Show Transcript
The upcoming U.S. presidential election is still several months away, but there is already an abundance of speculation about what the results could mean for markets. Kim Parlee speaks with William Priest, Vice Chair at TD Wealth and Kevin Hebner, Global Investment Strategist at TD Epoch, about the different election result scenarios and what they could mean for investors.
Print Transcript
[INTRO MUSIC]
* It's one of the big question marks hanging over the markets right now, the upcoming US presidential election. And it's not just a question of whether it will be another Biden or Trump administration, but also which party will control Congress.
* There are numerous implications for investors, and my next two guests have written a report on this very topic. Bill Priest is vice chair at TD Wealth, and Kevin Hebner is managing director and global investment strategist, also at TD Epic, and they join me now. It is lovely to have you both here.
* Nice to be here.
* It's good that it's worked out. I'm really glad to start. We want to talk about the paper and talk about just the implications for investors. Before we get there, though, I thought it'd be worthwhile to set some context. And I know you're getting ready. You have a working title of something you're working on right now, something that may be called Gathering Storm when talking about what's happening with the United States.
* And I know you talked about there's three main things you're thinking about when you think about the gathering storm. And I think it's important to talk about the election in terms of what it will be functioning within. So let's start with this idea of gathering storm. Why gathering storm?
* Well, it started from a series of books by Winston Churchill. He wrote a six-volume report of the Second World War. And the very first volume was called A Gathering Storm.
* And so, the thought was it looks to us that there's some pretty negative stuff going on in the world. Essentially falls into three headings, if you will. First of all, it's the end of globalization. And we have onshoring, if you will, as opposed to offshoring.
* And globalization was a very powerful force that reflected something called the law of comparative advantage. And within the law of comparative advantage, it just said, no matter how superior a country might be in making anything, it's all about their relative ability to manufacture or produce something, that it pays you to trade with somebody, so long as there is not the same relative difference.
* This was writ large from 1989 to-- for 20 years. Law of comparative advantage was writ large around the world, and virtually everybody prospered. Now, not every country may have prospered, but within a country, there were clearly some losses.
* So when you look at the United States, much of manufacturing was hollowed out. A lot of the steel capacity went abroad. And we did not help those steel workers. And they have become a political base in some cases, particularly for the Republican party. In theory, with the law of comparative advantage, there's enough left over that you can retrain, re-educate or supplement somebody's income. That's theory. It really didn't happen very much in the United States.
* So that was the first one, which is the reversal of globalization. The second one, I know you and I were talking earlier about China, China's economic miracle, and it's over.
* Well, yes, we think much of the China economic miracle is over. And we can talk about that a little bit. Kevin's also done a lot of work on that, too. And the third one was just the fiscal challenges that the United States in particular will be facing. And it applies to Europe as well, but particularly the United States.
* There'll be a number of fiscal challenges coming our way, in the sense that your cost of debt is going to be going up. We've had very short maturities of debt. You've got to now roll those over.
* I think in a short period of time you have something like $10 trillion of bonds have to be sold. So all of that's something we'll have to address in the next year or two. But it's a very unstable situation we're entering in as we go forward.
* Yeah, and I think maybe if we just touch on maybe China's-- the economic miracle has-- maybe it's over or muted or slowed down significantly. Maybe just maybe speak to that a little bit, Kevin, in terms of what that means.
* Yeah. So the three Ds, as Bill was mentioning, de-globalization, debt tied into real estate, and then demographics. So trend growth goes something like 6% to 8% to now something like 2% to 3% So still you have a strong consumer, and there will be growth there.
* But in terms of real estate and other sectors of the economy, government investment in infrastructure, it looks very weak going forward. And so not as much a driver of the global economy. And so I think the weight of China is still very hefty. And they want to have their heft recognized in the global financial architecture.
* And that's part of the reason why the United States and China are butting heads in some areas. But a very different perspective on China going forward.
* And then the final one, you mentioned about just the fiscal situation in the States. And again, when you and I were chatting earlier, Bill, I think you mentioned that 96% of GDP right now is being spent on servicing debt.
* Well, yes, starting back in 1992, it was three years after the fall of the Wall. America's debt was about 46% of GDP. It's now 96%, and it's accelerating. And frankly, neither party pays much attention to this. It's as if it's not something to worry about. But there were many reasons that allowed this to happen that don't exist anymore.
