Disruptive Forces Election Special: Trump's Cabinet

Disruptive Forces Election Special: Trump's Cabinet

Anu Rajakumar: Following a decisive victory by Donald J. Trump in the 2024 US presidential election, investors globally are anticipating significant shifts across various US policies. What lessons has President-elect Trump learned since first coming into office in 2017, and what can we expect from Trump 2.0 when the former president returns to the White House in January 2025? What roles do his major supporters provide in the administration, and finally, what does this all mean for global markets?

My name is Anu Rajakumar, and today on Disruptive Forces, we're welcoming Brad Tank, our Co-Chief Investment Officer of Fixed Income, who's here to answer those questions and help us navigate the intricacies of what could be a transformative era for governance in the United States. Brad, welcome to the show.

Brad Tank: Thank you, Anu.

Anu: Brad, since winning the election, President-elect Trump has begun making key staffing announcements. Just to name a couple, his campaign manager, Susie Wiles, as chief of staff, and immigration hardliner Tom Homan as his border czar. Of course, there's been a few other announcements that are more expected frontrunners at this point. Just beginning with that list and what you've been hearing in the media so far, what do you think President-elect Trump is really signaling with these staffing decisions? Importantly, how do you think it compares to the appointments that he made during his first term of office?

Brad: Those are the important questions. The first part of your question, Anu, in terms of what he's signaling, is part and parcel to the second part of the question, which is what's different and what's been learned. There's a huge contrast in the process around staffing this administration when compared to staffing the first Trump administration. The process that unfolded in late 2016 and into early 17, which was lengthy, a bit chaotic, fraught with a bit of confusion.

A lot of that was simply a reflection of the fact that Trump's victory in 2016 was a surprise to almost everyone, including himself. He wasn't prepared for it, and he was less prepared than others in history that may have been surprised, right? Think about Harry Truman, big surprise, but Truman was a lifelong politician. Trump, based on his own admission, had paid attention to politics, mostly local and mostly as it related to his business, but rarely set foot in Washington.

I think it was in the Joe Rogan interview that he mentioned, to his recollection, he'd never spend a night in Washington. He'd always day trip down there to work on his various real estate projects. He wasn't really ready for it, and so you had a pretty chaotic start to that first administration. I think he sent a very strong signal that this time is different with what you mentioned was his first appointment, and that's Susie Wiles, who, of course, was co-chair of his campaign.

If you were paying attention to that campaign, people were making remarks and observations as long ago as a year ago that this was a very different Trump campaign and that it was orderly, methodical. There were no leaks, very different than what we had gotten used to. She still couldn't exactly script him all the time, but it was a very well-organized campaign. By bringing her into the White House to serve as chief of staff, I think you're going to see a much more orderly process unfold day to day in the inner workings of the White House, which certainly wasn't the case in the first year of the prior Trump administration.

He also named Steve Miller deputy chief of staff. Stephen Miller is a carryover from the first administration and one of the handful of people to have performed in senior roles that was there for the entire four years. Very much a Trump loyalist, and also a strong advocate of strong border policy.

Anu: Absolutely. Now, again, as you said, there's a few folks who have been officially announced, a lot more who are expected to be announced in the coming days. This is very much unfolding as we speak. Why don't you tell us about a couple of folks that you think are particularly important in terms of their potential impact for policy and market dynamics? Which are some of the assignments that you think could be made in the next few days, and who may be announced?

Brad: Sure. You mentioned one of the early ones, which in keeping with the promises and intentions made on the campaign trail on getting tough on immigration is Tom Homan, named as border czar. Now, he's a veteran of the first Trump administration. He's a career immigration and border professional, and he's served in a variety of capacities over the years. Was a key architect of many of the first administration's strategies, and importantly, the implementation and enforcement of those strategies.

The return of Tom Homan strongly indicates that getting tough on the border is a top, top, top priority. He's also just recently named Kristi Noem, Governor of South Dakota as the Head of Homeland Security. She's a conservative Trump loyalist and has developed a good working relationship with Trump during the prior administration and has maintained contact. Again, another indication of strong border.

Talking about the border, sticking on the border theme, what we know with respect to Department of State, it's expected, but it hasn't yet been announced that Marco Rubio is to be the next head of the State Department. Now he's got a strong resume as a senator in foreign affairs, foreign relations. He's a China hawk. He's very pro-Israel. On the border he's evolved being, I would say, more relaxed or pro-immigration. In the past, he's moved more in the direction of being stronger on border enforcement.

