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.

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)

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.