Good afternoon, everybody. This is Michael Cembalest with the mid-February Eye on the Market podcast. This one’s called From Here to Eternity, tracking Trump’s economic market and constitutional milestones. So I’ve been traveling a bit and going to some investor conferences. And one thing’s for sure, I find that people are generally either elated or despondent about what’s going on in Washington and the changes that are emanating from DC.
And whether you are elated or despondent, I want to just remind you, two years is an eternity in U.S. politics, two years being roughly the amount of time you’d have to wait before the impact of the next midterm elections. So, and I want to just remind you of that and give you four examples of why that’s the case.
Let’s start with Eisenhower. Eisenhower was the, the king of deportations. Eisenhower deported about a million people in 1954, at a time when obviously the population of undocumented people was a lot smaller. Within 18 months of hitting that million person target, both funding and political support for the deportation program evaporated. And less than two years later, the deportations fell to just 80,000 by more than 95%.
Another example is another parallel, an interesting one is McKinley. So McKinley, when he was head of the Ways and Means Committee in the House in 1890, in the, in 1880, pushed for some large tariff increases. They got them passed and almost immediately resulted in a spike in inflation that was so bad that the Republicans, of which McKinley was one, lost over 100 seats in the House in the November 1890 midterms.
And, and going back to the Civil War, it was the third-largest loss in terms of House seats, as a percentage of the number of seats that existed, so that was quite a shellacking. So shows just how quickly things can change if people were generally supportive of those tariffs until they resulted in inflation. Woodrow Wilson is another example.
Wilson ran in 1916 on keeping the United States out of the Great War, just what they called it at the time. And that was even after the Germans had sunk the Lusitania a year earlier. And yet, six months after the presidential election, Wilson changed, did a U-turn, and gave his war speech to Congress. And then the last one that more people may remember rather than Woodrow Wilson is George Bush, who ran in 1988. Peggy Noonan wrote it, wrote this catchphrase for him: “Read my lips. No new taxes.” And within two years, there were plenty of new taxes, higher marginal rates, alternative minimum tax rates, limits on itemized deduction. They raised the cap on taxable wages for Medicare. They increased insurance or taxes, and they passed all sorts of new excise taxes on cars, boats, planes, liquor and cigarettes.
So, again, whether you’re elated or despondent, two years is a really long time. And a lot of things can happen in between now and the next set of congressional elections. And I gave a presentation last week in I was in Florida. We had an investor conference, and I presented this visual. If you’re listening, I’ll describe it for you.
The Trump 2.0 draws from some faces you may recognize. So Calvin Coolidge for his small government and pro-business policies; James Polk, the supporter of Manifest Destiny in the Western Hemisphere. We’re certainly seeing a lot of that, whether it’s Greenland, Canada or the Panama Canal. Andrew Jackson, who created an entirely new political order and engaged in lots of deep state battles of his own against the Second National Bank of the United States. Woodrow Wilson. We just discussed, isolationism, at least to start; Richard Nixon with his enemies lists, vendettas and ambitions for energy independence; Eisenhower, lower corporate tax rates and deportations, and then McKinley in the tariffs and protectionism. And given this peculiar mix of policies, a lot of people are, I think, jumping to conclusions as to exactly how impactful they’ll be and whether or not there’s, how just how much are these policies going to affect the U.S. economy in the financial markets, or is it going to be a lot of pomp and circumstance?
So to have some discipline around that rather than engage in a lot of conjecture, what we did was we created a tracker for the administration that generally focuses on three things: growth, capital spending and consumer indicators, consumer price and wage inflation. And then a bunch of business indicators related to oil and gas production, business surveys, earnings, M&A activity, deportations and regulation.
So if the Trump policies are material enough, they’ll show up here, and we’ll be tracking those right now. Most of these indicators are pretty benign. On the growth side, they’re either rising or improving from low levels, although a recent firming in inflation is limiting the Fed’s ability to cut rates. So, but anyway, this is our Trump tracker.
