From Here to Eternity

Summary

Eye On The Market Podcast Summary: "From Here to Eternity"

Host: Michael Cembalest
Release Date: February 13, 2025
Title: From Here to Eternity
Description: In this episode, Michael Cembalest delves into the economic, market, and constitutional milestones of the Trump administration, drawing historical parallels and introducing a comprehensive policy tracker to assess the administration's impact.

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1. Setting the Stage: The Significance of Two-Year Political Cycles

Michael Cembalest opens the discussion by emphasizing the critical nature of the two-year period in U.S. politics, likening it to an "eternity" in the political landscape. He states:

“Two years is an eternity in US Politics, two years being roughly the amount of time you'd have to wait before the impact of the next midterm elections.” (00:56)

This timeframe is pivotal as it often determines the political fortunes of the ruling party and sets the stage for future policy directions.

2. Historical Parallels: Lessons from Past Administrations

To illustrate the volatility and rapid shifts in political support, Cembalest draws comparisons with historical figures and their policies:

• Eisenhower's Deportation Policies:
  Eisenhower deported approximately one million people in 1954. Within 18 months, both funding and political support dwindled, leading to a drastic reduction in deportations by over 95% within two years.

  “Within 18 months of hitting that million person target, both funding and political support for the deportation program evaporated.” (00:56)

• McKinley's Tariff Increases:
  In 1890, McKinley pushed for significant tariff hikes, which initially had support but soon led to rampant inflation. This backlash caused the Republicans to lose over 100 House seats in the 1890 midterms—the third-largest loss in House seats as a percentage at the time.

  “People were generally supportive of those tariffs until they resulted in inflation.” (02:34)

• Woodrow Wilson’s Shift on War:
  Wilson campaigned in 1916 on keeping the U.S. out of the Great War. However, six months post-election, he reversed his stance, delivering a decisive war speech to Congress.

  “Wilson ran in 1916 on keeping the United States out of the Great War... And yet, six months after the presidential election, Wilson changed...” (02:20)

• George Bush’s Tax Promises:
  George Bush's 1988 campaign promise, “No new taxes,” was quickly overturned as the administration introduced various new taxes within two years, including higher marginal rates and new excise taxes.

  “Within two years, there were plenty of new taxes...” (03:35)

These examples underscore how initial policy popularity can swiftly change due to economic repercussions, highlighting the importance of observing policy impacts over mere announcements.

3. Introducing the Trump 2.0 Tracker

Cembalest unveils a new analytical tool developed to monitor the Trump administration’s policies and their tangible effects on the economy and markets. He describes:

“Trump 2.0 draws from some faces you may recognize...” (03:59)

The tracker categorizes Trump’s policies by drawing inspiration from historical figures known for specific policy stances, including:

• Calvin Coolidge: Small government and pro-business policies.
• James Polk: Manifest Destiny and territorial expansion.
• Andrew Jackson: Creation of a new political order and battles against institutions like the Second National Bank.
• Richard Nixon: Enemies lists, vendettas, and energy independence.
• Eisenhower: Lower corporate taxes and deportation efforts.
• McKinley: Tariffs and protectionism.

4. Current Economic Indicators: A Balanced Perspective

Assessing the present economic landscape, Cembalest notes that:

“Most of these indicators are pretty benign on the growth side. They’re either rising or improving from low levels, although a recent firming in inflation is limiting the Fed’s ability to cut rates.” (05:03)

This suggests a generally stable growth environment, albeit with inflationary pressures that may influence Federal Reserve policies.

5. Evaluating the Constitutionality of Trump’s Policies

A significant portion of the discussion focuses on the legal standing of various Trump administration policies. Cembalest collaborates with constitutional lawyers to categorize policies based on their legality:

A. Likely Legal Policies

These policies are deemed within the executive branch’s constitutional powers and are less likely to face successful legal challenges:

• Repealing Biden’s executive orders
• Imposing tariffs
• Firing at-will employees
• Restructuring non-statutory government agencies
• Abolishing DEI (Diversity, Equity, and Inclusion) and affirmative action initiatives
• Deportations
• Withdrawing from the WHO

B. Policies Facing Judicial Scrutiny

These initiatives are more susceptible to legal challenges and potential judicial blocks:

• Birthright citizenship
• Abolishing USAID
• Creating federal positions without civil service protections
• Eliminating agencies established by statute
• Firing statutorily protected commissioners
• Mandating state and local law enforcement to enforce federal immigration laws

Cembalest emphasizes the importance of this framework to navigate the polarized commentary surrounding the administration’s actions:

“Some of the commentary that's being tossed around in the press is being somewhat undisciplined as categorizing everything as constitutional or everything is unconstitutional.” (08:20)

6. Judicial Responses to Administration Policies

He highlights recent judicial interventions that have temporarily blocked several Trump initiatives, signaling significant legal pushback:

“Judges have already temporarily blocked... blanket freezes on federal spending programs, the birthright citizenship order, putting over 2,000 USAID workers on leave, etc.” (08:27)

These blocks indicate that while some policies may withstand legal challenges, others could face substantial hurdles.

