First Trust ROI Podcast

Ep 52 | Bob Stein | Midterms to Tariffs: Economic Trends and Election Predictions | ROI Podcast

• First Trust Portfolios • Season 1 • Episode 52

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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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Ryan:

Hi, welcome to this episode of the First Trust ROI podcast. I'm Ryan Isakainen, ets strategist at First Trust. Today, I'm joined by Deputy Chief Economist at First Trust, bob Stein. Bob and I are going to talk about what's going on in the US economy. We'll talk a little bit about a too early take on the midterm elections, as well as the 2028 presidential election, and we've got a lot of other things to talk about. It's always great to have Bob Stein on the First Trust ROI podcast. Thanks for joining us. I want your early call as you look 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 likeliest candidates to succeed this presidential administration? On the Republican side, who are the heir parents to run, and then also on the Democrat side.

Bob:

Remember it's three and a half years away, Three and a half years to the actual presidential 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 markets are giving JD Vance maybe a 40, 42, 43 percent chance of getting the nomination. I would take the over on that. I think JD Vance has about a 65 percent chance of being that nominee. I think he's smart enough to stay close enough ideologically and politically with Donald Trump, the president, and that he is the heir apparent and he will be the nominee as long as he remains loyal and Trump remains reasonably popular with the Republican side of the electorate, because all he has to do again is win the primaries to get that nomination. So I think it's JD Vance 65 percent. Everybody else combined Maybe Nikki Haley, Mike Pompeo, Glenn Youngkin, Tom Cotton, whomever Everybody else combined 35%. And I think if JD Vance is the nominee, I already know who his running mate is going to be. It's going to be Little Marco from 2016. Little Marco's all grown up, so they're close.

Bob:

Personally, Vance and Rubio. Picking Rubio would entrench Hispanic support for the Republican Party. They've made substantial inroads with Hispanic voters around the country Over the past few cycles. That should continue by selecting 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 like your attack dog with you. Like Rubio will be assigned the job of attacking the Democratic nominee, whomever that turns out to be. And last and very importantly, probably the most important factor is that Rubio has an attribute that many of these other potential vice presidential running mates on the Republican side don't have, which is that he's shorter than JD Vance, and I know people kind of scoff at that, but that's important. Like Tom Cotton and Glenn Youngkin are both like 6'5". Does JD Vance want to be at the Republican convention? Are we standing up on the campaign trail with his running mate towering over him?

Ryan:

I don't think so how tall is JD Vance?

Bob:

I think JD Vance is maybe 6'1 or 6 feet or something like that.

Ryan:

So he's not below average, but he's not way above average.

Bob:

No, exactly Exactly. He's shorter than Donald Trump. Yeah, so JD Vance is going to pay it forward by picking someone shorter than himself, and that would be Marco. Marco would fit the bill perfectly. So Tom Cotton and Glenn Youngkin they might be on the list, on the short list, but they're not on the true short list because they're too tall.

Bob:

Democratic side there's absolute chaos. There is no clear frontrunner, none. I mean. It is wide open. Everybody from Gavin Newsom to Pete Buttigieg to Gretchen Whitmer to Pritzker from Illinois, who's loaded with money. He doesn't have to raise money as aggressively as some of these other people. There are just tons of candidates. So let me bring up two people who will not be on my list as running Okay and maybe I'll end up with egg on my face, but I'm pretty confident of this. Bernie Sanders ain't running Okay. The guy would be 88 when he gets inaugurated 88. He'd be running to remain president in just his first term, until his 90s. The American public, including the Democrats, having experienced Joe Biden, are not going to nominate someone who's going to be a nonagenarian in the Oval Office. That's just not going to happen. I don't think he runs. I think he passes the torch to AOC in terms of the hard left and that's been ongoing where they're together at rallies.

Ryan:

Can she articulate what he articulates, though it seems like he's a very whether you like him or dislike him, or agree or disagree. It seems like he can articulate his views in a consistent way and I'm not sure that she has the political experience or background to be able to do that, Correct. But she's physically more attractive. She does it with salsa and I'm not sure that she has the political experience or background to be able to do that Correct.

Bob:

But she's physically more attractive. She does it with salsa, you know, and that's fine.

Ryan:

I mean you have candidates who are— In a world of clips. Maybe it's not as important.