That being said, I think that Marco Rubio himself would describe himself as very much pro-immigration, pro-legal immigration. He really fits the template of a senior leader in the Senate who's very much aligned with the President-elect on all of the major foreign policy issues. Lastly, comment on his positioning as he's described it on the Ukraine. He, the President-elect, has described his view as we need to end this and come to some settlement.

If you look at his workload, assuming he is announced as an approved, which you can expect with the Senate majority and the strong relationship that he has with colleagues there, that he'd have a very full workload needless to say. He's very much aligned with President-elect Trump on all of these major issues. Other ones that we have had announced and very consistent with campaign promises, NSA Chief Mike Waltz, strong military background, multiple tours of duty in Afghanistan as a Green Beret. I believe the first Green Beret ever electorate to Congress where he served in the House of Representatives representing Florida.

Again, very hawkish on China, very strong on security, national security. Serves on a couple of very important committees in the House, Armed Services within the Armed Services Committee, a committee for preparedness. He clearly brings a lot of real-world experience to the job. Interestingly enough, biographical footnote of interest, early in his political career after having left the military, he had a Pentagon job and then he actually was Vice President Cheney's advisor on international security issues.

Anu Rajakumar: Oh, interesting. I did not know that. Just in talking about some of those campaign trail items, another big focus for President-elect Trump was bringing down the price of gas for consumers. At the time of recording, we're yet to hear selection of the energy secretary. Any thoughts or expectations on that front?

Brad Tank: Yes. It's a great question because many market participants and certainly people involved in the world of Washington are paying attention to what's circulating from the various members of the transition team on a lot of topics. This transition team is very clearly a pro-business transition team with the co-chairs being Howard Lutnick, a well-known longtime Wall Street CEO, head of Cantor Fitzgerald, and a number of related companies. Strong supporter of the President-elect.

Linda McMahon, who I would describe as the small business advocate, obviously built the entertainment business powerhouse WWF, and then served as the SBA Small Business Administration commissioner head under the first Trump administration. They're the co-chairs of the transition team, and they bring a very strong pro-business view. Lutnick is well tapped into the world of finance, Wall Street, New York, and Linda McMahon more of an emphasis on the small business person.

With respect to energy, not a lot of names have been thrown out as potential secretaries of the Department of Energy. That being said, it is safe to assume that major participants, CEOs, investors in the energy industry have a seat at the table here and will make strong recommendations with respect to who the next energy secretary is. Number of Texas oil and gas producers are very close to President Trump, were close in the first term and have remained close.

The expectation here is you'll have a strong advocate for the industry and you'll have policy. He'll have a fairly explicit energy policy that will encompass not only activities in the United States but will encompass activities outside of the United States. Recall, during the first Trump administration, he had forged strong ties with the Kingdom of Saudi Arabia. Had worked through his son-in-law to try and bring together Israel with some of the various Arab nations through the Abraham Accords. Also had strong relationships with Kuwait and the Emirates.

I would expect that in this administration you'll have seats at the table with respect to energy policy from experienced people both inside the United States and outside the United States. I think there's a general expectation that production is going to rise, and as a consequence energy prices will fall or should fall. I would be cautious with respect to getting too enthusiastic about that view because, again, when you have producers, both CEOs of companies and countries at the table in this administration, there are limits to how far energy prices would fall.

Anu: Yes. No, that makes sense. Brad, when it comes to the asset management industry, just to shift gears a little bit, who Trump chooses to lead the SEC Labor Department, other regulatory bodies could also impact policies and oversight quite dramatically. Just wondering if I can get your thoughts on direction of travel in that industry.

Brad: Sure. We know there's a strong deregulation wave taking place and Trump has been very vocal about agencies with regulatory oversight, particularly the SEC and change will come swiftly there. You've got Jay Clayton in the mix who served in that capacity previously, who may be tapped again or for another role. He's well regarded both inside the Trump Circle and outside the Trump Circle in regulatory and legal circles. He's viewed as very pragmatic and effective regulator, all be one that's very pro markets.

He would be an example of the type of individual that you could expect to see in that role. In addition to regulation, we of course have the Treasury Department. The Treasury Department is expected to withdraw from someone that has strong financial market relationships and experience. The shortlist of candidates there include a gentleman by the name of Scott Bessent who runs his own hedge fund, who used to be the chief investment officer of the Quantum Fund. Glenn Youngkin, who was co-CEO of Carlyle for a number of years, who's currently governor of Virginia.

