The Midterms & Your Money: David Bahnsen on the Election's Economic Impact

[00:00:00] Speaker 1: Good day, everybody. Welcome to 2-Way. This is a special episode of 2-Way with David Bonson, my friend and one of the smartest people I know in general and maybe the smartest on the economy. David and I are going to talk about the midterms and their implications for the macro economy, micro, your household, whatever you'd like. As always on 2-Way, there'll be plenty of opportunity for you all to be part of the conversation. If you're here watching on the 2-Way platform and want to get in on the conversation to ask David a question, raise your hand. That's all you need to do. If you're watching somewhere besides the 2-Way platform on YouTube or X and you want to come on in, please do go to 2way.tv and register and come in. We'll be spending the hour with David and the bulk of it will be an opportunity for you to ask David questions. David's the founder, managing partner, chief investment officer of the Bonson Group, a U.S. wealth management and financial advisory practice and a regular commentator on these things. And finally, to tell you, an opportunity to get something for nothing, David's newsletter, which I read every day is spectacular. It's called Dividend Cafe. You can subscribe at DividendCafe.com. You won't read anything better every day on understanding where the economy is and where it's going. But also, it's hilarious because David embeds jokes, some obvious and some subtle, like a Bugs Bunny episode right in there. David, thank you for being here. [00:01:21] David Bonson: Well, thank you for having me, Mark. And thank you for being one of the three people that appreciate my humor. [00:01:27] Speaker 1: Yeah, it's a select group, but we're proud. Let's start with how markets have reacted since Tuesday. What have they done and why? [00:01:38] David Bonson: Well, it's a tale of two cities, obviously. It's fun that we're sitting here actually recording and talking as the market is still open on Thursday. But more or less, round numbers, we went up 1,500 points in the Dow yesterday, Wednesday, and we went down 1,500 points in the Dow today. It won't end up netting out even like that because the downside in the Nasdaq today is worse than the upside in the Nasdaq was yesterday. But essentially, you have extreme moves higher Wednesday and extreme moves lower Thursday. And I think your question was why? And there's a different why in both situations. Let's start with today and work backwards. You're seeing all over X that there are folks saying, oh, the results of the midterms were a disaster. The market's selling off like crazy because of it, which obviously there's a little problem with that theory that the markets were not unaware yesterday of the election results. And you had a polar opposite move. They did not wait. They were not sleeping in. Markets were immediately responding Wednesday. And the sell-off today can't be just a byproduct of, oh, my gosh, look what happened Tuesday night. And I think most people of good faith and some degree of IQ understand that. So then what did happen Wednesday? And this is where I know you and I were texting about this a little. I spoke about this at a client dinner event in Grand Rapids, Michigan last night. But I want to say for our audience, a certain parallel is in almost every time, Mark, the Fed meets when they come out and make their announcement. And then there's a press conference. There didn't always used to be a post-FOMC meeting press conference. But it's about 90% of the time now, you have this really significant heightened volatility for the first 20 minutes, sometimes for the first 90 minutes. And then you have a normalization of things the next day. And it is almost entirely related to the same thing that elevated volatility and big moves yesterday, which is a whole lot of traders that had put hedges on in advance of a particular possible outcome that then had to undo the hedges. And it was not everybody getting optimistic yesterday. And the fact that I'm saying that is already proven because how in the world could people have been 1500 point optimist yesterday and become 1500 point pessimist today, these things just don't make sense. So to look for a partisan explanation on the good day or the bad day is not going to add up. Traders had to cover hedges and it just elevates volume, it elevates volatility. There's a lot more sellers than buyers and so forth. And so it ended up, and what I mean in this case is sellers of the volatility. So they were buyers of risk assets. And you saw with the VIX yesterday, down 20%. And so that fear trade that people went in with came out. What were they afraid of? It is an uncertain outcome. It happens almost after every election. So what I did, Mark, because I was pretty sure from my own memory, a lot of people don't know this because I am so challenged in so many different areas of my life. But one strength that God gave me is a ridiculous memory. And I said, everybody knows the market was up a lot the day after President Trump won in 2024. But I seem to remember it was up 1,508 points or something right in the range of where we were yesterday. And sure enough, the market went up within just a couple points of each other, the day after the election in 24 and the day after the election in 26. How can you get a partisan explanation out of that? An entirely Republican sweep moment in 24, taking the Senate, sweeping seven battleground states, taking the House, the White House, the big enchilada. And then now the biggest Democrat blue wave wipeout in electoral history this time and an identical response. These are market technicals that created both events. That's the answer. [00:06:19] Speaker 1: Okay. You'll correct me as you always do, but politely as you always do if I'm wrong. This is a confusing economy before the election. Jobs numbers are good. Earnings numbers are good. The markets are good. Poverty is way down. GDP has been pretty robust. And yet consumers haven't felt it. The exit poll, the voter poll showed that the economy was the number one issue and people are not happy on the economy. U.S. weekly jobless claims, 47, 57 year low today. And yet you wouldn't know that from the sour mood of the voters who decided to vote on mass for Democrats, including a lot of Republicans. If you think about the big negative aspects of the economy, debt and deficit, inflation as two, I would say, what's your sense of how the prospects of the American government dealing with those two things or the private sector dealing with inflation next year because of the change? Is it more likely, less likely, no change, that inflation goes down, GDP grows, debt and deficit come down next year? [00:07:28] David Bonson: So before I answer that exact question, let me agree with every part of your premise, except for one that is very important. And of course, as you asked, I'll be very gentle. The GDP number has not been