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Henrietta Treyz, Managing Partner and Director of Economic Policy at Veda Partners, discusses the possibility of a government shutdown. David Kudla, Founder, CEO, and Chief Investment Strategist at Mainstay Capital Management, discusses his outlook for the markets. Nathan Dean, Bloomberg Intelligence Senior Policy Analyst, discusses the potential for a government shutdown.
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This is Bloomberg Intelligence Radio. Let me set the stage for you. So if you're a political commentator, as if yesterday you're like cool, I'm like really close to being on vac Like I'm just going to get through the seat. The Continuing Resolution is going to happen. The Government's not going to shut down Friday. I'm going to get to go and go to a beach and hang out and have a little drink with umbrellas. And then yesterday after four o'clock that dream gets dashed because at President Donald Trump is now elect is now opposing House Speaker Mike Johnson's plan to avoid that government shutdown instead now calling for a new approach that includes raising the debt ceiling, making it very complicated as to what that road is us as Henry to Trace, managing partner and director of Economic Policy at Beta Partners, not sipping on her little umbrella drink, Henrietta.
Why, Alex I feel very triggered by that entire introduction.
I appreciated all, but that you're exactly right.
I think that this is an incredibly smart move for the incoming Trump team. They have no skin in the game right now, he's not the president. And what's going to happen next year, as we've been discussing with clients for months now, is that they're going to have to face perpetual risks of government shutdown and then in July a debt ceiling negotiation with Democrats.
And let's just think about the numbers here.
In twenty twenty three, seventy one Republicans voted against increasing the debt ceiling.
There's only ten blue dogs.
Of the Democratic Conference of Moderates who might cross the aisle and vote for a debt ceiling hike sometime this week. So basically, the math just does not add up for trying to get sixty votes in the Senate and two hundred and eighteen votes in the House to increase the debt ceiling in the next forty eight hours. But it's incredibly intelligent of Trump to try to get it out of the way because it is going to be a massive impediment to the Republican agenda in twenty twenty five if it's not cleared early.
If there's a government shutdown, won't the blame be placed upon the Republican Party? And if so, how does that calculus work?
Right? It always is.
The blame is always always placed on the Republican Conference. They are the ones who instigate government shutdowns, going as far back as Ted Cruz and what was that twenty eleven, twenty thirteen. You know, it's playing to the American voter that Republicans are to blame. But there's a disproportionate amount of Democrats who care about a government shutdown versus Republicans who don't see it as too much of a big deal.
The optics are obviously atrocious. You're going to.
Send federal employees home during the holidays over Christmas without a paycheck in the next two weeks. You're going to shut all the national parks where Americans are travel at pretty high rates right now over the holidays. So it's definitely not good optics. It makes Congress looks dysfunctional, But what it's really showing us and the Christmas present for investors right now is that this is a precursor of just how dysfunctional Republicans are going to be next year. They have not had the votes for government funding bills for a decade, and usually it's Democrats to bail them out. And right now Kee Jefferies and Chuck Schumer are holding their party together to say, look, this is your mess.
You bail yourself out of this.
Yeah.
I feel like I use that with my daughter sometimes too. But the dead ceiling issue, right like moving forward the dead ceialing issue. So Trump won't have to deal with it in the summer, but instead that we'll come under Biden's watch. He said to NBC that he'd like to get rid of the debt ceiling all together. How do you think that particular part plays out.
Yeah, I mean that's very expected from Trump.
He has famously said, let's just see what happens if you default, So I think his position on this is very clear. It's a nightmare for any present to have to increase the debt ceiling because you need to negotiate with the other party. The difference here is that you can, in fact increase the debt ceiling be a reconciliation. So if Republicans do not want to negotiate with Democrats. They all they have to do is include a debt ceiling hike in the next reconciliation bill, which the Senate Budget Committee is hoping to mark up as early as the first week of January. So there is an alternative here and Democrats know that. So if Republicans really do want it off the table, they have a path forward that they just need to carry the votes. They just need to find two hundred and seventeen, and there have never been two hundred and seventeen Republican votes for the debt sealing.
