John Vickley (3:27)

And that dovetails with my next question. There's been a lot of inflationary headwinds, though. Inflation has cooled over this last year. Do you expect Trump 2.0 to be even more effective, or is it going to be more difficult to make the kind of progress that he made under his first term?

Scott Besant (3:44)

Well, I'll answer your question after I give the framing for the background. I think we're starting with worse initial conditions. I think that the Democrats have gunned the engines for the past several years and trying to get us to November 5th, and they pulled out all the stops like you would see in an emerging market. They've gotten us to a 7% of GDP budget deficit, the largest deficit we have ever had in the history of the United States when we're not at war and not in a recession. So the initial conditions are much worse. But I think the team, the programs, and what was Learned in Trump 1.0 is vastly superior.

John Vickley (4:31)

Now, in a letter to investors, you said markets would rally if Trump was elected due to optimism, and that proved true. The day after Trump won, the Dow Jones exploded by 1300 points. What's driving the optimism and will it continue?

Scott Besant (4:45)

Well, animal spirits are being unleashed beneath the surface. We had the high inflation, we had all the divisive rhetoric from the Democrats. But what was really hurting business and what we call in economics, something we can't identify, is animal spirits. And it was this huge buildup of the regulatory state, the regulatory state under President Obama, the regulatory state under Harris and Biden. The level of new regulations that Harris and Biden added, will add in their final year was topped only by Barack Obama's regulations. Those regulations are not free. They suppress gdp. It's a real cost to consumers, to households, and it slows the economy. President Biden's cabinet was the least business friendly Cabinet because there are no business people in it. Even the head of the Small Business Administration, I don't think she'd had a private sector job for years. Look at what we just avoided. Kamala Harris And Tim Waltz have never had a private sector job in their adult lives. Never had a private sector job. I hope they can get one starting in January. Whereas you contrast that. President Trump is a businessman. And when I have discussions with him, he is economically sophisticated, the way he looks at markets and business. And look how he's brought in Elon Musk, one of the greatest business people or the greatest businessman of this generation. And he's going to be part of the administration.

John Vickley (6:31)

Now that Trump has been elected, what would you say would be his chief economic goals, his first actions upon taking office?

Scott Besant (6:38)

Well, I think there are going to be a number of executive orders that are going to push back on the regulation, especially in energy. We are a dynamic energy producing country and the Biden administration has really stifled that. Senator Sullivan from Alaska half jokingly said, look, the Biden administration has sanctioned Alaska 51 times, which is more times than they've sanctioned Iran. So I think we're going to come out with deregulation and energy and finance. The most important thing that we've got to do in 2025 is get the tax cuts and job act renewed or even made permanent. And then I think the other thing that President Trump's going to do is stop the chaos, whether it's Russia, Ukraine in the Middle east, what is developing into a hot zone around Taiwan. And that'll be great for business confidence, pull down a lot of the spending and also cause inflation to go down. And I think we're going to see private sector hiring because what we've seen under Harris Biden is just this gigantic government leviathan, get bigger and bigger with this massive government spending. So for all they've touted on their industrial policy, they've created 18,000 manufacturing jobs. 18,000. Last year there were only 250,000 private sector jobs. Everything else was government or government adjacent. So the way I phrase it is we are going to reprivatize the economy, restart the private sector, and the working class people are going to do well. Big business continue doing well, and small business I think is going to do great. That's why we saw yesterday you saw this massive outperformance by the small cap index. I think it was one of the biggest moves in 10 years.

John Vickley (8:40)

Now, you mentioned tax cuts and deregulation being key priorities for Trump. How do those impact inflation?

Scott Besant (8:47)

Well, deregulation directly brings down cost. And again, it's this hidden tax, like a tax you see when you fill out your tax return, when you get a bill at a restaurant, you see it at the gas station. But deregulation is this owner's hidden tax. For instance, I'm buying a new home that the Biden administration has put some kind of a tax on Freon H VAC systems. And I've got to get the H Vac installed by or buy it before December 31st or it's going to be $7,000 more on January 1st. It's just a whole series of that. It's really a terrible equilibrium because not only is it inflationary, it slows growth and tax cuts drive growth. And if you keep spending under control with the tax cuts, then that brings inflation down slowly. I've advocated for President Trump. You know, I call it a 333. We try to have 3% real economic growth, and that really solves the budget deficit. We average about 1.8%. I think if we deregulate and get the optimism back in the economy, right now we're at 7% of GDP budget deficit. I told President Trump I'd like to shoot for cut that in half by 2028. And if we can do that, that'll have the effect of bringing down interest rates and then we can get US energy production back to where it should be in 2020. The Energy Department released a study that said that by 2024, we should have a million and a half barrels a day more than where we are now. But because of the onerous regulation on energy production of Biden and Harris, that our energy production is down, that increases cost. And I tell you, you get energy costs down, you get interest rates down, and you get growth up, and we could have a golden age for the next four years under President Trump.