* Productivity was rising and growing in the United States. We had the peace dividend, which allowed us not to fund defense the way we had been doing it in the past. And a diminished Soviet Union just wasn't a real threat that it was prior to '89.
* But the competition with China and Russia now requires higher defense spending. We're going to need more money for an aging population. You need more money for cutting greenhouse gas emissions. And all that is going to cause an acceleration at a time when your cost of the debt is going up substantially.
* It certainly sets the platform for when we got one of the most important elections coming out, not just for the United States, in the world, coming, what we're playing into. And one thing that I think that I'm not sure, Kevin, if Bill, if you told me about it, but just the trust that Americans have right now in their institutions, in their governments is also at all time lows.
* Yeah, there was a poll, I think it was by a major entity that basically indicated that 20 years ago of the G7 no country's population had more trust in an institution than the US. And today, we're at the bottom. We're seventh out of seven. And in fact, when it comes to judicial system, we're tied with Italy.
* Some of the charts that you've put together in the paper are interesting, and the first one we show is that the polls and how some of the candidates are polling right now, to which these aren't always the most accurate, are they, Kevin? The polls.
* You know, there's a lot of issues with polling, including the response rate, either through the phone or internet-based polls. But the response rate now is about 0.4%. So the reliability, I think, is highly questionable.
* You also bring in the paper, though, what the betting sites are predicting. And just tell us again why you think these are more reliable.
* I think betting sites are more reliable. People choose to go on the site. They do put their own money down. And there's a number of studies showing that they are better predictors or indicators for a host of different market events, including for elections.
* And so what this one is showing right now is Trump is in the lead. Biden is closer, and then other, I'm assuming this would be Robert Kennedy or RFK.
* Yeah, so now it's clearly focused on him. But previously, there were other candidates. And one thing that I find interesting from these charts is normally we get a lot of back and forth. But most of these charts we've been creating since November, and they've been reasonably consistent that Trump has a small lead over Biden.
* And we've got a long ways to go still, six months before the election. And some big events coming up the next four months. And we'll have to see whether the consistency we've seen in the last four months, with a small lead for Trump, whether that holds or not.
* Bill, any thoughts on that?
* No, I think Kevin has said it well. I think one of the big issues that all the candidates are going to have to address, as you work into the fall, is a factual case that we have to roll over one third of our existing debt this year and finance a growing deficit. The government needs to find buyers for $10 trillion of bonds this year. And this scale will increase every year.
* The government is spending more servicing the debt than on national defense. And that's probably going to have to change. When you look at how this all sums up, the fiscal problem just gets worse. The IMF estimates that Americans need to cut spending or raise taxes by 40% of GDP simply to stabilize the debt load in 1929. There's a real fiscal issue in the United States.
* Yeah, yeah. And we're going to talk about it, I think. Let's talk a bit about it, actually, how that might get addressed in the upcoming-- but we'll get to that in a second. I want to talk a bit about trade. And you actually say in your report that we're all economic nationalists now. So maybe just give us a context on that.
* Yeah. So when Bill and I first started writing about reinventing globalization in 2016, the reaction to it was actually pretty hostile. There is this real change going on. And in 2016, we had Trump coming up with a different view of trade. We had Lighthizer, who is this trade rep, presenting a view in terms of tariffs and how we view China.
* That was very different then, the consensus. But the world's caught up to them now, and it's bipartisan. And we saw last week the tariff increases announced by Biden. Trump and Lighthizer have been talking about balanced trade, much higher tariffs if Trump wins in November.
* So I think going forward, this is one of the big risks for markets. We could see markedly higher tariffs, sanctions, quotas, and ultimately for certain countries, a call for balanced trade. This is a very different way of thinking about the world than we've had previously. But it looks to me like it's coming. And it's probably bipartisan.
* Yeah, that's interesting. I was just going to touch on the tariff piece. I know that you say in the paper and we've heard that Trump is pushing for baseline tariffs of 10% right across the board. And President Biden has shown his willingness to put tariffs on Chinese goods to protect US workers. We've seen it with EVs and chips and those types of things. So that's happening on both sides. To which magnitude, I guess?
* Yes.
* Yeah.
* Yeah, I think regardless of who wins, we're going to be seeing more protectionist measures. But the slope will be higher under a Trump administration. And people should take Trump and Lighthizer on these issues, both literally and seriously.