7. Introducing the Upcoming Energy Paper

Concluding the episode, Cembalest previews the upcoming 15th annual energy paper scheduled for early March. This comprehensive analysis takes three to four months to prepare and represents one of the highlights of his work.

“One of the things that I enjoy most about my job is being able to work on that project and I look forward to talking to you about it in early March.” (09:18)

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Conclusion

In "From Here to Eternity," Michael Cembalest provides a nuanced analysis of the Trump administration’s policies by contextualizing them within historical precedents and establishing a structured framework to assess their legality and economic impact. The introduction of the Trump 2.0 tracker offers investors a disciplined approach to monitor policy effects rather than reacting to every announcement. Additionally, the exploration of constitutional challenges underscores the complexities and potential legal battles facing the administration’s initiatives.

For those interested in the interplay between politics, economics, and the law, this episode serves as a comprehensive guide to understanding the current administration’s trajectory and its implications for the U.S. economy and financial markets.

Transcript

[Podcast Host]

This podcast has been prepared exclusively for institutional, wholesale, professional clients and qualified investors only, as defined by local laws and regulations. Please read other important information which can be found on the link at the end of the podcast episode.

[Michael Sembalist]

Good afternoon everybody. This is Michael Sembalist with the mid February on the Market podcast. This one's called From Here to Eternity, tracking Trump's economic, market and constitutional milestones. So I've been traveling a bit and going to some investor conferences, and one thing's for sure, I find that people are generally either elated or despondent about what's going on in Washington and the changes that are emanating from D.C. and.

[Co-Host or Analyst]

Whether you are elated or despondent, I want to just remind you two years.

[Michael Sembalist]

Is an eternity in US Politics, two years being roughly the amount of time you'd have to wait before the impact of the next midterm elections. And I want to just remind you of that and give you four examples of why that's the case. Let's start with Eisenhower. Eisenhower was the king of deportations. Eisenhower deported about a million people in 1954, at a time when obviously the population of undocumented people was a lot smaller. Within 18 months of hitting that million person target, both funding and political support for the deportation program evaporated, and less than two years later, the deportations fell to just 80,000 by more than 95%. Another example is another parallel. An interesting one is McKinley. So McKinley, when he was head of.

[Co-Host or Analyst]

The Ways and Means Committee in the house.

[Michael Sembalist]

In 1890, pushed for some large tariff increases.

[Co-Host or Analyst]

They got them passed and almost immediately.

[Michael Sembalist]

Resulted in a spike in inflation that was so bad that the Republicans, of which McKinley was one, lost over 100.

[Co-Host or Analyst]

Seats in the House in the November 1890 midterms. And going back to the Civil War, it was the third largest loss in.

[Michael Sembalist]

Terms of House seats as a percentage of the number of seats that existed. So that was quite a shellacking. So shows just how quickly things can change, because people were generally supportive of those tariffs until they resulted in inflation.

[Co-Host or Analyst]

Woodrow Wilson is another example.

[Michael Sembalist]

Wilson ran in 1916 on keeping the.

[Co-Host or Analyst]

United States out of the Great War.

[Michael Sembalist]

Which is what they call it at the time. And that was even after the Germans.

[Co-Host or Analyst]

Had sunk the Lusitania a year earlier.

[Michael Sembalist]

And yet, six months after the presidential election, Wilson changed, did a U turn, and gave his war speech to Congress. And then the last one that more people may remember rather than Woodrow Wilson is George Bush, who ran in 1988.

[Co-Host or Analyst]

Peggy Noonan wrote this catchphrase for him, read My lips.

[Michael Sembalist]

No new taxes. And within two years, there were plenty of new taxes. Higher marginal rates, alternative minimum tax rates, limits on itemized deduction. They raised the cap on taxable wages for Medicare, they increased insurance taxes, and they passed all sorts of new excise taxes on cars, boats, planes, liquor and cigarettes. So again, whether you're elated or despondent.

[Co-Host or Analyst]

Two years is a really long time.

[Michael Sembalist]

And a lot of things can happen in between now and the next set of congressional elections. And I gave a presentation last week in, I was in Florida, we had an investor conference and I presented this visual. If you're listening, I'll describe it for you. Trump 2.0 draws from some faces you may recognize.

[Co-Host or Analyst]

So, Calvin Coolidge for his small government.

[Michael Sembalist]

And pro business policies. James Polk, the supporter of Manifest Destiny.

[Co-Host or Analyst]

In the Western Hemisphere.

[Michael Sembalist]

We're certainly seeing a lot of that, whether it's Greenland, Canada or the Panama Canal.

[Co-Host or Analyst]

Andrew Jackson, who created an entirely new political order and engaged in lots of.

[Michael Sembalist]

Deep state battles of his own against the Second national bank of the United States. Woodrow Wilson, we just discussed isolationism, at least to start. Richard Nixon with his enemies lists, vendettas and ambitions for energy independence.

[Co-Host or Analyst]

Eisenhower, lower corporate tax rates and deportations. And then McKinley and the tariffs and protectionism.