Bob:

It's not as important. He's basically a guy who honeymooned in the Soviet Union like when he got married and has never apologized for it. He's like an old-time Marxist and I think where, as AOC, might be not as intellectually rigorous in her leftism as Bernie Sanders, it's certainly part of her authentic self and she has pizzazz that Bernie Sanders doesn't necessarily have.

Ryan:

Could she go on a podcast and talk for three hours to Joe Rogan? No, actually she could, because I think that's where Kamala had, like it was one of the reasons why she wasn't able to get across. I think this was in our last podcast.

Bob:

Yeah, harris was a uniquely vapid candidate and I don't think we'll probably see the likes of her running for the presidency anytime soon, or certainly not getting the nomination and participating in a general election battle for the presidency. But I think AOC is not nearly as vapid as Harris. But I think AOC is not nearly as vapid as Harris and I think she could attempt to do so. Bernie Sanders I could see going on Rogan and doing intellectual battle with Rogan. I'm not sure about AOC it remains to be seen but I don't think she would shy away from it the way Harris would. But I don't think she would shy away from it the way Harris would. I'm not sure Harris can maintain a substantive conversation on any topic without sounding vapid for like more than 15 minutes. So, in terms of the other candidate who you will not see on the Democratic side is Michelle Obama, and I know people have talked about Michelle Obama for years, but she was never going to run for president. She will never run for president. Best evidence of this that the public saw is that Jimmy Carter, our longest-lived president and a Democratic president to boot, passes away at age of 100. And all the former presidents go to the funeral and all the former first ladies go to the funeral, with the one exception of Michelle Obama, who apparently needed a little me time, I mean. That to me makes it very clear she doesn't have the fire in the belly, the desire to be president of the United States. She's never going to run. I think it was just a Washington rumor mill about Obama making fundraising calls on her behalf and people were just regurgitating what they heard. I don't see any evidence of that actually having happened. She will never run for president. So the two people who I think get scoffed at the most on the Democratic side in terms of their odds of getting the nomination and I'm not saying they're the front runners, but if they throw their hat in the ring and they might not, both might not, but if they throw their hat in the ring they're going to be formidable. One is AOC, who might end up being the only hard left Bernie Sanders acolyte on the Democratic side in this race. And if she is, she walks into every primary with about 35% of the vote already sewn up, maybe a little less, maybe a little more, depending on the state. Well, you know she has a hard time getting from 35 to 45 or 50, but I don't think the superdelegates on the Democratic Party are going to stand in her way. They're not going to say, oh you know, we have a white candidate or we have a male candidate who we want to nominate. Instead, I think they would kind of accept that she gets the nomination if she can get like 45% of the delegates, because all the other delegates would be split among other candidates. So she's got a shot. If she is the only hard left candidate in the race Remains to be seen, but that's her shot.

Bob:

The other guy is Stephen A Smith, and yes, I'm talking about the guy from ESPN. I know all he does is talk, but that's a skill set. He can call into MSNBC, fox News, he can call into CNN, just like Donald Trump did in 2015 and 2016,. Talk off the top of his head, spontaneously, extemporaneously, without conveying to the public that he has a list of talking points that he's reading in front of him, without conveying to the public that he has a list of talking points that he's reading in front of him, without conveying to the public that he's trying to remember what his advisors told him to say and not to say about that particular topic. He can talk off the top of his head. Quite refreshing with Trump and quite refreshing also, I think, with Stephen A Smith.

Bob:

Trump answered a lot of questions differently from all the other Republicans. Iraq war they said it was essentially a noble cause, even if it might not have been fought right. He said it was full of junk. He said it was like fake news WMD, whether you agree with him or not. It was different for the Republican Party.

Bob:

All the other candidates were free traders. He's a protectionist. All the other candidates wanted to make big changes to Social Security or Medicare. He said no, I'm not going to touch those. All the other candidates wanted to immediately cut Planned Parenthood to the bone. He said no, they do some good work. That was his position back then. So all the other candidates were fighting over the cookie cutter positions that the Republican elite in DC was telling primary candidates to have over the course of the previous couple of decades, and he didn't buy any of it and he was more popular than all those other candidates.

Bob:

Stephen A Smith, could you imagine a debate in 2027, you know, late in 2027, early 2028, where all of the candidates on stage, if he runs, including Stephen A Smith, are asked about boys participating in girls' sports. All the other candidates are going to say it's complicated or they're okay with it in certain circumstances. Stephen A Smith is going to say this is utterly ridiculous, it's a competitive advantage and they should not be doing that. No boys and girls sports. No men and females sports. No, we're not going to do that. So I actually think his position would be more popular than the other position, even among most Democrats not Beltway or academia Democrats, but actual voting Democrats.

