With Marc Chandler, Bannockburn Global Forex
Marc Chapman of Bannockburn Global Forex rejoins the podcast to discuss all things US election and the impact a Trump victory would have on economics and financial markets.
This podcast episode was recorded Monday, Oct. 28, 2024 and was made available for premium subscribers that same day. More information about premium subscriptions is available on our Substack.
Content Highlights
- The impact of a Trump victory next Tuesday is seen as greater as the impact of a Harris victory. What this means for markets and the economy (2:11);
- What if Trump doesn’t win? That has become the contrarian take (3:45);
- How it all might affect Mexico, the US’ largest trading partner (5:40);
- The US-Canada-Mexico free trade agreement is up for review next year. Expect more concessions from Mexico regardless of who’s in the White House (and Congress) (12:22);
- However the outlook is not all bad for all Mexican securities… (15:40);
- Concerns Trump will try to limit the Federal Reserve’s independence (19:38);
- Don’t overlook the possibility of a recession early in the next president’s term (25:44);
- Trump victory may lead to more mergers and acquisitions (26:50).
More From the Guest
- Website: MarcToMarket.com;
- X: @marcmakingsense.
Transcript
1
00:00:02.720 –> 00:00:11.069
Nathaniel E. Baker: Mark Chandler of Bannockburn Global Forex. Thank you for rejoining the Contrarian Investor Podcast today.
2
00:00:11.850 –> 00:00:13.849
Mchandler: It’s always a pleasure to see you. Thank you.
3
00:00:13.850 –> 00:00:18.630
Nathaniel E. Baker: Likewise thanks so much for coming on. It is Monday, October 28th
4
00:00:18.760 –> 00:00:30.509
Nathaniel E. Baker: a week and a day before the Us. Presidential election. We call the Us. Presidential election. But a lot of other things get decided as well, Congress and such.
5
00:00:30.700 –> 00:00:42.320
Nathaniel E. Baker: But we’re going to talk about that from an economic and market standpoint. We don’t want to get into political discussions here other than how the the election is going to impact markets. And so
6
00:00:42.500 –> 00:00:54.990
Nathaniel E. Baker: curious what your views are there as we are like, I said, as we record this trump is apparently ahead in the polls ahead, much more in the prediction markets to the extent that you put any faith in those. But yeah, what are your views.
7
00:00:56.110 –> 00:01:00.679
Mchandler: Yeah, I think you’re right. You know the closeness of the election, and you know, when it comes to the markets.
8
00:01:00.690 –> 00:01:07.130
Mchandler: capital markets, we think of risk as a function of volatility, the more volatile something is, the riskier it is.
9
00:01:07.190 –> 00:01:10.389
Mchandler: But when it comes to politics it’s some combination
10
00:01:10.710 –> 00:01:13.409
Mchandler: of credibility and capability.
11
00:01:13.570 –> 00:01:15.690
Mchandler: Capability. How big of a threat is it?
12
00:01:15.750 –> 00:01:24.249
Mchandler: What? How potent is it? And then what’s the probability of it? Materializing? And I think that the markets come around. They recognize that the election is very close.
13
00:01:24.570 –> 00:01:28.540
Mchandler: but the but the impact of a trump victory has seemed to be greater than
14
00:01:28.600 –> 00:01:30.410
Mchandler: a Harris victory.
15
00:01:30.450 –> 00:01:41.979
Mchandler: and so the market has had to prepare, for that has had to position themselves. And what that means in a concrete fashion is higher interest rates. I think many people, large pools of capital like
16
00:01:42.240 –> 00:02:02.950
Mchandler: think at Blackrock, but others as well, have said that maybe the election, regardless of the outcome of the election that we’re going to be we. The Us. Is going to be looking at larger deficit, which means more supply of treasuries which may mean higher interest rates which the market understands, especially in this. In the current context, higher interest rates to be better for the dollar.
17
00:02:03.190 –> 00:02:12.900
Mchandler: and so we have seen the dollar rally seen us. Interest rates rise as the market prepares for the the election, in which, like I say, it’s very close.
18
00:02:13.130 –> 00:02:19.160
Mchandler: but because the trump victory is seen to have greater impact. That’s what the market’s got to be pricing in.
19
00:02:19.190 –> 00:02:28.520
Mchandler: It’s not just that a trump victory would be good for the US. In some kind of sense, but also that it would be hurting our trading partners with his across the board tariff
20
00:02:28.570 –> 00:02:38.399
Mchandler: and those countries that are the closest to the Us, like Canada and Mexico, have suffered. The eurozone is start to suffer from across the board tariffs.
21
00:02:38.430 –> 00:02:51.909
Mchandler: as is Japan as is China. Of course there’s a lot of variables like, depend on how how countries responded to to a trump administration. But the the net net effect of this has been for a stronger dollar.
22
00:02:52.050 –> 00:02:56.140
Mchandler: higher interest rates, and the stock market continues to roar ahead.
23
00:02:57.590 –> 00:03:04.980
Nathaniel E. Baker: And what what about if trump doesn’t win? It seems like that is now the contrarian. Take here.
24
00:03:05.220 –> 00:03:09.180
Nathaniel E. Baker: But what would happen then? Have you thought about that whole giving that whole possibility out.