[Michael Sembalist]

And given this peculiar mix of policies, a lot of people are, I think, jumping to conclusions as to exactly how impactful they'll be and whether or not there's. Just how much are these policies going to affect the U.S. economy and the financial markets, or is it going to be a lot of pomp and circumstance? So to have some discipline around that.

[Co-Host or Analyst]

Rather than engage in a lot of.

[Michael Sembalist]

Conjecture, what we did was we created a tracker for the administration that generally focuses on three things. Growth capital spending and consumer indicators, consumer.

[Co-Host or Analyst]

Price and wage inflation. And then a bunch of business indicators related to oil and gas production, business.

[Michael Sembalist]

Surveys, earnings M and A activity, deportations and regulation. So if the Trump policies are material enough, they'll show up here and we'll be tracking those.

[Co-Host or Analyst]

Right now, most of these indicators are.

[Michael Sembalist]

Pretty benign on the growth side. They're either rising or improving from low levels, although a recent firming in inflation is limiting the Fed's ability to cut rates. So. But anyway, this is our Trump tracker. We will post it online, we'll have a link to it in the Eye on the market, so you can always check it out. And again, the idea here is to have some discipline around things and not respond to every policy pronouncement, but to respond to the impact that those pronouncements.

[Co-Host or Analyst]

Are having on the actual data.

[Michael Sembalist]

And then just to close this is a short podcast.

[Co-Host or Analyst]

This time.

[Michael Sembalist]

I see a lot of articles that assert that various parts of the Trump program are unconstitutional, and they very well might be, and some of them appear to be. But I wanted to have a framework for trying to understand the parts of the administration's approach that people may disagree with. It may be unprecedented, but appears to.

[Co-Host or Analyst]

Be legal based on the powers that are conferred in the Constitution to the.

[Michael Sembalist]

Executive branch and the policies that are likely to be aggressively challenged and more susceptible to successful judicial challenges. So there's four categories and walk through them.

[Co-Host or Analyst]

One is legal or most likely legal.

[Michael Sembalist]

Whether or not people challenge them. And in that bucket I would put repealing the Biden executive orders, tariffs, firing what's called at will employees, restructuring government agencies that weren't created by statute, abolishing DEI and affirmative action issues, deportations, withdrawing from the who and as things stand.

[Co-Host or Analyst]

Right now, the standstill order for the.

[Michael Sembalist]

Consumer Finance Protection Bureau, Category B, which is the stuff that looks like it's.

[Co-Host or Analyst]

Going to be running into more of.

[Michael Sembalist]

A buzzsaw of judicial challenges, would be birthright citizenship, abolishing usaid, creating a new class of federal employees that don't have any civil service protections, eliminating agencies that were created by actual legal statutes, firing statutorily protected commissioners of independent agencies, forcing state and local law enforcement to enforce federal immigration laws, et cetera.

[Co-Host or Analyst]

And then we have another section just.

[Michael Sembalist]

On DOGE because of the complexities associated with that. And then we finish up with some comments on the Consumer Finance Protection Bureau. So anyway, I thought it was helpful to have a framework for understanding these things because I think that some of the commentary that's being tossed around in the press is being somewhat undisciplined as.

[Co-Host or Analyst]

Categorizing everything as constitutional or everything is unconstitutional.

[Michael Sembalist]

And I worked with some constitutional lawyers on this section and I think it's.

[Co-Host or Analyst]

Worth reading if you're interested in this kind of thing.

[Michael Sembalist]

I will say so far judges have already temporarily blocked now they may get they will almost certainly get appeal to higher courts, but judges have temporarily blocked a bunch of stuff. Blanket freezes on federal spending programs to encourage federal workers to resign, the treasury disclosing parts of its government payment system details to people outside the department, the birthright citizenship order, putting 2,000 plus USAID workers on leave, the cap on indirect.

[Co-Host or Analyst]

NIH research funding, and then terminating the.

[Michael Sembalist]

Head of the Office of Special Counsel. So there's a lot already going on.

[Co-Host or Analyst]

That is testing the constitutional limits of.

[Michael Sembalist]

What'S taking place in dc. So that's it for this month. Next up in early March is our 15th annual energy paper. Uh, it's about always three to four months of work and it's one of.

[Co-Host or Analyst]

The things that I enjoy most about.

[Michael Sembalist]

My job is, is being able to work on that project and I look forward to talking to you about it in early March. Have a great day. Bye.

[Podcast Host]

Michael Semblist's Eye on the Market offers a unique perspective on the economy, current events, markets and investment portfolios and is a production of JP Morgan Asset and Wealth Management. Michael Semblist is the Chairman of Market and investment strategy for J.P. morgan Asset and is one of our most renowned and provocative speakers. For more information, please subscribe to the Eye on the Market by contacting your JP Morgan representative. If you would like to hear more, please explore episodes on itunes or on our website. This podcast is intended for informational purposes only and is a communication on behalf of JP Morgan Institutional Investments, Inc. Views may not be suitable for all investors and are not intended as personal investment advice or a solicitation or recommendation. Outlooks and past performance are never guarantees of future results. This is not investment research. Please read other important information which can be found at www.jpmorgan.com disclaimer EOTM.