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Watch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF. Erica York, Senior Economist at the Tax Foundation, discusses what proposed tariff's by President-elect Trump could mean for taxpayers. Siebert CIO Mark Malek and Kaj Larsen, Head of Military Investing and Communications, talk about helping veterans with their unique needs to financial planning.
Hosts: Tim Stenovec and Emily Graffeo. Producer: Paul Brennan.
Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg BusinessWeek, inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news as it happens. Bloomberg Business Week with Carol Messer and Tim Stenebeck on Bloomberg Radio.
It is a Bloomberg BusinessWeek. I'm Tim Stenebec. That's Emily Graffeo in for Carol Masser this afternoon. I don't if you saw this, Emily. We've been talking about US equity markets, but emerging market stocks and currencies slid on Monday. They were weighed down by concern over the prospect of US tariffs under President elect Donald Trump, in disappointment over China's latest stimulus measures. It's the US tariffs part that I want to focus on here, and that's why we're bringing in Erica York. She's senior economist at the Tax Foundation. It's a nonpartisan tax policy nonprofit. Erica joins us from Manhattan this afternoon. We're all trying to figure out, Erica, how much tariffs are going to cost, and how much money tariffs are going to bring in, and who's going to be paying for those tariffs. Help shed some light on.
This, those are the big questions.
We've estimated a ten percent universal baseline tariff, so applied across the board to all imports, would raise about two trillion dollars in tax revenue for the US government over the ten year budget window. For the average household, that would be an annual tax increase of more than twelve hundred dollars. If the universal tariffs were twenty percent, the revenue wouldn't quite double because imports would drop by more, but we've estimated that would bring in about three point three trillion dollars for the government and increase taxes by more than two thousand dollars for average households. Now, those are all big numbers, but they would not come close enough to offsetting the cost of the tax cuts that Congress is considering along with President Trump. So they would generate a lot of revenue, but not enough to pay for the tax cuts. And even so, lots of lower and middle income households would be worse off under some type of tax and tariff combination.
What does that mean for GDP?
Then, when you have kind of the tariffs, not quite I guess balancing out the revenue hit that they get from the tax cuts.
It could actually mean we're in a situation where we have a combination of policies that on net cuts tax revenues and also shrinks GDP.
It'll really depend.
On which dials Congress turns on the tax policy side and how far Trump or Congress together go on the tariff side. But tariffs will create a drag on economic growth, and potentially a big enough drag when you factor in foreign retaliation that it offsets the economic benefit of better tax policy, enough.
Drag that you'll see pushback from within the Republic. Can party for President ELEC. Trump not to do this when he takes office.
Maybe I certainly think there's support for the China specific tariffs. I think the universal tariffs are where there's more chance for pushback.
But you know, this was a huge part.
Of Trump's campaign platform, and there's there's kind of two sides. If you listen to some advisors around President Trump, they'll say this is all just bluster, These were just campaign ideas. But if you listen to others and particularly look at like things that Robert Leiitthheiser is written in a book there's huge support for universal tariffs, both as a revenue mechanism and as a trade policy. So I think there's just too much uncertainty to say what's going to happen. But I come down on the side where I think the tariff threat is very real, and I hope that that Congress can maybe pull the present back on it to some extent.
What would be your message to lawmakers? I mean, you have the numbers, and I'll be honest with you, Erica, we had a lot of numbers before the election as well, and obviously that didn't sway voters. The idea of them paying more as a result of tariffs wasn't something that resonated with them, or maybe wasn't something that they necessarily believed. So actually start with I'll start with the message to them, Like, what would your message to them be, given that this is something that Americans voted for.
Maybe they voted for it, Maybe they voted for Trump's version that says China is going to pay for the tariffs and they're going to create jobs here. I mean, that sounds great, right, but unfortunately that's not reality. Ask Ask a small business, Ask a farmer who is impacted by tariffs. It's businesses in the US that are importing the things they need to do business, So those tariffs are going to raise the cost of doing business here. The immediate effect of that is the US business owners asking, am I going to pass these costs onto my own consumers? Or am I going to have to cut back? Am I going to have to cut jobs? Am I going to have to cut wages? Am I going to have to cut production because I can't afford to do business here anymore? So the impact would be real and would be felt by Americans.