robust. It's been okay. [00:07:46] Speaker 1: It's robust compared to what it's been. It's not where it needs to be. [00:07:52] David Bonson: It was 2.4% real GDP growth in 2024. It was 2% in 2025. And it's annualizing right now year over year at 2.1. After Q4, it'll probably come back down to two. So that's net of inflation, 2%, which is lower than it was in the last couple of years when President Trump came into office. And all of this is lower for 18 years than it was for the 70 years before then, where our World War II to Great Financial Crisis average was 3.13% per year. And so we're living in a period of more stagnant economic growth. But non-recessionary, it's positive. And that's true now, too. But I think the word robust is inaccurate. And it's important because if it were robust, then a lot of the other things that are bothering individual actors in the economy, the ones not bothered are largely people who hold assets, largely high wage earners. And by the way, the consumer is fine, at least as it pertains to what they're willing to spend money on. They have not slowed spending. But higher prices and the percentage of wallet share, what has to go to food and energy is up. And most certainly, the largest element, and this was true before the Iran war, and it was true before President Trump's second term and so forth, but housing prices. And so those elements, I think, are the lowest hanging fruit of where people don't feel that it is in a great economy. But Mark, if I can, and I don't want to do political commentary, which you're so good at, I want to do economic commentary. But I think these two things overlap a little here, that part of the problem is, I believe, people will be frustrated when they're being gaslit, when they're being told that things are the greatest economy we've ever seen. That's why I push back on robust description of GDP, because I think it's okay in aggregate, but it isn't the greatest we've ever seen. And nobody thinks it is. And I think that was part of voter anxiety this week. [00:10:12] Speaker 1: Yeah. But do we have any prospect with a Democratic Congress and a Republican president that the Denton deficit will go down next year? [00:10:19] David Bonson: Absolutely not. I mean, in no way, shape or form, other than being some total accidental issue, where there happens to be some data blip that does something for one period of time. There's no appetite with Republican government, no appetite with Democrat government, and no appetite with mixed government. [00:10:44] Speaker 1: Okay. And do we have any reason to believe that inflation, because of divided government, will be lower next year, than it otherwise would have been? [00:10:51] David Bonson: No. I mean, some people think you can lower inflation by price controls. I don't agree with it, but there won't be any legislation that's going to allow for something like that, thank God. And even the supply side resolutions I would be in favor of, there won't be a legislative appetite for that. So nothing can happen out of Congress, legislatively speaking, that can deal with inflation. Plenty of things can happen in the economy that deal with it, but they're unrelated to Washington, D.C. [00:11:28] Speaker 1: And in either the lame duck session or next year in Congress, any reason to believe there would be tax cuts or tax increases of any type? [00:11:35] David Bonson: Definitely not tax increases, just in terms of the veto pen and what it would take for a bill to become a law. You're not obviously going to get anything done in resolution. You're not going to get across the president's desk. And then in terms of the lame duck session, there is no possible way. [00:11:57] Speaker 1: Right. Okay. Again, if you want to be in on the conversation, I'm going to go to you folks. I think one more topic briefly for me and then to the community questions. So if you're here on the platform, I want to ask David a question, please raise your hand. The data center thing in terms of building new data centers and in terms of not just the CapEx spend on centers, but on the capacity of the economy, not just the companies, but the overall economy to be juiced by more robust commercial activity vis-a-vis these companies and the efficiencies that should come by people using the product. I believe that even though we have democratic governors who presumably will follow through to some extent on their promises to restrain, or in some cases declare a moratorium on building, and I believe that even though we have a lot of new members of Congress who have said the same thing, the Democrats are more oriented towards regulation than the president. I believe that the confluence of these changes and the AI companies having stopped trying to fix their horrible public images to get through the election, but now I've made it clear publicly, oh, they know they need to do a lot of stuff. They need to be in the communities and offering them money and all these things. I believe that this is actually good in the medium and long term for the industry, because now they can do it without all of these threats of putting the brakes on. So there's going to be more predictability, and I believe these governors are not going to turn down the revenue and the jobs and the ability to get stuff here. So I believe that democratic governors and the democratic congress are actually good medium and long term for the growth of the industry, building of data centers, the adoption of the technology, and the efficiencies and revenue that will come with that. Am I right or am I wrong, and why? [00:13:48] David Bonson: There's a certain element which you're right, but let's be clear. You said Congress. Congress doesn't do permitting for local zoning of data center. This is largely a state issue, and there isn't a governor who won Tuesday night who didn't run against data center. But I'm with you completely that their campaign rhetoric and their actual governance rhetoric will end up being different, but not right away. The issue you're up against, you alluded to how the companies need to change their platform. Let's also not forget that many of the companies may very well use it as an excuse to get sober up anyways about what is an excessive amount of capex spending. I think the bigger issue is in the projects already underway, Mark. There's 26 data centers right now that have already been entitled and in most cases already under construction in the state of Texas alone. The state of Texas is going to spend more on data centers this year about $66 billion than China. So when you say the state of Texas, you mean the private industry in Texas, right? That's right. Okay. Sorry, go ahead. And so that capital investment in the state of Texas would be the third largest country in the world if United States x Texas being one, China and Texas itself being neck and neck, two and three. I don't think that those projects get canceled in the middle, even with a new governor. But