Henrietta, are you surprised that we have heard relatively little, if anything from the Biden administration. It's President elect Trump and his representatives taken all the auction in out of room about this topic.
Absolutely.
I think that's a really important dynamic to all this. We know that Joe Biden, as president and even a Senator, has always preferred sort of the diplomatic, negotiated solution. Democrats generally believe the government phone for a purpose, and I think if Biden wanted to insert himself into this process, he could, but you're absolutely correct, he's been completely off the radar in this entire conversation, which admittedly only popped up in the last twenty four hours.
So what do we think happens?
Like?
Are we extending programming on television and radio on Friday to cover the weekend?
Like?
What are we think in here?
Yeah, my odds of a shutdown are about twenty percent right now, which is admittedly very high for me. I'm usually in this zero to five percent range from a shutdown, so I'm much higher than I usually am. But I don't think a shutdown is guaranteed. I think that Speaker Johnson and indeed President elect Trump should want the government to stay open so that on January third, they can get the ball rolling, they can elect their speaker, they can start passing if this fill your twenty twenty five budget, paving the way for a reconciliation bill on border and then a future package on the tax package next year. That is, you know, investors should take away one thing today. It's that the tax bill it's going to take all year. It's going to be very hard to write, and there's some very strong chance that Republicans have to negotiate with Democrats on it, and that odds are growing as this debt ceiling, A c our fight is exhibiting in real time, but I don't think we'll shut down. I think a very short term, maybe two weeks stopgap bill is what we're going to see probably tomorrow morning.
Interesting.
Henrietta, thank you so much for joining us. I know you're super busy when all this news breaking here. Henrietta trez Manage, your partner and director of economic policy for Vida Partners. She has safely asconced down there in New Orleans. She's like, I'm not going to Washington or New York any that's silliness.
Yeah, but she's probably not getting the umbrella drink either.
So yeah, she's not in there. She spent the work.
A little wind there is.
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Steel, Paul Sweeney. We're live here in on our Bloomberg Interactive Broker Studio. We're streaming live on YouTube as well, also ahead over YouTube dot com search Bloomberg Podcast, and that's where you will find us again. Yesterday, the market really surprised, let's put it that way, on the messaging coming out of the Fed here as it relates to potential cuts. In twenty twenty five, we had the S and P off two and a half percent, the Nastack off three and a half percent. Yesterday, big, big volume across the board, a little bit of a rebound here this morning. Let's see where we go from here. David Kodla joins US founder, chief executive officer, and chief investment strategist at Mainstay Capital Management, Troy, Michigan, A great town, by the way, been there, Hey, David, talk to us about, you know, kind of how you saw the market action yesterday afternoon and then maybe today kind of what's the market telling me about the how it views this federal reserve.
Yeah, I think that the Good morning Paul per your lead into the segment. I think the markets and investors were surprised, and I think also confused. I think the presser was quite confusing. Jay Powell, you know, if I heard all that and here.
Talking about why why.
He was hiking rates a quarter point would have been a good explanation, but they're not right. They're cutting a quarter point. So there's some real confusion about you know, where where the FED is headed. Are they making another policy mistake as we speak, And as far as the FED is concerned, you know, they're their their problem is uncertainty. You know, we have a saying in our industry, right the markets hate uncertainty. Well, the FED hates uncertainty too. And they really don't know what to expect for inflation next year with Trump policies still not being fully known, how they'll get rolled out, when they'll get rolled out. Uh, some of those very potentially very inflationary. They don't know how much inflation will be fighting next year. But the presser was more about the labor market, you know, the other side of the mandate.
So, uh, the.
Market was just confused in the face of that. I think it was you know, shoot now asked questions later.
I guess the question that rose yes to many economists is that the FED is at a risk of making a policy mistake in that they're going to fight and inflation that they don't necessarily need to fight at the expense of the labor market. That was one narrative that some economists were putting out there.