Bob:

I think they will gravitate to his position rather than the position of, like the inside the beltway Democratic crew, and he may find himself unusually popular, like Donald Trump did back in 2015 and 2016. So it remains to be seen. If he runs, it's certainly possible. He won't. If you look at the prediction markets, he probably won't. But if he does, he's going to be more formidable than people give him credit for.

Ryan:

That's interesting I think Gavin Newsom is. I don't know where he is in the prediction markets, but he has started a podcast. I've noticed I don't know if you've seen his podcast where he's had a bunch of guests from the right, from the Republican side, and tried to have conversations that sound more pragmatic and more balanced and it seems like he's trying to maybe tack a little bit from what might be perceived as a hard left position towards the center a bit and I think he's trying to get practice on podcasts.

Bob:

Yeah, I think that's true as well. I also think that some of the recent unrest going on in Los Angeles doesn't necessarily inure to his benefit. It may be inures to his benefit in terms of getting the nomination, but not in terms of winning a general election. Same with the mismanagement of Los Angeles regarding the fires that have happened over the past six months. That, combined with the unrest, kind of leaves a picture in the image of the mind of the median voter to some extent of distasteful things going on in California associated with his governorship. But he's pretty smart, he can talk on his feet and he's got great hair. I mean he really fits the suit. He's like Greg Brady in that.

Bob:

Brady episode where we didn't pick you because you could sing. We picked you because you fit the suit. Okay, well, Gavin Newsom fits the suit, you know.

Ryan:

Yeah, is he tall.

Bob:

He's tall enough. Yeah, I don't think he can beat JD Vance's running mate, so he's too tall for that.

Ryan:

Okay, so what about? We're a year away from the midterms and actually it's closer than that, when people will start talking about it in 2026. Yeah, what's your take on how the midterms shake out and some of the significance of how it's going to shake out?

Bob:

So in 2026, we saw what we can call in boxing terms, a unanimous decision where the Republicans won the House, the Senate and the presidency In 2024. I'm sorry, 2024. So 2026, it's going to be a split decision. So it's the Senate and the House. I think the Democrats are very likely to take the House. I think about 85% likely, and that's higher than the prediction markets currently have them Not by leaps and bounds, but it is higher why? Well, number one, the Republican majority is razor thin. Back in 2024, they won the House 220 to 215. So all the Democrats would have to do is gain three seats compared to what they did back in 2024 last year, and they get a narrow majority, only three.

Bob:

Historically speaking, the party not occupying the White House tends to win more seats than they previously did. Not always. If you look back at the 20 midterm election cycle since the end of World War II, starting in 1946, the out party has won three seats or more 90% of the time. So just like kind of like to establish some sort of prior, democrats probably win the House. In addition, this is not your father's Republican Party. The old Republican Party got a lot of their support from highly educated voters. Now the Democrats do better with highly educated voters. Now lower educated voters have gravitated to the Republicans, but they show certain voting patterns. In terms of their turnout rates they do turn out like everybody else in presidential elections, but not so much in special elections or midterm cycles. Because of that I think the Republicans are behind the hate ball Now. That doesn't mean they can't keep the House. I just think it's unlikely, only a 15% chance. But you know it happened in 1998 and 2002, the in party, the Democrats in 1998 or Republicans in 2002, made gains. So it's not impossible. But the issue cluster has to shift a little bit more towards concern about urban disturbances and things like that than it is right now and I already think that the level of concern about those issues is higher than normal.

Bob:

In terms of the Senate, republicans today control 53 seats. I think they keep the Senate Now. That might seem odd to some people because the vast majority of seats that are up for grabs next year have to be defended by the Republican Party. For grabs next year have to be defended by the Republican Party, but 20 of the 22 seats they have to defend are in red states that consistently tilt Republican presidential cycles relative to the country as a whole. Those are what I would label red states, and because of that I think I already know, among those 20 states where the Republicans have to defend, in those Republican states, that the Democrats will pick up either one or zero seats. One or zero, I'd be very surprised by two or more, very surprised. So remember, the Democrats have to pick up four seats to take the Senate. Even a 50-50 tie leaves it in nominal control by the Republicans because JD Vance can break ties. So that will leave the Democrats really focusing in on Maine and North Carolina, and they'll be competitive in both.

