Jason Trennert, CEO, Chief Investment Strategist, and Co-Founder of Strategas Research Partners, joins Wealthion’s Andrew Brill to discuss the U.S. debt crisis, fiscal policy, inflation risks, and the Federal Reserve’s challenges. With $36 trillion in national debt, surging interest payments, and inflation not fully gone, is America facing a fiscal reckoning? Trennert explains how short-term funding, monetary policy, and market trends are shaping the nation’s financial future. Don’t miss this expert take on what’s next for the economy, housing, markets, and your wealth.
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Jason Trennert 0:00
Uncle Sam basically took out an adjustable rate mortgage on its future. Well over 50% of our our debt matures in the next three years, which means that it’s part of the reason why interest expense is exploding. We’re bullish until the bill comes due. And the bill coming due, in our opinion, is some sort of reckoning when it comes to our fiscal situation, I think the chances of another wave of inflation are not are not low or not trivial. The Fed’s policies, I think, directly led to Donald Trump’s appeal to regular people, because they didn’t feel that they were they were getting their fair share of the economic bounty
Andrew Brill 0:43
we’ve gotten to the end of earnings season and turn our focus to the holidays and the economic outlook for the next year. I’m your host. Andrew brill, if you need help looking forward financially, go to wealthion.com/free for a free no obligation portfolio review. We’ll talk about where the economy is headed coming up next,
Andrew Brill 1:07
I’d like to welcome Jason de Sena trenner to wealthion. Jason is chairman and CD CEO of strategas securities, also a chief investment strategist known as one of Wall Street’s top thought leaders and markets and on markets and economic policy. Jason, thanks so much for joining me.
Jason Trennert 1:28
Thanks for having me. It’s a pleasure. A
Andrew Brill 1:30
couple questions for you. I like to start out by asking people their take on the present economy. So what do you think about the present economy as we sit here right now.
Jason Trennert 1:40
Well, listen, I think you know, the good news is that the unemployment rate is low, and as a result, I would say that kind of lower income folks are still spending certainly the higher income folks are benefiting greatly from the wealth effect. So that’s good. I do think, given our fiscal situation, that there are risks in the future, particularly for a second wave of inflation. So I’m a little bit worried about that. From a longer term perspective, I do think there’s probably some pent up demand for capex because of the election. I think there’s a fair amount of companies that probably put put some capital expenditures off. So by 2025 looks okay. But you know, we’ve been telling people, at least as as it relates to the markets, that we’re bullish until the bill comes due. And the bill coming due, in our opinion, is some sort of reckoning when it comes to our fiscal situation, and that, you know, it depends there. There are good ways and bad ways to fix it. Hopefully we don’t have to experience a crisis before we before we fix it. But normally, that’s the way it works, given politicians are generally put on earth to give stuff away, as opposed to take it away. You know,
Andrew Brill 3:03
we I know you noted in your research that you sent over to us that now that the election has passed, things have calmed down a little bit. Obviously, the markets went crazy and earnings were at the end of earnings season. You believe that earnings into next year are going to continue to be very good.
Jason Trennert 3:23
Yeah, it looks like it, especially given our view of of the economy, which is said, the chances of recession, in our opinion, next year are pretty low. And obviously profits are in nominal terms. So if you have a little higher inflation, it tends to imply higher earnings. The issue really comes if it tends to, if that, if that higher inflation results in higher long term interest rates, and then whatever you get on the earnings side, you tend to give back on on earnings multiples, but, but I do think the earnings, earnings are probably not going to be as good as what the street is expecting, which is about 14% 13, 14% increase next year, but they’ll probably be in the high single digits, something along those lines. So,
Andrew Brill 4:09
and where does that sit with normal? I you know, 14% growth is probably a little bit higher than normal. Where does single digits, or high single digits? Where does that sit in terms of normal,
Jason Trennert 4:20
well over the longer term, you know, the normal is about 7% nominal for profits. So we’ve definitely been over earning. And a lot of that, I would say, at least recently, has been due to a relatively small group of companies. You know, if you if you excluded the mag seven from the earnings calculations, you’d probably be below normal. So if you took the s, p4, 93, versus the mag seven, you’d probably be in the four, four to 5% range in earnings growth next year, as opposed to 13 or 14. But those companies are earning so much cash or earning so much in terms of earnings. But also Joe. Rating so much cash that it’s it all evens out for the market as a whole. To, you know, to something that’s above average.
