Excess Returns | Ep: "The Secular Bull Market Isn't Dead: Jim Paulsen on Why Tariffs Won't Break It"

Date: April 9, 2025
Host(s): Jack Forehand, Justin Carbonneau, Matt Zeigler
Guest: Jim Paulsen

Episode Overview

In this episode, veteran market strategist Jim Paulsen returns to Excess Returns for an in-depth discussion on recent market turmoil, the impact of new US tariffs, the Federal Reserve’s policy moves, and the longevity of the secular bull market. The hosts draw on Paulsen’s decades of market experience to cut through headline-driven fears, focusing on core economic signals, the role of investor psychology, and key historical perspectives. The episode aims to give long-term investors a rational framework for navigating recent volatility, questioning consensus fears about tariffs, and identifying opportunities in today's market.

Key Discussion Points & Insights

1. Market Corrections: Context and Causes

(03:20–17:35)

• Paulsen stresses that the recent market correction is, in many ways, a typical cyclical event rather than an existential threat.
• He attributes the downturn mainly to a combination of tightening policy (rising rates, strong dollar, slow M2 growth) and the fading of major “cannon” events (wars, Fed tightening, the White House battle) replaced by “trumpet” euphoria and complacency.
• While tariffs acted as “piling on,” most of the damage was already underway before their announcement.

Quote:
"When it goes down, just don't look until it goes back up… Often when you get into these emotional periods, you end up making some bad decisions." – Jim Paulsen, (03:49)

2. Tariffs: Myths, Realities, and Economic Impact

(21:44–29:48)

• Paulsen strongly opposes tariffs, viewing them as taxes that create economic deadweight loss and inefficiency.
• He critiques the idea that tariffs will restore competitiveness or domestic jobs, arguing that comparative advantage should drive global trade.
• He suggests that if policymakers truly want to boost US competitiveness, a weaker dollar is a better lever than trade barriers.

Notable Quotes:

• "A tariff by any other name is a tax... It's a restrictive contractionary force pushing us in the direction of recession." – Jim Paulsen, (10:24)
• "If his whole idea is to make us more competitive by raising tariffs on foreign goods, a much better way is to drop the value of the US Dollar." – Jim Paulsen, (22:55)
• "I'm not an advocate of tariffs. They're much like other taxes... They lead to deadweight losses of activity in the economy." – Jim Paulsen, (22:06)

3. Investor Behavior & Private Sector Resilience

(15:50–17:35; 36:36–39:44)

• Paulsen is optimistic about the underlying health of the private sector: low household debt, strong balance sheets, record levels of liquidity, and persistent consumer denial/pessimism.
• This cautious psychology, ironically, provides a buffer against recession and sets up conditions for future optimism to be an upside catalyst.

Quote: "It's hard to get a recession when your players are all financially healthy, have oodles of excess liquidity and they're all been cautious." – Jim Paulsen, (17:33)

4. The Federal Reserve: Policy Critique & Market Response

(39:44–46:18)

• Paulsen characterizes the current Fed stance as too tight, slow to respond to recession risk, and overly bound to an "artificial" 2% inflation target.
• He critiques the Fed for ignoring clear deflationary signals from bond, commodity, and currency markets.
• Paulsen expects the Fed will be forced to ease as the economy and earnings slow and unemployment ticks up.

Quote: "Every market, the bond market, stock market, the commodity market, the dollar market are screaming deflation risk. And here we have the Federal Reserve saying, 'I'm worried about inflation.'" – Jim Paulsen, (44:34)

5. Executive Power and Policy-Making

(29:48–33:01)

• Both host and guest express concern about the US executive branch’s increasing use of unilateral authority (executive orders, emergency powers) to enact sweeping policy changes like tariffs—bypassing Congressional oversight—arguing it’s a trend toward centralization inconsistent with constitutional checks and balances.