Bob:

If you look at the prediction markets each of them, the Democrats have a higher chance of winning than the Republican incumbent does. But the key word is incumbent because the Republican incumbents are running for reelection in both seats Tom Tillis in North Carolina, susan Collins in Maine, and so I actually think the Republicans should be slightly favored, not vice versa. Susan Collins always looks like a goner in her previous cycles and then pulls it out at the end, and usually resoundingly so. So my best guess is that maybe the Democrats win one of those two and then they have problems of their own, because in New Hampshire, minnesota and Michigan. They have to defend seats without the incumbent because the incumbents have retired Gary Peters in Michigan, tina Smith in Minnesota and Gene Shaheen in New Hampshire. Now they'll probably win each of those states, but it gets a little tougher for them to do so. It's not as easy or as much of a slam dunk or a layup again with these basketball analogies because they're open seats rather than the incumbent defending his or her own seat. So net-net, I think the Republicans now 53, end up with 52, maybe 51 seats in the US Senate, 51 or 52, still with control of the US Senate.

Bob:

And why does this matter, ryan? It's because, if I'm right about the outcome, then Donald Trump has four years to be our foreign policy president, including potentially on the issue of tariffs. Four years to appoint pretty much whomever he wants to the federal courts, including, should there be a vacancy, to the Supreme Court. Four years to run roughshod which he loves over the executive agencies and departments, hiring and firing, especially firing whomever he wants. But he's only got two years to legislate, just two years. Legislation runs out in 17 months. And the reason I say that is because, if I'm right about the outcome, starting in January 2027, every single piece of legislation getting to his desk is going to have to be bipartisan, everything at least partially bipartisan to get there.

Ryan:

So one of the pieces of legislation that's most important in being it's definitely what's in the headlines and it's being negotiated now is the taxing and the tax and spending bill, the reconciliation, the one big beautiful bill. So where are we at with that bill? What's your best guess on the likely outcome when it comes to some of the main parts of that? Are we going to have an extension of the Trump tax cuts for individuals? Is the spending being cut at all, or is it just an illusion that it's maybe going to be cut?

Bob:

What's your take On the spending? You're going to see changes to entitlements, definitely on Medicaid not a major transformation, but a small and perhaps on Medicare, some minor changes to that as well. That will reduce spending on those entitlement programs out into the future, combined with Trump meeting some of his campaign promises to spend extra money on, like border enforcement and courts and things like that, to process immigration, stuff like that, but those are part of his campaign promises. Here is the key. Some people on the Republican side Freedom Caucus people, elon Musk are saying this is like the porculus bill and they're spending so much they're not doing enough. Side, freedom Caucus people, elon Musk are saying this is like the porculous bill and they're spending so much they're not doing enough.

Bob:

It is true that there's a case to be made that the Republicans are not using this for enough entitlement spending cuts. Okay, there's a legitimate case. I'm not saying it's right or wrong, but it's based on your political preferences. If you want to see a smaller government, they're not doing a lot on entitlements, on entitlement cuts, but they're doing as much as they can do Because, remember, it's 220 to 215 in the House of Representatives, roughly speaking, based on deaths that have happened and stuff like that, since resignations whatever. That gives the Republicans very little wiggle room and that means the moderates in the House can say no, no, no, you're going too far with the spending cuts. They're doing as much as they can on the entitlement cuts.

Bob:

In terms of other cuts, this is not the annual appropriations process. The budget bill affects revenue and entitlements and it's the direct spending to meet Trump's immigration-related proposals during the campaign. But overall spending over the next 10 years is going to be lower. But here's the key. This is totally underreported by all sides.

Bob:

Nobody really has a strong interest in reporting this yet, but the Congressional Budget Office at the beginning of this year thought that social discretionary spending so not defense, not entitlements, not net interest only that social discretionary spending was supposed to be a trillion dollars in the fiscal year that starts October 1. Trump requested less than $700 billion for that spending. That's a 32% cut. Now he might not get everything he wants. It's possible there's an emergency along the way, an earthquake somewhere, a hurricane, tornado, whatever that generates extra spending. But this may end up to be a 20% or 25% social discretionary spending, not defense discretionary. It's social discretionary spending which is massive. It is just a massive cut and if you amortize that over 10 years because it resets the baseline, that's saving $2 trillion to $3 trillion over the next decade.

Ryan:

Do you have an example of what would fit in that category?

Bob:

Well, it's the education department.