Andrew Brill 5:07
You mentioned cap x spending. Is that an assumption that interest rates will continue to come down so people, companies will be able to borrow to spend? Or is that you think that people have some cash around to spend on. I
Jason Trennert 5:21
think they have some cash. And I think, again, I think the range of outcomes from the election was so wide, in my opinion, with the two candidates that it was pretty prudent, I think, for a lot of companies to hold off on any sort of big capital expenditures until they knew who won, and then they could decide whether they would proceed or hold off or change the plans. So now that it’s over and there’s some certainty, and I would argue to be overly political about it, I think President Trump winning is better for capital formation than vice president Harris were to have won. I think all those things bode well for capex. I’d also say that corporate credit spreads are very, very tight, and so interest rates don’t necessarily have to go down, but companies are able to fund themselves at very, very attractive rates relative to history, and so that that helps out as well.
Andrew Brill 6:15
So Donald Trump is obviously very pro corporate and wants to see earnings growth, but we’re embarking on a time when we’re right up against the debt ceiling. We’re going to have to deal with that come January. Are we looking at possibly inflation going back up again?
Jason Trennert 6:37
I think, you know, I personally, I think that whoever became President, my opinion, is inheriting a difficult economic situation, and the reason why I believe that is because we’re close to $36 trillion in debt, total, about 28 trillion of that is owed to the public, not only that We have and this is both Republican and Democrat administrations have decided to fund a lot of it short. So 50% well over 50% of our our debt matures in the next three years, which means that it’s part of the reason why interest expense is exploding. Our weighted average cost of debt is lower than every part of the yield curve. So you put all those things together that you know, the good news, I guess, is that the economy is still growing. The bad news again, is that when you when you use that kind of debt, you’re largely borrowing from the future, unless you get productivity gains, which I do think is is a distinct possibility. But whether those productivity gains come in time to relieve us as investors from an accident or higher interest rates or higher inflation, I don’t know, but there are a number of things that would argue, I think for a second wave of inflation,
Andrew Brill 7:52
are you concerned about your financial future, or think your investments could be doing better? I’m Andrew brill, one of the hosts here on wealthium, and I’ve been there not sure my money was in the right places. It’s why I’ve gotten help from a financial advisor. Maybe it’s time you think more about your financial future or get a second opinion about your investments. We’ve made that process easy. Simply go to wealthion.com/free, to speak with one of wealthions, registered investment advisors for a free, no obligation portfolio review. Again, that’s wealthion.com/free I’m now less anxious and confident I can achieve the financial goals I’ve set for me and my family. So you know, you touched on the bond market, and obviously they’re using the short term bonds to fund a lot of this debt. But yet, the 10 year, even though interest, even though they cut the rate a little bit, the 10 year isn’t coming down, and it that seems strange to me. Yeah,
Jason Trennert 8:51
I think you know part of that, at least when we’ve looked at it, at least thus far, at least since the election, let’s say, which is just a couple of weeks, that most of the increase has come from expectations for stronger real GDP growth, as opposed to higher inflationary expectations. So that’s good, but that’s a positive for the equity markets. It’s not necessarily worrisome, but I will say, though, again, we’ve been in a situation where we’ve been running budget deficits of 7% of GDP on a serial basis for the last four years, and that’s when the unemployment rate is four we’ve never done that in America’s history. We’ve only run budget deficits of that magnitude when we were in recession or when the unemployment rate was above 7% so this is highly unusual and, and it’s, it’s difficult to, you know, like everything else, it’s, you know, it’s, it’s easy to do, it’s easy to start. It’s very, very hard to stop, right? Because it involves some pain, usually, right? So you’re either going to the new incoming administration, Trump administration, either going. Have to increase taxes, which I think is, you know, kind of their last choice on the list cut spending, which I think is very high up there, which is about positive, either accept higher inflation just as a fact of life, or, again, you know, rely on productivity gains to to to make the equation work out. The good news is that I think this is the first time in my life, and I’ve been doing, I’ve been doing, I’ve now been doing this longer than I haven’t as a human being, you know. So, you know, well past the halfway mark, this is the first time I’ve seen the government actually really serious about cutting spending. And so, which is a good I think it’s a very good thing. It’s not easy, because there are a lot of, let’s say, entitlements or or things that are, you know, non discretionary items. But by the same token, even just the discussion of talking about cutting spending is a very positive development, I think, for the country and for the bond market as well. Would
Andrew Brill 11:01
it be helpful? And I know that, you know, the incoming President Trump has put together a committee of, you know, a couple people to look at budget, to look at cutting. Would it be beneficial to cut to a point where our debt isn’t growing as quickly, growing, but not as quickly. So there is the possibility of catching up at some point. So if they are the discretionary things that you spoke about, I guess they could cut government programs and those things that you know, our tax dollar pays for, but the defense budget and everything else, I guess they’re going to look at stuff like that to cut and figure out, Where can we save some money?
