March 21, 2025 – Financial Sense Newshour welcomes Jim Bianco of Bianco Research to discuss Trump 2.0’s bold economic strategies amid a $36.6 trillion U.S. debt and 7% GDP deficits. Bianco’s “Mar-a-Lago Accord” highlights radical changes like tariffs to rebalance trade, payment for security from allies, and a potential sovereign wealth fund, including revaluing gold. These aim to lower the dollar, boost manufacturing, and achieve 3% GDP growth, despite short-term pain. Risks include judicial interference and political opposition, but the status quo is untenable. Markets may shift to a 4-5-6 return model (cash, bonds, stocks), favoring thematic investing over index funds, as re-industrialization promises a boost in domestic wages but also higher inflation.
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Key topics discussed in today's show:
- Trump 2.0’s Bold Approach: Rapid, radical changes отличают Trump’s second term from his first, targeting economic overhaul.
- Debt Crisis: U.S. debt at $36.6 trillion, with $1 trillion added every 100 days and 7% GDP deficits, demands action.
- Mar-a-Lago Accord: Proposes tariffs, payment for security, and asset revaluation to address trade imbalances and fund solutions.
- Economic Goals: Aims for 3% GDP growth, 3 million barrels/day oil increase, and 3% deficit via deregulation and a lower dollar.
- Re-industrialization: Tariffs and investments (e.g., UAE’s $1 trillion) to rebuild manufacturing and high-paying jobs.
- Risks: Judicial blocks, Democratic opposition, and potential economic slowdown could derail plans.
- Investment Shift: Markets may move to 4-5-6 returns (cash, bonds, stocks), favoring thematic over index investing.
Transcript
Jim Puplava:
Well, to say that Trump 2.0 is different than 1.0—well, we're seeing a lot of change. Change coming at one of the most rapid paces that we've seen from any American president in decades. What does all this mean? Joining me on the program is Jim Bianco from Bianco Research. And Jim, before we get to the first question, I just want to share some facts with our listeners. Our current debt now is 36.6 trillion. We're not too far away from 37. We're adding almost 1 trillion of debt every 100 days. The government budget is growing at almost 6% a year. It's gone from 5.3 trillion to 6 and 3/4 of a trillion last year. Interest on the debt is over 1 trillion. It's greater than defense. 80% of the government's budget is untouchable. You've got Social Security, Medicare, defense, and interest. The deficit, 7% of GDP. And we are now getting 7% deficits with a growing economy and 4% unemployment. So I want to start with that. You wrote a piece called the Mar-a-Lago Accord, and you said a couple of things that really struck me. Start thinking big, start thinking bold. Radical change is coming to the financial markets. Let's begin with that.
Jim Bianco:
Yeah, I think what you said with those numbers—let's start with the assumption that the Trump administration, the advisers that he has, whether it's Treasury Secretary Bessent, Commerce Secretary Howard Lutnick, or the 80-odd million voters that voted for him, the status quo cannot stand that. We cannot continue with that $6.9 trillion budget, $2 trillion deficit, $36 trillion of debt. Adding one—quoting your numbers here—we cannot do that anymore. We have to start thinking about how to address that problem. And I'm going to be blunt here about that problem. That problem cannot be addressed by, oh, let's tax the rich, or let's put a transaction tax on stocks or something. Okay, let's assume we did all that. Okay? Now we haven't solved the problem. We need to solve this problem because it's become so intractable. So we need a whole different way of thinking about what we're doing. And again, the reason that we're doing it now is because we can't continue in what we were doing. So what's Trump doing in Trump 2.0 that's different than Trump 1.0? I think he's—he's looking, and I'll be blunt again here just to get the point across—he's looking at where's the biggest pile of money in the world that can help us with this problem. It's overseas. And that's why you're starting to see him talking about tariffs to try and reduce the budget—or, excuse me, trying to reduce the trade imbalance—using tariffs. I think he uses tariffs as leverage, you know, to try and get what he wants, to try and bring more manufacturing jobs back to the United States. He's also looking at, we need more assets. And, you know, I guess I'll say this bluntly. Throughout history, whenever a great empire—and the United States is a great empire—has run into trouble because they've borrowed too much, and lots of them have, they usually invade their neighbors and plunder them. Okay, we're talking about China being the—I mean, excuse me, Canada being the 51st state. What about Greenland? What about Panama? And, you know, we're not doing it the old-fashioned way. We're kind of sending them a bill is what we're doing. And that gets to the bill part of it—payment for security. For the last 80 years, the United States military has kept the trade routes open, has fought communism, has fought terrorism, has been the lead in every war since the end of World War II. Where did a lot of that $36 trillion of debt come from? It came from military expenditures and keeping the world safe—so much so that the rest of the world didn't spend money on military. They spent it on national healthcare. They spent it on green and progressive movements. And that was J.D. Vance's speech in Munich a couple of weeks ago, talking about the divergence of opinions. So he's talking about the idea of sending them a bill—another bill for security, payment for security. And in this case, the Europeans have agreed, yes, we should be paying for more security. We're going to rapidly ramp up our security expenditures, ramp up our militaries, ramp up our purchases of weapons. And the idea is, presumably, the U.S. could then offload some of that responsibility to them, and we could wind up spending more or less. So let me conclude with where I started. These are ideas that he's got that were all highlighted by Scott Bessent, who is the chairman of the Council of Economic Advisers, who wrote a paper right after the election in November about restructuring the global trade system and had in it this idea of a Mar-a-Lago Accord, which is a riff on the idea that every major realignment of the financial system has always been named after the resort or the hotel that it's been done at. A lot of people don't realize the Bretton Woods Agreement—Bretton Woods is still a resort in New Hampshire to this day. The Plaza Accord is named after the Plaza Hotel in New York. So this isn't going to be an actual meeting where people are going to get together, negotiate something, and sign a document in Mar-a-Lago. It's a riff on that. But that's kind of where Trump lives. And that's why it's been, you know, called the Mar-a-Lago Accord. And if we go all the way back to what I said at the beginning, the status quo can't hold. So when you get people like The Economist magazine—the previous cover, not the current cover, but last week's cover—was a picture of Trump holding a can of gasoline and a dollar bill. And they say, he's going to light the world on fire. He's going to torch the world with all these radical ideas. Okay, their response was, just stop. Just go back to the status quo. And his response would be, we can't go there. If you want to offer a Mar-a-Lago Accord 2.0, I'll listen to it. But don't tell me that we can't do this, and we got to go back to $7 trillion budgets and $2 trillion deficits and on our way from 36 to 40 trillion in debt. That's not an option anymore. So he's going down one route—payment for security, using tariffs as leverage to try and correct the trade imbalance, to try and bring some of these issues back into line. And so, yeah, think big, think bold, because that's what he's doing right now.