We will post it online. We’ll have a link to it in the Eye on the Market. So you can always check it out. And again the idea here is to have some discipline around things and not respond to every policy pronouncement, but to respond to the impact that those pronouncements are having on the actual data.
And then just to close—this is a short podcast this time—I’ve, I see a lot of articles that assert the various parts of the Trump program are unconstitutional, and they very well might be and some of them appear to be, but I wanted to have a framework for trying to understand the parts of the administration’s approach that people may disagree with. It may be unprecedented, but appears to be legal based on the powers that are conferred in the Constitution to the executive branch, and the policies that are likely to be aggressively challenged and more susceptible to successful judicial challenges.
So there’s, there’s four categories and walk through them. One is legal or most likely legal, whether or not people challenge them. And in that bucket I would put repealing the Biden executive orders, tariffs, firing what’s called at-will employees, restructuring government agencies that are, that want created by statute, abolishing DEI and affirmative action issues, deportations, withdrawing from the W.H.O.
And as things stand right now, the standstill order for the Consumer Financial Protection Bureau, category B, which is the stuff that looks like it’s going to be running into more of a buzz off judicial challenges, would be birthright citizenship, abolishing USAID, creating a new class of federal employees that don’t have any civil service protections, eliminating agencies that were created by actual legal statutes, firing statutorily protected commissioners of independent agencies, forcing state and local law enforcement to, to enforce federal immigration laws, etc.
And then we have another section just on DOJ’s because of the complexities associated with that. And then we finish up with some comments on the Consumer Financial Protection Bureau. So anyway, I thought it was helpful to have a framework for understanding these things because I think that some of the commentary that’s being tossed around in the press is being somewhat undisciplined as categorizing everything is constitutional or everything is unconstitutional.
And I worked with the constitutional lawyers on this section, and I think it’s, it’s worth reading if you’re interested in this kind of thing. I will say, so far, judges have already temporarily blocked—now they may get a, they will almost certainly get appealed to higher courts—but judges have temporarily blocked a bunch of stuff like its freezes on federal spending programs to encourage federal workers to resign the Treasury, disclosing parts of its government payment system details to people outside the department, the birthright citizenship order putting 2,000 plus USAID workers on leave. The cap on and direct NIH research funding, and then terminating the head of the Office of Special Counsel. So there there’s a lot already going on that is testing the constitutional limits of what’s taking place in DC. So that’s it for this month. Next up in early March is our 15th annual energy paper. It’s about always three to four months of work, and it’s one of the things that I enjoy most about my job is being able to work on that project.
And I look forward to talking to you about it in early March. Have a great day. Bye.
(DESCRIPTION)
Text, J.P.Morgan Eye on the Market. J.P.Morgan. February 2025. From Here to Eternity. Surrealist melted clocks litter the lawn in front of the White House.
(SPEECH)
Good afternoon, everybody. This is Michael Cembalest with the mid-February Eye on the Market podcast. This one's called From Here to Eternity, tracking Trump's economic market and constitutional milestones.
So I've been traveling a bit and going to some investor conferences. And one thing's for sure-- I find that people are generally either elated or despondent about what's going on in Washington and the changes that are emanating from DC.
(DESCRIPTION)
A pair of gold drama masks showing happy and sad faces.
(SPEECH)
And whether you are elated or despondent, I want to just remind you, two years is an eternity in US politics, two years being roughly the amount of time you'd have to wait before the impact of the next midterm elections.
And I want to just remind you of that and then give you four examples of why that's the case.
(DESCRIPTION)
A chart depicting Eisenhower era deportations in number of people per year from 1945 through 1957. Deportations rise from under 200,000 to a peak of nearly 1.2 million by 1954, then collapse sharply back to under 200,000 by 1956.
(SPEECH)
Let's start with Eisenhower. Eisenhower was the king of deportations. Eisenhower deported about a million people in 1954, at a time when, obviously, the population of undocumented people was a lot smaller. Within 18 months of hitting that million person target, both funding and political support for the deportation program evaporated. And less than two years later, the deportations fell to just 80,000 by more than 95%.