Jason Trennert 11:41
Yeah, I mean, there’s certainly, I think, you know, take care of the pennies and the pounds will take care of themselves, you know, that type of thing. So it’s just because it’s very difficult to cut things like Social Security, Medicare, Medicaid, veterans benefits, defense, interest expense, all of those things are about 80% of the budget, and those are very, very hard to cut without real political pain or real political debate. The other 20% though, I think there’s a very strong public support for, let’s say, having federal workers show up in the office once in a while, probably wouldn’t be, you know, probably wouldn’t be the worst thing. And so I think there’s a lot of public support. And I do think that that it sends a signal to the bond market that it can’t be business as usual, because we’re at a point now in which, if we don’t make changes, the interest expense, which is exploding right now, the interest expense will consume eventually the entire federal budget. Right now, interest expense is greater than defense spending. This year, it’ll be greater than Medicaid, Medicare, rather and so, and that’s a result of the fact that not only we amassing all these stats, but as I said, we funded all of it short. So we haven’t locked in one of the great sins of peewee in many ways, and I think it was a very bad policy, my own opinion, for 12 years. But we compounded the problem by not locking in our funding short, longer term, right? And one of the reasons why corporate credit spreads are very tight is that companies who don’t have the ability to print their own currency were very smart in that they funded themselves out as long as they could. In many cases, that’s in the five to seven year area, but it gives them a lot more flexibility financially. If interest rates were to go up, they’re not necessarily dependent upon short term funding to fund themselves. And so that’s the good news. You know, the bad news, though, is federal government without, as you’re pointing out, without changes, without cutting spending or I think raising taxes would be a disaster, but without cutting spending or getting productivity, it’s really hard to bend the curve, as they say,
Andrew Brill 14:02
Yeah, I could, you know, raising taxes would would be like an instant loss for Republicans, they worked really hard to explain to that we need to lower these things. Lower taxes make things better for, you know, the average American, that’s a recipe for disaster. We did a poll and asked people, what’s their what’s their biggest issue when it comes to spending money, they say it’s the economy. The economy is number one on the list. So raising taxes would not help out at all. Why, in your your estimation or your research, why are they short funding the debt and not looking at the longer term? I understand that. If they do with the 10 year, obviously mortgage rates are going to go up. But you could do with the 30 year and say, look, let’s lock in our, you know, our profits and be able to pay this debt.
Jason Trennert 14:51
Yeah, listen, there’s and the honest answer is, I’ve thought a lot about this, spent a lot of time. There’s no good reason. There’s no. Intellectual reason there are, there are claims that it would be very hard to sell or very hard to hedge long term debt, but I find those arguments very specious, very, very, very questionable. Mexico issued 100 year paper in Euro. Okay, so if Mexico could issue 100 year paper in a in an untested currency. Let’s say Uncle Sam could issue 100 year paper in dollars. So but again, you don’t have to go out 100 years. You could, as you pointed out, you could go out 10 years. Go out 20 years, you could go out a length of time in which you’re not dependent upon the kindness of strangers every three months to fund a massive debt and increasing deficit. So I’ve heard all the excuses, but the fact the matter is, it’s just more politically expedient because it keeps interest expenses lower, at least that was the thinking Secretary Mnuchin under the first Trump administration, talked about issuing 50 year and 100 year bonds. And unfortunately, he was talked out of it. And I think he was talked out of it by the by the dealer community here in New York City, who didn’t want to hedge it, but I think it was a mistake. Personally. It was a missed opportunity. They had the right idea, they just didn’t execute on it. I hope in the second administration, Trump administration, they will seek to at least slowly, start to move to extend the maturities of our debt for the long term, health, fiscal health of the country.