around the country, to the extent that it can become more clarity, there can become some improved PR effort from the industry, because I think I'm with you, that it almost can't get worse, right? You know, their ability to go sell data center to the public. And then I do believe that most politicians know whatever angst they think voters have about data center right now, there is one degree of angst that is much worse. And that is when unemployment skyrockets. If people think the economy is so-so right now at 2% real GDP growth, take out AI capex and data center in 2025, 2526 and pro forma 27, you're in recession. And I don't think that's going to happen, but I do think it would apart from data center. Yeah. So in a word, should an investor be more or [00:16:05] Speaker 1: less bullish on the industry based on the overall, not just the federal results, but the state results [00:16:10] David Bonson: on Tuesday? They should be less bullish, but that's not because of the election. It's because we already are overly capitalizing, over-expensing the investment in the space, but that's not related [00:16:24] Speaker 1: to the election. So you were skeptical because the impossible capex trajectory before the election, but you're saying you're no more or less bullish because of the results. [00:16:36] David Bonson: It doesn't get it better because of results, but my primary concern is unrelated to results. And now, when you add in the complexity that there are projects that some states will be more difficult than others or some municipalities will, then it's just another dimension in a time where the real primary concern of the funding mechanism, the return on invested capital, the tri-party complexity, all of these things are coming to a head and creating a perfect storm all in a time when there's a sort of cultural and political blowback. So I would say that I have skepticism, but it's primarily unrelated to the election. [00:17:17] Speaker 1: Right. Okay. Everybody, as you come in, you'll unmute, you'll glance away from your Bloomberg terminal, you'll look right at the camera, you'll tell us where you are and what's on your mind for David Bonson, [00:17:27] Speaker 3: and thank you for participating. Mike, you first. Good afternoon, gentlemen. Mr. Bonson, how would you recommend that someone approaching retirement protect their portfolio against inflation? Given the deficits we have and the amount of money that the government is spending and sending to people, it's unlikely that inflation is going to go down anytime soon, right? So. [00:18:00] David Bonson: Thank you. Thank you, Mike. Go ahead, David. I would agree with the premise about the excessive government spending and the negative economic impact it has and the need for investors to be protective. I would disagree with the conclusion, but it's only because I'm suggesting something worse than you are, which is that ultimately the big impact of excessive government spending has largely proven to be in developed countries, disinflationary, deflationary, low growth stagnation. And the politicians would love to solve the excessive debt issue with tolerable levels of inflation. But I believe the problem has been, as we saw in Japan for over 30 years, as we saw in America for 18 years until the post-COVID inflation came, that all at once these things are a big problem, but they can be a big problem that results in stagnated economic growth. That doesn't help retirees and and so forth either. It's just I'm sort of suggesting that you have to pick between an earthquake and a hurricane as a kind of two different problems to deal with. And in both cases, I'm diagnosing something very similar. I do very much believe that in those periods, there are still very, very good investments to be had in periods of low, slow and no growth or in periods of rising inflation. So regardless of how this plays out, I'm a very, very big believer of built my business and my career around the notion of dividend growth investing being a very defensive antidote to stagnation and inflation. And a what I don't believe will will cut it is a regular generic index fund. So I think that there are a lot of people that are getting closer to that retirement age that need to be more thoughtful about their portfolio prescription. [00:19:47] Speaker 1: Mike, thank you. Grateful to you. Great question. Patty, welcome in. Tell folks who don't know where [00:19:51] Speaker 4: you are what's on your mind for David. I'm in Minnesota. Thanks, Mark and David. If what we saw Tuesday, the embrace of left wing candidates continues to 2028 and we end up with a president and a Democratic Congress, I would expect that they will dispense with filibuster and enact a sweeping agenda that would include a lot of changes to taxes. I'm wondering what you would see coming in that, particularly perhaps as it affects retirement accounts. Would they dump Roth accounts or change? What would you see happening that they might do in [00:20:37] David Bonson: that respect? So Patty, let me give a couple of points of clarification. There were absolutely seats that were won Tuesday night by far left progressive candidates. They were only won in far left progressive districts and places. And in fact, the Democrats showed remarkable discipline in certain areas where they would not have won with a far left progressive and had to run a more moderated candidate in order to win. Now, I understand what happened in the Senate race in Michigan. That's a state that has had two Democrat senators since the 1990s. And so by and large, I share the fear you do of growing DSA sentiments throughout the culture. But politically, first of all, the person who suggested getting rid of the filibuster is the current Republican president of the United States, not DSA people. So if they do do it, they will have been inspired by a Republican president suggesting they do it. And I hope that the Republicans have enough of a position in 28 to avoid that, object to it. But I think there are a lot of severe things that many on the left want to do. But I just want to come back to a very, very recent historical point where the Democrats had a control of the White House, the Senate and the House, and they couldn't pass with budget reconciliation with only needing 50 votes. Almost everything you just said, they would need 60 votes. They cannot undo Roth IRAs without a super majority level. Even with 50 votes, they couldn't pass the Build Back Better legislation. So there is always this risk. I never want to be complacent. And yet the beauty of our founding fathers is the inability for extremes on either side to ever make that much headway with some of those things. I'm not unfocused on it, but I'm more focused on something that I think is more likely to happen, which is not the extreme things happening all at one time, but the just continuing to whittle away in a more new dealer, great society type way to where even just this U.S. government equity