* Taxes. Bill, you were talking about the dire fiscal circumstances we're in. Taxes, of course, are a way for governments to actually raise the money to deal with some of that. How is that looking for both candidates?
* I don't think people are going to touch that during the campaign. Trump has pretty much said his tax cuts that occurred under his administration he wants to make permanent. And maybe they can do that.
* But behind all this-- this is very inflationary. When you onshore versus offshoring, your cost base is going up, and you've got a number of issues surrounding government spending on health care services, aging services. And I don't know how you escape more inflation. I don't see how. And so, when you get into the stock market, for example, that starts to impact valuations.
* Energy, something that you highlight in the paper as well, that you're going to see elevated oil and gas production regardless of who comes in.
* Yeah, so the secret under the Biden administration is that US production of fossil fuels, both oil and natural gas, record highs. Number-one producer in the world of both of those. It's something the Democrat administration doesn't want to talk about very much. But that will certainly continue under Trump if he wins in November, with a lot more permitting, new land, available pipeline approvals, and so forth.
* People also worry that some of the green measures that have been put in place by the Biden administration would be revoked or gutted by Trump. That probably is unlikely, given that 70% of this money goes to red districts. So in the same sense that Biden doesn't like to talk about all the fossil fuel production, I think the Republicans won't talk about the green production, and they'll leave it in place.
* And much like Obamacare, nobody's going to come out and criticize Obamacare because it's been so beneficial. Similar with the IRA measures going to Green production. So energy under either administration looks interesting, but particularly under a Trump administration.
* Let's talk a bit about some other policy things we're watching in terms of the US market. And let's start with the chair of the Fed. If President Trump wins, what happens?
* Yeah, he's been very clear that he would replace Jerome Powell, who he appointed in 2018. But Jerome Powell's term ends just about exactly two years from now. And Trump is very vocal that he would allow someone in who's going to be more dovish, more sympathetic to the whims of Trump and the rest of the Republican administration. This is highly controversial. It's not clear he could do it. But he's been very vocal that this is something he wants to do.
* Keeping some of his more dovish and inflationary times. And yes, I mean, everyone's wondering that. What about industrial policy? Again, you talked about one of the key things to watch was the reversal of globalization. I'm assuming that continues with both coming into office.
* Yeah, I think you'll see-- either one, you'll see it. The onshoring, there's an identification of what is critical to the nation itself. So the CHIPS Act, in particular, was that. And there's billions and billions of dollars being poured into that. It may not be very efficient, but it is going to happen and pretty soon.
* If you went out 5 to 10 years and looked at some of the forecasts, the production of key chips physically in the United States could rival that of what's produced out of Taiwan. Maybe not the same quality, but the volume will be there.
* And the quality, I think, would come over time as you do more, I would expect. But it is starting all over again from a lot of senses.
* The problem is the labor force and the learning. It's a big issue. In the book Chip Wars, which is a really good read, it gives you a history of chips all the way back to days of Texas Instruments and Fairchild Camera. It goes back a long time.
* And then it walks through how the Americans kind of owned that. Then it went to Japan, and then it really wound up in Taiwan. The expertise of TSMC is unparalleled in manufacturing. They don't design chips. They manufacture them. They're the best in the world.
* Yeah, deregulation. Another thing we're watching again. This, I assume, depends on who comes into office. Let me get your thoughts there.
* Yeah. So if we do have a Trump administration from November, he's been very clear that he would like to roll back a number of the regulatory measures introduced by Biden. So energy is certainly one area. The finance sector is a second one. Tech, I think, is pretty big, particularly in terms of antitrust. The FTC and the DOJ have been very active in antitrust.
* So this would give a green light, I think, for the big tech companies to go back on an acquisition wave. And I think we could see from Q1 to next year, a boom in M&A activity. They have a lot of cash. There's a lot of abilities they would like to acquire. And I think that could be very interesting.
* On defense-- we touched on defense earlier as well, too, but we know that President Biden, from a policy standpoint, favors a multilateral approach. President Trump does not. So implications?
* Yeah, so Trump doesn't favor a multilateral approach on anything, whether it's trade, any type of policies, and certainly on NATO. And in some sense, he's quite right. And this goes back all the way to Eisenhower, that US presidents have been critical of other NATO countries for not spending enough. And I think he's right.