What do you think of that, Well, good morning, Alex. I think that I think they're focused on the I think they're focused on the wrong thing. I think that twenty twenty five is going to be the year of the stubborn inflation battle. Whether it's the massive federal deficit, spending that's going to happen, tax cuts, all these things that are good for the economy, but in tariffs especially that could cause a rise in inflation. It's that area that is more of the problem, I think than labor, and that's where you're seeing on the long end of the curve. Look what's happened since September eight teenth. Over the past three months, the Fed has cut one hundred basis points. The ten year yield has gone up nearly one hundred basis points. That is not the normal reaction function that we expect. In fact, we usually the ten year follows by some degree to what the Fed is doing. So that's the bond vigilantes. At Yard Denny's coin term back in the nineties, it's a bond vigilantes that are fighting the FED. And so there's just a lot of confusion out there. I think uncertainly on the part of the FED. That's why the press or seem confused. And I think there's they need to be looking more towards inflation than labor right now in my opinion.
David, you've been in these markets many years. You've seen all kinds of cycles and news events, and it looks like we may have another government shutdown. As an investor, how does that factor in, if at all, to your outlook?
You know, and back in the mid nineties when we had this first government shut down pending, it was armageddon and the markets reacted violently to it. As years have gone by, we've seen that investors in the markets kind of shrug off the antics in Washington, d C. More and more. And for many of these types of events, we might get volatility for a day, maybe two days, but it passes. I think the markets investors have learned to largely ignore it or have just chosen to, you know, and look at fundamentals. So, you know, whether we get a continuing resolution passed tomorrow, it doesn't come till Monday, there'll be some volatility in the markets potentially because of it, but then we'll move on.
What do you make of the fact that the earnings picture is TBD for next year and that the consensus and then what the S and P is implying is pretty strong, and then you wind up having this uncertainty about the FED. Now, some might say it's okay because earnings are going to be really good, we're gonna have deregulation, and we're going to lower taxes, so yeah, we can justify that. But the other side is, we just don't know, and if rates stay stickier, as you say, that inflation actually increases a little bit, that that consensus might need to come down. Where do you stand on.
That it might need to come down? But if we look at Trump's policies, deficit spending, deregulation, which will be good for US corporations across the board. Tariffs will be good for some bad for others, depending on if they're a multinational conglomerate bringing products in or whether it's even smaller mid cap companies where their input costs will be impacted. But I think net net, we're still looking for a good earning for good earnings growth next year, and that Trump policies net net will probably only benefit that.
All right, thanks a lot, David, really appreciate. David Kudlah, founder's CEO and chief investment strategist at Mainstay Capital Management Intinent.
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All right, Nathan Dean was here yesterday and now he's back in DC. I can't I can't keep dragged on that the wholesali Thank yeah.
All right.
Nathan Dean, Bloomberg Intelligence and your policy analyst, joins us now from DC. And we had a totally different conversation yesterday and when it came to politics, and then today it's like, oh wait, maybe there will be a shutdown on Friday. Oh wait, maybe the debt ceiling is in play now rather than in the summer. What is your take and consensus someone's going to happen.
Yeah, So yesterday I said there was a twenty percent chance of a government shutdown. I'm only going to go to forty percent. So I think I'm out of consensus here. But what I'm saying is that I think we're going to have a forty percent chance of a government shutdown by Monday, so tomorrow night. Obviously, the government shuts down at midnight unless it continuing resolution has been passed. But we've seen in the past before Congress sometimes takes the weekend to figure out a deal. And I think despite all the blome and the political prosting you're seeing at the moment, I think a deal can be made for clean CR plus, disaster AD plus potentially the one year extension of the farm bill because if something doesn't happen, that farm bill and the impact on farmers is going to be substantial in twenty twenty five if the government shuts down, and I think that's going to be what finally gets this deal over the edge. But like you said, the debt ceilings now involved, and there's going to be a lot more political hiccups to come, certainly over the next few weeks and months.
All right, From my perspective, the politics and that people involved seem a little squirrely to me. I've got a president elect and I got some civilian dude really weighing in on this issue in a big way and moving markets. Yet I have a president who's actually sitting in the chair and I don't hear anything. What's going on in debt Washington? What are you guys doing down there?