Andrew Brill 16:45
You’ve heard some of the names. I’m sure about the people that could possibly head the Treasury. Do you think that that’s a possibility, that they’ll think about this differently? You know Donald Trump is looking at Wall Street people to head the Treasury. Do you think it’s a we could be entering a different time and a different way of looking at things.
Jason Trennert 17:05
I think so. I really do think so. And I think I don’t want to cast aspersions on the current Secretary of the Treasury, but in my opinion, she’s behaved in ways that are more politically oriented, more politically motivated than perhaps that, in ways that would be in the benefit of the long term interests of the economy and the American taxpayer. And I think it’s good that you have people with market experience, especially now, people with market experience in that role. We just had a conference two weeks ago in or a week ago. It seems it’s like four days ago. I don’t even it was in London. I think it was last week, last Thursday. I’ve been everywhere. But we had it with Liz truss, and Liz truss, former Prime Minister of the UK, and, you know, she, she would we, had her speak to our clients specifically because of this idea that she was there when the bill came due in the UK, when the bond market vigilantes really kind of forced her hand. And that’s important. It’s instructive. And again, US has reserve currency status, so you get away with a lot of bad behavior when you have the reserve currency, but it’s not there are limits to what you can get away with. And I think having a markets person in there makes a lot of sense, because this is going to, this is going to require alert, a certain amount of flexibility, I think, intellectually, and a good understanding of the markets to get through this without a lot of pain.
Andrew Brill 18:45
You know, I talked to you about this, it occurred to me that if you do the longer even a 20 year bond, you add a new group of people, like retirees, are saying, oh, you know what, if I can do 20 years at five and a half or 5% I know that’s coming in. This is a whole new group of people you have buying bonds. So, you know, in talking that that light went off in my head, I don’t understand why it doesn’t go off it, yeah, in the Treasury’s head.
Jason Trennert 19:13
I think it’s really just, I honestly believe it’s political expediency that, you know, at the margin, it kept the deficit a little bit lower by issue, especially when the Fed was engaged in QE, it was just cheaper to issue shorter term debt. But the problem is that once you start to have an inflation problem and the Fed has to raise rates, that benefit turns into a detriment, because now the weighted average cost of our debt. Not to get two in the weeds here, the weighted average cost of our debt is below every part of the yield curve. So no matter where we funded that, even if we continued to fund it with bills, our interest expense would rise because we have committed ourselves to so much short term fund. That anywhere we would fund it, it would increase the interest expense on our debt. And so again, no one you know in terms of, not to be overly simplistic about it, but certainly any person with that was taking out a mortgage, if they had an ability to fix their long term interest rate at very low interest rates would take it out as long as possible. Uncle Sam basically took out an adjustable rate mortgage on its future, and it can get away with it, but it’s not without cost, and the cost is the potential for higher government spending, higher deficits, higher inflation in the long term.
Andrew Brill 20:41
So we’ve begun the easing cycle, if you will. We’ve had two rate cuts. What do you expect? Do I first, let me ask you, do you think the Fed has done a decent job here?
Jason Trennert 20:52
I don’t think, certainly, I think you have to give the Fed credit for for engineering a soft landing thus far. So I really you have to give credit where credit is due. I my own hope is that from here, there’ll be a little bit more circumspect with some of the with some of the rate cuts that they’re talking about. You know, before the election, there was an expectation that the Fed was going to ease another another five times, four or five times before the end of 2025, bringing the Fed funds rate below 4% I hope they tap the brakes on that, my own opinion, because I am worried about a second wave of inflation, and there are some signs of excess, especially now. Just before I came in here, I saw that, I think it was Christie’s just sold a banana duct tape to a canvas for $6.2 million you know, you read stuff like that, you say, you know that maybe, maybe rates are not, you know, maybe rates are are too low, rather than too too high. And again, it’s but, you know, I’m all for rate cuts, but I do think that the Fed should proceed cautiously. I give them good marks so far, but I think that the primary responsibility the Fed is to preserve price stability, and that’s especially for for working class and regular people you know, who have seen a deterioration in their standard of living over the last four years because of inflation. So it’s, it’s wealthier people can hedge inflation that doesn’t affect them as much, but, but the average person, I think it has, it has a very meaningful impact on the on the on their standard of living. So I hope the Fed focuses on that above all else. So
Andrew Brill 22:39
banana that’s going to turn brown and start to smell after a while.