* But defense, I think by most NATO countries, I think by most of the Cold War adversaries of the United States and other Western countries, China, Russia, Iran and so forth, there's defense spending increasing. So I would say almost globally, the defense sector will continue to boom.
* Yeah. Any thoughts, Bill?
* I would totally agree with that. And I think when you look at Europe, you will see a substantial increase from those countries on defense. They are kind of a no-man's land. China is eating away at the automobile industry, for example, which is so important to Germany.
* In Russia, just to show you the what's happened in Russia and China versus Russia and Europe, last year, the Russia-China relationship dominated exports and imports, vis a vis, the interaction of Russia with Europe.
* In fact, the volume is simply two times greater than it was before. The six leading cars purchased in Russia are all Chinese today. The currency used for trade is the yuan. It has been a huge loss of market share to Europe when you look at what this war has cost them. All the sanctions, Russia said, OK, it hurt for a while, but guess what? Iran is now buying. All of its oil is going to China.
* Most of the Russian oil is going to some of the other nations that are hostile to the United States. Europe is becoming a little bit of no-man's land in terms of their ability to compete.
* It's fascinating times. I want to finish up talking about what this all means for the markets, maybe specifically equities. We've got a chart here, I know, that was part of your paper that you both put together-- if we bring it up-- which shows, I think, the performance of S&P 500 and Sectors post President Trump. Maybe give me your thoughts of maybe, can we expect something similar to happen or what you might see going forward.
* So the bullish arguments would be if fiscal stimulus, particular tax cuts and deregulation-- this is strongly favorable for EPS and the markets overall, as Bill was emphasizing. But the headwinds would be inflation, higher interest rates, and so forth.
* But at least by sectors, it seems to be a good outlook, I would think, for finance and tech, which also did very well during the first year after Trump's election in November of 2016. And we could see something similar happening this time.
* History doesn't repeat, but it does rhyme. And I think there could be some similarities.
* We would agree with that. I think there was a book a long time ago. It walked you through the economic trends that affect profitability. And what it showed you is that when you start to substitute technology for labor and physical assets, you create a winner-take-all kind of end game.
* So if you are the dominant player, and you have the lowest cost and the best technology, you will eventually wind up with 100% of the market. And one of my favorite examples we were talking about is Uber. I mean, it is very difficult to see how Uber doesn't have a great future.
[EXIT MUSIC]
[THEME MUSIC]
* It's one of the big question marks hanging over the markets right now, the upcoming US presidential election. And it's not just a question of whether it will be another Biden or Trump administration, but also which party will control Congress.
* There are numerous implications for investors, and my next two guests have written a report on this very topic. Bill Priest is vice chair at TD Wealth, and Kevin Hebner is managing director and global investment strategist, also at TD Epic, and they join me now. It is lovely to have you both here.
* Nice to be here.
* It's good that it's worked out. I'm really glad to start. We want to talk about the paper and talk about just the implications for investors. Before we get there, though, I thought it'd be worthwhile to set some context. And I know you're getting ready. You have a working title of something you're working on right now, something that may be called Gathering Storm when talking about what's happening with the United States.
* And I know you talked about there's three main things you're thinking about when you think about the gathering storm. And I think it's important to talk about the election in terms of what it will be functioning within. So let's start with this idea of gathering storm. Why gathering storm?
* Well, it started from a series of books by Winston Churchill. He wrote a six-volume report of the Second World War. And the very first volume was called A Gathering Storm.
* And so, the thought was it looks to us that there's some pretty negative stuff going on in the world. Essentially falls into three headings, if you will. First of all, it's the end of globalization. And we have onshoring, if you will, as opposed to offshoring.
* And globalization was a very powerful force that reflected something called the law of comparative advantage. And within the law of comparative advantage, it just said, no matter how superior a country might be in making anything, it's all about their relative ability to manufacture or produce something, that it pays you to trade with somebody, so long as there is not the same relative difference.
* This was writ large from 1989 to-- for 20 years. Law of comparative advantage was writ large around the world, and virtually everybody prospered. Now, not every country may have prospered, but within a country, there were clearly some losses.
* So when you look at the United States, much of manufacturing was hollowed out. A lot of the steel capacity went abroad. And we did not help those steel workers. And they have become a political base in some cases, particularly for the Republican party. In theory, with the law of comparative advantage, there's enough left over that you can retrain, re-educate or supplement somebody's income. That's theory. It really didn't happen very much in the United States.