Ryan:

Okay.

Bob:

A lot of state department-related stuff with USAID Could be money for the corporation for public broadcasting.

Ryan:

Okay, so is that where Doge actually, you think had an effect?

Bob:

So I think Doge took a lot of credit and heat for doing things that just things Trump wanted, and you needed the expertise of the people put in Doge to accomplish these things and apparently, like they've.

Bob:

You know they and others have worked on things like speeding up the federal retirement process, like in terms of like actually being able to fill out the forms and know that the federal government is ready to pay your pension and everything like that for the employees.

Bob:

But USAID, department of Education, doge was involved in those things. But ultimately these are decisions made out of the White House and in the executive agencies themselves, like DOGE by itself could research things, could reveal things, could go in-depth into their budgets and things like that. But the real meat of the layoffs on the federal government side and we have started to see that in the data to some extent really were decisions out of the White House and made by the executive agencies themselves. And you do see the effect If you look at federal government, excluding the post office and census workers which fluctuate for their other reasons, I think federal employment is down over the past four months at the steepest four-month rate in 20-plus years and so we are starting to see traction and I think we're going to see more of it over the next several months.

Ryan:

So last year you called the, or maybe last episode you called this year's budget one of the most irresponsible budgets of your lifetime, do you?

Bob:

Actually, it was the last two.

Ryan:

The last two. The last two.

Bob:

So I can't say that yet about this one.

Ryan:

Okay, so do you think that the budget is that they're talking about is going to. Are we improving in that regard?

Bob:

My guess is that the deficit relative to GDP should be at or below where it was the previous two years. Okay, at or below.

Ryan:

So it's not growing.

Bob:

Yeah, it's not growing anymore like it did over the previous two years, and the reason I said the last because we've had bigger budget deficits than we've had over the previous two fiscal years. But I think the last two deficits under Biden were so irresponsible because we were not at war, we were not in some sort of health emergency with COVID anymore and the unemployment rate was 4% on average over those two budget years. Like, just to put it in perspective, reagan's biggest deficit in the 1980s that's a president who took a lot of heat for deficits His biggest deficit was 5.9% of GDP in fiscal 83 when we were fully funding defense during the Cold War, and the unemployment rate that year, that fiscal year was 10%. So we had a bigger budget deficit 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 so irresponsible.

Bob:

If you run a big deficit for a good reason like you're in recession, whatever that I understand. But there was no reason to give Biden a dispensation for the past two years. So it remains to be seen Because, remember, trump came in in the middle of the fiscal year. My best guess is that we don't see any more backsliding on that deficit, but it remains to be seen. Let's see what happens by the end of the fiscal year. You always have to make adjustments for calendar effects, like does the end of the fiscal year happen on a weekend so that the payments are made in that fiscal year rather than the following fiscal year? So you have to look at it. The CBO will actually tell you oh, without these calendar effects the deficit would have been this other number for last year and it would be this number for this year. So you have to adjust to those calendar effects to get a true underlying trend in the deficit. My guess is it'll be slightly. It'll be flat to down.

Ryan:

Okay, so a few weeks ago the final credit rating agency downgraded the US Treasury debt from AAA to the next notch down, and I guess I have a couple parts to my question for you. One is if we were in an era with deficits that were really irresponsible for the last few years couple years why did they do that now? Why didn't they do it a couple years ago? And they saw some of the same sort of deteriorating?

Bob:

credit conditions. You'd have to ask them for an explanation, because it makes no sense to me.

Ryan:

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 people raise the question well, does that mean that the dollar is going to lose its special status as a reserve currency? Is the US borrowing costs going to climb out of control? What's your take on that?

Bob:

So we're not going to lose our reserve currency status anytime in the foreseeable future. Are we going to lose it to the Chinese yuan? People aren't going to trust the Chinese to maintain the value of their currency if they run into an economic emergency. Every time there's a financial crisis, people will be worried about the euro. I mean, in terms of global reserves by other central banks, gold is now a bigger reserve than the euro. At this point. My understanding is it's still well behind the dollar. Point. My understanding is I'm still well behind the dollar. So in the land of the blind, the one-eyed man is king and in the world as it is, the dollar is like the one-eyed currency. There's nothing going to take our place Now. Is Bitcoin or some other kind of crypto going to come along and take our place? I'm doubtful on that, because governments are jealous gods and if crypto was moving in that direction, the US government would just regulate it to death if it had to. So I don't think that's going to happen. We're not going to lose our reserve currency status.