Jim Puplava:
Yeah, because one of the goals is to lower the U.S. dollar, make manufacturing more competitive, lower interest rates to ease the burden on the economy, and bring down the debt burden. There's also talk—let's talk about Bessent’s 333—where the goal is to get GDP, 3% economic growth, 3 million barrels a day of additional oil, because he wants to bring the price of fuel down and the deficit down to 3%. And basically, you talk about, at this current time, the U.S. is in a dominant position economically, militarily. Let's talk about that. How realistic is that?
Jim Bianco:
I think it's very realistic. If you think about what Bessent was trying to argue—that by bringing the deficit down to 3% of GDP, which it's 6% now. And by the way, let's put that number in perspective—that $2 trillion that we borrow every year, which is equivalent to 6% of GDP, there's only been five times in American history that it's been larger than this, and those have all been major crises, in order. They were the Civil War, World War I, World War II, the financial crisis—barely larger than what we are right now; we might even exceed it in the next few months—and the COVID response. But we're not in a major war. We're not in the middle of a recession. We're not, you know, like we were during the financial crisis or COVID. So this is the largest peacetime budget that we've ever seen. That's why he uses the word "detox." We've got too much government in our economy right now, and government is slow and bureaucratic and inefficient, and we need to bring the government down. So he's talking about 3% of GDP being the budget—having it, you know, so $2 trillion deficit to $1 trillion deficit by the end of the term. He's also talking about getting GDP growth up to 3%. If you get government out of the way and if you deregulate and allow businesses to expand, and maybe by bringing down the level of the dollar, you're going to then start to see more businesses being created, that you can actually get the GDP of the country—the country—to grow faster than the debt. So we're not going to stop issuing debt. We're not going to reverse the amount of debt we have outstanding. We're going to grow faster than it. That will bring down the deficit-to-GDP ratio. And that's how—that's the good way that you could correct this problem: outgrow it. The bad way you could correct this problem is either through default or restructuring. Restructuring is a fancy word—if somebody's got to get screwed, just not me. And so those, you know, or inflating it away with inflation or some other bad way. There's only really one good way to get rid of this, and this is to outgrow it. And that's what they're trying to do now. That's where DOGE comes in, trying to find inefficiencies and wasteful spending and try to reduce that. That's where a whole new approach on what should government be doing—like Trump signing an executive order to abolish the Department of Education. He can't really do that; he needs Congress to do it. But by signing the executive order, he's suggesting to Congress that this is a priority, and we ought to consider doing that as well. And so we are pushing further and further into these new bold initiatives. Now, come back to what I said in the beginning—why? Because the status quo could not continue. We could not go back there. And just to give you one idea on that, let's say that during this conversation Trump comes out and says, look, I changed my mind. There will be no more—there will be no more tariffs. We're done with tariffs. We're going to go back to $7 trillion deficit budgets. We're going to go back to $2 trillion deficits. We're going to give an open check to Ukraine for as long as they need it to defeat Russia. What would the response in the bond market be? The bond market would be looking at astronomical sums of borrowing that has just been announced, and the bond prices would plunge, and interest rates would soar. And so when you get back to that Economist magazine—you're going to set the world on fire, just stop—that actually could be worse than what we're doing right now. We can't go back to that. So, like I said, if you don't like what he's doing, give me a Mar-a-Lago 2.0. Remember, don't make that the status quo. The status quo is tax the rich. Okay, fine. I wave my wand. You've taxed the rich. You still haven't fixed the problem. You've just—you've just punished the rich. And that's really where we've got to start really thinking radically about this. And that's what the America First agenda is.
Jim Puplava:
You know, the thing I think most people don't understand, especially the legacy media—just like you just mentioned the article talking about, we'll just go back to the way it was—if we don't do anything, we're headed for a financial ruin. Now, one of the things that he wants to do—he wants to bring industry back here. If you're going to bring industry back here, and there's every sign—you keep hearing, almost every week, some company is going to—I think the United Arab Emirates is going to invest $1 trillion in our economy. So you rebuild the manufacturing base. But if everybody's putting tariffs on U.S.-manufactured goods, you're harming that. So the tariffs, to some extent, go with re-industrialization. So, you know, I guess when it comes down to the end, he's talking about reciprocal tariffs. You want to put a 10% tariff on us, we're going to put one on you.