25
00:03:09.720 –> 00:03:15.840
Mchandler: Yeah. So I think that you know partly what happened is, the dollar has been correcting higher. And partly it was been since
26
00:03:15.910 –> 00:03:28.009
Mchandler: we had a strong, relatively strong September jobs number. In early October we had some better than expected data. And so all these things have also played a role. But I do think that if
27
00:03:28.040 –> 00:03:44.089
Mchandler: we get a surprise and that surprise would now be a trump defeat a Harris victory. I think that knee jerk reaction would be to unwind some of this precautionary positioning which then initially, it looks like it could weigh on the dollar. To me this is a big irony.
28
00:03:44.120 –> 00:03:52.950
Mchandler: because a couple months ago people wanted to sell the dollar because Trump and his vice Presidential nominee had been talking the dollar down
29
00:03:52.970 –> 00:03:57.519
Mchandler: so Trump Victory, they said, well, this is bad for the dollar, because they want a weaker dollar.
30
00:03:57.540 –> 00:04:12.970
Mchandler: but now it looks like as the market’s been positioning a trump advance victory has been greeted with dollar buying, really paradoxical, given their views. But it really tells you that out of all the things that move the foreign exchange market.
31
00:04:12.980 –> 00:04:16.459
Mchandler: the wishes of politicians tend not to be very high on that list.
32
00:04:16.990 –> 00:04:24.359
Nathaniel E. Baker: Yeah. Interesting how that works out. The Mexican peso was kind of seen as a proxy for trump back in 2016, and
33
00:04:24.490 –> 00:04:26.830
Nathaniel E. Baker: in the in the intervening years as well.
34
00:04:27.080 –> 00:04:36.430
Nathaniel E. Baker: And this year now we have this Djt spac. That’s kind of like a better proxy. But you watch the currencies pretty closely, and has, as the Mexican peso also kind of
35
00:04:36.812 –> 00:04:42.470
Nathaniel E. Baker: mimicked. What’s what’s been going on in the in the polls here in the Us. And and anticipating trump victory.
36
00:04:43.010 –> 00:04:52.430
Mchandler: I think so. To some extent the paso has been has been offered. Latin America as a whole have been weaker, but emerging markets themselves have been heavier. It’s hard to like
37
00:04:52.440 –> 00:05:01.539
Mchandler: tease this out, but I would. I do think that Mexico is interesting, particularly interesting, because it is the Us’s latest, largest trading partner.
38
00:05:01.790 –> 00:05:07.880
Mchandler: It also had. It had been a market favorite among the strongest currencies in recent years, but
39
00:05:07.960 –> 00:05:15.079
Mchandler: it fell out of favor earlier this year before we even began focusing on the Us. Election because of Mexico’s domestic politics.
40
00:05:15.280 –> 00:05:19.639
Mchandler: and there they have a new President. Their presence serves 1 6 year term.
41
00:05:19.670 –> 00:05:37.520
Mchandler: and the new President is really a continuity candidate. She is Amlo’s handpicked successor. She has a very strong majority in Congress, and that’s what spooked investors is the kind of constitutional reforms Amlo and her are beginning to implement
42
00:05:38.080 –> 00:06:04.750
Mchandler: seem to be weakening the guardrails that make investors more comfortable, investing in Mexico a developing country. And so I think that a combination then of domestic Mexican politics made it fall out of favor. And then the what’s going on in the us higher interest rates, prospect of trump, and you know how Mexico has developed, how Mexico, modernized was partly by
43
00:06:04.810 –> 00:06:12.960
Mchandler: the the Us. Free trade agreement with Canada and Mexico, later, trump renegotiated. But what it allowed to happen is
44
00:06:12.990 –> 00:06:20.789
Mchandler: continentally organized production. Think about the auto sector, the auto parts companies. And now what what trump is arguing
45
00:06:21.150 –> 00:06:24.279
Mchandler: is that locating production in Mexico
46
00:06:24.510 –> 00:06:26.860
Mchandler: is a threat to the United States.
47
00:06:27.240 –> 00:06:29.020
Mchandler: We watch those jobs
48
00:06:29.220 –> 00:06:48.299
Mchandler: and those industries back into onshore. So it’s not good enough to be near shoring, as many people thought, would be derisking from China. It’s not a question of nearshoring, but some parts of the Us. Political spectrum, including Trump and Vance, aren’t happy with near shoring. They want reshoring.
49
00:06:48.420 –> 00:06:53.049
Mchandler: And what we’ve learned, and we’ll see this again on Friday when we get the Us. Jobs data.
50
00:06:53.090 –> 00:06:56.889
Mchandler: Despite this effort of bringing back manufacturing to the Us.
51
00:06:57.670 –> 00:07:03.280
Mchandler: The Us. Is still losing manufacturing jobs. And that’s really the thing. When you think about how things are made
52
00:07:03.420 –> 00:07:10.379
Mchandler: right. We think about robotics. We think about this automated process. So even though we’re producing goods and services.
53
00:07:10.580 –> 00:07:12.970
Mchandler: we’re producing them without as much labor.
54
00:07:13.480 –> 00:07:20.530
Mchandler: And that’s really the we talk about deindustrialization. But it’s a bit of a myth, because industrialization us output is strong.
55
00:07:21.280 –> 00:07:23.620
Mchandler: But the labor to produce that output.
56
00:07:23.770 –> 00:07:27.540
Mchandler: I should say it takes less labor to produce that same unit of output.
57
00:07:27.560 –> 00:07:29.739
Mchandler: And so that’s the real challenge here.