Jason Trennert 22:42
I don’t know I’m in the wrong business. I, you know, I’m not the most artistic person, but I could, I could probably handle that. So
Andrew Brill 22:52
so do are you expecting a rate cut all year long, Jason, we’ve heard data, data. We need data. We need to watch the data. It took them a long time. I heard rate cuts over the summer. We got one in September. We got one in October. Now we come to December. Do you think we’ll get what are you think the data is telling them? You know what? Just, just hold off a little bit.
Jason Trennert 23:13
Yeah, I think we talked to our chief economist, John risk Miller, this morning. I asked him that question. Specifically. He thinks it’s 5050, for December, that it’s, it’s, it’s not, it’s certainly no slam dunk. And I think it’s also partly because you have a new you have a new administration that is is going to depart pretty meaningfully in terms of economic policy from the from the Biden administration. And so I if in terms of just, you know, being cautious and waiting and seeing I think it makes some sense to wait and see what the new administration is going to do before I start planning my feet and committing to significantly more rate cuts. And I don’t think they’ll lose much in waiting a meeting. They’ll have a much better idea of who the players are, who the what, what the policies are going to be. I don’t think they’re they’re that hard to figure out. But I also think it’s, it’s it’s not a bad idea to to to wait and see for a little while. I think there’s a big harm in doing that.
Andrew Brill 24:18
Given where the CPI is about 2.4 What do you think a reasonable floor is for the interest rate at this point?
Jason Trennert 24:24
Well, for the Fed funds rate, I think it should I don’t think it should be any lower than three and a half. It should probably be more in my opinion, my own opinion, if I were running the Fed I would, my target would be something more like 4% if I’m looking at two and a half percent inflation, I’m not convinced that two and a half percent inflation is is a necessarily a sustainable level, given economic policy currently. So again, I think the chances of another wave of inflation is. Are not are not low or not trivial, and that’s it’s partly because a lot of working people have really been left behind by the inflation that we’ve seen thus far. And so if you look at some of the wage negotiations, whether it’s the Longshoremen union or whether it’s the machinists at Boeing, you can see the wage concessions are, in the case of Boeing, is 38% over four years. In the case of the Longshoremen, it’s 62% over six years. Those types of concessions are not consistent with 2% inflation and not not a big portion of our workforce is unionized. But still, that sends signals to other people in the workforce. And so I know I’m not saying those people don’t deserve it. I think they’re part of the reason why they’re getting those concessions is because they’re they’re making up for lost time. But that’s why the Fed should proceed carefully, because once inflation kind of gets going, it gets hard to it gets hard to stop it, because there are natural tendencies for it to keep going.
Andrew Brill 26:04
What’s the lag time? Jason, between, okay, you know, oh my god. We saw the we saw the the numbers start to jump if the Fed, I you know, initially, Jay Powell was was a little hesitant to raise rates. I don’t think he can be as hesitant if he’s still fed. Chairman, but the Fed can’t be as hesitant to raise rates to keep that under control, could they?
Jason Trennert 26:24
I yeah, I don’t think so. I think the Fed’s credibility would very be very much at risk. I think, you know, you might get the first one for free. So, I mean, the Fed, Fed’s reputation took a hit, but it’s still pretty well respected institution. People understand that that COVID made their job very, very difficult in terms of the amount of spending, that was government spending that was taking place. But I think the next time around, I’m not sure, so sure, people will be as understanding if the Fed misses another wave of inflation. And that’s easy to do, because central bankers are human beings. It’s it’s no fun to tighten. It’s certainly no fun to tighten when it’s not obvious that you should be tightening, right? It’s only it’s one thing is a financial crisis, and you ease that, that’s one thing, or it’s one thing to tighten if inflation is nine, but it’s very different if inflation is three or three and a half, and you’re tightening. Not everyone will understand the rationale for that. But again, as Bill Martin said many years ago at the Fed, you know, Fed’s job is to take the punch bowl away before the party really gets started, right? You know, so it’s you’re a little bit you’re not the most popular guy at the party, but that you have a deep responsibility to the American people to preserve price stability.