John Vickley (10:59)

On the campaign trail, Trump really waxed poetic on tariffs. He said tariff is one of his favorite words. The legacy media sounding the alarm over this. Would his tariffs really increase consumer costs by 4,000 a year? That's what we're hearing from some of these outlets.

Scott Besant (11:16)

That's absurd. The US Is a big closed service economy and it was just a Democratic talking point. And what tariffs do the U.S. we have about a 30 trillion economy. We only import about 10% of our goods and services, so that's 3 trillion. But a lot of that, those are manufacturing jobs that have gone overseas. So if you were to put on a 10% tariff, the currency appreciates by about 4%. We don't know what the elasticities of demand are. The overseas company may cut their margins, so we don't know that the price is going to go up. And then the other thing is to get production to move so you could get a small one time price adjustment. But that's going to be offset by more than the deregulation and the efficiency gains and the energy gains are going to more than offset that. Look, President Trump, one of the many reasons that he won on Tuesday night was the economy and the real wage decreases that American working people had under Biden and Harris. And I guarantee you President Trump understands as well as anyone for a great four years and for his legacy, inflation has to be kept under control and real wages for real Americans have to go up just like they did in Trump 1.0.

John Vickley (12:53)

So Trump supports a strong dollar. We've reported here on the show the importance of keeping the dollar as the primary global currency. That's incre increasingly difficult. How would his policies keep the US Dollar strong while still helping US Exports?

Scott Besant (13:08)

Well, to the extent I'm an expert in anything in my investment career, I've made most of my money managing and trading currencies and I like studying history. Back under Ronald Reagan, the dollar was very strong. So strong we had to go to our allies and ask to have it weakened. So we're already seeing it. Yesterday there was a massive strengthening in the dollar because capital is global, fungible moves around the world and capital goes where it is treated the best. So as we deregulate, as we have cheaper energy, then more and more capital will flow into the US on the other side, as we are able to bring interest rates down because inflation gets under control, then the dollar may not appreciate as quickly or it may go down. But look, President Trump said in a very powerful speech at the Economic Club in New York about a month and a half ago that the US Is going to remain the reserve currency of the world. And I believe we'll just see ordinary market fluctuations. But I can tell you President Trump is very, very bullish for the dollar. And we saw for the brief period after President Biden was removed, Vice President Harris was put on the ticket, the dollar went straight down. So it was a long way saying when you increase the after tax returns on capital in a country, which is what the Trump 2.0 is going to do, we're going to further increase the after tax returns. Money will come flowing into the US.

John Vickley (14:50)

Final question, a sort of big picture question. The Harris Biden administration has implemented a lot of ideal, logically driven policies with DEI and ESG type elements. How would you describe the Trump administration's approach to economic policy?

Scott Besant (15:06)

I think there are going to be a number of executive orders on day one that are going to push for economic over efficiency, over ideology. So the progressive left likes to do social engineering and the Republican Party likes to do civil engineering. They've allocated all this money for the CHIPS Act. But there's so many bells and whistles and you know, you've got to have this group and that group and they haven't been able to get any money out the door. They could meet their own criteria. So I think a huge amount of that is just going to be ripped up and that will go into the productivity bucket. And I think it's going to be very powerful. I think the best people will get the best jobs. And I think that's what we saw. Again, when you see President Trump's popularity with Latino voters, with black voters, with young people, it was incredible on Tuesday.

John Vickley (16:06)

Night that he expanded his coalition of voters was perhaps the major story Tuesday. Scott, thank you so much for coming on.

Scott Besant (16:13)

Good token to you.

John Vickley (16:15)

That was Trump economic adviser Scott Besant and this has been a Saturday edition of Morning Wire.