in private companies has now become sort of more accepted. It wasn't done all at once in a sort of China-level state-owned enterprise system. They just have incrementally, I think, doled the American opposition to such things. That's what I'm more afraid of, even than the outlook that you laid out. [00:23:23] Speaker 1: Patty? Thank you. Thank you, Pat. [00:23:24] Speaker 4: I'm in Minnesota, so I worry. I've seen it happen. [00:23:27] Speaker 1: Yeah. Patty, thank you. Grateful to you. David, I know as clients in Minnesota and well aware of [00:23:34] David Bonson: one of them was named Patty right there, Mark. [00:23:35] Speaker 1: Yeah, I know. Bradley, welcome in. Thank you for being here. Tell folks who don't know where you are what's on your mind for David. [00:23:41] Speaker 5: Yeah, I'm here in New York. David, nice to meet you. Just had a question, and you touched on it before, related to AI spending and GDP, right? Now, with the new governors coming in and with this whole NIMBY going on, what are your expectations of the potential of possibly us going into a recession with how much percentage the GDP of AI spending is making up of GDP? And that's really all that's going on in the economy now is what's driving the GDP. And I know it takes a long time for these things to kind of play out. There's always a lag of when, you know, new policy is instituted. But with the lack of other businesses or growth in the economy and with this new thinking taking hold of not building out data centers and what have you, you know, what is your expectation of a potential recession on the horizon? [00:24:45] David Bonson: Yeah, the problem is I kind of agree with the general setup because the math is, as you said, that we have a very disproportionate amount of GDP contribution coming from AI spend. And when you look at past CapEx booms, we've really never seen anything like it. I, first of all, was a huge supporter of the horizontal drilling and hydraulic fracturing revolution. And I was always enamored by the data that the president at the time, President Obama, didn't really want to take credit for it, but he wasn't doing a lot to stop it. And I think a lot of the reason was it was keeping us from double-dip recession post-crisis, that the only real CapEx we were getting and this non-residential fixed investment, which is the business investment component of GDP, was almost entirely from energy investment in, let's call it 2010 and certainly 11, 12, 13. It's like that now exponentially more so with AI CapEx, the contribution to GDP that this represents. So I'm with Mark and what comment he made earlier that I think, first of all, it's very hard to expect the companies behind this to not improve their messaging and efforts. I also would say, too, because you're asking about on the horizon of a recession, there's just too many projects in the pipeline for this to be felt in 2027. I mean, there is so many shovels in the ground already that I don't think it immediately slows up the compute anytime soon. It's more slowing the rate of compute. So I would not be overly sanguine, but the idea of getting to three or four percent real GDP growth is just a fantasy and you're at very real risk of stagnating further something with a one handle. But that's not that's not recessionary. And so what would end up becoming recessionary is a full bubble burst in the AI moment where it isn't just that NIMBYs and a left wing Congress and all these things work together to stop data center build, it would be a sort of full blown cessation of CapEx from the hyperscalers and a cutoff of capital markets into the ecosystem of AI and the so-called wealth effect drizzling down. The S&P 500 is made up of over 50 percent technology and communication services right now. That's significantly higher than it was in 2000. And the hangover of dot-com combined with 9/11 and some other events led to a minor recession in 2002. So there is some historical precedent that just a stock correction in the AI story could become problematic, let alone the more fundamental CapEx side you're talking about. [00:27:48] Speaker 1: Bradley, thank you. Grateful to you. David, welcome in. Thank you for being here. [00:27:53] Speaker 6: Hi, and thank you. And happy client of yours, David. So my question is about tariffs. And one for Mark and one for David. What are the prospects for the president's current tariff regime going forward? Let's say in the next two years. And Mark, perhaps from the political point of view, David, you from the economic and investment point of view. David? [00:28:21] David Bonson: David? Well, what I would say is it would be a lot easier to answer if any of the tariffs that we had right now had been passed legislatively, then we'd have some sort of a feeling of what could be unpassed legislatively. But when a whole bunch were done in what was deemed to be illegal by the Supreme Court, and then the remainder were done with various pretextual rationales from the executive branch, I don't really think Congress can do much about it because of the fact that it was not ever done through Article I, Section 8 to begin with. Now, President Trump said yesterday that he views his views on this to be identical to Bernie Sanders. I think it's an attempt at Olive Branch to try to get some of that left-wing progressive support around some of the more economically isolationist policies he has. But the ironic thing here is, I don't think the left would do that even where they agree with him, where a Bernie and an AOC would kind of historically be more on that side of heavy central planning and heavy protectionism and certainly a lot of unionization requirements around some of those different things. And so I don't think the left would play ball with him anyways. And at this point, what the president seems to have been doing, announcing, I'm going to back off on the Canada silliness, and he's already picked about eight different sectors where he got rid of some of the more egregious tariffs. It's so discretionary that it's very hard to analyze from a policy standpoint. And Mark may have a different view of what the politics of it will be for the next two years. But the politics of this were not good in the midterms. And so my suspicion is it's more of the same random discretion, some kind of temper tantrum, you know, tweets every now and then, but marginally him sort of backing down one by one over the next couple of years. [00:30:21] Speaker 1: Yeah, I agree with David. Not so much because the Democrats in Congress in the majority will put any pressure on him or try to work with him. But I think he will recognize that he doesn't want to leave office with all these things in place. And if he can ratchet them down for some short term gain and claim of success, because no one's going to be able to scorecard it, he'll just say, well, I put him on country X and I'm taking them off because we got all these great things. You know, tariffs is a weird issue