Andrew Brill 27:44
Well, what’s in your eyes? What’s a reasonable inflation rate? 2% we’ve been trying to get there for a while, and haven’t been able. We’ve gotten close. What’s reasonable? Do you think?
Jason Trennert 27:55
Yeah, listen, I think. And the irony is, the 2% target was that was established. There’s no science to it. It was established, actually, from a New Zealand central bank paper in the early 90s, I believe, and the and frankly, the 2% target was only really discussed when inflation was serially below 2% after the financial crisis. So it was never really discussed much before. Then, you know, lower was better, but over the long term, over the last 67 years, the average inflation rate is more like three and a half. So I think anything I would prefer something in the two and a half to 3% I don’t think it has to be some sort of suicide pact with 2% you know? I mean, I think the direction is important. I think keeping track of price stability is important, but you want it as low as you can. You can go, I think, without, without risking some sort of financial crisis, you don’t be overly tight. By the same token, you know, inflation is a tax on on people, on savings, right? So especially, again, as I said, working class people, middle class people who don’t have a lot of necessarily, a lot of savings, especially in levered assets like private equity or venture capital or something, they feel the brunt of higher inflation, and that’s why it’s very important to you know, again, that fed has a very solemn duty, it seems to me, to keep inflation in two and a half to 3% to answer your question, it seems to me to be a reasonable goal, and you could look at it over a cycle, and you don’t. So again, it doesn’t have to be necessarily a hard and fast rule, but that should be the long term goal.
Andrew Brill 29:44
In your research, you talk about the common man. CPI, can you explain this to us and, and what you mean by that and, and the correlation between that and what the Fed looks at as the CPI, yeah,
Jason Trennert 29:55
you know it’s, it’s funny, because, as you know, when, when safety. Is reported. They reported as headline, and then they reported as core, which excludes food and energy. And then earlier this year, they came up with something called Super core, which excluded food, energy and shelter. And you know, I don’t know about you, but you know, eating, eating and staying warm and staying out of the elements is pretty core to me. So we got frustrated by this, because I also think there’s a political angle to this, because most people, what we most people, again, those things are very core. So what we did is we looked through the subcategories of the CPI, and we just decided, what do you have to spend money on, come hell or high water, and what’s discretionary? So the common man, CPI just counts the things that people we all must spend on every day, every week, every month. So it’s food, energy, shelter, children’s clothing, utilities and insurance. So everything else we don’t count. So flat panel television screens, or, you know, trips to Barbados, or any of that stuff and so. But it’s important because I think it has a political implication, because that’s how the average person is feeling about inflation and so again, and I, in my opinion, that’s part of the reason why the attitudes on the economy were not particularly good. Sentiment wasn’t good, despite the fact that on the surface it looked quite good. Unemployment rate was low, inflation came down, stock prices were high. But again, if you’re part of the 40% of the people in the united states that don’t have, let’s say, an equity portfolio or not exposed to the financial markets, or might just have savings. It hurt, right? So that’s why we created the index. Is part, partly, to understand, you know, those folks and what they’re going through from a political basis, but also to focus on how well the Fed was doing, on on the things that really matter for most people.
Andrew Brill 32:01
It seems to me that that’s the smart thing to look at, although some would look at a flat screen TV or a trip to Barbados as a necessity, it’s really not. But those are the things that are necessary. I mean, housing, which is totally out of control, and with the 10 year you know, housing prices, mortgage rates, they’re all way higher than a lot of people can afford. How do we get that under control?
