E8: Election 2024: Financial Impact Special

The 2024 Election is on the minds of most Americans. It is a consistent topic that comes up frequently as we meet with our Basepoint clients. Many ask, "What will happen to the market and the economy after the election?" 

We thought it was important to come together to discuss and give you our perspective.

Thanks for tuning in. Be sure to subscribe to our channel and follow along as we release episodes each month.

Do you have a topic you want to hear about, please email us at info@basepointwealth.com.

We hope you’ve gained some valuable insights or maybe even a fresh perspective on our topic today. We would love to hear from you with your questions or specific topics you would like us to cover. Simply email us your questions or suggestions to info@basepointwealth.com and who knows, your topic might be featured next.

Be sure to subscribe to be notified of upcoming episodes. Visit www.basepointwealth.com for more information and important disclosures.

Transcript

The Point Podcast Ep 8 Election 2024 Special

SUMMARY KEYWORDS

election impact, market history, congress composition, tax policy, inflation concerns, Fed independence, energy policy, housing affordability, immigration impact, labor markets, education policy, trade tariffs, economic stability, policy proposals, voter questions

 00:05

Welcome to The Point Podcast. We have informed, intelligent conversations about today's financial topics submitted by viewers like you. Let's go ahead and get started. Here are your hosts, Landis Wiley and Allen Wallace. 

00:23

Hello and welcome to The Point. I'm your host. Landis Wiley, sitting here as always, with Chief Investment Officer, Allen Wallace, if this is your first time tuning in, welcome. We're going to have a little different format today, though, for those of you who have been with us before, you know that our usual format is to kick things off with a little discussion on what the most important thing is out there that's affecting financial markets and your portfolio at home. And then we'd like to reach in a hat and draw the topic submitted from your viewers, things you want to hear us just talk about related to finance or the economy or markets or what have you. 

But here we are in election season 2024, and so all the questions, ironically, are about the upcoming election, and that also happens to be the most important thing. And so today, we're actually just going to focus this entire episode on an election special and have a conversation about how the upcoming election might affect markets, might affect the economy, could impact you, and maybe we'll answer some of the common questions that we're getting. So, before we get into that, we're going to take a short break, hear from our sponsor, and we'll be right back. 

01:31

Imagine the perfect swing, the satisfying sound of a golf ball landing on the green. Your retirement could be filled with moments like these. At Basepoint Wealth, we design retirement plans tailored to your passions, whether it's perfecting your game or simply enjoying the tranquility of the course, we've got you covered. To tee up your retirement with one of our fee only advisors visit basepointwealth.com to schedule your initial consultation today, because from here you can go anywhere. Basepoint wealth is a registered investment advisor. Visit basepointwealth.com for important disclosures.

02:02

Welcome back to our 2024 election special. All of the questions that we're getting from clients, all the questions that we've had come in for the podcast, all center around the election. Seems like maybe a lot of angst or questioning out there around about what's going to happen here in November? Going to impact my portfolio? What's going to happen with the economy, is one candidate or one party better or worse than the other one? I mean, there's all kinds of ways that these conversations, these questions are going so let's just dive into it. 

And I guess maybe the first thing we should just address is, if we look back historically, we've had a lot of elections in this country, right? We've had a market for a long time, too, and so we've had a lot of opportunity and a lot of data points where we can see how markets react to elections, both presidential, midterm what have you. So let's just start there. How do markets normally handle an election season like this? 

02:59

Well, I hate to disappoint everyone, but historically, who the president is hasn't mattered much. When you compare market history as a matter of fact, whether it's a Republican or Democrat, it's almost a dead heat. If you go all the way back to 1933, well if you go back to 1950 the Democrats have a little bit of lead. That's because the 1933 period includes the Great Depression. But what we find is the big, important factor is really the composition of Congress in comparison to the to the presidential party. 