Jim Bianco:
That's correct. And though I will say, though, that in fairness, the reciprocal tariffs are a bit difficult because, you know, Canada might put a 200% tariff on lumber and forestry products from the United States going up to Canada to protect their forestry industry. Okay, we could put a 200% tariff on their forestry products, but we don't import them. So, you know, that wouldn't really matter. So we got to find something else to kind of put a reciprocal tariff on. And you saw that, you know, about 10 days before we were recording, when Doug Ford, who's the premier of Ontario, said he was going to—because the premiers of the provinces have a lot of power—he was going to put a 25% tariff on electrical generation by coal back—or by Ontario Hydro, excuse me—sending electricity down to Minnesota, Michigan, and upstate New York. And Trump said, well, then if you're going to do that, I'm going to put a 50% tariff on steel and aluminum. And that would effectively crush the auto industry if you were to do that. And within hours—maybe a couple—you know, Quebec backed off the 25% tariff, and Trump backed off the 50% tariff. So that's a—that's kind of a difficult thing. But you're right, I think ultimately what they're trying to do is they're trying to level the playing field to say, look, you could build your product in some other country, or you could build it in the United States. And your cost basis for building it in the United States will be just as advantageous as it would be if you built it somewhere else. And there's some people that are coming around to this thinking, too. I mean, Mohamed El-Erian has said some, you know, words that this might work. Jamie Dimon has—you know, the chairman of JPMorgan Chase has said this might work. Most interesting comment was probably from Lloyd Blankfein earlier this week we're recording. He's the former chairman of Goldman Sachs, and he said, look, what he's proposing is maybe it's going to add the cost of a car of a couple thousand dollars because we're going to start making more of that stuff here in the United States. And it's not as cheap as making it overseas, but maybe that's worth it. Maybe that's worth it because that brings back hundreds of thousands of jobs back to the United States—hundreds of thousands of jobs where a single job could support an entire family, and that they can then afford some of those cars as well, too. And that we need to start thinking about what we've done, you know, with the middle of the country with globalization and hollowing it out. And a statistic I heard from Howard Lutnick—1/3, roughly 1/3 to 35% of the country, has a college degree. About 65—you know, 65-ish percent—of the country does not. They have a high school degree. Those people—those 65% that have a high school degree—have a life expectancy of seven years shorter than people with a college degree. Now why is that? Is it because they breathe different air, eat different food, drink different water? No, they—it's all the same. It's deaths of despair. It's alcoholism, it's liver disease, it's drug overdose. It's the extreme living examples that they've had because their industries have been hollowed out, their jobs have been shipped overseas, their towns have been turned into boarded-up, you know, wastelands. And that's why they've had that difficult spot. The winners of globalization have been the asset owners in the financial services and in the industrial—in the intellectual property businesses. I understand globalization, I'm not against globalization. But what's clear is there was a—there was a cost, and that was what the cost was. So what do we do for those people? Let's not condescend them and say, learn to code, go back to college. That's not their lifestyle, that's not what they're going to do. But maybe what we ought to be thinking about is how do we help return jobs back to their industries, to their towns, and bring their industries back. Now, again, I'll emphasize, you may disagree with the approach that Trump is taking. The status quo we can't go back to, so offer a Mar-a-Lago 2.0, but that's the direction we're going. And that's why Trump said his measure of success will be a lower 10-year yield and not the S&P. The S&P is for those that own assets. But a lower 10-year yield would be we brought down inflation, we've brought down the borrowing of the country, we've brought back more domestic jobs—all of that, if it happens, should lower interest rates.
Jim Puplava:
Now, one of the goals that’s been expressed both by Trump and Vance—they want a lower dollar, but they still want the U.S. dollar to be a reserve currency. In fact, even threaten some of the—the emerging market countries—hey, if you want to get rid of the dollar, watch what we do with tariffs on your goods coming into—
Jim Bianco:
The U.S. Yeah, that's exactly right. You know, Scott Bessent has said this too, that he's kind of given like a two-pronged message. And he said message one—and I'll paraphrase it—is the U.S. dollar is the reserve currency, and it's going to stay that way. The U.S. dollar is the premier, if you will, monetary brand in the world. It's the most important currency in the world. That's what he means when he says "king dollar," because he said that. Then he says, but that doesn't mean that other countries get to devalue their currency. So let me sum this up in simple terms. We want the dollar to be the reserve currency. We want the dollar to be the most important currency in the world. We want its level lower. And so they want both at the same time. And that's really what they're arguing. Because if you bring the level of the dollar down, what you do is you make imports into the country more expensive, you make exports cheaper, you make the U.S. more competitive. And I think it's also important to remember, too, which dollar we're talking about. So there's two dollar indexes. One everybody knows about, which is called the DXY—the Dixie, as it's known. It's six currencies; it’s 57% the euro. Over the last 40 years, that dollar index is unchanged, but it's also heavily weighted towards the euro and the British pound and the Japanese yen. The Federal Reserve has another dollar index called the trade-weighted dollar index. So they weight it by trade. Who's got the biggest weighting in that? Mexico. Second biggest weighting is Canada. Third biggest weighting is China. Those currencies have been constantly being devalued left and right. So the trade—while the DXY is unchanged for 40 years—the trade-weighted dollar is up 240% over the last 40 years. So a stronger dollar makes our imports cheaper and cheaper, makes our exports more expensive. Where do we import from? We import from Mexico, we import from Canada—those are our two biggest. Our third biggest is—is China. Fourth, which is a distant fourth, is Germany. But it is like one-quarter of what China is in third place. So that's the dollar—those are the currencies that we're talking about bringing down. So it's not a coincidence, you know, that Trump started off with tariffs, and the first thing he said was tariffs on Mexico and tariffs on Canada, because that's the currency that he's looking at that we have to bring down relative to the dollar in order to bring more jobs back into the United States.