Do you recall when the USDA gave billions of dollars to agricultural producers who were affected by the retaliatory tariffs from China. We're talking soybeans, corn, wheat, dairy. Yeah, this was like a bailout by the Trump administration.
Yeah, pork producers, sorghum producers. China quit importing US AGG products. That meant export losses, which directly reduced income for US AG producers. And to compensate them for that, the US government made direct subsidy payments to farmers and in fact, they used up about ninety percent of the tariff revenue that came in from US imposed tariffs to bail out farmers who were hurt by re retaliation. That undercuts the message that we're going to use tariff revenues to do other things like tax reform if we actually just have to send it right back out the door and compensate sectors that are hurt by retaliation.
What timeline are we talking about here?
When would we potentially see the effect of these tariffs if Trump, I guess, is able to pass everything that he actually wants to.
Yeah, again uncertain.
You know, it's likely that new investigations would be opened up right at the outset when Trump takes office. Those can take you know, anywhere from more than two hundred days for the Commerce Department to fully go through that issue a report after which the President recommends what actions he wants to see taken. So if it goes through those channels, it wouldn't be immediate. Now there's some talk that Congress is considering legislating tariffs as part of a tax reform package. That could potentially be quicker if we're under full Republican control and we have reconciliation. I think that's less likely though, because I don't think there's broad GOP support to vote on significant tariff hikes, So it's probably going to take the executive route, and depending on what authority the president uses, there's processes set out in law that dictate how quickly those tariffs can be put in place.
Erica, I'm glad you're talking about tariffs, and it's something that we've talked a lot about and we're going to learn a lot more about, at least how Trump implements them when he does get into office. What other parts. But it's not as only economic policy. This is what you're focusing on today. It's what the new report that you have from the Tax Foundation is that said, what other policy should we be focused on ahead of the inauguration.
Yeah, the big thing on the tax policy side is that the vast majority of the changes made by the twenty seventeen tax law are scheduled to sunset after twenty twenty five. So that's all of the individual tax cuts, the estate tax changes. There's changes on the international side that are scheduled to take place, and there are important business investment provisions that are phasing out like bonus appreciation or that have already changed like R and D expensing.
All of those are going to be on the table.
In twenty twenty five, and lawmakers right now are working on their game plan of you know, what, what are we going to do? Are we going to extend these? Are we going to make them permanent? How do we pay for it? Trump will of course have a major influence over that legislative process and it could get going very quickly.
When when Congress comes back in town.
Next year, Well, you're going to have to come back before that. We definitely appreciate your time, ERICI. You are senior economist over the Tax Foundation, joining us from Manhattan, Kansas. Again, the Tax Foundation, they're a nonpartisan tax policy nonprofit. They're out with this new estimate of that universal baseline tariff, finding that a ten percent universal tariff would raise two trillion dollars in a twenty percent universal tariff would raise three point three trillion dollars. That's between twenty five and twenty twenty twenty twenty thirty four. Excuse me, but that would end up costing ten percent on average twelve hundred and fifty three dollars in increased taxes. In twenty percent would increase taxes on US households. According to the Tax Foundation by about two thousand dollars on average. Emily Grafao in for Carol Masser this afternoon, I'm Tim Steneveek. You are listening to and watching Bloomberg Business Week.
You're listening to Bloomberg Business Week with Carol Messer and Tim Steneveek on Bloomberg Radio.
We honor those who serve each and every day, but especially today because it's a veteran's day. And from an investing perspective, remember we are Bloomberg thinking about data, we're thinking about money. Not everybody has the same needs, and that's where Siebert comes in. Mark Mallick is Chief Investment Officer at Siebert, and Casual Larsen is head of Military Investing in cam Munications at Siebert. He's also a five year active duty and Navy Seal officer and currently serves as a Seal Reserve officer assigned to US Special Operations commem In. They both join us here in the Bloomberg Interactive Brokers studio. Guys, good to have you with us.