58
00:07:30.020 –> 00:07:39.120
Mchandler: Yeah, Mexico has suffered, and I think that I think that Mexico is seen to be vulnerable. So the closer you are to the Us. Trade tie.
59
00:07:39.760 –> 00:07:48.079
Mchandler: the more vulnerable you are, if those, if it becomes barriers to trade, and generalized barriers to trade, the kind that the trump advance are talking about.
60
00:07:48.900 –> 00:08:02.589
Nathaniel E. Baker: Now, it’s an interesting thing politically, because this is the the reshoring and the onshoring. It’s something that actually, you would think a lot of Democrats would actually support, especially with strong Union ties and such and domestic manufacturing.
61
00:08:03.080 –> 00:08:09.150
Nathaniel E. Baker: But if so, I’m just thinking this through here. If if the Republicans. If there’s a sweep.
62
00:08:09.250 –> 00:08:12.909
Nathaniel E. Baker: We haven’t talked about this yet, but if the Republicans take the Senate and the House.
63
00:08:13.150 –> 00:08:14.280
Nathaniel E. Baker: and
64
00:08:14.710 –> 00:08:22.219
Nathaniel E. Baker: is it then less likely that these. That any legislation he wants to do to improve onshoring
65
00:08:22.550 –> 00:08:27.590
Nathaniel E. Baker: will not make it, you think, or is that not something that that is worth considering?
66
00:08:28.290 –> 00:08:29.989
Mchandler: Yeah, no, I think that
67
00:08:30.915 –> 00:08:40.369
Mchandler: that, there’s that there’s 2 parts to it. Really, one is. There’s some things that a President can do. And actually, what’s happened lately in many past several years. Executive action
68
00:08:40.530 –> 00:08:49.059
Mchandler: sort of fill in a end, run around Congress or fill in gaps in Congress’s inability to do things.
69
00:08:49.350 –> 00:09:00.580
Mchandler: So yeah, so I think that if if these so it’s all predicated on a lot of ifs, you know, if a politician carries through with their promises what they say in the campaign.
70
00:09:00.590 –> 00:09:08.950
Mchandler: but I think that generally we got to really distinguish between between manufacturing output and manufacturing jobs.
71
00:09:08.970 –> 00:09:20.850
Mchandler: so we could have more manufacturing in the Us. But but if the if the new auto plant and the new semiconductor fabrication plant doesn’t have many humans working in it but got robotics and automation. We can bring back
72
00:09:20.960 –> 00:09:27.519
Mchandler: us. We could bring back the output without bringing back jobs. And that’s my concern. I think that’s really what’s happening to some extent.
73
00:09:27.760 –> 00:09:31.109
Mchandler: So. But Mexico is vulnerable
74
00:09:32.050 –> 00:09:37.960
Mchandler: Like other trading partners, are in the face of a higher tariffs. I think this is the key crux of it.
75
00:09:38.260 –> 00:09:42.730
Nathaniel E. Baker: Yeah. And tariffs are something that you don’t actually need Congressional approval. For. Right? You can just yeah. The the
76
00:09:42.820 –> 00:09:46.259
Nathaniel E. Baker: commander in chief has has power over those. So there, there you go.
77
00:09:46.710 –> 00:09:56.079
Nathaniel E. Baker: Oh, that’s interesting. Okay, so so all right. So now, so. But you don’t think this would help us manufacturing the Us. Manufacturing sector and stocks.
78
00:09:56.380 –> 00:10:02.310
Nathaniel E. Baker: And there are some that that are. You know us factory Esque and linked to that. Yeah.
79
00:10:03.170 –> 00:10:08.939
Mchandler: Yeah. So I think when I think about the other stocks that, like the that are carrying the stock market, the narrow breath.
80
00:10:09.000 –> 00:10:31.240
Mchandler: I don’t really see these kinds of companies companies that I mean, it’s really the tech, right? We know we know about the magnificent static. But, broadly speaking. I’m not so sure that if we were to have say that some of the labor intensive production that left the Us. That had gone to China previously moved to Mexico, thinking about toys.
81
00:10:31.280 –> 00:10:51.759
Mchandler: footwear, thinking about fabrics, textiles, furniture, and I just don’t think that that this is going to be sufficient really to really move the Us. Needle. So, broadly speaking, I think that if a trump victory, I think we should be looking for this. So this tariffs, and then I think it becomes a question of
82
00:10:52.060 –> 00:11:02.999
Mchandler: of not so much just what the Us. Does, but how other countries respond. So it’s more like a game theory like prisoner’s dilemma than just sort of a bull in a china shop, so to speak.
83
00:11:03.300 –> 00:11:12.899
Nathaniel E. Baker: Yeah. Yeah. And I guess that then, is the question is, and how these other, the trading partners respond, you know not just China and Mexico and Canada, but the EU
84
00:11:13.140 –> 00:11:13.970
Nathaniel E. Baker: right?
85
00:11:14.870 –> 00:11:16.949
Nathaniel E. Baker: And have you thought that through at all.
86
00:11:17.180 –> 00:11:28.869
Mchandler: A little bit, I mean, I mean, of course, countries are already preparing for this. I’d say the interesting is really the Us. Mexico, Canada, because there is a free trade agreement already in place.
87
00:11:29.160 –> 00:11:30.050
Mchandler: But
88
00:11:30.390 –> 00:11:43.730
Mchandler: we don’t have a free trade agreement with, say, Japan or or the EU, for that matter. But I think what’s interesting is the Us. Canada, Mexico Free Trade Agreement that is up for review.