Jim Puplava:
I want to talk about something that's come up, and you mentioned this—that they're considering a sovereign wealth fund and the possibility of revaluing gold. I think we have about 8,100 tons of gold. At $42 an ounce, it's roughly about 11 billion. If you take where we're at today—a little over 3,000 on gold—that could easily be, overnight, 900 billion to a trillion dollars. So let's talk about that.
Jim Bianco:
You know, you're assuming we have 8,100 tons of gold. DOGE opens the doors to Fort Knox—maybe it's an empty warehouse. But, you know, we'll—we'll just—we'll go with the 8,100, too, because there hasn't been an audit for a while. Of course, I'm just joking on that. But the sovereign wealth fund—it’s unique, what the U.S. is announcing that they want to do with a sovereign wealth fund, because most sovereign wealth funds are usually because there is some kind of a revenue stream that comes into the country, and almost all of them, it's a royalty off of commodities, mainly energy. There is one kind of sovereign wealth fund in the United States; it's called the Alaska Permanent Fund, because the state of Alaska—Alaska—gets royalties off of the oil drilling. And so that money goes into a fund. There's actually a—an investment management team that manages that money. And at the end of the year, they actually send a check to every resident of Alaska, depending on how much money they make that year. The difference with what Trump was talking about with the sovereign wealth fund is we don't have a natural revenue stream in the United States. We're a deficit nation. We borrow. We don't—we're not a surplus nation where we just have money coming in the door, like—like Norway does. That's another big sovereign wealth fund because of, again, oil revenues, and that we invest it. So what they're talking about doing is they're saying, look, we've got a lot of assets in the United States. They're not properly valued. Gold is one of them that you brought up—you know that it's been stuck at the price of $42.22 that it's been valued at since 1973. The largest real estate owner in the United States is the federal government. That's another one, too. The federal government has a lot of intellectual property rights that it owns. We could put all of that into the sovereign wealth fund and more and have those valued at, you know, fair market values. Fannie and Freddie, the mortgage firms—when they come out of government conservatorship, they could go into the sovereign wealth fund as well, too. And that—that could be trillions of dollars of assets that we could revalue. So Trump is thinking like a private-sector guy. We've got $36 trillion of debt. Okay, well, what's the asset—what's the asset base of the United States? No one really knows. But maybe if we use the sovereign wealth fund as a vehicle, we could show that the U.S. has trillions and trillions more of assets than we thought, and that that could go to offset the debt that we've got in the country. Final thing I'll say about the sovereign wealth fund—they're also making noise, too, about some other thing. And I would say this part I'm against. And that is, well, you know, we gave Tesla, you know, around 2010, a lot of credits to build electric vehicles. We should have had warrants for like 20% of Tesla. And if we had warrants for 20% of Tesla, that’d be worth $200 billion today. And that could have been in the sovereign wealth fund, too. And so any time we give out a tax break or we give some kind of business an advantageous ruling, either in regulations or taxes, we should get some compensation in the form of a piece of that company. That alone, I'm not that against. But what I am worried about is, let's not—let's remember companies are ownership. So if you had 20% of Tesla in warrants and those warrants were exercised, the Biden administration, who absolutely hated Elon Musk, could have had 20% voting rights on any decision Tesla wanted to make. Now it's not 50%, but the federal government throws around an enormous amount of weight that they could probably get some of the other voters—scare them, especially some of the index funds that own it—to vote their way. So you could say, boy, if we got warrants on Tesla 10 or 12 years ago, we'd have $200 billion. Yeah, but if you have the wrong government in charge, you're not going to have that $200 billion. You're going to have what effectively we call state-owned enterprises. And so that's a slippery slope. I hope we don't go down that—we start, you know, going down the route of having the United States government having effectively some kind of state-owned enterprise.
Jim Puplava:
I want to play devil's advocate for a moment, but before I do so, just once again for our listeners, the government deficit is almost 7% of GDP. Government spending in the last four years has gone from 20% of GDP to 23% of GDP. So we've got DOGE in there that's cutting all the waste and fraud and things of that nature. But you've got these judges who want to stop immigration—they're—they're coming in and basically overriding these executive orders. And then if we take a look, Jim, at the Democrats—I watch legacy media just to see what they're talking about. And I've seen Democratic strategists—their plan is to retake the House in 2026, impeach the president, and put Elon Musk on trial. So their policy has shifted from “we hate Trump” to “we now hate Trump, and we hate Elon Musk.” What is the possibility that they could thwart a lot of these changes as the judges are doing right now?