* So that was the first one, which is the reversal of globalization. The second one, I know you and I were talking earlier about China, China's economic miracle, and it's over.
* Well, yes, we think much of the China economic miracle is over. And we can talk about that a little bit. Kevin's also done a lot of work on that, too. And the third one was just the fiscal challenges that the United States in particular will be facing. And it applies to Europe as well, but particularly the United States.
* There'll be a number of fiscal challenges coming our way, in the sense that your cost of debt is going to be going up. We've had very short maturities of debt. You've got to now roll those over.
* I think in a short period of time you have something like $10 trillion of bonds have to be sold. So all of that's something we'll have to address in the next year or two. But it's a very unstable situation we're entering in as we go forward.
* Yeah, and I think maybe if we just touch on maybe China's-- the economic miracle has-- maybe it's over or muted or slowed down significantly. Maybe just maybe speak to that a little bit, Kevin, in terms of what that means.
* Yeah. So the three Ds, as Bill was mentioning, de-globalization, debt tied into real estate, and then demographics. So trend growth goes something like 6% to 8% to now something like 2% to 3% So still you have a strong consumer, and there will be growth there.
* But in terms of real estate and other sectors of the economy, government investment in infrastructure, it looks very weak going forward. And so not as much a driver of the global economy. And so I think the weight of China is still very hefty. And they want to have their heft recognized in the global financial architecture.
* And that's part of the reason why the United States and China are butting heads in some areas. But a very different perspective on China going forward.
* And then the final one, you mentioned about just the fiscal situation in the States. And again, when you and I were chatting earlier, Bill, I think you mentioned that 96% of GDP right now is being spent on servicing debt.
* Well, yes, starting back in 1992, it was three years after the fall of the Wall. America's debt was about 46% of GDP. It's now 96%, and it's accelerating. And frankly, neither party pays much attention to this. It's as if it's not something to worry about. But there were many reasons that allowed this to happen that don't exist anymore.
* Productivity was rising and growing in the United States. We had the peace dividend, which allowed us not to fund defense the way we had been doing it in the past. And a diminished Soviet Union just wasn't a real threat that it was prior to '89.
* But the competition with China and Russia now requires higher defense spending. We're going to need more money for an aging population. You need more money for cutting greenhouse gas emissions. And all that is going to cause an acceleration at a time when your cost of the debt is going up substantially.
* It certainly sets the platform for when we got one of the most important elections coming out, not just for the United States, in the world, coming, what we're playing into. And one thing that I think that I'm not sure, Kevin, if Bill, if you told me about it, but just the trust that Americans have right now in their institutions, in their governments is also at all time lows.
* Yeah, there was a poll, I think it was by a major entity that basically indicated that 20 years ago of the G7 no country's population had more trust in an institution than the US. And today, we're at the bottom. We're seventh out of seven. And in fact, when it comes to judicial system, we're tied with Italy.
* Some of the charts that you've put together in the paper are interesting, and the first one we show is that the polls and how some of the candidates are polling right now, to which these aren't always the most accurate, are they, Kevin? The polls.
* You know, there's a lot of issues with polling, including the response rate, either through the phone or internet-based polls. But the response rate now is about 0.4%. So the reliability, I think, is highly questionable.
* You also bring in the paper, though, what the betting sites are predicting. And just tell us again why you think these are more reliable.
* I think betting sites are more reliable. People choose to go on the site. They do put their own money down. And there's a number of studies showing that they are better predictors or indicators for a host of different market events, including for elections.
* And so what this one is showing right now is Trump is in the lead. Biden is closer, and then other, I'm assuming this would be Robert Kennedy or RFK.
* Yeah, so now it's clearly focused on him. But previously, there were other candidates. And one thing that I find interesting from these charts is normally we get a lot of back and forth. But most of these charts we've been creating since November, and they've been reasonably consistent that Trump has a small lead over Biden.
* And we've got a long ways to go still, six months before the election. And some big events coming up the next four months. And we'll have to see whether the consistency we've seen in the last four months, with a small lead for Trump, whether that holds or not.
* Bill, any thoughts on that?
* No, I think Kevin has said it well. I think one of the big issues that all the candidates are going to have to address, as you work into the fall, is a factual case that we have to roll over one third of our existing debt this year and finance a growing deficit. The government needs to find buyers for $10 trillion of bonds this year. And this scale will increase every year.