Quote: "Now we've got players that are totally in running that process to do things, but lends itself to a dictatorship is what it does. And I don't think it's a healthy development." – Jim Paulsen, (32:35)

6. Forecasting in an Uncertain Policy Environment

(33:01–36:36)

• Paulsen stresses humility and the necessity for investors and strategists to keep their focus on underlying policy trends (contractionary vs. stimulative) rather than getting whipsawed by frequent policy announcements or media coverage.

7. View on Debt and Deficit Concerns

(54:16–57:18)

• Paulsen downplays fears about US government debt, noting similar worries have existed since the 1980s. He emphasizes the strength of the private sector as the real underpinning of economic health.
• Historical and international context (e.g., Japan) shows high debt-to-GDP is not immediately catastrophic for developed nations.

8. Portfolio Strategy in Today’s Market

(57:18–62:19)

• In a hypothetical scenario of investing a sudden windfall, Paulsen would overweight equities—especially cyclicals, industrials, consumer discretionary, some technology, and lower market-cap stocks—while maintaining good diversification.
• He expects volatility to persist but sees current sentiment and valuations as a solid opportunity for long-term investors. Defensive winners (e.g., staples, utilities) might be trimmed to rebalance into areas with more upside.

Quote: "I'd be more closer to the fully invested edge on the equities right now... take advantage of this volatility when it pulls back." – Jim Paulsen, (58:06)

Memorable Moments and Notable Quotes

| Timestamp | Speaker | Quote | |-------------|---------------|-------| | 03:49 | Jim Paulsen | "When it goes down, just don't look until it goes back up… Often when you get into these emotional periods, you end up making some bad decisions." | | 10:24 | Jim Paulsen | "A tariff by any other name is a tax... It's a restrictive contractionary force." | | 17:33 | Jim Paulsen | "It's hard to get a recession when your players are all financially healthy, have oodles of excess liquidity and they're all been cautious." | | 22:55 | Jim Paulsen | "A much better way to do this is drop the value of the US Dollar." | | 32:35 | Jim Paulsen | "Lends itself to a dictatorship is what it does. And I don't think it's a healthy development." | | 44:34 | Jim Paulsen | "Every market... are screaming deflation risk. And here we have the Federal Reserve saying 'I'm worried about inflation.'" | | 58:06 | Jim Paulsen | "I'd be more closer to the fully invested edge on the equities right now... take advantage of this volatility when it pulls back." |

Important Segment Timestamps

• Opening & Market Mood: 00:55–03:20
• Advice on Dealing with Corrections: 03:20–10:24
• Tariffs—History, Policy, and Critique: 10:24–22:05
• Private Sector Resilience: 15:50–17:35
• Tariffs as a Policy Tool vs Dollar Devaluation: 22:05–29:48
• Executive Power, Checks and Balances: 29:48–33:01
• Forecasting in a Volatile Policy Environment: 33:01–36:36
• Confidence, Sentiment, and Bull Markets: 36:36–39:44
• Fed Policy and Critique: 39:44–46:18
• Trump's Policy Approaches and Effects: 46:18–54:16
• National Debt Perspective: 54:16–57:18
• Portfolio Construction Advice: 57:18–62:19

Tone and Language

The tone throughout is pragmatic, measured, and occasionally wry. Paulsen is candid, skeptical of knee-jerk policy, and optimistic about the US private sector’s core resilience. The conversation is accessible yet sophisticated, encouraging listeners to look past noise and focus on durable economic and behavioral fundamentals.

Summary

Jim Paulsen offers Excess Returns listeners a vital dose of long-term perspective amid turbulent markets. Despite fear-driven headlines surrounding tariffs and policy unpredictability, Paulsen is convinced that the secular bull market remains intact. He advocates for focusing on structural strengths—namely, the private sector's sound financial health and persistent pessimism—while being aware but not alarmist about policy shifts. Discipline, humility in forecasting, and a steady hand are presented as the best guides for investors navigating market storms.