Jason Trennert 32:25
Yeah, no. I mean, the the irony really, is that mortgage rates have increased right meaningfully since the first fed easing in September, right? And so they’re up about 4050, basis points. If I’m not mistaken, they’re close to seven, I believe, right now. And that’s a tip. That’s a very it’s a very tricky problem, because there are a lot of there are a lot of reasons why there’s a certain there’s a bottleneck in the housing market. Part of it is just because interest rates rose very quickly, and so you have a lot of people that are quote, unquote stuck in lower interest mortgages. I also think the immigration policy over the last four years has not helped the housing market, right? Because you have, depending on who you’re listening to, you know, another 15 million people in the housing market, and so that that soaks up some supply as well, right? So everything is at the margin. And so here, it’s not a particularly easy thing to fix, right? And it or it takes time, their estimate is that we’re probably short somewhere between four and 5 million single family homes. We we produce, we manufacture, single family homes at a rate of about a million a year, maybe a little less than a million a year. So the bottleneck in that in housing is is meaningful and not easily, is not easily fixed. And so it’s really, I wish there were a better answer, but it’s really more of a function of time, more than anything else.
Andrew Brill 33:57
Do you see that easing a little with the new administration’s policy of, I want to say exporting, or, you know, get, you know, these illegal immigrants, or getting put, giving them back to their homeland. I suppose, yeah, he’s a little quicker. It
Jason Trennert 34:17
could, it could, you know, that’s and again, I want to say I’m not. I’m not absolving the incoming administration for for for anything that happens in the future, but they’re inheriting some very, very thorny problems. Immigration is one of them where it’s not easy. There aren’t a lot of once you’ve done this once, once you’ve essentially had open borders for four years. The administration, the Trump administration, that’s going to have to clean it up, is going to have to make some very difficult choices that are not perfect. So for instance, if you start deporting 15 million people, 10 million people, that is likely to increase. Increase inflation, right? Just because it relieves some pressure on on wages, if you allow all those people to stay that could also increase inflation to the extent to which a lot of these folks are going to start to use credit now which they haven’t used before. So start to apply for home loans or auto loans, or all the rest of it, or we’ll just consume government resources, right? So, so this is not easy, and you know it requires, I don’t know if there’s a good way to do this. I’m certainly not an expert on doing this, but I do think that, if you know, I do think at least at the very minimum, slowing down greatly the amount of illegal immigration and deporting bad actors will ease will probably have some positive impact on the housing market.
Andrew Brill 35:53
So I was reading about credit and credit cards, and obviously President Trump wants to put a cap on credit card interest, and I was reading that that could cause credit card companies to start canceling credit cards. So that would tighten credit, and that would be a drain on the economy as well, because now people can’t spend as much as they used to because they don’t have that credit. They don’t the cash, but they don’t have the credit either. Yeah,
Jason Trennert 36:23
I’m not a big fan of price controls, and whether those are price controls on groceries or price controls on money, on interest paid, on the cost of money, and so I understand the impulse, because these interest rates are, you know, pretty much in the usurious levels. You know, you’re looking at 25% by the same token, you know, again, this is, it’s, as you’re pointing out, the credit is only available, probably at those types of interest rates for some people, and so I think, again, I’m for free market capitalism. You know more I think markets tend to do a better job of organizing an economy than the decisions of relatively small groups of people, especially small groups of unelected people like at the Federal Reserve Board, right? So I so I would rather see just more market, market influence in the economy. I think the incoming administration is much more pro market in that regard. But I would resist the temptation to try to fix everything via the government. Because I think, as we’ve talked about before, once you start going down that road, it’s very hard to get out of it. We should be moving back to less government, more markets, and then, of course, having a strong rule of law, punishing the bad guys, all of that stuff. But I again, I think the price mechanism, the incentive system, works exceedingly well. I
Andrew Brill 38:06
thought it was a great idea, you know, but I didn’t look at it from the credit card company side, where they said, Okay, you know what, we’ll just cancel credit card. So it’s a, it’s a very slippery slope, maybe not 10% 15, you know, they have to be able to make their money, obviously. So, right?
Jason Trennert 38:22
You’re balancing, you know, the credit card companies. And again, no one, no one’s a big fan of credit card companies. I mean, in terms of, you know what, what they’re charging. And I’m not defending them, necessarily, but it’s a business, right? And then, you know, they have to, they have to balance the the potential for loss with the interest rates that they they pay, right? And so that’s kind of the way it it works. And again, as I said, I’m kind of more for more for free markets than anything else.