(DESCRIPTION)
Another chart shows the McKinley tariff aftermath: 1890 midterms. Republican House seats, adjusted for House size in 1890. The number of Republican House seats trends down from 225 to 250 in 1865 to a low of under 100 in 1890 when the first McKinley tariffs take effect on October 1. The 1890 midterms happen on November 4 and the number of Republican seats rises sharply to over 225 by 1895, then recedes again with a higher floor, averaging 157, before falling again in 1910 to 125.
(SPEECH)
Another example, another parallel, an interesting one, is McKinley. So McKinley, when he was head of the Ways and Means Committee in the House in 1890, pushed for some large tariff increases. They got them passed and almost immediately resulted in a spike in inflation that was so bad that the Republicans, of which McKinley was one, lost over 100 seats in the House in the November 1890 midterms.
And going back to the civil war, it was the third largest loss, in terms of House seats, as a percentage of the number of seats that existed. So that was quite a shellacking. So shows just how quickly things can change, because people were generally supportive of those tariffs until they resulted in inflation.
(DESCRIPTION)
Another chart shows Woodrow Wilson’s US militarization during WWI with military spending as a share of GDP. Spending is level under 1% from 1900 through 1915, then sharply rises during the war up to 8% of GDP, before falling back again by the 1920s to under 1%.
(SPEECH)
Woodrow Wilson is another example. Wilson ran in 1916 on keeping the United States out of the Great War-- which is what they called it at the time. And that was even after the Germans had sunk the Lusitania a year earlier. And yet, six months after the presidential election, Wilson changed, did a U-turn, and gave his war speech to Congress.
(DESCRIPTION)
Text, Bush. George HW Bush tax hikes in 1990. Top marginal rate from 28 to 31%. Individual alternative minimum tax from 21 to 24%. New limits on itemized deductions based on adjusted gross income. Cap on taxable wages for Medicare taxes raised from $53,000 to $125,000. Unemployment insurance surtax of 0.2%. New excise taxes on cars, boats, planes, furs, alcohol, and cigarettes. Source: 1990 Omnibus Budget Reconciliation Act.
(SPEECH)
And then the last one that more people may remember, rather than Woodrow Wilson, is George Bush, who ran in 1988. Peggy Noonan wrote this catch phrase for him, "Read my lips, no new taxes."
And within two years, there were plenty of new taxes-- higher marginal rates, alternative minimum tax rates, limits on itemized deductions. They raised the cap on taxable wages for Medicare. They increased insurance taxes. And they passed all sorts of new excise taxes on cars, boats, planes, liquor, and cigarettes.
So, again, whether you're elated or despondent, two years is a really long time, and a lot of things can happen in between now and the next set of congressional elections.
(DESCRIPTION)
Text, Trump 2.0 policies draw from some faces you may recognize. Calvin Coolidge (1923 to 1929). Small government, pro-business policies. James Polk (1845 to 1849). Manifest destiny in the western hemisphere. Andrew Jackson (1829 to 1837). New political order, deep state battles. Woodrow Wilson (1913 to 1921). Prewar isolationism. Richard Nixon (1969 to 1974). Enemies lists, vendettas, and dreams of energy independence. Dwight Eisenhower (1953 to 1961). Lower corporate taxes and deportation policies. William McKinley (1897 to 1901). Tariffs and protectionism.
(SPEECH)
And I gave a presentation last week in-- I was in Florida. And we had an investor conference, and I presented this visual. If you're listening, I'll describe it for you.
Trump 2.0 draws from some faces you may recognize. So Calvin Coolidge for his small government and pro-business policies, James Polk, the supporter of manifest destiny in the Western hemisphere. We're certainly seeing a lot of that, whether it's Greenland, Canada, or the Panama Canal. Andrew Jackson, who created an entirely new political order and engaged in lots of deep state battles of his own against the second National Bank of the United States.