How are you good?
Thanks for having us?
Awesome snannor to be here, Well.
We're happy to be to have you guys. Looks I want to start with you, Mark, because Siebert's a unique organization. I mean, I used to be on the floor of the New York Stock Exchange and that name just has a lot of meaning because of who founded the firm, and she broke a lot of barriers. Talk a little bit about how that philosophy plays into sort of the DNA of the firm.
Yeah.
Interestingly, you know, the firm is as old as I am, and if you look at me, you can tell I wasn't born yesterday. So the firm has been around quite a long time. And unfortunately Mickey is no longer at the head of the firm.
However, you aptly put.
Her, DNA is still with the firm. We're very much folk on the client. We're very client oriented firm. I know everyone will tell you that, but in this day and age when everything is pretty much gone digital, we got all the digital stuff, but we still got a lot of people that are focused on the client. Pretty Much everything we do is focused on the client, and we retain that and that's what makes us a little bit unique in an industry where everyone does everything. We do everything, but we still focus heavily.
On the client.
Yeah, the namesake of the firm Arial Sebert, the first woman to own a sea at the New York Stock Exchange. So talk to us a little bit about veterans' needs and why you have a dedicated vertical at Sebert just focused on veterans, right, So, you.
Know, conj could talk a lot about this as well. But you know, we know that, you know, veterans are very much underserved in the investment community, and with the help of people like CAJ, we were able to come up with things that we think would would resonate more with that community in terms of education, in terms of specific types of investments that would with them, things that they want to see, things that they're comfortable with.
You know, we have the.
Traditional stuff, but you know, focusing on what their needs are, what makes them comfortable, is really important to us, and that's how we've designed all of our investments around that.
So Coch come on in here. Because you have a history in the military, active duty Navy seal for years, still involved in the military at this point, how much did you think about investing when you were actually serving.
Well, not nearly as much as I should have, tim, right, I was more focused on gunslinging at the time.
Look, that's the answer I was expecting to get.
Yeah.
Yeah, And now what I'm trying to do as a more senior officer is help like young people at the beginning of their service members journey be a little more sophisticated than I was. Right, And one of the ways we're doing it at SEBERT is kind of adopting the same model, a fusion model that we did.
In the military.
In mission planning, we say intel drives operations, and we're using that same paradigm at Sebert. Right, So I have Mark over here, He's the ten thousand pound brain, Right, I'm the paleolithic knuckleer dragger who's going to execute all of all of these really interesting and dynamic portfolios that we've created. And so, and that's how we're doing it. I think the key here is that the veterans community and the military community is not a homogeneous organization.
Right.
There's a lot of variety and there are no one size fits all solutions. So what's helpful about having someone like me with thirteen years of total service I continue to serve in a special operations unit.
I understand I've walked.
A mile in the boots of similar to a lot of these military members and veterans, and so then I can help calibrate, I can help educate and then help calibrate appropriately to help build wealth within this community that, as you mentioned at the top, is often left behind by the private wealth community.
Cous, what are you seeing right now?
What are people who are currently serving asking about when it comes to their finances?
Is it more budgeting?
Is it what should I invest in? Is it saving money?
Well?
Today, like everybody else, they're asking about bitcoin, right, And the truth is, like the military has actually been leading edge on some of this stuff, right. Bitcoin itself comes out of a sort of cryptological function that was developed in the military. So there actually is some interior and intrinsic knowledge that service members have but maybe don't necessarily realize that they know that can help them in their investing journey in general. Absolutely, you hit the nail on the head first. We have to tickle interest in investing, right, and you have to save before you can invest. So a huge part of our firm and our mission is devoted just to closing this knowledge gap in order to increase the rates of financial literacy.
We're not the only people that are doing that.
There are organizations within the Pentagon, the Office of Financial Readiness, and then organizations private sector organizations like US outside the Pentagon that are doing it. But it really takes a village to make a smart marine put his money somewhere good.