So, the best performance is you. It doesn't matter what party the President is. It matters that the Congress is divided. That's when we get the highest returns since the 1933 period, Republicans have had a little bit of an edge in Congress when they're unified, the lowest performance has been when it's a President of either party and then a Democratic majority in the Congress. And I think that's the thing that people need to take into consideration here, is that I've known a lot of advisors over the years, who try to prepare for elections, right? Like we're going to sell if this person wins, or we're going to buy more of this, and I've never seen anyone do that in any sort of way that adds value to the investing process.

So, we're prepared for volatility at any point. So, it doesn't really matter who wins an election. Now, there are other factors in your life that it may impact, tax policy, immigration policy, and economic policy, those things might impact your life, but historically, we have seen very little impact on the markets themselves. 

04:34

Well, it’s interesting you point out that it seems like the makeup of Congress, between the House and the Senate is really kind of the driving factor. But I mean, I really haven't seen much in the way of coverage about those races, and clearly there those races are going on as well.

04:48

Yeah. I mean, I just, I think it, it's a little bit more boring when you're talking about, you know, 435, seats, all geographically dispersed. It looks like there might be a continuous majority in in the house. You never know, right? Because they give you these big ranges of where it should be. It looks like the Republicans may take the Senate also. And then, you know, the presidential race is sort of in a dead heat. But yeah, I mean, I think that the composition of the Congress, because they make the laws, right? It's really the President who can suggest a policy, they can have a platform, but at the end of the day, it's the Congress that passes the laws. So, I think that is much more impactful to the market itself than you know who's in the executive branch. 

05:41

So interesting thing that just kind of crossed my mind there, you talked about how, you know, in theory, our system of government is set up that the legislature writes the laws, right? The President signs them and helps execute them. And then, of course, the judiciary is supposed to evaluate and figure out if they're, you know, in alignment with our Constitution. In recent years, there seems to have been a substantial increase in the use of executive power right by the President to enact different policy, whether it's regulatory policy, you know, bordering on things that traditionally are, you know, maybe more the purview of the legislature. Does that have the possibility of maybe making the President themselves more impactful to the markets, and maybe what the historical data would suggest if that trend were to continue? 

06:32

Well sure, I mean the President is the leader of the executive branch, right? And there was a Supreme Court decision over the last year called the Chevron decision that was overturned. And the Chevron doctrine basically said that Congress makes the laws, but then the executive branch sort of executes them. But since the executive branch is full of experts, we will defer to them and sort of let them have the benefit of the doubt when it comes to settling the law. Well, the Supreme Court overruled that, and so we may be in the middle of that power being taken back from the executive branch and given back to the legislature. You know, in the 80s, there was a lot of arguments about, you know, how this was going to cause the executive branch to become overly powerful. That may or may not have happened, but now the Supreme Court decision last year sort of reversed that trend

07:22

Okay, so if the split Congress and markets generally like that, would it be an overstep to say that maybe the reason markets perform better in a split Congress is the sense of stalemate, that maybe the idea that things remain more stable, you know, markets like stability and predictability, right? And certainly, I think there's a case that could pretty easily, easily be made, that if you have a split Congress, the likelihood of any large legislation that meaningfully changes the status quo is pretty rare, 

07:53

If something does pass, it is widely backed by both sides, right? So, it's sort of a check on these sort of fringe type policies getting put into place. So, when you have unity on one side, and especially in a climate like we're in now, where everyone is so polarized, right? You know, if you pass something, half the population is going to be really upset about it. So, I think the gridlock that we've had is actually sort of created a sense of calm and been a stable at least for the markets, right? Yeah, exactly. We're not talking about people's personal lives. We're talking about how they impact the stock market, correct? Yeah, right. 

08:33

Okay, so, you know, I guess if we can look at that, you know, if markets generally are probably going to be more focused on the split of Congress. You know, we can. We can kind of move past maybe the idea that, well, if we bet that this candidate is going to win, my portfolio goes up, and if this candidate wins, my portfolio is going to go down. You know, maybe, maybe we need to dig in a little more granular and talk about maybe some of the specific policy proposals that I think are on that are really on the ballot right, not just in the presidential context, but also in those in those House and Senate races, that may have an immediate impact on people, including people that are watching and listening to this, but may also, in some cases, be a longer-term type of effect to the markets for, you know, years or decades into the future. So, you know, there's a whole host of, I know you hit on a few of them there at the beginning. You know, taxes and immigration and, you know, you can talk, I mean, you go into education. You can go into all kinds of different, different areas there. Let's just maybe start with one that is is also coming up in a lot of questions, which is, how do we prepare for potential changes to the tax code. 