Lutnick himself has been thrown around as a candidate. We'll get to Elon Musk in a bit, but some of these candidates, like Howard Lutnick, their business interests are so vast and complicated. It'd be difficult for them to withdraw and take an official position because it would involve a very rapid and severe distancing from current responsibilities and the effort to eliminate conflicts of interest should be difficult. John Paulson, another potential treasury secretary, took himself out of the running and named the prospect of disentangling his business interests. To take an official role in the administration would be too difficult.

On treasury, Larry Kudlow's name comes up. Of course, he was the former NEC head under Trump. Larry has been around in various capacities going back to the Reagan administration, a longtime chief economist of Bear Stearns. Very visible commentator, more of an economist than a markets person. The business community generally prefers markets people, especially during times of crisis. It seems to be the case that interests are lining up behind Scott Bessen as the lead candidate but we'll see. Story circulating is that treasury will happen later this week, but of course in our industry, treasury in addition to the regulatory agencies is very important.

Anu: Just on that point, Brad, I'm just curious, are there any particular individuals that might be more inclined to addressing the fiscal deficit issue than others, or is that part of the conversation you think that President-elect Trump will be thinking about?

Brad: Yes, that's a good point, Anu. I think there is sensitivity contrary to some of the alarmist headlines, and there's reason for alarm based on the trajectory of the US fiscal situation, the last half a dozen years or so during and post-COVID that there is a problem here. There is an issue and anyone in the capacity of treasury secretary has to be sensitive to markets and the fiscal situation. There are other important jobs and responsibility as it relates to fiscal responsibility, who the next majority leader in the Senate is.

Mike Johnson, of course, is very likely to retain speaker role in the house. The house has contained a vocal minority of deficit hawks. What kind of leadership we get from the Senate on fiscal responsibility I think will be important. Sensitivity in the role of treasury secretary to the impact of treasury borrowing is an important one. On that front, I'll make one comment on Scott Bessent. He is certainly tuned into the markets, watches them closely, former active macro hedge fund manager with a lot of experience and a strong track record.

He's also very much a believer in this notion that zero interest rate policy is practiced by not only our central bank but central banks abroad to a greater degree. Has actually been counterproductive to maintaining a strong and growing economy and so he's got strong views on rates. If it's him or if it's someone like a Glenn Youngkin with strong commercial experience as well, I think you'll have somebody who will try and manage a very difficult process of maintaining some campaign promises. Maintaining the current tax cuts passed in 2017, while at the same time keeping control of spending to make sure that deficits do not spiral out of control.

Anu: Thank you for that. Even though you mentioned Elon Musk a few moments ago, Musk was very influential in Trump's campaign. What role, if any, do you think he has in Trump 2.0's administration?

Brad: It's clear from the early days he has a large role already. I think the general expectation is that his role will be broad, varied, and unofficial. Now we could see a surprise there, but again, like some of these other people that have been mentioned, whether it's a Howard Lutnick or a John Paulson, potential energy CEOs, extracting themselves from all of these businesses to reduce or eliminate conflict would be very difficult. I would suspect that he is someone that has the ear of the president-elect. He's a senior advisor.

He will influence various personnel decisions and policy decisions. It's very clear that he's interested in something that Trump has asked him to do, which is preside over an accounting and a potential reorganization to the effect of reducing spending in the federal government. We've never seen anything like this before or a business person with wide-ranging interests and accomplishments has been asked to do something like that. I think we can take it on face value that he'll have a large role to play there, but the notion that he has an official job I think remains less than likely.

Anu: Great. Thank you so much, Brad. Just bringing it all together now, would love to end this conversation with some closing thoughts on broad market implications. How your fixed income teams are really currently positioned as well as how we're thinking about 2025.

Brad: Sure. I think if you talk about broad market implications, areas of uncertainty, and opportunity. The area where there is the most debate and uncertainty beyond what we've hit on already with respect to treasury and regulation of course is trade. To some extent, we've seen the playbook before and in all likelihood, we're going to see the chief dealer of that playbook back in a job. Robert Lighthizer was US trade representative during Trump 1. His trade experience goes back to the Reagan administration where he was deputy US trade representative. His thoughts are well known.

He's written a book on trade basically called No Trade Is Free. He's not simply an advocate for unilaterally high tariffs. If you understand Lighthizer and his approach, he's pretty clear about his views, and I would expect those views to carry a lot of weight in terms of policy. His emphasis is not on free trade. It's on fair trade. He's not afraid to use tariffs as he believes tariffs are a useful tool in establishing fair trade. He's also very much not a believer-- and this is important-- not a believer in large multilateral trade agreements that take years to negotiate and are difficult to enforce.