But I guess the challenge is caj that oftentimes somebody gets done with being in the military and they don't necessarily have enough money to start to.
Put to work.
They're more focused on providing basic necessities and providing basic needs. I mean, we talk all the time about the inability of this country to serve its veterans.
Yeah, would I would push back on that just a little bit. I think in general that principle is right. But contrary to popular belief, and this is part of the reason that the military community has been kind of largely ignored by the street is they always thought that the account sizes are too small, they don't have enough money. But relative to their socioeconomic peers, actually, service members often have quite a lot of discretionary spending, and it's because of non calculated things like the cost of healthcare, something that a lot of military folks don't have to worry about, things like bah basic allowance for housing, right so because of that, they have more I'm not saying a lot necessarily, but more income relative. There's socioeconomic peers and Frankly like, yeah, we're an old firm at SEBER, but like cutting edge technology, right, things like you know, the the advent of fractional share investing. We say, like, you can start investing with as little as a dollar, right. The problem for us from the financial education literacy perspective is, you know, you still get a lot of young enlisted guys in the military going out and buying that new Mustang at a twenty one percent interest rate. There's an entire predatory industry designed to take service members money and only a few of us focused on building their wealth.
So, Mark, when you're thinking about where do you actually allocate portfolios, do you make veteran specific trades. I'm an ETF reporter, and so there's a number of ETFs out there that are focused on defense spending, or infrastructure or crypto. Is that kind of your approach to investing?
Partially?
I mean, at the core, we we stick to the standard principles of investing, right, so we try to match up portfolios to risk tolerances of the clients. But We also like to put things in there that the clients understand and that they would want to invest in themselves. And so the idea is to get them to focus on more long term investing. When young a lot of these young hotshots come out, they want to put it all in bitcoin or something like that.
But we try we would the would by the way, that would have been a good movie.
Exactly exactly, exactly exactly.
You caught me, right, you don't see me doing it?
Yeah, yeah, similarly, but we try to you know, teach them that sort of you know, long term focus. But still at the end of the day, we want them to be able to open up their accounts and see ETFs in there that resonate with them, right, So yes, we do put those types of things in there that they would say, yeah, I know what that is. I get that, I'm happy that I'm putting my money there, and so on top of that, you know, we're constantly managing them to stick with their risks.
So for instance, you know you.
Brought it up.
You know, if bitcoin was in there was in their portfolio. Obviously bitcoin, the risk of bitcoin changes as it goes up and down, mostly up, and so you know, We've got to constantly be managing that to make sure that the portfolio is still in the right balance for the client.
Is that part of the portfolio now is crypto? Is bitcoin part of it?
It is not a core part of the portfolio, but it is. It is something that can be can be additive.
But it's not the type of thing now that you're saying, Okay, if you want to invest in this stuff, you're doing it outside of Seabert.
No, we help them with that as well, right, So you know, our hope is to you know, manage to manage their core money, right, so we're like the let's call it the savings account of yester year for them, and then we do encourage them to you know, to go out and try other things and we help them with that as well.
We advise them on that as well.
But we always like to know that that the core portfolio isn't that important you know set of ETFs that is going to you know, provide them with that risk adjusted return that's right for them.
And to underscore marks point, we try and speak to our service members in language and metaphors that they understand. So we say, just like you wouldn't go to war with a single bullet in your magazine. We expect you to have a diversified portfolio, many bullets in your magazine, and we expect you also, just like admission planning, to have contingencies things like a rainy day savings account and things like that. So the tried and true principles of investing are really good for the military community. With some of the additional sidecars that that you guys were just discussing.
Can you talk ETF tickers?
Are there any particular ones that you like right now?
Members at Report, Yes, yeah, it's interesting.
So for us, it's not that we like the tickers as much as we want to have h we want to have.
Exposure to those tickers, right.