Yeah, so essentially what the Democrats are doing right now essentially letting the Republicans try and figure out what is the base case scenario. All these negotiations that you may know are taking place in the House with Speaker of the House Mike Johnson, and he was the one that negotiated a deal that Elon Musk and then later President Trump came in and said, no, we're not comfortable with. So what you need right now is the Republicans to come on board with an idea of a bill.
That will pass the House.
And we've even seen Senator Majority Leader Chuck Schumer say, you look, from the Senate perspective, we're just gonna let the House figure it out first and then we'll deal with it. And that's where the dead ceiling eventually comes in, because look, you can't really get a dead ceiling deal. I don't think within another like say, twenty four hours. These usually take weeks and months to hash out. And if the Republicans decided to move forward with a two year extension of the debt ceiling. More often than not, Republicans also insist on cuts as a result of that. So I think what will happen here is the Democrats sort of way back and they say, Okay, Speaker of the House, Michael Mike Johnson, you figure it out, you come up with a plan, you get this plan through the House, and then if that's the case, then we'll move forward and we'll deal with it on the Senate side. Because for everything you're talking about, just remember this has to be bipartisan because you need seven Democrats. I'm sorry, you're gonna need a lot of Democrats to come forth and get this through on the Senate side.
Is the debt ceiling really in play?
You know?
Obviously?
I think President Trump when he made the statement earlier today that they should abolish the debt ceiling, that's something the Democrats would actually welcome. We saw Senator Elizabeth Warren even say that she would support President Trump on that matter. I think that was also a way for President Trump potentially to give Speaker Johnson a way out, saying, look, if we can't get the debt ceiling done. But from the market perspective, what I would say, is the deadline is not December thirty. First, that's only the date in which Treasury can use extraordinary measures to keep her funding. The actual X date, if you will, is sometime next summer. So from the market perspective or in terms of government shutdowns and debt ceilings and so forth, we're not seeing much.
Impact from all this political posturing at the moment.
What's the feeling in Washington and Nathan about the status of Speaker Johnson because it feels like he's really under the gun here from all side.
Yeah, you know, if we had had this conversation last week, I'd say it's fairly comfortable of his position, but today it's not. Senator Ran Paul even floated the idea of potentially having Elon Musk to be the Speaker of the House, because you don't have to be a member of the House of Representatives to be the Speaker. Now, I don't think that's going to happen, but a lot of the Johnson allies, if you have been sort of questioning whether or not he has the chops for the job early next year, and you know that election is going to take place on January third.
So I'm not exactly.
Sure, I'd be comfortable if I was in Speaker Johnson's position, But that being said, I don't know anybody else who wants the job.
Wait, but let's get back to the Elon Muslin because I don't think I think I knew that, but then I think I forgot it, and then now I know it again. So just walk me through. So anyone can be Speaker of the House, like my mom could be Speaker of the House if she gets enough votes.
Yeah, you know, if Paul wants to get back again at the government service, we can have Paul be Speaker of the House.
You know.
Essentially, it's something that goes back to obviously through the Constitution days and so forth.
But there's been a.
Lot of talk over the last few years about potentially having President Trump become Speaker of the House. During the Biden administration, obviously that didn't go anywhere. But the reason why Elon Musk would not want to be Speaker of the House is because, yes, you get to use the bully pulpit and you get to decide what's on the floor, but you also have to get into the nitty gritty and manage all two hundred and twenty Republican members next year when you only have a majority of five, and that is an extremely difficult position when you have to make tough choices like am I going to shut the government down? Or am I going to extend the farm bill one year and have provide all this relief to the American farmer base.
That's a tough choice.
And that's why I don't think the elon musk rumor, if you will, is a serious one.
Okay, Okay, we're still processing.
We're still processing. I also just feel like, I mean, can you imagine like running the house, running Spear, or being part of SpaceX, running your AI company, running Tesla, and there's a lot going on there. Okay, so give me some well, I guesually, let's go back and talk about playbook. So we have learned what maybe a Trump playbook for twenty twenty five then looks like is this what we can start expecting?