because unlike most issues in our culture, they divide the two parties. You got people in both parties who are pro and anti. The president's party is more anti-tariff probably than the Democratic Party is. But he's he's in charge or he gets to set the policy. Schumer and Jeffries, I don't know that you could say where they actually are in their in their in their politics on tariffs. I'm sure I'm sure in their in their intellectual view of it, they're they're good bonds in Americans. They think tariffs are ridiculous, but they do have, you know, they do have members of their caucuses who think tariffs are at least politically a good idea. David, David, Faisal before you go, Faisal before you go. Why is being a client of David Bonson good? What do you like about it? [00:31:31] Speaker 6: Besides the substantive advice, peace of mind. Yeah, that's again, can't really pay for that. [00:31:39] Speaker 1: It just comes with the quality. Thank you, David. Grateful to you. Thank you, David. I'm always curious about the Bonson clientele and we got a little insight in there. Julian, welcome and unmute if you would tell folks who don't know where you are and what's on your mind [00:31:52] Speaker 7: for David Bonson. You got a mute first, Julian. There you go. Sorry about that. Julian from Melbourne, Australia. How do you reconcile managing a portfolio to diversify from AIDC stocks with the fact that 75% or so of growth is AIDC and a lot of those non-AI companies are at the wrong end [00:32:21] Speaker 1: of the K-shaped economy? Great question, Julian. I'm eager to hear the answer to this one. [00:32:27] David Bonson: You simply can't reconcile it by being an index investor. You have to buy the beta of AI if you're going to buy the whole market right now and we choose to not buy that beta and not be index investors. So you have to go do bottom up selection. We hold about 35 companies in our dividend growth portfolio. We think you can be very well diversified with 30 to 40 companies and yet find a good growth profile where the free cash flow is growing. We didn't talk about the growth coming from a lot of these AI companies. But when you get into earnings growth, when you get into free cash flow growth, it is most certainly not coming there. Now, it's been there in spades if you're the supplier, the NVIDIAs and so forth. But you look at a lot of these companies that had such a massive valuation. I'm looking at Broadcom today. It's the second largest supplier. It's been utterly pummeled. NVIDIA is well down on the year. It's their largest revenue and earnings year in history. So we can't manage only on where there's earnings growth. You have to manage on where there's earnings growth that is not already priced in and is not assuming pro forma a growth rate that may prove to be unsustainable. So we have to do that by looking to free cash flow, looking to a debt profile of a company we're comfortable with, looking to a business model that we think is sustainable and durable. And ultimately, the management confidence in that is evidenced through their continuing to return capital to us shareholders in the form of growing dividends. That's what we believe in doing. Julian, thank you. Grateful to you. [00:34:07] Speaker 1: Aaron, welcome in. Tell folks who don't know where you are what's on your mind for David. [00:34:10] Speaker 8: Good afternoon from Houston, David. Good to talk to you. I may embarrass myself with this question here. Is there something wrong with, I guess, today's economy and the GDP deflator? It just seems like there are so many industries where, you know, there's revenue growth because companies that are doing less work or selling fewer products are just charging more money. And is that that's not particularly high quality growth. And it just seems like every time the GDP numbers come out, everyone's in the last few years, everyone's kind of surprised that they're up as much as they are. Or is this just this is AI CapEx rules all. And that's just the state of where we are. [00:35:00] David Bonson: Yeah, you put a few different things out there and it's not I don't think you embarrass yourself at all. But let me clarify, when you talk about the deflator, you know, you have to have some metric that's objective to delineate between nominal and real GDP growth. And I care about both numbers because I think you need, first of all, for those of us who have to follow the bond market and have an assessment of yields, it's largely relevant around nominal growth, not real growth. The deflator is going to bring nominal to real. And they're the objective standard can't change. Like, like you if it's different than what it used to be, then it really throws off what it is you're trying to measure. But when you talk about the quality growth, see, that's where I think it gets tricky, because you start inviting subjective terms in. If somebody wrote a check for 100 million dollars for something, somebody else wrote a check for $100 for something, I don't think the data can be expected to tell us what was a high quality check and what wasn't. The numbers clear where they clear. And to the extent, if you mean by low quality, it's not sustainable, then that does catch up in the numbers. And a lot of what people get confused about with GDP measurements is it's actually very wise measurements to avoid double counting things. So for example, the import export issue, how you subtract the one from the other is just to avoid double counting what is going to end up being consumed. And that and that's similar when you're talking about the the lower quality issue, if it was produced and sold at a high level, but it's one time one shot Juanita type stuff, it's not going to bleed into the consumption side that GDP picks up. So I don't think we have a data problem. But I do think that for a supply sider like me, I'm less interested in the volatility of inventories and in the volatility of import export. And I'm less interested as a non-Keynesian in consumer activity because I just simply take for granted that the American consumer is going to consume as long as there's things being produced for them and they have credit. So the production side to me is the most important ingredient for quality, for durability. And right now we see a pretty healthy number there. It's just that it's all one sector. And that is tricky. Mark asked at the beginning of our time together today about the voter angst from Tuesday night. But remember, if you are not receiving in either a direct or tangential way the fruits of the AI ecosystem, much like President Obama couldn't get a lot of street cred around the fracking story, because it was great in Texas and Oklahoma, Marcellus, up in Bakken, but it was not distributed across the 50 states. Now, the AI story is bigger. But this is where I would have expected this year, in light of some of the supply side tax issues from the Big Beautiful Bill Act, the full expensing, the enhanced expensing