So when we select a ticker for our portfolios, it's going to be based on what type of exposure will it give us, to say, defense, right, And then we will look at the ones that are that do the best job, right, the ones that you know have the you know, the best tracking error, the ones that are the cheapest right, and of course the ones that are also that also have liquid. So we want to make sure that you know, there are a lot of great ETFs out there now. Especially some of them which are actively managed, but they're very tough liquidity wise, and we want to be able to give access to our clients very quickly to their cash and be able to rebalance one appropriately. So what we do is we take the best of the breed, and then we change the allocations based on how well the market's doing, how well the ETF might be doing. So we might take some off the table, we might add some to the table based on what our algorithms are telling us.
Hey, we only have about a minute left, but then we're going to come back with both of you after we do some news.
KSh.
I want to let you just close it out here. I'm curious what you're hearing now from active duty service members that's kind of different from when you served earlier in your career. I think you're still active duty, but reserves.
Well now now on the reserve side, serving in another You know, we could waste our whole minute talking about my circuitous career journey and the special operations community. But in short, what I'm seeing is an increased level of sophistication when it comes to financial knowledge and lete like whether that's actually translated into investment is still to be determined, but there certainly is more interest, there's more information, there's all more alternative sources for information, and you're starting to see, especially with the advent of these alternative assets, service members paying more attention than they had in the past. The other small thing I know we have ten seconds here, is that the military retirement system has changed, and that's made it that's a forcing function to make people be smarter about their pay.
I want to get right back to Mark Mallick, chief investment Officer over at Siebert Cash. Larsen, head of Military Investing and Communications at Siebert Cashal also a five year active duty Navy Seal currently serving as a Seal Reserve officer assigned to US Special Operations Command. Not going to have you give up any state secrets at this point.
Gosh, but well, I will say it's a teeny bit dated.
I did. I've retired from the seal teams.
I've left the active duty and the reserve Seal teams, and now I'm serving a new special Operations unit for the state Florida.
SO and on Wall Street.
But that being set and on Wall Street, but that being said, I'm still not giving up any state secrets.
Ye, okay, and just give us an idea of what that looks like in terms of how you're able to do those things. Concurrently, I think a lot of people have misunderstandings about how the reserves work or how people are able to continue serving their country following like a full time stint in the military.
Yeah.
Absolutely, Well, the reserves have for a long time been an essential part of the Department of Defense and our national security apparatus. And when I was a reserve officer at us SO Com, I had a.
Civilian job, and I was in media.
I was a war correspondent at CNN, and then I had an HBO series in a Netflix series, and I was able to balance those effectively with my time still in uniform. I'm doing a very similar thing now as I'm running the military vertical here at Sibert Financial and then simultaneously still able to serve in a special operations unit for the State of Florida.
So look, it's hard.
A lot of military folks face these kind of challenges. They say, if your boss is slightly unhappy with you, your commanding officer of your reserve unit is slightly unhappy with you, and your wife is slightly unhappy with you.
You're probably doing all three okay.
But it does speak to an underscore the challenge of life as a service member is that you often have incredible sacrifices that you have to make, and you have to balance this civilian side and military side of your life that extends all the way to your finances.
Kind of the foundation.
So Mark, come on in here, because you are chief investment officer over at Sieberg Financial, so we'd be remiss if we didn't ask you, like we're asking everyone about the state of the markets these days, especially given what we've seen over the last week after the decisive victory by President Trump.
Yeah, it's been an interesting couple of weeks for all of us. We had all those great earnings just prior to the election, and we haven't even had a chance to really sort of look at the these you know, these this this rash of Max seven stocks that we heard from that's been driving the markets higher and central and.
Suddenly get the you know, suddenly we get the.
Elections, and now we're focusing you know, not on the Max seven but the MAGA seven, right, so you know, we're trying to figure out, you know, what of this stuff is uh is going to stick?
What is not?
A lot of it is a little I would say probably took you know, some of us by a little bit of surprise in terms of magnitude, but in terms of the things that have been going, you know, the handwriting was kind of on the wall.
So you know, we're seeing as we expected.