Jim Bianco:
Oh, I think that they already at least temporarily are thwarting that. And, you know, the—the—the thing that—the criticism that we're getting was we elected one president, not 677 presidents, because we have 677 district judges. And the problem that we have with the United States is that you could judge-shop. There's 677 judges, and you can go find a judge that is sympathetic to your view. And, you know, it can work either way—the Republicans do it, too. And that judge could make a ruling—like recently a judge in Hawaii did—that is a nationwide ban for everybody, that he could—he could override what the President of the United States is going to do. We—the—the Trump administration cut a deal with El Salvador. El Salvador has a prison system with excess capacity that we are going to ship down to them some illegal migrant criminals instead of housing them in United States prisons. We were going to pay El Salvador per criminal to house them down there. And a judge ruled that he wanted the airplane turned around. And there's been an argument to be made that, wait a minute, that's foreign policy. And it's been fairly well established that the president sets foreign policy, not some random district judge. I mean, what's the next thing they're going to do? Are they going to start overruling generals when they fight wars, you know, about the battle plans as well, too? So hopefully this is going to get fast-tracked to the Supreme Court. And the Supreme Court is going to make a decision about what is the power of a district court to overrule a president. How far can that extend? Does it only apply to that district, or does it apply nationwide? And I think that's going to come to a head fairly soon. And I would hope that, you know, we don't have this situation where we have effectively 677 presidents—that the president makes a decision, and then another district judge can completely block it or undo that—that decision that the president makes—because they don't like it for whatever reason. Now, if you want it to be nationwide, we have a nationwide court; it's called the Supreme Court. You could take the case to the Supreme Court if you want it nationwide, but if you want to go to the judge in Hawaii and you think he'll be sympathetic to your view, he could make a ruling that would apply only to Hawaii, but not to the other 49 states. And that's where I think we're—we're definitely going to have to go. By the way, before the 1960s, this was not a thing where judges would rule—a district judge would rule on something that would have a nationwide implication. They just didn't do it. It only kind of came into place in the 1960s. But until what's been happening with the Trump administration, no one has saw fit to take it to the Supreme Court and say, look, we've got to make a ruling on what is the limit of a—of a—of a district judge. We just kind of tolerated that they were doing it. It wasn't really as invasive as we've seen, say, since Trump became president again seven weeks ago.
Jim Puplava:
What if, you know, the layoffs coming from DOGE, downsizing government—which is necessary, and we need to do it—the tariffs in—let's—let's just say that the economy weakens, the stock market goes down, which would be good ammunition for the Democrats going into the 2026 election. So what are the risks there that if this doesn't work out in the way—because even Trump has said, look, just stay with me, there’s going to be some pain in the short term, which, you know, might have been the tariffs or the increase in costs. But longer term, we re-industrialize the United States, we bring in high-paying jobs—one person with, you know, let's say the husband could support a family on an industrial job. But what if that doesn't work in 2026? The election changes everything.
Jim Bianco:
Well, I—I was going to say if there is kind of a historical precedent for this, it probably looked to the first term of Reagan. He became president in January of ‘81, and he proposed his massive tax cuts and a lot of other, you know, rollbacks of deregulation. If you're old enough, you might famously remember that the air traffic controllers went on strike, and he fired all of them. And so there was a lot of turmoil, and the stock market kept sinking in that by August of ‘82, the stock market was down 20 or 30% from when Reagan became president, and his approval rating sunk into the high 30s. And then the stock market famously bottomed in the middle of August of ‘82 and shot up higher, and the economy started to emerge. And he ran in 1984 on the theme of “Morning in America” because while we took that pain in that adjustment process—and it was, you know—that eventually it turned around, and it got better. So that's the hope that Trump is—is facing that—that, yeah, we're going to do this, and this is going to be painful. I push back on the theory that people say that Trump wants a recession now. No, I don't think he wants a recession. This is me speculating, but I think he's not afraid to do something that might be upsetting. You know, but don't confuse that with wanting a recession, and that we're trying to detox ourselves—to use Bessent’s term—of less government. But at the same time, less regulation and—and keeping the tax rates low will encourage private businesses in the United States. A lower dollar will bring—hopefully—more private business into the United States. That—that—that loss of growth from the government will be offset by more private-sector business growth. Now that won't come dollar for dollar. For every dollar that you lose of government, you're going to immediately, at the same time, create a dollar worth of business growth. Over time you'll get that, but you'll have probably the government go down first. It will weaken the economy; it will slow the economy. Now think about the markets. The markets are forward-looking, and so will they just react to the idea that GDP is falling? No, though they'll make an assessment as to what they think this policy will do. So as we're talking now, we had a 10% correction in stocks, and they're down about 7% off the all-time high, which was set in the middle of February. We get a 10% correction every 18 months. The last one we had was October of ‘23, so we were kind of due for one. So this looks like kind of the same—you know, normal market gyrations that you would see now. If the market turns lower and falls 20%, I think the key that you'd want to watch with these policies is not necessarily the stock market. Will Trump cave if the stock market falls? I don't think he will. It’s if his approval rating takes a dive—which, by the way, it’s—it’s coming off a little bit, like it usually does in the beginning of a term, but it’s still higher today than any number that he ever had during Trump 1.0. It’s at 47%. And I don’t think that’s going to dissuade him from doing anything. But if his approval rating were to fall into the 30s, Trump might not change, but there’s a wafer-thin margin among the Republicans. You might peel off a couple of Republicans that are afraid of their reelection chances and vote against some of the policies that he wants. So, you know, he wants to get rid of the Department of Education. Well, you know, we got 53 senators, and you got one vote ahead in—in the House. You’re going to need every Republican to vote on that policy. Well, if your—if your approval rating sinks into the mid-30s, and you know the stock market’s 25% off the high, Trump may not change. But you might find some weak-kneed Republicans that are worried that they’re not going to get reelected that might jump ship and change his policy. So yeah, there’s a risk. There is an absolute risk in this policy. The last thing I’ll say about Trump—what’s interesting about this policy is everybody’s asking, what does it mean? What’s he doing? Why is he doing it? Because Trump doesn’t do that. Why doesn’t Trump give a speech trying to lay this out? Because Trump is a transactional kind of guy. He’s not ideological. He’s doing this because he believes it’s right. But—but if somebody says to him along the way, here’s a better way to do it, he’ll just—if he agrees—he’ll nod his head, go, okay, everybody, you know, student body left, let’s go do the other way—as long as it’s not the status quo. Because that might be a better way. He’s a transactional kind of guy is where he is. So the other thing about this is that this policy is constantly in flux, and that’s reflected by people talking about tariffs on, tariffs off, tariffs on, tariffs off. And that this is maddening. Well, it’s only maddening if you don’t think of tariffs as a club. I’m using them as a club to get other countries to do certain things for me. I’m threatening tariffs on the country of Colombia because I want to send illegal migrants back to their country, and they won’t let the plane land. So I threaten massive tariffs on them. An hour later, they let the plane land. There is no massive tariffs. If you think about them as a club, they make more sense than if you think of them as a long-term strategic policy.
