benefit from tariffs,it's only going to be if tariff
policy is consistent enough,which it hasn't been yet so that
firms can assume those tariffsremain in place so they bring
production home to the UnitedStates.
And I'm not again, I'm notsaying there is a net benefit
(30:43):
from tariffs, but if you'regoing to get a benefit, you need
some consistency in the policy,and we haven't gotten that yet
Now, in terms of the short run.
The economy shrank in the firstquarter because firms were
front-running tariffs.
And so basically, like, imaginethat you run a furniture store.
You sell sectional sofas thatare built in the USA.
(31:05):
You also sell sectional sofasthat are built abroad.
So you know the Trump tariffsare coming.
He's elected, he's talkingabout tariffs and imposing them
later in the year.
You're going to front-run thosetariffs.
You're going to boost yourorders from your foreign sources
and you're going to front runthose tariffs.
You're going to boost yourorders from your foreign sources
and you're going tocorrespondingly cut your orders
from your domestic sources.
(31:26):
So you don't want to pile upmassive amounts of inventory.
So you're going to tell your USfurniture makers hold off on my
orders for now, don't make them.
You're going to tell yourforeign producers to boost their
production.
Your inventory stays roughlythe same, but you get most of
your action.
You're servicing your customersfrom your foreign stuff because
you know that price is going togo up soon, right?
(31:48):
So that, in a nutshell, is whathappens to the US economy in the
first quarter.
That's why output went down inthe US.
It really did go down.
But it's going to rebound inthe second quarter because now
that the tariffs are more inplace, you're going to tell your
farm producers yeah, we orderedextra last quarter.
Now we're back to normal ormaybe even temporarily below
(32:09):
normal because the tariffs makeit tougher for me to buy.
Oh yeah, domestic producers, wewant more from you to make up
for last quarter when we orderedfewer, okay, and to balance it
out, because now we're orderingless from our foreign producers,
we're going to order more fromyou guys again, okay.
So we're going to get 4% plus,in my view, economic growth in
the second quarter.
(32:30):
I know the Atlanta Fed issaying 3.8 right now, but I
still think they're low-ballingtrade because they don't
exercise judgment in the waythey do their modeling.
There's no Trump tariff erraticbehavior variable in their
model, and so I think importscontinue to be low throughout
the second quarter and thatApril was not an aberration.
(32:52):
And because of that, they'regoing to keep on revising their
GDP number higher, not everydata report, but on a
month-over-month basis.
They're going to revise theirsecond quarter number higher.
So I think it's going to be atleast 4%.
I wouldn't be shocked by 5% orso for the second quarter and
then we'll get back to trend.
Whatever it is more like 2% or3% for the second half of the
(33:16):
year.
For the second half of the yearexactly.
Ryan (33:19):
Because tariffs are perceived as temporary, on the
potential for influencingreshoring of manufacturing, for
example.
So, in order for tariffs to bemore permanent, do they have to
be legislated or can they rightnow?
They're all executive orders.
Bob (33:34):
If they are legislated they would be more permanent.
But that might not be the onlyavenue to actually.
You have to be careful how wesay permanent.
It's not permanent in thelegislative sense.
In the legislative sense Eventhen, it's not truly permanent
(33:56):
in the philosophical sense, ifyou will.
So when they say it's permanent, a permanent change to the tax
policy, that just means untilCongress passes another law
which can change it.
So it's not like metaphysicallypermanent if you will.
Yes, okay, so permanent in termsof the regulations.
(34:16):
You can get permanence in termsof Trump regulations as long as
it goes through the legalprocess and the courts say no,
he can do it this way.
Okay, which he doesn't havethat yet.
Later in the administration,maybe later this year or next
(34:39):
year, where he can either usethe current process he's used or
a different process to impose acertain level of tariffs and
then it's permanent until hepersonally changes his mind,
wakes up on the wrong side ofthe bed or maybe the right side
of the bed, but at least thatwould be more permanent than it
is now when it's still goingthrough the judicial process.
Ryan (34:57):
When Trump was initially elected, one of the bullish
cases for businesses and marketswas that there would be a lot
of regulatory cuts at leastpotentially, but we haven't
really heard much about that yet.
Do you think that that's goingto have an impact as we go
through the next few years?
Bob (35:16):
To some extent, the process of issuing new regulations is
substantially slower.
We have the decision from theSupreme Court last year
overturning Chevron, which makesthe process slower even if
there were a Democrat in officeor subject to judicial oversight
or subject to judicialoversight.
(35:36):
And we have seen theannouncements, especially at the
EPA, for example, makingcoal-fired plants a little bit
easier to run, and I expect alittle bit more of that over
time.
I think the regulators andderegulators in the Trump
administration thisadministration rather than the
(35:57):
first Trump administration aredoing things more deliberately.