* The government is spending more servicing the debt than on national defense. And that's probably going to have to change. When you look at how this all sums up, the fiscal problem just gets worse. The IMF estimates that Americans need to cut spending or raise taxes by 40% of GDP simply to stabilize the debt load in 1929. There's a real fiscal issue in the United States.
* Yeah, yeah. And we're going to talk about it, I think. Let's talk a bit about it, actually, how that might get addressed in the upcoming-- but we'll get to that in a second. I want to talk a bit about trade. And you actually say in your report that we're all economic nationalists now. So maybe just give us a context on that.
* Yeah. So when Bill and I first started writing about reinventing globalization in 2016, the reaction to it was actually pretty hostile. There is this real change going on. And in 2016, we had Trump coming up with a different view of trade. We had Lighthizer, who is this trade rep, presenting a view in terms of tariffs and how we view China.
* That was very different then, the consensus. But the world's caught up to them now, and it's bipartisan. And we saw last week the tariff increases announced by Biden. Trump and Lighthizer have been talking about balanced trade, much higher tariffs if Trump wins in November.
* So I think going forward, this is one of the big risks for markets. We could see markedly higher tariffs, sanctions, quotas, and ultimately for certain countries, a call for balanced trade. This is a very different way of thinking about the world than we've had previously. But it looks to me like it's coming. And it's probably bipartisan.
* Yeah, that's interesting. I was just going to touch on the tariff piece. I know that you say in the paper and we've heard that Trump is pushing for baseline tariffs of 10% right across the board. And President Biden has shown his willingness to put tariffs on Chinese goods to protect US workers. We've seen it with EVs and chips and those types of things. So that's happening on both sides. To which magnitude, I guess?
* Yes.
* Yeah.
* Yeah, I think regardless of who wins, we're going to be seeing more protectionist measures. But the slope will be higher under a Trump administration. And people should take Trump and Lighthizer on these issues, both literally and seriously.
* Taxes. Bill, you were talking about the dire fiscal circumstances we're in. Taxes, of course, are a way for governments to actually raise the money to deal with some of that. How is that looking for both candidates?
* I don't think people are going to touch that during the campaign. Trump has pretty much said his tax cuts that occurred under his administration he wants to make permanent. And maybe they can do that.
* But behind all this-- this is very inflationary. When you onshore versus offshoring, your cost base is going up, and you've got a number of issues surrounding government spending on health care services, aging services. And I don't know how you escape more inflation. I don't see how. And so, when you get into the stock market, for example, that starts to impact valuations.
* Energy, something that you highlight in the paper as well, that you're going to see elevated oil and gas production regardless of who comes in.
* Yeah, so the secret under the Biden administration is that US production of fossil fuels, both oil and natural gas, record highs. Number-one producer in the world of both of those. It's something the Democrat administration doesn't want to talk about very much. But that will certainly continue under Trump if he wins in November, with a lot more permitting, new land, available pipeline approvals, and so forth.
* People also worry that some of the green measures that have been put in place by the Biden administration would be revoked or gutted by Trump. That probably is unlikely, given that 70% of this money goes to red districts. So in the same sense that Biden doesn't like to talk about all the fossil fuel production, I think the Republicans won't talk about the green production, and they'll leave it in place.
* And much like Obamacare, nobody's going to come out and criticize Obamacare because it's been so beneficial. Similar with the IRA measures going to Green production. So energy under either administration looks interesting, but particularly under a Trump administration.
* Let's talk a bit about some other policy things we're watching in terms of the US market. And let's start with the chair of the Fed. If President Trump wins, what happens?
* Yeah, he's been very clear that he would replace Jerome Powell, who he appointed in 2018. But Jerome Powell's term ends just about exactly two years from now. And Trump is very vocal that he would allow someone in who's going to be more dovish, more sympathetic to the whims of Trump and the rest of the Republican administration. This is highly controversial. It's not clear he could do it. But he's been very vocal that this is something he wants to do.
* Keeping some of his more dovish and inflationary times. And yes, I mean, everyone's wondering that. What about industrial policy? Again, you talked about one of the key things to watch was the reversal of globalization. I'm assuming that continues with both coming into office.