89
00:11:44.150 –> 00:11:52.790
Mchandler: and it’ll be reviewed beginning of next year 2025, regardless of who the President is, and then the final aspect of it won’t be until 2026.
90
00:11:52.840 –> 00:11:55.315
Mchandler: And it seems to me that
91
00:11:57.500 –> 00:11:58.260
Mchandler: dead.
92
00:11:58.600 –> 00:12:09.330
Mchandler: Yeah. Just an interesting challenge here to have these to have these things go through amidst this protectionist sentiment underlying. And so I think that we should expect.
93
00:12:09.340 –> 00:12:22.959
Mchandler: regardless of who gets elected more concessions from Mexico. The Usmca. Differed from the Nafta, partly because trump negotiated greater domestic content rules.
94
00:12:23.410 –> 00:12:33.119
Mchandler: And what this means is, it’s not so easy for China just to export, say cars to Mexico and Mexico would re-export them to the Us. That that is might be a threat that
95
00:12:33.190 –> 00:12:41.480
Mchandler: some people see in the media, but that would violate the the Usmca. Which has, as I mentioned, these domestic content requirements.
96
00:12:41.630 –> 00:12:47.030
Mchandler: X percentage of a product has to be made in Mexico or the Us. Or Canada qualify.
97
00:12:47.140 –> 00:13:01.840
Mchandler: and but so I think we should be expecting that it’s going to be a tough negotiations, and rather than just trying to examine it, I think that the Trump Administration, the Second Trump Administration, would want to renegotiate the whole agreement.
98
00:13:03.490 –> 00:13:08.700
Nathaniel E. Baker: Right? Okay? And all of which would end badly for Mexico, you think, or or less advantageously than they are currently yeah.
99
00:13:09.010 –> 00:13:20.640
Mchandler: Yes, less advantageous for Mexico, but also within the context that Mexico is Mexico’s own political environment hasn’t really been sort of conducive for foreign investors.
100
00:13:21.420 –> 00:13:27.210
Nathaniel E. Baker: But it wasn’t as bad as people, I mean. I remember when Amlo was elected, and and even before he was elected, I mean he was
101
00:13:27.350 –> 00:13:32.040
Nathaniel E. Baker: at 1 point the mayor of Mexico City, and and there was a lot of he ran several times, I think, and.
102
00:13:32.040 –> 00:13:32.560
Mchandler: Yes.
103
00:13:32.560 –> 00:13:35.259
Nathaniel E. Baker: Actually contested one of the elections if memory serves
104
00:13:35.270 –> 00:13:40.799
Nathaniel E. Baker: and there was a lot of concern about him coming in. Then he came in. It was kind of business, as usual. So.
105
00:13:41.190 –> 00:13:42.730
Nathaniel E. Baker: but you do think that’s yeah.
106
00:13:43.040 –> 00:13:51.219
Mchandler: I think what helped. That was the belief that. And we’ve seen that the central bank jealously protects its independence.
107
00:13:51.390 –> 00:14:02.259
Mchandler: And so it wasn’t swayed by having more doves stay. People who maybe Amlo thought were dovish, and he puts on the central bank. It’s been a very responsible central bank that’s really got a lot of street cred.
108
00:14:02.460 –> 00:14:13.470
Mchandler: And so I think I think that’s that’s an important aspect that that these constitutional reforms some people think will weaken those guardrails like the making judges
109
00:14:13.610 –> 00:14:17.620
Mchandler: subject to elections, including the Supreme Court judges.
110
00:14:17.780 –> 00:14:30.629
Mchandler: And even though this, on one hand, this seems like a spread of democracy. On the other hand, people fear, then, that this would give politicians more sway over the judicial process, and I think that if those guardrails
111
00:14:30.640 –> 00:14:40.620
Mchandler: that have that people think, keep Amlo sort of on a narrower path, and if those guardrails weaken, investors need to be more careful.
112
00:14:41.270 –> 00:14:49.869
Nathaniel E. Baker: Yeah. Okay. So it doesn’t sound like a Mexico is a very investable area right now, either for the
113
00:14:49.990 –> 00:14:54.808
Nathaniel E. Baker: the tread, their bonds, or their currency or their stocks.
114
00:14:55.290 –> 00:15:10.349
Mchandler: I think what’s interesting, though with Mexico is one of the things that Amlo tried to do, and Sheenbaum seems to be moving in the same direction is tighten that relationship between Pemex, the State owned Oil Company and the Government, and this could lead
115
00:15:10.440 –> 00:15:24.450
Mchandler: to an upgrade of Pemx if it’s taken within the fold, if it’s like a more secure relationship with the Government, so I do think there might be some interesting opportunities in Mexico, but I do think the peso probably has not, has not seen its low point yet.
116
00:15:25.590 –> 00:15:31.819
Nathaniel E. Baker: Interesting, although as an exporter. Lo peso, we’re we’re probably on some level, will be good for certain parts of the Mexican economy.
117
00:15:32.120 –> 00:15:32.950
Nathaniel E. Baker: Yeah.
118
00:15:32.950 –> 00:15:58.020
Mchandler: But keep in mind when you think about the exporting of local currency that most of Mexico’s exports come to the Us. And they’re mostly already invoiced in us dollars. That’s the problem, right? And just the role of the dollar globally people, I mean, same thing with the bricks. You know, we just had this bricks summit, and so people like jump up and down, and oh, they can trade more in their own currency. Of course they could, but there’s a reason why they don’t.