And I'll give you a totallydifferent topic ban on travel
(36:17):
from a select few number ofcountries, where the process for
getting passports and likebackground checks and the people
coming over was just totallyhaphazard.
He did that right away withlittle legal grounding.
Well, he just came out with adifferent ban covering more
countries, but notice that hedid it in May or June, not in
January.
They went through a moredeliberate process at the White
(36:41):
House and through theinteragency executive branch
process of policymaking in orderto generate a ban that's going
to be more widespread and moreeffective and more likely to
hold legal muster than theoriginal ban back in 2017.
So I think the Trumpadministration generally like
(37:02):
that's in a microcosm suggeststhat they're more deliberate and
are thinking through in abetter way how to make their
policies sustainable whenthey're objected to through the
court system.
Ryan (37:15):
Yeah, that makes sense because when Trump first came
into office, he had zeroexperience as president and I'm
sure he's learned a lot, and thepeople around him and you know,
supporting his policies haveactually learned a lot since
then.
Yeah, that's right, and so nowthey're able to be more
permanent and deliberate, likeyou said.
That's interesting.
Bob (37:37):
Yeah, basically, those four years out of office were a
blessing for the people whosupport Trump, because they were
able to get their ducks in arow in terms of what do we have
to do to actually implement thepolicies we say we want to
implement, like they've spokento legal experts about it.
Like they've spoken to legalexperts about it, people
(38:00):
understand the regulatoryprocess and, to some extent, the
legislative process to try toimplement the policies in a more
effective way.
Ryan (38:04):
Okay, All right, Bob, I'm again looking at the clock and
time has flown by.
Final question for you, and Ihaven't run this by you, so this
is going to be great.
The answer is no.
Bob (38:16):
No.
Ryan (38:18):
All right.
So right now there are a lot ofyounger people kind of going
into internships.
We're in the beginning ofsummer.
You've got kids that are aroundthat age, so pass along some
wisdom from a senior economistto someone who's maybe a little
bit earlier on in their economicroad.
What would be the mostimportant advice that you would
(38:42):
give to somebody who is going tobe an economist and they're
trying to figure out, like, howdo I separate the signal from
the noise?
Bob (38:48):
Wow, that's great.
Read as much as you can.
I would advise reading NateSilver's book the Signal and the
Noise from years ago.
I'd also read carefully,depending upon what field of
economics you're going into.
If you're doing a lot offorecasting of indicators, which
I do a lot of other stuff, butforecasting of indicators is
(39:10):
something I really enjoy andthat's part of what I do.
By now, brian Westbury, ourchief economist, kind of laughs
about it sometimes because he'slike you've been here 18 and a
half years.
This would be something done bya more junior accountant.
I'm like no, I'm not lettingthis go.
I love like forecasting, likeretail sales or industrial
production every single month.
I just I can't give it up.
(39:32):
So focus on the data.
Let the data speak for itself.
Don't get too tied down inideology, but it's important to
have a view of the way the worldworks.
That is 30,000 to 40,000 feet.
Be willing to revisit thatworldview every so often when
you see data that contradictthat worldview, which is
(39:54):
perfectly fine.
Hone your worldview over time.
Don't assume that the worldviewyou have today is the worldview
you're going to have 20 yearsfrom now.
Like you can't project yourselfinto the future that way, or
project your mind into thefuture that way.
So be open-minded.
Let the data speak for itself.
Don't assume that whatpoliticians and political actors
(40:23):
say about policy or what'sgoing on in Washington generally
in terms of the federal budgetis the truth.
It's not that they say what'sin their personal interest.
Assume that when policymakersare making policy, that they are
as self-interested based ontheir personal goals as
everybody else is in the privatesphere.
There's nothing special.
No one pours angel dust on you.
Angel dust might not be thewrong word.
Ryan (40:45):
Sprinkles dust on you to turn you into, like, as Milton
Friedman used to say, where arethese angels?
That's the yeah exactly.
Bob (40:53):
Angel dust might be the wrong thing to say.
Different connotation yes, sono one turns you into an angel
when you walk into a publicbuilding, whether you're elected
or appointed or otherwise, sodon't assume that what they're
saying is the actual fact.
Ryan (41:08):
They're self-interested as well.
Yeah, as well, as everyone is.
Bob (41:11):
Pursue interpretations that are contrary to your own about
public events.
Ryan (41:15):
All right, great advice.
It's always great to have youon the podcast.
Thank you for coming on onceagain, bob.
Bob (41:21):
Hopefully I'll be here in a few months.
Sounds good.
Ryan (41:24):
And thanks to all of you who have joined us on this
episode of the First Trust ROIPodcast.
We'll see you next time.
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