Right?
Like the Congress does something and then musk Ramaswami and Trump kind of weigh in in different ways, and then that affects policy. Is this going to be the state of play I.
Think so, I mean, obviously, you know, a lot has to happen but I think you know, one of the biggest issues, if you will, is if they do continue to if they pass a continuing resolution that kicks this into March. Now you've got a funding fight within the first one hundred days of President Trump's presidency.
And it's usually when presidents.
Don't want to deal with funding because they want to use their political capital on things like immigration, border potentially in this case, a reconciliation package for tax extensions.
But if this government funding fight kicks the.
Canda March, now, you're going to have Elon Musk tweeting out there saying, look, we need to delete the CFBB or get rid of the Department of Education. And at that point you are going to need seven Democrats in the Senate to agree. You most likely won't, and now you're going to have a government shutdown. Is that a fight that President Trump wants to have within the first one hundred days of his presidency.
We really don't know.
It just depends on the politics per se. But I will say is is that we do think a prolonged shutdown, whether it's in March or September of next year, I would bet on September a prolonged shutdown of two to three four wy five weeks potentially could happen, because right now both parties are saying, look, you know, we're seeing pretty we're sitting pretty comfortable with the positions that we have.
All right, let's go to what was a front page topic a matter of week ago, a week or two ago. Which are some of these nominations that have to get sentate confirmation in January? Any update on some of the more contentious ones, mister Hegseth, Tulsa Gabbard, RFK Junior, just to name a few.
Yeah, so they're making the rounds on Capitol Hill as we speak. I mean Senator Fetterman from Pennsylvania met with Pete Hegseth last week, sorry, earlier this week, and rf K Junior is making the rounds today. You know, I would just say that, you know, I think right now and for the rest of December, it's really just going to be more of these like photo meet and greeps and so forth like that. We're not seeing a ton of pushback on Pete Hegseth like we saw a week ago. But I think a lot of the far our works will come down to these committee hearings and obviously these nomination hearings because a lot of the tough questions are going to be asked, and these are going to be asked from both Republicans and Democrats, and so for somebody like Tulca Gabbard, if the senior Democrat begins to really question on some of those positions, things could potentially unravel.
But I will say, remember.
The Republicans are going to have fifty three in the Senate next year, which means you can afford to lose four, and so you know, many of these cases, I think it's going to be pressure for them to withdraw because the votes may be there for them to get across the line.
Amazing. It's going to be fascinating to sort of watch how all of this winds up playing out. We also heard over the last well we heard it yesterday, we've had about twenty four hours to digest, is that the Supreme Court is going to take up that TikTok version. What do we make of that? Like, how do you think that's going to play out in DC?
Yeah, So my colleague Matt Schattennelman and I were talking about this yesterday and I really raked his head on this. You know, This is a question of you know, this law was scheduled to go into effect January nineteenth, one day before the inauguration, and there wasn't really I mean, just remember we're talking about a law here, and so if you want to undo the law, you either need the courts to come in and say it's no constitutional or Congress has to pass a new law. And so there isn't really much of a magic wand that President Trump could do on day one, unless the Supreme Court were to give that magic wand to him. He could certainly say the Department of Justice, yes, you don't have to enforce this. But from the Apple perspective or any other company that offers it on their app store, you know, that's actually not a very comfortable position because you want to essentially be able to say that President Trump can't change his mind three months from now, or a new Democratic administration four years now could say to Apple, look, we understand that you know you've been operating against the law.
Here's a multi billion dollar enforcement action for your problems.
So the Supreme Court case is going to be extremely key to whether or not Apple gets any of this clarity going forward, and what essentially the law details.
All right, Nathan, thank you so much for joining us. Nathan Dean, He's our go to person don in Washington, d C. As it pertains to all that policy stuff there, and I think we're gonna be talking a lot to him in the coming days, weeks, and months and maybe the next four years. Nathan Deane, Senior Policy alis for Bloomberg Intelligence. He is based in our Washington DC bureau.
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