119
00:15:58.020 –> 00:16:05.400
Mchandler: and the reason they don’t is because of the imbalances among themselves. And what what’s the country going to do with more Indian Indian rupee
120
00:16:05.540 –> 00:16:21.909
Mchandler: or more Russian rubles. Is that really what you want and tends not to be? And so it really restricts the trade in those local currencies, which is why sort of like the dollar still acts, even though I know a lot of people talk about de-dollarization. But there’s no real sign of it, materializing any substantive way.
121
00:16:22.670 –> 00:16:25.250
Nathaniel E. Baker: Yeah, yeah, I mean, that’s 1 of the great things I mean.
122
00:16:25.390 –> 00:16:30.509
Nathaniel E. Baker: one of the great myths is de-dollarization. And and it may happen one day. But what’s going to replace it?
123
00:16:30.870 –> 00:16:32.679
Nathaniel E. Baker: You know not the Chinese Yuan
124
00:16:32.800 –> 00:16:38.309
Nathaniel E. Baker: cryptos. Good luck! They move 5% in one day. Good luck! Using that as a currency of exchange. Anyway.
125
00:16:38.510 –> 00:16:41.089
Nathaniel E. Baker: you mentioned the Central Bank’s independence in Mexico.
126
00:16:41.280 –> 00:16:45.539
Nathaniel E. Baker: and one has to ask here, and one of the points of concern, potentially
127
00:16:45.630 –> 00:16:47.439
Nathaniel E. Baker: of a Trump Presidency
128
00:16:47.460 –> 00:16:52.330
Nathaniel E. Baker: is the fed here in the Us. And how much he is going to lean on the fed.
129
00:16:52.860 –> 00:17:00.639
Nathaniel E. Baker: And I mean it’s I believe it’s within his power to replace Powell. I’m not sure when Powell’s next term expires, or what the deal is there
130
00:17:01.050 –> 00:17:07.169
Nathaniel E. Baker: but but he and he made some talk last time around about about what the fed should do. Blah! Blah!
131
00:17:07.980 –> 00:17:14.510
Nathaniel E. Baker: I guess it’s fine to just talk about it. But, anyway, what do you is that a concern there that the Us. Fed may lose some of its independence with trump.
132
00:17:15.220 –> 00:17:26.989
Mchandler: I think that people are concerned about it on the margins. I mean, we’ve seen. It’s clear. It seems to me that Trump and Vance have advocated greater executive control over monetary policy.
133
00:17:27.404 –> 00:17:33.805
Mchandler: I think this is mostly talk. I think I think that of course, you know, we we saw this recently, when,
134
00:17:34.170 –> 00:17:45.779
Mchandler: when the Federal Reserve cut by 50 basis points to start this easing cycle a week or 2 weeks before that, we saw Trump warn against any cuts.
135
00:17:46.000 –> 00:17:54.660
Mchandler: I figured they were politicized, and, on the other hand, we had a letter from Senators calling on the Federal Reserve to cut rates by 75 basis.
136
00:17:54.680 –> 00:17:57.150
Mchandler: And I think that I think that
137
00:17:57.210 –> 00:18:02.420
Mchandler: there’s no problem with people. Everybody like sort of America. Everybody’s entitled to an opinion.
138
00:18:02.450 –> 00:18:22.690
Mchandler: But whether the Federal Reserve listens to those other opinions or not. I think that’s a different story. I think that the Federal Reserve cut 50 basis points not to spite trump, and not to annoy those senators who wanted a 75 basis point cut. But I take Powell at face value. That inflation had fallen, and if the Federal Reserve didn’t cut.
139
00:18:22.740 –> 00:18:32.160
Mchandler: then the real interest rate. So just as sort of a the sort of a naive understanding of it. Right? It’s just you take the current rate, you subtract inflation from it to get a real rate.
140
00:18:32.460 –> 00:18:40.610
Mchandler: It it’s not very rigorous, I think. The way more robust approach would be is trying to like deduct inflation, expectation.
141
00:18:40.870 –> 00:18:43.790
Mchandler: which are more difficult to measure than current inflation.
142
00:18:43.830 –> 00:18:53.660
Mchandler: But I think that was really, that’s really the the thrust of it that, if given, how far inflation had fallen, policy became monetary, policy became more restrictive.
143
00:18:53.720 –> 00:19:00.890
Mchandler: and so the Federal Reserve had to cut, just to preserve the level of restriction that it desired, and of course the
144
00:19:01.190 –> 00:19:06.559
Mchandler: the setting on monetary policy was done when the economy was in danger of overheating.
145
00:19:06.690 –> 00:19:28.230
Mchandler: It seems less danger of overheating now, even though we’ll get the Gdp number, and it’ll be another quarter in which the Us. Grows faster than trend. Which is that not so the equilibrium pace the level that the fed says the economy can grow without being inflationary is about 1.7 1.8%. And we’re going to grow again another quarter of around 3%, more or less.
146
00:19:28.450 –> 00:19:34.119
Mchandler: So I think the Federal Reserve did cut rates. But I don’t think it’s political. I really think that the Feds.
147
00:19:34.230 –> 00:19:43.810
Mchandler: I think that despite all the talk that we hear about the fed doing this or that because of the election or to ease. Who’s in the White House? I really see the fed as being primarily technocrats
148
00:19:44.190 –> 00:19:59.210
Mchandler: immune to what’s going on in the White House per Se. Of course, fiscal policy is important just to the overall thrust of the Us. Economy. But I do think that the Federal Reserve, like the European Central bank is fairly immune from partisan politics.
