Eye On The Market: Inauguruption – The Flurry of Trump 2.0 Executive Orders

Release Date: January 21, 2025
Host: Michael Cembalest

In the January 21, 2025 episode of Eye On The Market, host Michael Cembalest delves into the whirlwind of executive orders issued by President Trump following his inauguration, aptly termed "Inauguruption." This detailed analysis explores the amalgamation of historical political ideologies in Trump’s agenda, the specific policies introduced, and their potential implications for investors and the broader economy.

1. Trump 2.0: A Historical Hodgepodge

Michael Cembalest begins by contextualizing Trump 2.0 within the tapestry of American political history. He likens Trump's approach to a blend of various historical political figures, each contributing distinct ideologies to his administration's policies.

"Trump 2.0 is an interesting hodgepodge of some very distinct American political strains from a historical perspective."
— Michael Cembalest [00:25]

Key Influences:

• Andrew Jackson: Bare-knuckled nationalism and anti-elitism.
• William McKinley: Tariff-loving protectionism.
• Calvin Coolidge: Small government pro-business policies.
• Richard Nixon: Unforgiving enemies lists and vendettas.
• Dwight Eisenhower: Deportation policies.
• James Polk: Manifest Destiny.
• Woodrow Wilson: Early isolationism.

2. Manifest Destiny and Foreign Policy Ambitions

Cembalest highlights President Trump's aspirations to expand America's geopolitical influence, drawing parallels to the 19th-century concept of Manifest Destiny.

"Trump has mentioned expanding America's footprint by taking control of Panama Canal, making Canada the 51st state, pursuing a purchase of Greenland from Denmark and things like that."
— Michael Cembalest [Timestamp not specified]

Panama Canal Concerns:

• Chinese Involvement: Panama's participation in China's Belt and Road Initiative has led to significant Chinese investments, including port operations and bridge construction across the canal.
• Neutrality Risks: The influx of Chinese infrastructure projects raises questions about Panama's ability to maintain canal neutrality as per treaty agreements.

3. Tariffs and Trade Policies

Examining the economic ramifications, Cembalest compares Trump's tariff strategies to those of historical predecessors, particularly William McKinley.

"The McKinley tariffs were politically disastrous. The Republicans were wiped out in the midterm elections in the subsidy subsequent presidential election after inflation went up when McKinley raised the average duty on imports to almost 50%."
— Michael Cembalest [Timestamp not specified]

Current Tariff Landscape:

• Initial Rollout: Surprisingly minimal in recent executive orders, with Trump hinting at a potential 25% tariff on Mexico and Canada due to border issues.

  "Trump stated last night that he was inclined to put a 25% tariff on Mexico and Canada starting in February since they're allowing a vast number of people over the border."
  — Michael Cembalest [Timestamp not specified]

• Future Expectations: Anticipated hikes on Chinese tariffs and auto imports, albeit likely limited to critical imports constituting 10-15% of total U.S. imports.

Market Impact:

• Investor Caution: While initial tariffs have been benign, potential increases pose risks due to their negative impact on manufacturing employment and growth, as viewed by most economists.

4. Deportation Policies: A Reactionary Approach

The episode delves into the administration's stringent immigration stance, positioning it as a countermeasure to the previous administration's policies.

"I see these policies as a pendulum swing after the Biden administration oversaw the largest uncontrolled immigration surge on record..."
— Michael Cembalest [Timestamp not specified]

Historical Context:

• Eisenhower Era: In 1954, peak deportations saw 1.1 million individuals removed, a number that plummeted by over 90% two years later due to reduced funding and support.
• Current Implementation: Potential temporary measures aimed at rectifying immigration system backlogs, court caseloads, and border lawlessness.

5. Energy Policies and Their Economic Implications

Cembalest provides a nuanced analysis of Trump's energy directives, emphasizing the importance of the finer details in policy implementation.

"Trump's executive orders also are going to pause distribution of loans and grants from the infrastructure and energy bills if they haven't been distributed yet."
— Michael Cembalest [Timestamp not specified]

Key Points:

• Wind Energy: Termination of leasing to wind farms on federal lands, which currently account for only 2% of U.S. wind power.
• Electric Vehicles (EVs): Efforts to terminate the indirect EV mandate by altering EPA emissions rules could slow EV adoption, though the $7,500 subsidy remains intact.
• Fossil Fuel Production: Targeting a 7% increase in production, deemed achievable but with modest inflationary benefits if primarily exported.
• Infrastructure Growth: Notable decline in the construction of liquid and natural gas pipelines, as well as a collapse in transmission line growth despite federal acceleration attempts.