on R&D, the bonus depreciation, a lot of those things should have inspired more supply side pro-growth activity. But right now, the AI story is crowding everything else out. And I think that's some [00:38:23] Speaker 1: of the trickiness we see in GDP. David has got a unique way of explaining all this stuff. I recommend the newsletter to you, DividendCafe.com. It comes out five days a week. David writes it himself. It's timely, it's interesting, and it makes you smarter on all these issues that we're talking about today and more. And if you want to familiarize yourself also with David's firm, it's a great way to understand kind of their orientation towards investing and making money and not losing money, which is pretty much the business as David is in. All right, here we go. Let's go to Angelo. Angelo, welcome in. Tell folks who don't know where you are after you unmute and what's on your mind for David Bonson. [00:39:09] Speaker 9: I'm in Florida right now. David, I just have a question on your take on the healthcare industry. Seems like right now there is a short term in the 100 days. Jeffries wants to extend the premium tax credits and the Medicaid cuts, which in my opinion, as I'm in the healthcare industry, will just increase to the federal deficit. It's not really solving the root cause, which is the rise of premiums. There's a bill that's co-sponsored by Elizabeth Warren and Josh Hawley about the vertical integration that's been happening with the insurance companies, the providers, and the prescription benefit managers. And that's really what's driving the increase of the premium. So just on your take of, you know, the far left will try to take Medicare for all, but we really need to solve for the root of the [00:39:56] Speaker 1: economy. All right, Angela, I think froze, but David, you got the gist. So go ahead. [00:39:59] David Bonson: I did. I will give you an ideological answer, which is what I most believe in here, that the root cause is exactly what you say it is. And the solution there is what it's always proven to be, which is in greater competitive open market activity. It just simply is not true that we cannot solve for rising premiums and rising underlying costs of the actual healthcare with market mechanisms that it requires central planning to address. This is not a debate that has started recently, and it didn't start when the Big Beautiful Bill Act slowed the growth of Medicaid reimbursements, which was intended to be a post-COVID emergency act. It has been a debate we've had since the Affordable Care Act was passed into law. And so I'm of the opinion that the Republicans have not struggled here politically. They struggled here by not making the argument and then struggled politically. And so to the extent there are many folks that are well-tuned in to the political liability this issue has become, I think that they still fail to see that before you get to the politics of it, you have to go make an argument. And the Republicans never were willing to go say some of the things that I just said that they really wanted to be obstructionist for good reason, in my opinion, about many of the components of ACA, but they were not interested in proposing something instead. And the reason is that anything you propose here is going to have some unpopularity attached to it. So when you bring up something like how we deal with the food chain of pricing with the BBMs, with the pharma and that and that structure, I'm very skeptical of Senator Warren and Holly's resolution. But I think these are topics with which the Republicans could come and conservatives could come with policy solutions. But I don't think that they have done anything to kind of prepare the American people for the argument and the belief system of what they have. I don't agree with the Democrats' argument, but they've been making it a long time, which is that they think health care is a fundamental right that all people should have. And if you make that argument, people buy it, then you're just haggling about the details and who exactly is going to pay how much for what and this, that and the other. So we have a long way to go to get to what I would like to see in terms of a more comprehensive and cogent health care policy. But in the meantime, I think the best thing that those on the right could do is just avoid ongoing incremental movements. And look, it's one of the big issues from this election. It was just a categorical lie that the Republicans had cut funding. And yet it is absolutely ingrained into the American psyche. Because when you cut the growth of funding, and then there are certain rural hospitals that lost funding, even though in aggregate, the total funding has grown and grown at a level that people wouldn't even comprehend if they knew. You have to fight back. And it wasn't the Republicans tried to fight back and couldn't, or the liberal media drowned them out. They didn't even try. They didn't even try to make this argument. And so there's a lot of work to be done here. [00:43:33] Speaker 1: David, do you know, do any of the new democratic governors have aspirations to expand health care coverage or make health care policy changes in their states? [00:43:40] David Bonson: Well, it's funny, Mark, I don't know on all of them, because some of these guys, until 48 hours ago, I had no idea we're going to be sitting governors. So there are some that have kind of some radical ideas. I mean, you're asking more of the governor's side, but you look at like, for example, Jackson winning the Senate seat in Maine. I mean, we know that there's a lot of Medicare for all people who won, Syed in Michigan, et cetera. But I think that of the governor's side, I would imagine you're going to at least incrementally see movement in that direction. [00:44:11] Speaker 1: Yeah. Narshi, welcome and tell folks who don't know where you are what's on your mind for David Bonson. [00:44:16] Speaker 10: Calling from Eastern PA, Lehigh Valley area. I want to first congratulate you on your outstanding programming and reporting for the last three, four weeks. I think you were spot on. Thank you, sir. I'm glad to be part of your community, two-way community. [00:44:31] Speaker 1: Thank you. We're very happy to have you part of it. Thank you. [00:44:34] Speaker 10: It's a great, great, great spot. David, I have two questions, more at a macro level. One is about the treasury. When this administration started last January, then, you know, obviously, Besant wanted to drive down the cost of treasury bills, and they were somewhat successful, going from 4.8 to all the way down to near four. And then the war broke out. And a month into the war, it started going up, up, up, up. And it went all the way up to 5.2 or so. And I know you are, you are, you know, you follow, obviously, you're prone bond markets. So it did go up to 5.2. And then it somewhat came down. Yeah, I think two rates at 4.8 or 4.83. So my question is, this escalation after