Woodrow Wilson, we just discussed isolationism, at least to start. Richard Nixon with his enemies lists, vendettas, and ambitions for energy independence. Eisenhower, lower corporate tax rates and deportations, and then McKinley and the tariffs and protectionism.
And given this peculiar mix of policies, a lot of people are, I think, jumping to conclusions as to exactly how impactful they'll be and whether or not there's-- just how much are these policies going to affect the US economy and the financial markets, or is it going to be a lot of pomp and circumstance?
So
(DESCRIPTION)
Text, Trump Tracker.
(SPEECH)
to have some discipline around that, rather than engage in a lot of conjecture, what we did was we created a tracker for the administration that generally focuses on three things-- growth, capital spending, and consumer indicators, consumer price and wage inflation, and then a bunch of business indicators related to oil and gas production, business surveys, earnings, M&A activity, deportations, and regulations.
So if the Trump policies are material enough, they'll show up here, and we'll be tracking those. Right now, most of these indicators are pretty benign on the growth side. They're either rising or improving from low levels, although a recent firming in inflation is limiting the Fed's ability to cut rates.
So but anyway, this is our Trump tracker. We will post it online. We'll have a link to it in the Eye on the Market, so you can always check it out. And again, the idea here is to have some discipline around things and not respond to every policy pronouncement, but to respond to the impact that those pronouncements are having on the actual data.
(DESCRIPTION)
Text, Trump 2.0: Tracking legal and constitutional issues.
(SPEECH)
And then just to close-- this is a short podcast this time-- I see I see a lot of articles that assert that various parts of the Trump program are unconstitutional. And they very well might be, and some of them appear to be.
But I wanted to have a framework for trying to understand the parts of the administration's approach that people may disagree with. It may be unprecedented, but it appears to be legal based on the powers that are conferred in the Constitution to the executive branch and the policies that are likely to be aggressively challenged and more susceptible to successful judicial challenges.
So there's four categories, and walk through them. One is legal or most likely legal, whether or not people challenge them. And in that bucket, I would put repealing the Biden executive orders, tariffs, firing what's called at-will employees, restructuring government agencies that weren't created by statute, abolishing DEI and affirmative action issues, deportations, withdrawing from the WHO, and as things stand right now, the standstill order for the Consumer Finance Protection Bureau.
Category B, which is the stuff that looks like it's going to be running into more of a buzzsaw of judicial challenges, would be birthright citizenship, abolishing USAID, creating a new class of federal employees that don't have any civil service protections, eliminating agencies that were created by actual legal statutes, firing statutorily protected commissioners of independent agencies, forcing state and local law enforcement to enforce federal immigration laws, et cetera.
And then we have another section just on DOGE because of the complexities associated with that. And then we finish up with some comments on the Consumer Finance Protection Bureau. So anyway, I thought it was helpful to have a framework for understanding these things because I think that some of the commentary that's being tossed around in the press is being somewhat undisciplined as categorizing everything as constitutional or everything is unconstitutional.
And I worked with some constitutional lawyers on this section, and I think it's worth reading if you're interested in this kind of thing. I will say, so far, judges have already temporarily blocked-- now they will almost certainly get appealed to higher courts.
But judges have temporarily blocked a bunch of stuff-- blanket freezes on federal spending, programs to encourage federal workers to resign, the Treasury disclosing parts of its government payment system details to people outside the department, the birthright citizenship order, putting 2,000-plus USAID workers on leave, the cap on indirect NIH research funding, and then terminating the head of the Office of Special Counsel. So there's a lot already going on that is testing the constitutional limits of what's taking place in DC.
So that's it for this month. Next up in early March is our 15th annual energy paper. It's about always three to four months of work, and it's one of the things that I enjoy most about my job, is being able to work on that project. And I look forward to talking to you about it in early March. Have a great day. Bye.
(DESCRIPTION)
Text, J.P.Morgan.