Jim Puplava:
You know, you talk about some of the things that he’s doing, and he’s doing them at one of the most rapid paces I’ve ever seen any American president. And Jim, usually a newly elected president wants to get the bad stuff—the unpopular stuff—done in their first year of office. Because year two, you got congressional elections, and then you start the next election campaign. And I think the pace at which he’s doing this—I think he knows that.
Jim Bianco:
I agree. He not only knows that, but I also think he’s got something going with him that we usually don’t get with the first—let’s call this a first term, although it’s technically a second term—is that there is a widespread belief among the public—not an 80% thing, but maybe, you know, 50% of the public—are kind of nodding and going, something’s got to change. We can’t continue with the status quo. So if DOGE is firing a lot of—of workers, and maybe they’re—maybe they’re being mean about it, to use that word, you know, it’s not a good thing. Even if you are a government worker—no one likes losing their job. You know, and we’re—we’re—we’re upsetting the status quo with tariffs. We’re—we’re telling Europe they’ve got to pay us for security in some way or shape or form—that individually these things might be disruptive, and people might be upset because they were saying the status quo was fine, why are you upsetting everything? But now there’s enough people saying, you know what, we got to do something here. I know this is kind of out there. We’re not sure where we’re going to go, but we can’t continue on the path we were on. So I’m going to give them a little bit of rope to see where we go with this. And so he’s got that going, too. So that’s why, like I said, his approval rating is still higher than anything he ever did—or any approval rating he ever had in Trump 1.0—and that’s maybe because during Trump 1.0, if he had tried this policy for the first hundred days in 2017, you might have had a different reaction out of the—out of the public, because the perception was at that point that the status quo wasn’t so dire as it is now. And I would argue to you, what really was the catalyst that changed a lot of people’s opinion was the COVID lockdown and restart. It really changed the psyche of a lot of people’s thinking, and that we have a different view of this stuff than we did, say, in 2017 pre-COVID. So he’s getting the tacit approval of the public for now—go ahead, keep doing this, and we’ll see where we’re going to go with this. But, you know, that could change at any moment.
Jim Puplava:
I want to take this on to investing because you wrote the market is telling us between now and 2030, we better worry about inflation. And that given that inflation may be increasing—I think that’s one of the stories of this year—the Fed is done on rate cuts. Let’s talk about that.
Jim Bianco:
Yeah, so I’ve been arguing—just bigger picture—that over the next several years—not 2025, but over the next several years—I’ve dubbed them these the 4-5-6 markets—that you could expect about a 4% return in cash, about a 5% return out of the bond market, and at an index level, around a 6% return out of, say, the S&P 500. Now there’ll be opportunities in limited partnerships and thematic investing and maybe even in old-fashioned stock picking to do better than that. But at the index level, you’ll probably get 6%. Now, on the 4% number—it’s looking like inflation is settling out. If you look at the Fed’s favorite measure—core PCE—at around 2 and a half percent. If you look at CPI at around 3%, and that it’s not really making any more progress towards their 2% goal, and that we’ve got a problematic level of inflation. I like to say not an 8, 10, or Zimbabwe problematic level of inflation, but 3. Why is 3 problematic? Because the Fed has done some work, and they call it R-star. R-star is what is the long-run inflation rate? The Fed thinks it’s 2. What should the funds rate be? They would argue 1% above the long-term inflation rate. So they think—as when we’re recording—earlier in the week, we had a Fed meeting—they said they think the long-run neutral funds rate is 3%, that they could cut the funds rate to 3, and it would be neutral. But if the long-run inflation rate is actually 3%, and then you add 1% on top of that for R-star, maybe the neutral rate is 4, and we’re at 4 and a quarter to 4 and a half—that we are effectively at the neutral rate now. And so that’s why the argument comes up that if that is understood to be the situation, we may not need any more rate cuts. So that 4 in the 4-5-6 world is going to stay as the—as the kind of the risk-free rate, right? You can go as an investment and put your money in a money market fund—you could get 4%, and you get a $1 NAV every single day. So you get no market volatility from that. And that’s because this inflation rate is going to stay stickier at 3%. Now why is the inflation rate staying stickier at 3%? I’ve been on with you over the years, and I’ve argued this again—whenever you have a recession or you have a financial crisis, and we had both in 2020 with the COVID shutdowns and restart, you change the economy. We’ve changed it. The biggest example that people know about it changing is remote work. And there’s been—now we’ve got de-globalization, you know, with tariffs coming. In fact, there’s a new word—at least new to me in the last couple of weeks—what’s the opposite of globalization? It’s segmentation. And so we’ve got a segmentation coming in the global economy, and that is going to lead to higher inflation—3%, like I said, not 8, 10, or Zimbabwe. And that means that we’re going to have higher interest rates as we go forward—4% on money market rates, and I think about 5% on bonds, especially when the yield curve normalizes and goes completely positive, which it’s in the process of doing.