149
00:20:00.560 –> 00:20:07.679
Nathaniel E. Baker: Yeah, on. On speaking of partisan politics, have you thought through at all what may happen if next week’s election is not decided right away.
150
00:20:07.700 –> 00:20:12.529
Nathaniel E. Baker: If there’s contesting from either side, whoever the losing side is, I guess.
151
00:20:12.730 –> 00:20:22.479
Nathaniel E. Baker: and if that kind, and if there’s, you know, God forbid! Another January 6th type situation, maybe even on a larger scale. Any of these things concern you.
152
00:20:23.170 –> 00:20:41.209
Mchandler: Not so much, I mean, of course, I mean another. January 6th is a bit daunting, but at the end of the day I think that the Us. Still has a rule of law. There’s the traditions, those guardrails that we talked about might be weakening in Mexico, I think, are still strong in the United States.
153
00:20:41.802 –> 00:20:49.770
Mchandler: So I’m I’m not so concerned about it. And again, you know, think about the Us. I’m under the impression that in 1960
154
00:20:50.254 –> 00:20:55.495
Mchandler: Kennedy went on a squeaker, and that there was some talk that he could
155
00:20:55.880 –> 00:21:02.619
Mchandler: that Nixon could have appealed the election results. He could have challenged the election results, but he didn’t.
156
00:21:03.030 –> 00:21:24.649
Mchandler: and the same thing with Gore and Bush it went through the Supreme Court. The Supreme Court made his decision, and Gore conceded. So I don’t think this is a Republican Democrat issue. I think this is a 1 off issue by one particular candidate, and I’m not so sure that it’ll be repeated again. But of course we need to be careful of that.
157
00:21:24.650 –> 00:21:36.170
Mchandler: and it does make me think about how strong our democratic traditions are, and how easily they could be despite being around for a couple 100 years, how easily they can be can be rep.
158
00:21:37.510 –> 00:21:44.530
Nathaniel E. Baker: Generally, though, going back to the economy, it sounds like you’re pretty confident the Us. Economic growth can continue, at least for the short term.
159
00:21:45.310 –> 00:22:05.290
Mchandler: Yeah. So I mean, I do. I am worried about the economy. And partly this has been such an unusual expansion. Just you think about with Covid, the stimulus, the unevenness of it. What’s going on globally? So a lot of moving parts that make this business cycle different, and some of these sort of tried and true
160
00:22:05.826 –> 00:22:16.250
Mchandler: heuristic devices like the yield curve. I never was a big believer in the inverted yield curve as being a recession recession signal. But I am concerned that now no longer
161
00:22:16.390 –> 00:22:33.960
Mchandler: inverted, that that becomes a more of a challenge for businesses. But you take a look at leading economic indicators. We’ve been at recessionary levels of 6 month annualized rate. Different sectors, especially the interest rate. Sensitive sectors like housing have been hit pretty hard.
162
00:22:34.020 –> 00:22:42.460
Mchandler: So I have concern that typically the Us. Does not have a recession in the 4th year of a Presidential term. That’s this year the year of the election
163
00:22:42.680 –> 00:22:44.300
Mchandler: no recession, but
164
00:22:44.550 –> 00:22:52.739
Mchandler: more likely the recession comes early on in the next President’s term. I know it’s hard to see that now, with the economy growing, having good momentum.
165
00:22:53.100 –> 00:23:03.299
Mchandler: I think that in the back of our minds many of us have some kind of linear view of the economy that it grows slowly, and that quickens up or that slows down, slows down and then contract.
166
00:23:03.470 –> 00:23:20.939
Mchandler: And I think there’s nonlinear elements so sort of like they’re just how they say on these investment things, that the path performance is no indicator of future performance, same thing with the economy. And when you look at how the economy, like what happens in the quarter before the contraction. It’s not like a big tell.
167
00:23:21.160 –> 00:23:32.269
Mchandler: It’s not like a guy playing poker who’s moving his wedding ring around his hand when he’s got a strong hand. There’s just not as there’s just not hells like that for the economy, like slowing down, slowing down, then contracts.
168
00:23:32.430 –> 00:23:43.380
Mchandler: So I do think this is a difficult business cycle, and I do think that the risks of a slowdown are still here, despite this 3% growth that we’re likely to have seen in Q. 3.
169
00:23:44.390 –> 00:23:49.900
Nathaniel E. Baker: Any obvious winners of trump election, and maybe assuming that the Republican sweep.
170
00:23:51.920 –> 00:24:13.510
Mchandler: Well, I mean, I think, that the one area in which I think that a Republican sweep would have a dramatic impact, I think, is on mergers and acquisition, you know. Even 60 min did a piece about the Biden’s Federal Trade Commissioner and the cooling off effect it’s had at some some industries on M and a activity.
171
00:24:13.510 –> 00:24:29.029
Mchandler: You know, one of the big memes. So far this year has been talking about the overcapacity of China, the surplus production, and one way in which the Us. Western Europe dealt with the same problem at an earlier stage in its in our development.
172
00:24:29.100 –> 00:24:40.190
Mchandler: is mergers and acquisitions. How do you get rid of excess capacity? One way is through consolidation and concentration industry, because that either either take over and you rationalize
173
00:24:40.740 –> 00:24:45.819
Mchandler: the capacity you let you let the inefficient producer go out of business.