February, after the war, that went from four to almost, it went up 30%, 120 basis point. Is that because of the war? Is it driven by the war? Or is it because of the competition for capital from the AI CapEx? [00:45:42] David Bonson: David? Would you clarify for me if you meant what you said about T-bills, or did you mean to ask? The 10-year note. The 10-year. Because I think when you talk about the 10-year treasury bond, it is entirely driven by nominal GDP expectations and the supply demand factors that play around it. Whereas a T-bill, a shorter term instrument like a 90-day, would be almost entirely related to the federal funds rate. And so there's kind of a complicated thing that happened there. We entered the year with the market believing that the Fed was going to cut rates three times, which would have put downward pressure on the lower end of the curve. And Chairman Powell did cut rates one time in January. Kevin Warsh came in June and then raised rates one time in September. So, so far the rate is exactly where it was the beginning of the year. But you're talking about the long end of the curve. And I think that the idea that oil prices and the 10-year are necessarily correlated is very silly. But it certainly can be the case. But it is not causation. There are times when the direction of bond yields and oil prices will be moving together, particularly if they're both moving together on expectations of higher nominal GDP growth, including inflationary pressures. But, but look, oil prices stayed up over the last four weeks and, in fact, made some new two-month highs. And the 10-year went from 5.36 to 4.9. It came down over 40 basis points. The Fed can control the short end and then there's a premium that gets attached to the long end. But in theory, if the premium, the term premium stays the same, if the short end comes down, that would bring the 10-year lower. There's almost nothing the Treasury Department can do. And I think Secretary Besson learned that the hard way when he first tried to actually intervene in the way in which the Treasury was buying the duration of their own portfolio. And then he tried to jawbone the market. And markets, of course, knew that he doesn't have the instrumentation. Six billion here, eight billion there, it cannot move the needle. So at the end of your question, you asked if I thought it was the AI competition, higher supply of long dated, high quality investment grade bonds with the demand being about the same. And that is very much my answer. I think you had an unprecedented level of new issuance from 10 to 20, a little bit even to 30 a year. And by the way, when we're talking about Microsoft, that's a higher credit rating than the United States government. But almost all of these, Oracle is in a lower credit state. But when you're talking about Google, Amazon, Meta, Microsoft, these are equal or superior to government bond rating. And you just had a few hundred billion dollars of new issuance competing at the long end. So it's a very basic economic law that you had more supply, but the same level of demand. Therefore, you had to have prices come lower, meaning yields go higher. [00:49:03] Speaker 1: I do have a second question, Mark, if you don't mind. If it can be quick, please. [00:49:08] Speaker 10: Quick, it is quick. About inflation. We, I mean, I've learned from Professor Milton all, I mean, forever that only government can cause inflation. Printing money causes inflation. So explain to me, for people who say that tariff cost to inflation. Because if you argue tariffs are taxes, then taxes cannot add to inflation. So explain that to me, please. [00:49:34] David Bonson: So I write about this to clients this way. I love your question. Political inflation and economic inflation. I am a Milton Friedmanite. Inflation is always and forever monetary phenomena and tariffs do not create new money supply. So I agree. But it is too much money chasing too few goods. The monetary element is not merely the money supply, but the money supply relative to the supply of goods and services in the economy. To the extent the imposition of tariffs creates a one time price increase for the things being tariffed and puts downward pressure on supply, which we've clearly seen. Then you end up getting some inflationary pressure. It could be sustainable. But let's just say that doesn't happen. You still have political inflation. By which I mean, if you and I explained Milton Friedman to someone and they said gas prices are higher, who are they going to listen to? The gas pump or you and I? In other words, a price going up is considered inflation for regular people. And that's the way it goes politically. It's entirely true that, in theory, a tariff is raising a price on the thing being tariffed. But if there's no new monetary offset, it won't be sustained. So the monetary explanation is correct economically. But when I think people are talking about the impact of tariffs on prices, that's different. Tariffs did make the thing being tariffed go higher in price. And that's, I think, the political reality. The monetary reality then becomes a supply side question that gets answered with a lag effect over one or two years. [00:51:19] Speaker 1: Thank you for both questions, both good ones. Richard, welcome in. Tell folks who don't know where you are and what's on your mind for David. [00:51:24] Speaker 11: David, and I'm from Crazy Fournia. And with the cry for Medicare for All, do you think there's any chance that this can be somewhere on the ballot in the next two years? [00:51:42] David Bonson: Yes, I think, well, let me give you a contrarian opinion. I believe that you will end up having a Republican president at some point decide that they're for Medicare for All. That's what I think we're headed to. So there is a very intense need right now for conservatives to make the argument against it, because I don't think it is only going to stay within the kind of more far fringe elements of the Democrat Party. But when you say on the ballot, I assume you mean through a candidate that then had then wanted to go legislate for it and an executive branch that would be favorable to it. [00:52:21] Speaker 12: Richard, did you mean that or did you mean it's a ballot measure? Not a ballot measure, just can they implement it? Yeah, okay. Yeah, sorry. Go ahead. [00:52:29] David Bonson: So I don't think that they can implement it with divided government. And I don't think that they could implement it in the current state, even if you ended up with a Democrat president a couple of years. I think that ultimately you're going to see more. I don't think they need to either, Dick. I think that they're going to marginally move the needle on this to where, which was always, in my opinion, the acceptance of Pelosi, Obama at the time of ACA, that they were going to eventually get to a point where the American people wanted something that looked more like single payer. But my concern would more be