Ryan:

Okay. So that brings me to something we haven't really talked much about, and that's tariffs. We won't get into currency relationships too much, even though the dollar has weakened as Liberation Day came, but tariffs have been, I think, misunderstood by the public, and part of that is maybe the communication hasn't been as clear on what's trying to be achieved but what the objectives are.

Bob:

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 president himself is erratic in his selection of terrorists but because you also have the involvement of the courts at this point, and so now we don't know whether the Liberation Day terrorists are going to remain in law much longer, and how much longer, and if they are rescinded by the courts or overruled by the courts, whether or not and how long it would take for the Trump administration to gin up some similar tariff regime based on other laws that Congress has passed in the past. So I think that's part of why it's so erratic. And you really don't. If there's a benefit from tariffs and I'm not saying the net benefits or the benefits outweigh 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 tariffs remain in place so they bring production home to the United States. And I'm not again, I'm not saying there is a net benefit from tariffs, but if you're going 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.

Bob:

The economy shrank in the first quarter because firms were front-running tariffs. And so basically, like, imagine that you run a furniture store. You sell sectional sofas that are built in the USA. You also sell sectional sofas that are built abroad. So you know the Trump tariffs are coming. He's elected, he's talking about tariffs and imposing them later in the year.

Bob:

You're going to front-run those tariffs. You're going to boost your orders from your foreign sources and you're going to front run those tariffs. You're going to boost your orders from your foreign sources and you're going to correspondingly cut your orders from your domestic sources. So you don't want to pile up massive amounts of inventory. So you're going to tell your US furniture makers hold off on my orders for now, don't make them. You're going to tell your foreign producers to boost their production. Your inventory stays roughly the same, but you get most of your action. You're servicing your customers from your foreign stuff because you know that price is going to go up soon, right?

Bob:

So that, in a nutshell, is what happens to the US economy in the first quarter. That's why output went down in the US. It really did go down. But it's going to rebound in the second quarter because now that the tariffs are more in place, you're going to tell your farm producers yeah, we ordered extra last quarter. Now we're back to normal or maybe even temporarily below normal because the tariffs make it tougher for me to buy. Oh yeah, domestic producers, we want more from you to make up for last quarter when we ordered fewer, okay, and to balance it out, because now we're ordering less from our foreign producers, we're going to order more from you guys again, okay.

Bob:

So we're going to get 4% plus, in my view, economic growth in the second quarter. I know the Atlanta Fed is saying 3.8 right now, but I still think they're low-balling trade because they don't exercise judgment in the way they do their modeling. There's no Trump tariff erratic behavior variable in their model, and so I think imports continue to be low throughout the second quarter and that April was not an aberration. And because of that, they're going to keep on revising their GDP number higher, not every data report, but on a month-over-month basis. They're going to revise their second quarter number higher. So I think it's going to be at least 4%. I wouldn't be shocked by 5% or so for the second quarter and then we'll get back to trend. Whatever it is more like 2% or 3% for the second half of the year.

Bob:

For the second half of the year exactly.

Ryan:

Because tariffs are perceived as temporary, on the potential for influencing reshoring of manufacturing, for example. So, in order for tariffs to be more permanent, do they have to be legislated or can they right now? They're all executive orders.

Bob:

If they are legislated they would be more permanent. But that might not be the only avenue to actually. You have to be careful how we say permanent. It's not permanent in the legislative sense. In the legislative sense Even then, it's not truly permanent in the philosophical sense, if you will. So when they say it's permanent, a permanent change to the tax policy, that just means until Congress passes another law which can change it. So it's not like metaphysically permanent if you will.

Bob:

Yes, okay, so permanent in terms of the regulations. You can get permanence in terms of Trump regulations as long as it goes through the legal process and the courts say no, he can do it this way. Okay, which he doesn't have that yet. Later in the administration, maybe later this year or next year, where he can either use the current process he's used or a different process to impose a certain level of tariffs and then it's permanent until he personally changes his mind, wakes up on the wrong side of the bed or maybe the right side of the bed, but at least that would be more permanent than it is now when it's still going through the judicial process.

Ryan:

When Trump was initially elected, one of the bullish cases for businesses and markets was that there would be a lot of regulatory cuts at least potentially, but we haven't really heard much about that yet. Do you think that that's going to have an impact as we go through the next few years?