We we expected a continuation of the prior trends, maybe a little bit turbo charged in those areas that we you know that Trump was very clear that his administration would focus on. But you know, in terms of the magnitude, it puts us sometimes in a rough position saying, yeah, well we like this sector, but we can't get into this sector now because it really played out a little too quickly, maybe last week.
So what specific sectors come to mind when you're thinking about now we know who the president is, so we have a better idea of what policies are going to be in play than we did maybe a few weeks ago.
Yeah, So I think for us, you know, we we expected uh, you know, the financial sector to definitely get a boost, you know, increased deal flow. Uh, you know, all sorts of deregulations, things like we all expected that and the interest rate environment, although that is rapidly changing, that should be an environment that should be pretty good for you know, traditional lenders and things like that. I think that the markets responding much more aggressively than we expected, although we still believe that there's there's room, but we have to be a little bit more careful with that.
You know.
Obviously, something that we've focused a lot on that may not be attributed to Trump is you know, we can't ignore uh technology, broader technology, information technology sector and also in you know, tele in the telecom sector of the communications sector. You know, we we saw a lot of potential there the what I call the AI ecosystem. We believe that that is going to continue to move, but under a new under under Trump, we have to look at things a little bit differently.
Right.
So, you know, I've always used the supply chain analysis on the Bloomberg right, and it's becoming a more and more important part of our life every day as we're looking at any company, we're checking GEO exposure front of these companies and it's part of our It's a factor now in.
Our models, where prior it was just.
Something to say, well, if there was if there was increased tariffs or what does that mean to this company? It is, you know that and interest rates right which I'd be watching one on each one of these screens right now.
Right by the way, the supply chain analysis function on the Bloomberg terminal SPLC. I don't know about you, Emily, it's my favorite.
Etf GO is one of my favorites too, I gotta say that, but yeah, I love that one. I actually wanted to go back to something you had said earlier about how you know, people had been piling into the Trump trade before the election results came in.
So does that mean that you you.
Kind of fade the Trump trade now you don't buy the traditional bitcoin.
It does show it depends, it depends, right, So you know, it was very interesting. Another thing I like to do is that, you know, on the Bloomberg we get to see the real clear politics. We were able to track the numbers as we were running up to the election.
You're able to sort of plot them next to any of.
These sectors and you could see how they behaved as Trump chances went down and they went up, and you could see the clear relationship and if the relationship made sense, right, then you have to dig further into it. But as you said, in a lot of cases, you know, we're very fortunate we get to focus on long term investing, right, and so you know, we're not necessarily well. We try not to concern ourselves with what's happening in the you're right in front of our feet. We'll like to think, you know, super long term, which today's day is like two years, right.
So we're starting to think like that. So a lot of these trades, we feel our trades that make sense. Some of them are a little out of control.
I won't mention any names of specific stocks, but some of them traded like meme stocks, I think.
And these are good companies that may not be meme stocks, but they're behaving like meme stocks. So you have to take a step back.
I mean, maybe take a look at bitcoin, which is you know, which is raging.
You know, we.
Allocate to bitcoin, we think it's it's something that we need exposure to, but would we put new money in at this point we think it may do better under a Trump you know, at this stage where we are at a show me stage.
Well, let's see what you can do.
Now.
We can't make any speculations anymore.
At this point, Cash, I want to give you the last word here, got about thirty seconds left. You see a lot of technology in the military, and we oftentimes see technology develop from military tech. What's exciting to you out there right now?
I think there's a bunch of stuff. There's been some tectonic shifts in the nature of warfare. I think a lot of people followed Diandral acquisition, which came straight up out of the Ukraine War, and how drone technology has changed the nature of warfare.
I think military.
People are particularly attuned and particularly acute to these changes in technology. I've been using Pallunteer for probably fifteen years in an operational capacity, so every once in a while, while we're not always the most sophisticated conglomerate, we do have access to some emerging technology, and I think that's a strength.
Cash Larson, head of Military Investing in Communications, and Mark Malloch, chief investment officer at Siebert Financial