that with populism on the right, that you're going to end up getting sympathy from Republican president in some number of years. I don't know when. That's a contrarian view, but that would be my bigger fear. In the meantime, though, in the current context of your question, the people screaming about it, from Bernie to AOC to now, there's a few more electeds out there. It is still a fringe view. And it's still an unpopular view. So I don't think it is likely to happen anytime soon. I'd be more worried about marginal movements and then worried about what happens on the right. [00:53:41] Speaker 1: Richard, thank you. Jean, go ahead. Tell folks where you are, what's on your mind. [00:53:45] Speaker 13: Hi, David. Jean Fedoni from Florida. Hi, David. Thanks for TPG's return. I just have a question about the home builders in general. As in the past with this Dem sweep, we have the Dems that really want to encourage people getting into homes. And will there be some incentives that the Dems will try to get through to get more people into homes and thus helping the home builders? [00:54:09] David Bonson: Yeah, it's interesting. The home building sector rallied huge yesterday, like everything did, but it was particularly up. And then today, with most things being given back, the home builders have not given back all their returns from yesterday. They're down, but not at the same degree. But I don't think that's connected to the federal Congress. I mean, even the main issue that is affecting home builders is the high interest rates and then ultimately the ability to build new housing stock. And that's primarily a state and local issue. So that's not to say there's nothing that Congress can do to make it worse. I do think there's nothing they can do to make it better. But when you look at the various things that have been proposed to allegedly try to deal with this problem, whether it was in the Kamala Harris campaign when she ran for president a few years ago, some of the things President Trump said a couple years ago, some of the silly things they did in that little housing bill that people on both parties were behind that made no noise whatsoever because it didn't do anything. It was very cosmetic. They're still all demand side, Gene. And so giving people money to help them with the down payment stimulates demand, but it doesn't create new housing stock. And that's ultimately where this is going. The shorter term help to people is lower cost of capital and that has to happen organically. You cannot manipulate the price of homes any more than you can manipulate the price of money. And so I am optimistic that there will end up being a good environment for home builders because we are in desperate need of more homes being built and our excess of multifamily for stage of life. People, particularly the age block demographically, that is the largest part of our society, which are millennials, as they continue to have a kind of belated demand for single family residents were underbuilt. And so the home building area is very attractive, but it's happening at a time when cost of capital is too high. So that has to get resolved. How? By prices coming down. Prices have to come down. [00:56:22] Speaker 1: Gene, thank you. David, if Ron DeSantis were president and you were head of the National Economic Council, right now with the exact circumstances the economy is facing, what would be the three main recommendations you'd make to Governor DeSantis to improve the American economy or President DeSantis? [00:56:36] David Bonson: Mark, everything I would do with Governor DeSantis as president or anyone else would be focusing on removing impediments to growth, not creating new avenues of growth. Because I do not believe the government can create avenues of growth, but I do believe they can get in the way of growth. And I do not believe most humans need incentives to produce and create a better life for themselves. So I would dramatically suggest that we stop crowding out the private sector with excessive deficit spending. So I demand fiscal constraints and I would look for continued deregulated endeavors, which by the way, there are still plenty more that can be done. And then I would certainly recommend a more friendly tax code that all at once generated revenue we needed to fund government, but was flatter and more, and shall we say less disincentivizing to the supply side of the economy. [00:57:32] Speaker 1: What sector is screaming out for more deregulation from the federal government? [00:57:36] David Bonson: Every single one. [00:57:37] Speaker 1: Hmm. All right. Not YouTube shows. We're unfettered. [00:57:47] David Bonson: Yeah. I mean, you look at financials and healthcare and energy, where there is a significant amount of regulation and there's been some deregulation in the Trump administration that I'm very supportive of, but there's still plenty more that can be done there. Yeah. And then I guess on the technology side, there's many on the right who would argue for more regulation, but I think, I don't know, I guess I don't think about necessarily from a sector standpoint. Within the labor code that would cross all sectors, there's a lot that could be done to deregulate. And by the way, Mark, if I can get this in, legal reform, tort reform, we have got to make it harder to go sue people frivolously in this country. [00:58:31] Speaker 1: Yeah. David, tell everybody again about Dividend Cafe and about the firm, if they're interested in learning more about one or both. [00:58:37] David Bonson: Well, thank you. The Bonson Group, which we were thrilled to have a couple friends on the call from today is the company. We manage $11 billion around the country. Unfortunately, you're stuck hearing my opinions on things from time to time, but we do take our job pretty seriously, both in terms of managing clients' money, but also planning over all their affairs at a very deep level, tax estate, and all the broad-based financial planning needs that they have. We seek to be a pretty comprehensive solutions provider for our clients at a very high level. Dividendcafe.com is where I write my weekly economic commentary and investment point of view. And as you mentioned earlier, it's available for free. There's a podcast, there's a video, a lot of written word commentary. I'm very old school. I'm not as young as I know you think I am because I still love the written word. Yeah. And again, it's got [00:59:33] Speaker 1: unlimited supply and the price point is zero. So it's a pretty good product. The demand should be absolutely elastic. You should all get it. David, thank you. Grateful. I always love spending time with you and enjoyed the hour immensely. I hope you all enjoyed the hour. If you did, you can go on YouTube and get a link and share it with your friends. And I'll see everybody at 5:00 PM Eastern time for 2:00 a.m. Eastern time for the morning meeting. David, great to see you. I hope to see you soon. Thank you, Mark.