Jim Puplava:
So let’s say we get through this. He implements these policies. DOGE gets the budget cuts—I think they’re trying to get a trillion dollars. All this happens. We’ve got somewhat of a tailwind, I would think, Jim, for risk assets. I mean, I just—I think it was the United Arab Emirates announced that they’re going to be investing over a trillion dollars. You’ve got Apple saying that they’re going to invest half a trillion. You’ve got Saudi Arabia—600 billion. I’m adding it all up, and you’re talking about 3 to 4 trillion of investment. And this is going to be things like factories, infrastructure—things like that that really enhance the economy. But more importantly, they create very high-paying jobs. So in the long run, the economy becomes more prosperous.
Jim Bianco:
It does, you know, and the caveat I would give you there is that they’re saying they’re going to invest that. I’ll remind everybody, you know, in Trump 1.0, famously Foxconn said that they were going to invest a lot of money in southeast Wisconsin to build some Foxconn plants that were going to make, like, flat-screen TVs and the like. And the state of Wisconsin spent a lot of money on infrastructure—widened the highways and stuff—to get ready for these massive plants. And they don’t exist. So there’s always that risk, you know. Of course, that was pre-COVID when they made the announcement, and COVID—China—changed the world a little bit as well, too. So—but if the environment in the United States remains advantageous, and the dollar comes down, and that it remains a positive place to do this business—you can see those kinds of investments come. Now, they’re long-tail. What I mean by long-tail is DOGE could be cutting and pulling government employees today—that could be slowing down government part of GDP today. So that’ll show up in the GDP statistics. Now building those factories—in those infrastructure projects and all of those jobs—high-paying jobs—will happen tomorrow or next year. And so they will happen. But that’s why markets are forward-looking. And I think what you’re going to see in markets is we’re going to go back to what I like to joke about with the stock market—the Peter Lynch market, right? Where, you know, Peter Lynch—if you asked him when he was at the height of his management, what did the S&P do today? I don’t know—I invest in individual companies, you know, and I pick companies because I think that they’ve got good ideas, good themes, good management, and I play for them to go up, and I avoid the companies that I think are going to go down. I don’t spend but two seconds a day thinking about what the index is going to do. Well, in 2025, our investing is exactly 180 degrees. We all invest in broad-based ETFs, and we all wonder what the index is going to do. And we haven’t even thought about what about individual companies. And I think we’re going to go back to that—thematic ideas, individual companies, you know, infrastructure-type of investments, you know, those types of things. And yeah, they could be done through the ETF, you know, vehicle as well. Maybe even active management might even make somewhat of a comeback, too. And yes, that could be done through ETFs—Cathie Wood famously is an actively managed ETF with her ARK funds. And—but that’s, you know, that’s transformative technology. But there’s no reason that a successful manager couldn’t start an infrastructure fund or, you know, a manufacturing fund, and that you would invest through their ETF. You know, I’m speaking conceptually—that that’s the way that the world would change, and that’s the way we’ve got to start maybe thinking about our investments—not asking, will the S&P—how much will the S&P go up this year?—but asking the old question we used to ask many years ago, right? What stocks should I buy? What sector should I own? What themes are out there that should be exploited by investors? We’ve kind of lost that track a little bit. It’s coming back some because, you know, the big one that everybody’s talking about now is maybe I should be investing back in Europe because they’re going to start to stimulate, and their stocks are so cheap, and they’ve been down for so long. And so, you know, more of that kind of thinking, especially domestically.
Jim Puplava:
So in wrapping this up, I think we could tell the listeners, if we don’t do this, we’re headed for trouble. So, I mean, when—when you’ve got almost 37 trillion in debt, 7% of GDP deficits annually, you’ve got to do something, because we start getting into 40 trillion, 50 trillion, we’re in trouble.