174
00:24:45.840 –> 00:24:51.230
Mchandler: or as you buy up enough of it, and you close down the inefficient parts of your own company
175
00:24:51.530 –> 00:25:08.890
Mchandler: to boost sort of boost capacity, utilization rates, boosting profitability. So so that’s my concern. One issue in which I could see a trump administration being very different economic policy that many people might not have thought about, because the tariffs, of course, are all in the news.
176
00:25:09.380 –> 00:25:19.510
Mchandler: but I think the mergers and acquisitions, the concentration consolidation of us industry would probably accelerated in a trump in a second trump term.
177
00:25:20.230 –> 00:25:27.150
Nathaniel E. Baker: And you would think that might be good for companies like Google and Meta that are maybe in the crosshairs of antitrust regulators a little bit.
178
00:25:27.240 –> 00:25:29.580
Nathaniel E. Baker: Yeah, there’s 1 area. Yeah.
179
00:25:29.590 –> 00:25:31.739
Nathaniel E. Baker: interesting. I did not think about that. Yeah.
180
00:25:31.860 –> 00:25:34.959
Nathaniel E. Baker: although ultimately, like a lot of the antitrust stuff is is
181
00:25:35.190 –> 00:25:39.759
Nathaniel E. Baker: generally pretty toothless, isn’t it? Regardless of of who the President is? I mean
182
00:25:40.450 –> 00:25:41.250
Nathaniel E. Baker: right.
183
00:25:41.250 –> 00:25:52.919
Mchandler: Yeah, though I know it’s funny. You say that because I I, too, think that oftentimes it’s toothless. But then I think about some big cases like how we could have the Internet if at and T. Hadn’t been broken up.
184
00:25:53.400 –> 00:25:55.430
Mchandler: And so I do think that
185
00:25:55.770 –> 00:26:03.550
Mchandler: some of these large combines this concentration consolidation of power. Does a disservice to free future innovation
186
00:26:04.190 –> 00:26:08.999
Mchandler: and truly changes the dynamics of how the economy works. But yeah, I mean, I think that
187
00:26:09.600 –> 00:26:23.410
Mchandler: the private equity space would also be helped by by this kind of thing. So yeah, I do think that there’d be more combinations whether it’s really good for us as consumers or not is a different story. It has to be done on a case by case basis.
188
00:26:23.420 –> 00:26:29.890
Mchandler: But I do think that further industry, consolidation, very likely in a trump, 2. Administration.
189
00:26:30.220 –> 00:26:31.450
Nathaniel E. Baker: Yeah. Gosh.
190
00:26:31.700 –> 00:26:35.990
Nathaniel E. Baker: maybe on the banks, too, as well. Thinking about that. Yeah.
191
00:26:36.220 –> 00:26:46.769
Mchandler: Yeah, I think the banks a little bit different, just because banks are very large. And and there’s a there’s a maybe a desire not to have the let. The banks large banks grow organically.
192
00:26:46.810 –> 00:26:49.189
Mchandler: as opposed to
193
00:26:49.420 –> 00:27:00.819
Mchandler: taking over other banks as a means of growth. But then, again, when banks get into trouble, as we saw earlier this year last year, the Government tends to encourage some M. And a activity in that sector.
194
00:27:01.160 –> 00:27:06.380
Nathaniel E. Baker: Yeah, yeah, I guess I was thinking, I wasn’t thinking like Jp, and city, or any of those I was thinking more. The smaller one.
195
00:27:07.110 –> 00:27:13.762
Mchandler: Yeah, I think I think you’re right that maybe some I think ideally, that would be happening is small medium sized regional banks
196
00:27:14.649 –> 00:27:15.809
Mchandler: bulk up.
197
00:27:15.810 –> 00:27:17.419
Nathaniel E. Baker: yeah.
198
00:27:18.000 –> 00:27:28.489
Nathaniel E. Baker: very cool. All right. Mark Chandler, thank you very much. Indeed. For Joining the Contrarian podcast. Today, this Monday, in October, last Monday in October.
199
00:27:28.690 –> 00:27:35.559
Nathaniel E. Baker: and in closing maybe you can tell our listeners how they can find out more about you and about your various services.
200
00:27:36.270 –> 00:27:40.410
Mchandler: Sure. So I’m fortunate. I’ve been able to find employers
201
00:27:40.530 –> 00:27:49.510
Mchandler: who allow me to post my commentary. I like to them on on the Internet and make it a freely available. And my website’s called Mark to market
202
00:27:49.570 –> 00:27:52.289
Mchandler: mark to market.com, that’s mark with a C
203
00:27:52.646 –> 00:27:59.179
Mchandler: it really is mark to market. Just that was clever marketing device. I post something there 6 days a week.
204
00:27:59.390 –> 00:28:06.809
Mchandler: I’m also on Twitter, my handle. There is Mark making sense. So that comes from the 1st book I wrote called Making Sense of the Dollar.
205
00:28:06.950 –> 00:28:10.320
Mchandler: I have another book out called Political Economy of Tomorrow.
206
00:28:10.500 –> 00:28:19.300
Mchandler: which really looks at the strategies and dealing with surplus production. I didn’t really aim it for China. I was thinking more about at home, you know.