* Yeah, I think you'll see-- either one, you'll see it. The onshoring, there's an identification of what is critical to the nation itself. So the CHIPS Act, in particular, was that. And there's billions and billions of dollars being poured into that. It may not be very efficient, but it is going to happen and pretty soon.
* If you went out 5 to 10 years and looked at some of the forecasts, the production of key chips physically in the United States could rival that of what's produced out of Taiwan. Maybe not the same quality, but the volume will be there.
* And the quality, I think, would come over time as you do more, I would expect. But it is starting all over again from a lot of senses.
* The problem is the labor force and the learning. It's a big issue. In the book Chip Wars, which is a really good read, it gives you a history of chips all the way back to days of Texas Instruments and Fairchild Camera. It goes back a long time.
* And then it walks through how the Americans kind of owned that. Then it went to Japan, and then it really wound up in Taiwan. The expertise of TSMC is unparalleled in manufacturing. They don't design chips. They manufacture them. They're the best in the world.
* Yeah, deregulation. Another thing we're watching again. This, I assume, depends on who comes into office. Let me get your thoughts there.
* Yeah. So if we do have a Trump administration from November, he's been very clear that he would like to roll back a number of the regulatory measures introduced by Biden. So energy is certainly one area. The finance sector is a second one. Tech, I think, is pretty big, particularly in terms of antitrust. The FTC and the DOJ have been very active in antitrust.
* So this would give a green light, I think, for the big tech companies to go back on an acquisition wave. And I think we could see from Q1 to next year, a boom in M&A activity. They have a lot of cash. There's a lot of abilities they would like to acquire. And I think that could be very interesting.
* On defense-- we touched on defense earlier as well, too, but we know that President Biden, from a policy standpoint, favors a multilateral approach. President Trump does not. So implications?
* Yeah, so Trump doesn't favor a multilateral approach on anything, whether it's trade, any type of policies, and certainly on NATO. And in some sense, he's quite right. And this goes back all the way to Eisenhower, that US presidents have been critical of other NATO countries for not spending enough. And I think he's right.
* But defense, I think by most NATO countries, I think by most of the Cold War adversaries of the United States and other Western countries, China, Russia, Iran and so forth, there's defense spending increasing. So I would say almost globally, the defense sector will continue to boom.
* Yeah. Any thoughts, Bill?
* I would totally agree with that. And I think when you look at Europe, you will see a substantial increase from those countries on defense. They are kind of a no-man's land. China is eating away at the automobile industry, for example, which is so important to Germany.
* In Russia, just to show you the what's happened in Russia and China versus Russia and Europe, last year, the Russia-China relationship dominated exports and imports, vis a vis, the interaction of Russia with Europe.
* In fact, the volume is simply two times greater than it was before. The six leading cars purchased in Russia are all Chinese today. The currency used for trade is the yuan. It has been a huge loss of market share to Europe when you look at what this war has cost them. All the sanctions, Russia said, OK, it hurt for a while, but guess what? Iran is now buying. All of its oil is going to China.
* Most of the Russian oil is going to some of the other nations that are hostile to the United States. Europe is becoming a little bit of no-man's land in terms of their ability to compete.
* It's fascinating times. I want to finish up talking about what this all means for the markets, maybe specifically equities. We've got a chart here, I know, that was part of your paper that you both put together-- if we bring it up-- which shows, I think, the performance of S&P 500 and Sectors post President Trump. Maybe give me your thoughts of maybe, can we expect something similar to happen or what you might see going forward.
* So the bullish arguments would be if fiscal stimulus, particular tax cuts and deregulation-- this is strongly favorable for EPS and the markets overall, as Bill was emphasizing. But the headwinds would be inflation, higher interest rates, and so forth.
* But at least by sectors, it seems to be a good outlook, I would think, for finance and tech, which also did very well during the first year after Trump's election in November of 2016. And we could see something similar happening this time.
* History doesn't repeat, but it does rhyme. And I think there could be some similarities.
* We would agree with that. I think there was a book a long time ago. It walked you through the economic trends that affect profitability. And what it showed you is that when you start to substitute technology for labor and physical assets, you create a winner-take-all kind of end game.
* So if you are the dominant player, and you have the lowest cost and the best technology, you will eventually wind up with 100% of the market. And one of my favorite examples we were talking about is Uber. I mean, it is very difficult to see how Uber doesn't have a great future.
[EXIT MUSIC]
[THEME MUSIC]