Bob:

To some extent, the process of issuing new regulations is substantially slower. We have the decision from the Supreme Court last year overturning Chevron, which makes the process slower even if there were a Democrat in office or subject to judicial oversight or subject to judicial oversight. And we have seen the announcements, especially at the EPA, for example, making coal-fired plants a little bit easier to run, and I expect a little bit more of that over time.

Bob:

I think the regulators and deregulators in the Trump administration this administration rather than the first Trump administration are doing things more deliberately. And I'll give you a totally different topic ban on travel from a select few number of countries, where the process for getting passports and like background checks and the people coming over was just totally haphazard. He did that right away with little legal grounding. Well, he just came out with a different ban covering more countries, but notice that he did it in May or June, not in January. They went through a more deliberate process at the White House and through the interagency executive branch process of policymaking in order to generate a ban that's going to be more widespread and more effective and more likely to hold legal muster than the original ban back in 2017. So I think the Trump administration generally like that's in a microcosm suggests that they're more deliberate and are thinking through in a better way how to make their policies sustainable when they're objected to through the court system.

Ryan:

Yeah, that makes sense because when Trump first came into office, he had zero experience as president and I'm sure he's learned a lot, and the people around him and you know, supporting his policies have actually learned a lot since then. Yeah, that's right, and so now they're able to be more permanent and deliberate, like you said. That's interesting.

Bob:

Yeah, basically, those four years out of office were a blessing for the people who support Trump, because they were able to get their ducks in a row in terms of what do we have to do to actually implement the policies we say we want to implement, like they've spoken to legal experts about it. Like they've spoken to legal experts about it, people understand the regulatory process and, to some extent, the legislative process to try to implement the policies in a more effective way.

Ryan:

Okay, All right, Bob, I'm again looking at the clock and time has flown by. Final question for you, and I haven't run this by you, so this is going to be great. The answer is no.

Bob:

No.

Ryan:

All right. So right now there are a lot of younger people kind of going into internships. We're in the beginning of summer. You've got kids that are around that age, so pass along some wisdom from a senior economist to someone who's maybe a little bit earlier on in their economic road. What would be the most important advice that you would give to somebody who is going to be an economist and they're trying to figure out, like, how do I separate the signal from the noise?

Bob:

Wow, that's great. Read as much as you can. I would advise reading Nate Silver'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 of forecasting of indicators, which I do a lot of other stuff, but forecasting of indicators is something I really enjoy and that's part of what I do. By now, brian Westbury, our chief economist, kind of laughs about it sometimes because he's like you've been here 18 and a half years. This would be something done by a more junior accountant. I'm like no, I'm not letting this go. I love like forecasting, like retail sales or industrial production every single month. I just I can't give it up.

Bob:

So focus on the data. Let the data speak for itself. Don't get too tied down in ideology, but it's important to have a view of the way the world works. That is 30,000 to 40,000 feet. Be willing to revisit that worldview every so often when you see data that contradict that worldview, which is perfectly fine. Hone your worldview over time. Don't assume that the worldview you have today is the worldview you're going to have 20 years from now. Like you can't project yourself into the future that way, or project your mind into the future that way. So be open-minded. Let the data speak for itself. Don't assume that what politicians and political actors say about policy or what's going on in Washington generally in terms of the federal budget is the truth. It's not that they say what's in their personal interest. Assume that when policymakers are making policy, that they are as self-interested based on their personal goals as everybody else is in the private sphere. There's nothing special. No one pours angel dust on you. Angel dust might not be the wrong word.

Ryan:

Sprinkles dust on you to turn you into, like, as Milton Friedman used to say, where are these angels? That's the yeah exactly.

Bob:

Angel dust might be the wrong thing to say. Different connotation yes, so no one turns you into an angel when you walk into a public building, whether you're elected or appointed or otherwise, so don't assume that what they're saying is the actual fact.

Ryan:

They're self-interested as well. Yeah, as well, as everyone is.

Bob:

Pursue interpretations that are contrary to your own about public events.

Ryan:

All right, great advice. It's always great to have you on the podcast. Thank you for coming on once again, bob.

Bob:

Hopefully I'll be here in a few months. Sounds good.

Ryan:

And thanks to all of you who have joined us on this episode of the First Trust ROI Podcast. We'll see you next time.

People on this episode

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Ryan O. Issakainen, CFA | Senior Vice President | ETF Strategist

Host
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Robert Stein, CFA | Deputy Chief Economist

Guest