207
00:28:19.460 –> 00:28:24.000
Mchandler: One of my my protagonists is this guy named
208
00:28:24.090 –> 00:28:48.769
Mchandler: Charles Conant and Charles Conant worked for the Us. Government back in the early 19 hundreds. He also worked at the same bank. I did a century later, and I give him credit for coming up with the Belt Road initiative with American characteristics around 1,900, for the same reason that Xi and China have developed their own belt. Road initiative, create more markets.
209
00:28:48.770 –> 00:29:07.910
Mchandler: build up the infrastructure of emerging market countries, find new buyers of goods, buy new markets for your inputs. A very interesting, but so that’s political economy of tomorrow. And so yeah, so I try to keep a high profile. I write occasionally in Barron’s as well. Barron’s essay every 6 weeks, or 2 months, or something like that.
210
00:29:08.390 –> 00:29:09.040
Mchandler: Hmm!
211
00:29:09.040 –> 00:29:10.880
Nathaniel E. Baker: Any other social media you’re doing yet.
212
00:29:11.390 –> 00:29:14.405
Mchandler: No, just a linkedin twitter. As far as I can go.
213
00:29:15.110 –> 00:29:16.319
Nathaniel E. Baker: Are you doing another book?
214
00:29:16.760 –> 00:29:21.250
Mchandler: I am writing another book. A tentative title is called The End of Economic Primacy.
215
00:29:21.320 –> 00:29:25.700
Mchandler: and what I’m doing if my political economy of tomorrow was sort of like a retelling
216
00:29:26.650 –> 00:29:39.739
Mchandler: of that King Midas Smith. Remember King Midas. Everything he touched turned to gold. It sounded good, sounded like a lot of lot of things my friends on Wall Street would like until he tried to hug his daughter and drink some wine.
217
00:29:40.030 –> 00:29:49.889
Mchandler: And so really look at how we are dealing with our surplus, and the second, this next book is my 3rd book, The End of Economic Primacy, really takes a look at Abraham Maslow’s hierarchy of needs.
218
00:29:50.070 –> 00:29:58.680
Mchandler: and I say that in high income societies like the United States, where people, many people, most people, have a roof over their head and good food in their stomach.
219
00:29:59.160 –> 00:30:03.339
Mchandler: That’s like, under Maslow’s hierarchy of needs. We should be thinking about other things now
220
00:30:03.410 –> 00:30:06.559
Mchandler: besides like economics, besides like
221
00:30:06.710 –> 00:30:08.310
Mchandler: getting more goods.
222
00:30:08.330 –> 00:30:13.340
Mchandler: and these other higher needs, I think, is where we’re on the verge of moving in society as a whole.
223
00:30:14.881 –> 00:30:18.399
Nathaniel E. Baker: Like, in what sense? Not social media, because that’s lower.
224
00:30:18.750 –> 00:30:24.900
Mchandler: Oh, no, but I think about like for Maslow, the High. The highest part of his hierarchy was self-actualization.
225
00:30:25.290 –> 00:30:34.000
Mchandler: When people I mean you think about it that for most of our careers, if you had a good economic argument, something was more profitable, more economically efficient.
226
00:30:34.360 –> 00:30:39.119
Mchandler: generated a better risk adjusted return. That’d be very powerful arguments for that.
227
00:30:39.340 –> 00:30:47.330
Mchandler: But I think that recently. But I think it’s increasing that other other interests have arisen that are maybe more important.
228
00:30:47.470 –> 00:30:49.329
Mchandler: Maybe the environment
229
00:30:49.420 –> 00:30:52.369
Mchandler: climate change, maybe social justice.
230
00:30:52.530 –> 00:30:54.410
Mchandler: maybe national security.
231
00:30:54.820 –> 00:31:01.960
Mchandler: All these things are really rivaling just because it’s something that’s profitable. And it might be more profitable to buy evs from China.
232
00:31:02.070 –> 00:31:05.270
Mchandler: But maybe that would undermine our own auto sector.
233
00:31:05.460 –> 00:31:08.349
Mchandler: which, besides producing autos, produces tanks.
234
00:31:09.090 –> 00:31:20.609
Mchandler: And so we we so I think that? Yeah, just the argument. Really, it’s just a broader appeal of now that we have food in our stomach and good roofs over our head. What’s what’s what’s our next set of needs and wants.
235
00:31:21.230 –> 00:31:28.880
Nathaniel E. Baker: That is very interesting. I look forward to reading that, and to having you on the show as part of your book tour when it comes out. What’s a what’s a pending release date? Do you have one.
236
00:31:29.180 –> 00:31:32.579
Mchandler: I’m thinking. Late next year, early 2026.
237
00:31:32.850 –> 00:31:34.110
Nathaniel E. Baker: Very good, awesome.
238
00:31:34.130 –> 00:31:44.010
Nathaniel E. Baker: Well, I’m looking forward to that, looking forward to keeping in touch, and you can all follow Mark on in the ways mentioned thanks again for coming on the podcast today. Thank you all for listening.
239
00:31:44.090 –> 00:31:51.100
Nathaniel E. Baker: We will be back here again next week, maybe even before because I have another guest coming up to discuss the election.
240
00:31:51.220 –> 00:31:57.449
Nathaniel E. Baker: and 3rd in our series. So stay tuned for that, and that is all. Thank you. Goodbye.
241
00:31:57.990 –> 00:31:59.749
Mchandler: Thank you. Good luck to everybody.
242
00:32:00.030 –> 00:32:00.730
Nathaniel E. Baker: Thanks.