Jim Bianco:
Absolutely. You know, it’s kind of like you have a rare disease, and you know there’s an experimental drug. But, you know, and they—then they give you the—the form, and it’s got 40 pages of all the risks you’re going to take. You sign it anyway because you go, well, what’s the alternative? I go home and sit—I sit at home, and I drink hot soup—that’s not going to fix my problem. You know, I’ve got to try this. Now, maybe that experimental drug doesn’t work, and there might be another experimental drug you got to try. But we’ve kind of gotten ourselves into this situation. And again, for the person listening, going, but didn’t the stock market go up the last four years? Didn’t the stock market make a new high in February? Where was the problem? Well, it wasn’t there—it wasn’t in the stock market. It was in the middle of the country. It was in those—those hollowed-out industries because of globalization. The—the big—the big mammoth companies that are in the S&P 500 were winners from globalization. Again, I understand it, I’m not against it, but I also understand that there was a price to be paid. Remember that, you know, there’s 3 million companies in the United States that employ people. Only about 3 or 4,000 of them are listed on the New York Stock Exchange. Companies over 1,000 employees in the United States employ the same number of people that they employed in 1980 because they’ve employed technology and productivity enhancements. Everybody gets their job from a smaller company. According to Automatic Data Service, the payroll processing firm, something like 30% of the American public works for a firm of less than 100 employees—virtually none of them are public. Those are the companies that have been squeezed. Those are the jobs that have been lost. Those are the towns that have been boarded up and the lifestyles that have been changed. That’s the problem that we’re trying to address. That problem is not seen in the S&P 500. It’s seen in other places. And they voted for a change agent in Donald Trump to try and bring about that change. And that’s why he’s focusing his attention on the 10-year note, and he’s focusing his attention on that sector of the economy as opposed to Trump 1.0, which was just basically cheerleading the stock market higher. It’s a different era now, you know, eight or nine years later that we’ve seen. And that’s really the issue. So, like you said, we have to try something now. Again, I’ve said it a couple of times—maybe this isn’t the right approach. Give me another approach. But don’t tell me to just go back to what we used to do and tax the rich, because we’ve tried that for 60 years, and that’s what got us into this problem in the first place.
Jim Puplava:
Well, in summary, as we conclude here, I want to end with what you began with. So if you’re taking a look at what’s coming out of the White House right now, you said think big—big, bold—radical changes coming to the financial markets and the economy.
Jim Bianco:
Yes, that is—that is true. And those radical changes don’t necessarily have to be bad. There is, you know, an alternative for people. Like I said, I think we’re in a 3% inflation world. Money market funds might give you 4—you could actually keep up with the pace of inflation with taking no risk. Bonds might give you 5—give you a little bit more than that without taking any risk. Stocks—maybe at the index level, because there’ll be losers and there’ll be winners—you know, the index might go 6. But there is places that you could kind of wait this out—especially in the bond market or in money market funds. You’re not going to get a whole lot, but you’re not going to lose ground if you’re unsure about this world. But this is what investing is supposed to be. It’s supposed to be looking for those next ideas—looking for what is coming up that the country needs and addressing that by investing in that—giving them the capital to make that happen. We kind of lost that sight with index investing over the last several years, where it was just all about money flows and everybody get into the broad-based index. And if we all keep buying the broad-based index and keep lowering and doing quantitative easing and go to zero interest rates and pump money in so we could get these—these indexes higher—that worked. That worked for a long time. But we’ve gotten ourselves to such a situation now that we can’t keep doing that. That doesn’t mean that there’s not going to be tremendous opportunities in investing—there will be. They’re just not going to be thought of and done the same way that we have for the last 10 or 15 years. I think we’re in a period of transition, and we got to start thinking about it in those ways.
Jim Puplava:
Well, I’ll tell you, I loved your piece, the Mar-a-Lago Accord. I think you really hit on a lot of the key things that we’re seeing almost weekly coming out of the White House and in the news. And this really, as you hit upon, is a change coming to the financial markets and the economy. And you need to start thinking different because we’re not—as you pointed out—we can’t go back to the way things were. It wasn’t working. And if we don’t make these changes, we’re headed for ruin. Jim, I want to thank you for joining us on the program. I always love reading your stuff. If our listeners would like to follow you, tell them about two things you manage—or there’s an index fund in the bond market that you guys manage—and then your website, if you would.
Jim Bianco:
So I’ll start with my website—biancoresearch.com. My—my—my original day job forever and ever was I’m a research provider, primarily to institutions. So you could look at it—biancoresearch.com—request a free trial. It’s a—it’s an institutional product, so that tells you about the price. But I try to be very active on social media. You could find me—Bianco Research on YouTube, on X/Twitter, and Jim Bianco on LinkedIn. About a year and a half ago, we started managing a fixed-income total return fund. So we manage an index, and so what we do is we—we try to structure the index to beat our proprietary index—to beat, like, say, the Bloomberg Aggregate Index—to outperform the bond market. And we have a—our partner, WisdomTree, has an ETF that tracks it. Think S&P Index Committee manages the 500, and SPY tracks the index—we’re set up the same way. So the index is the WisdomTree Bianco Fund—WT for WisdomTree, B for Bianco, and N is the ETF. We rolled it out—Jim, I even said this to you, but we rolled it out in December of ‘23 because when I got the idea around ‘21-’22 to do this, I said bond yields are going straight up—it’s going to be enormously painful for bond investors to be in the bond market. So I waited until the end of ‘23—we hit 5% yields in October of ‘23, and we rolled it out. We said, okay, at this point forward, the bond market is going to offer you something like a 5-plus percent return. And quickly—I’ll just say this—in bond investing, active managers—almost half of all active managers—can beat the index. We did a very good job of beating the index in 2024. The WTBN was in the upper quartile of all core bond funds. So it returned about 1 1/2% more than our index—returned about 1.5% more than the broad-based indexes as well. And we did that because we thought—and that’s been my bread and butter has been the bond market—that there’s now an opportunity again in the bond market. There wasn’t an opportunity at zero and zero interest rates. Getting off of zero to go to 5% was enormously painful. But now that we got to 5% in October of ‘23, we said now there is an opportunity. And we rolled this out in December of ‘23, and we’ve been very successful with it since. So thanks for letting me bring it up.
Jim Puplava:
Absolutely. Well, listen, Jim, as always, we appreciate you coming on the program and giving us an hour of your time. Stay well, my friend, and hope to talk to you once again.
Jim Bianco:
Look forward to the next conversation. Thank you.
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