Andrew Brill 38:49
So in Donald Trump’s first term, stock market went from about 20,000 to 30,000 during Biden’s term, 30,000 to 42 around there. What are you expecting over the next four years? Well,
Jason Trennert 39:04
listen, I think it’s hard. Those are difficult. Both of those acts are difficult to follow right up 50% and up 100% and I think you do have to remember that a lot of that was driven by the fact that you had the Fed’s balance sheet. Assets on the Fed’s balance sheet went from about 4 trillion before COVID to 9 trillion after COVID. It’s now about 7 trillion so and and our debt increased dramatically, especially over the last four years. So it’s hard, it’s hard to expect those types of returns from here, in my opinion, because it’s difficult to pursue those monetary and fiscal policies without stoking another round of inflation. So I think investors should, should become, should lower their sights a bit, you know, hope for the best, but also prepare for the idea. That that returns will probably be more in line with historical averages, which are generally, as we talked about before, in line with profit growth. So profit growth over a longer term is, you know, about six 7% I think a 7% type of compound annual return on the stock market during the second Trump term would be fine. I know there’s nothing wrong with that. That’s actually quite good, especially if you keep, you’re keeping inflation at bay. So your real return would be something that would be help people build, build wealth. But listen, wealthy people have done exceptionally well over the past, really, especially over the last four years, but really, really since QE started. And I’m more concerned with the people that don’t necessarily have stuck stocks, don’t have private equity, don’t have venture capital. Those are the people I think we have to spend a little more time worrying about. And I’m convinced that by not worrying about those people so much. It’s part of the reason why there has been such a strong populist element to our politics. You know, one of the great ironies, and I think the Fed would faint with my saying this, but the Fed’s policies, I think, directly led to Donald Trump’s appeal to regular people, because they didn’t feel that they were, they were getting their fair share of the economic bounty. The economic bounty was largely accruing to the wealthiest people. And so that’s not, you know? It’s one thing if that happens naturally. It’s another thing if that’s happening from government policy and and it shouldn’t happen via government policy.
Andrew Brill 41:42
I think so many people look at the stock market and mistake that for the economy. And it’s not exactly that. It’s not that way at all. But a lot of people, you know, they talk about the Fed, they talk about interest rates. They talk about, okay, yeah, interest rates, companies borrowing money at a higher rate, but then they equate it to the stock market, and the stock price going up and down, and the economy is totally different than what your stock prices are looking at
Jason Trennert 42:10
absolutely and again, you have to remember, 40% of the American public doesn’t own stock. So you know to them, they’re what, what is most important is their take home pay, is that we would call it their real wages, so their wages after inflation, right to for most, you know, for a good portion of the population. And that makes sense, right? So you want to be able to save something after you’ve paid for, paid for all the things that are necessary for you. And that’s that that has not been the case over the last four years. As inflation spiked, people were were they were worse off after inflation than they were before.
Andrew Brill 42:52
Yeah, it’s interesting that after the common man has paid for the things he has to pay for, you want a little bit extra put away, of
Jason Trennert 42:59
course, you know, of course. And that’s the way, you know. It’s the way it should work. And then you know savings, enough savings equals investment, right? That those savings get turned into investments or bank loans made by banks or other investment investment vehicles to fund capital expenditures and and other things that create wealth and productivity. So we want to, we want a society in which we’re encouraging savings. It seems to be and consumption is great. Americans are great at consumption. It would be great to see Americans a little better at savings.
Andrew Brill 43:35
Jason, thanks so much for joining me. I really appreciate it. Where can we find you either on social media or strategas on social media, or research that you guys,
Jason Trennert 43:45
yeah. So for me on social media, on Twitter, it’s at Jason Trent underscore, and for our company on social media, it’s at strategas RP, and those are the two places you can find us. We also have a website, www strategasrp.com, so we’re not hard to find. So we encourage everyone to take a look, take a look at our website and what we’re doing here.
Andrew Brill 44:13
Jason, thank you so much for joining me. Look. I want to wish you a happy holiday season. We’re right on the corner, so I hope all goes well and you you enjoy yourself
Jason Trennert 44:23
for you as well, sir. Thank you very much.
Andrew Brill 44:26
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