He's very much an advocate of negotiating trade deals one by one with major trading partners. You can expect that to be the policy of the day. There's been a lot of concern that there'll be a 10% or 20% universal tariff. At the end of the day, I think you're going to see a lot of negotiation. This is going to be a very high-profile important job in this administration, contrast it with the current administration. We had a meeting the other day, I asked the group, "Who's the current US trade representative?" Nobody had her name at the tip of their tongue.

We all knew who Lighthizer was and Trump won and we all knew his role in Trump 2. Again, very big implications in terms of growth markets and so on. Also impacting markets of course is Federal Reserve. We all know because it's been headlines now for a couple of days, Chairman Powell tends to stay on the job through the end of his term in 2026. Trump has basically said that's fine. They've had their clashes in the past, but interestingly enough, the current trajectory of Fed policy is pointed in a direction that I'm sure the president-elect likes.

While there may be some clashing, of course, there will be as there has been in the past. I think for the time being this notion of threats to the independence of the Fed are a lot of headlines. There's just too much work to be done here and particularly unproductive if that were to be the direction that things head. That being said, we've lived in a world here post-COVID where central banks have been the dominant force of driving markets of the market's attention.

One of our themes for 2025, we've got a handful of major themes that will be rolling out in the next few weeks is that there's a shift that's going to take place away from central banks being the dominant drivers of market thought and market attention to policy. Fiscal policy, industrial policy, tax policy, trade policy. That's clearly happening here in the United States and we think that it's a trend that will carry around to other parts of the world. In terms of positioning, how are we positioned? Clearly, we've seen a move toward higher rates.

The markets have responded in part because some of the uncertainty has been lifted, and we've got a very pro-business administration coming in. There's been renewed emphasis on the prospects for higher growth, higher earnings growth. Some anxiety or uncertainty around rates, but it hasn't gotten out of control. I think importantly we've seen volatility come down. One thing that I would point out is in the first year if you think back to the first Trump administration and ask people to describe it, you would generally get a response a lot of uncertainty, pretty chaotic.

You had people coming and going. The reality is you only had a couple of jobs where there was a lot of turnover. He had four chiefs of staff, he had four heads of national security, and in a lot of the other jobs like treasury, he had one treasury secretary. That was reflected in how the markets behaved in 2017. It was a very low volatility. If you look at the VIX, measure of equity market volatility, very low volatility environment. It was the lowest volatility first term that we've seen in the last four presidential four-year periods. One of our themes going into next year is volatility should remain subdued.

Now, we're going to have it bounce around. There is a presidential cycle to equity market volatility. If you look back to post-World War II, the presidential cycle and equity market volatility year one is the highest, the middle two years are the lowest, and then year four it goes back up again. We would expect it to be characterized by periods of higher volatility, but on average our expectation is not for very high equity market volatility next year. The same would probably carry over to rates and something like the move index, but maybe a little bit less confidence on that.

Anu: Terrific, Brad. Thank you very much for sharing your thoughts today. Very helpful. I can't let you go without a quick bonus question that has nothing to do about what we've spoken about, but hopefully gives folks a little bit more insight into who you are. Brad, I'd like to ask you, is there a particular place in the United States that holds a special meaning for you?

Brad: Oh, that's a tough question because I am proud to have been to all 50-- and largely through the course of my career business, but some of the personal travel, I've been to every state in this country.

Anu: Wow. Very impressive.

Brad: I have a little bit more free time going forward, so I'm going to continue to travel around this country. There's so many wonderful places, but I'm no different than a lot of people. My home state is Wisconsin, and I continue to spend a fair amount of time there. It's only 90 miles from my office here. If there's one place I'd have to pick it's the Badger State.

Anu: That is great, go Badgers. Very cool. Brad, thank you again for joining me today. This is a topic that is so important and relevant for our audience as President-elect Trump begins to select his staff and really set his administration's agenda. You made some important points. The widespread belief this is a pro-business administration, expectations for higher growth, lower volatility potentially going forward though acknowledgment of some uncertainty.

As you mentioned, our solving for 2025 themes will be released in the coming weeks. A couple that you mentioned, volatility potentially to be subdued and that shift away from central banks being a key driver of market movements to really being focused more on the policy set by this new administration. Let me thank you again for your time today and wish you well.

Brad: Thank you.

Anu: To our listeners if you enjoyed what you heard today, I encourage you to visit our website www.nb.com where you can find more information about our firm and offerings.

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