Inflation Concerns:

• Electricity Supply Chain: Persistent inflation in core goods, particularly in transformers and power regulators, suggests entrenched inflationary pressures that increased fossil fuel production may not immediately alleviate.

6. Drain the Swamp: Federal Workforce and Spending Cuts

The discussion moves to the administration's efforts to reduce the federal workforce and cut government spending.

"For all of the talk about a bloated federal agency workforce, federal workers now represent the lowest share of overall employees in 85 years."
— Michael Cembalest [Timestamp not specified]

Current Workforce Statistics:

• Low Employment Share: Federal employees are at their lowest proportion in 85 years.
• Primary Sectors Affected: Defense, postal services, and Veterans Affairs comprise the bulk of the federal workforce.

Spending Reduction Efforts:

• Reversing Executive Actions: Potential savings of approximately $100 billion annually by repealing various Biden-era policies related to healthcare and student debt.
• Defense Spending Challenges: Limited scope for significant cuts, as weapons procurement constitutes only 20% of the defense budget, with most funds allocated to personnel and maintenance.

Strategic Considerations:

• Administrative Changes: Introduction of Schedule F aims to convert career civil servants to political appointees, facilitating easier replacement and alignment with administration policies.

7. Deregulation: Streamlining Government Oversight

A significant portion of the episode is devoted to the administration’s regulatory rollback strategies, emphasizing the intended acceleration of deregulation.

"Trump mentioned a requirement that going forward, 10 rules would have to be eliminated for any new rule to be enacted."
— Michael Cembalest [Timestamp not specified]

Deregulation Measures:

• Rule Elimination: For every new regulation introduced, ten existing rules must be repealed.
• Challenges:
  • Administrative Procedures: The notice and comment rulemaking process can delay deregulation efforts by 6 to 12 months.
  • Judicial Scrutiny: The elimination of Chevron deference has empowered courts to more frequently challenge agency interpretations, reducing the efficacy of deregulation efforts.

Regulatory Trends:

• Historical Comparison: Under Trump’s first term, regulatory activity was notably subdued, with less paperwork and lower costs associated with rule-making compared to both Obama and Biden administrations.

8. Market Implications and Investment Outlook

Cembalest synthesizes the potential market impacts of Trump 2.0’s policies, offering a cautiously optimistic stance for investors.

"There's not a lot of negative information that we've got at this point to justify any change in portfolios that are positioned for continued US Growth and outperformance..."
— Michael Cembalest [Timestamp not specified]

Key Considerations:

• Supply-Side Benefits vs. Inflation Risks: While supply-side policies could bolster growth, inflationary pressures and elevated equity valuations present risks.
• Ten-Year Treasury Yields: Divergent from past Federal Reserve easing cycles, current yields indicate market concerns about inflation stemming from Trump’s policies.
• Portfolio Recommendations: At present, no immediate changes are advised for portfolios aligned with U.S. growth and outperformance, given the relatively benign nature of recent tariff implementations.

9. Conclusion

Wrapping up, Cembalest underscores the absence of unexpected policy shifts in the current executive orders and reiterates the stability of U.S.-focused investment strategies amidst the administration's new directives.

"There's nothing here that prompts us to recommend any changes to portfolios that are positioned for US growth and outperformance at this time."
— Michael Cembalest [End of Content]

He also teases an upcoming significant energy report slated for early March, promising further insights into the evolving energy landscape.

Final Thoughts

In "Inauguruption: The Flurry of Trump 2.0 Executive Orders," Michael Cembalest provides a comprehensive overview of President Trump's immediate policy actions and their potential implications. By dissecting the blend of historical ideologies, scrutinizing specific executive orders, and assessing market impacts, Cembalest offers investors a nuanced perspective on navigating the evolving economic and political terrain.

For those interested in further details and visual data representations referenced in the episode, such as the ten-year treasury yield charts and regulatory activity comparisons, subscribing to future Eye On The Market episodes is recommended.