You know, one of the things that is a hot button issue that we do hear a lot about, that our advisors hear a lot about, is questions around the expiration of the Trump tax reforms, right? The tax cuts and jobs tax cuts. 2017 it comes up here. 2025 where those start to fall off, at least on the personal side, the corporate side, those tend to be locked in. But on the personal side, there's a lot of changes coming up. So that seems like maybe an area where the outcome of this election could have a fairly immediate impact on folks. You would presume that if Donald Trump were to win the election, there would be a higher likelihood of wanting to extend or, you know, maybe even go further with some of those cuts and not allow them to expire. Whereas maybe the alternative side would say, let some of those go away, at least in some areas. So, you know, how do we see that playing out? How does a person position themselves, maybe not even so much from a portfolio perspective, but you know, how can, how can a person out there prepare for either one of those possible outcomes. What do we think is going to be the result of?

10:45

Well, we don't know. Obviously, both sides are saying that they don't want to raise taxes for anyone that makes less than 400,000 a year, that encompasses 97% of the population. Now, whether they get that done or not, or, you know, fulfill that promise, remains to be seen, because remember, these are just policy proposals that they still have to get through both houses of Congress in order to pass them into a law right. Trump has stated that he wants to extend the Tax Cuts and Jobs Act and make a lot of the provisions permanent. So, for the last couple decades, what we've been doing is making these temporary bills in order to get them done right, like so we're only going to lock this in for eight years, and when the eight years is up, then, you know, it sort of reverts back to what the previous law was, and that's what we have here. They call the sunset provision, so that there will be higher marginal tax rates, we go back to a lower standard deduction, personal exemptions come back on the AMT becomes more, you know, more important. So those sort of things would be back in play in 2025.

The Harris campaign, and again these are just policy proposals, not necessarily even what will be the final proposal if elected, but they're more inclined to raise taxes on wealthier individuals, especially those making more than $400,000 a year. So there's a proposal for an increase in the top in the top tax rate. Marginal tax rate to be 44.6% it's currently at 37% raising the capital gains rates at 33% it's currently at 20% causing capital gains of above a million dollars to be taxed as ordinary income, taking away the step up in basis on capital gains above $5 million and then on households with over 100 million actually implementing a 25% minimum tax, including unrealized capital gains. So that's a huge difference in tax policy that we've never seen before, right? 

12:40

You mentioned one thing in there that'll for at least for the time being, it seems like sort of the minimum threshold that they're defining as whether changes in the tax code would affect you in a negative way, meaning you may have to pay more. They've kind of drawn this line at 400,000. Which is interesting because it's probably been six or eight years ago, maybe a little longer than that, when we first started to hear that $400,000 threshold. Well, you know, as I'm sure everyone out there is aware, the last few years, there's been a lot of inflation that's occurred, which isn't disconnected from any of these things that we're discussing right now and it's certainly a major factor in the conversations around this upcoming election. 

But you know, a $400,000 income threshold in 2016 is a very different threshold than it is in 2024, sure, you know average in average household income has increased quite measurably since 2020 but still have costs. And so, you know this idea of setting sort of a threshold where, well, it's, it's only folks that are that are high up on the income threshold. Well guess what, a whole lot more people are a whole lot closer to that than what they were eight years ago. Sure, in large part, just because of the effects of inflation. So, you know, as we're talking about things like tax policy, in some ways, some of these thresholds that are being set sort of cross over into this underlying conversation around inflation. And is it under control? Is it not? It's certainly a lightning rod issue. You know, the Republican Party is trying to paint the Democratic Party as being chiefly responsible for inflation over the last four years. Certainly, there was a lot of money printing and stimulus and government support in 2020 that that contributed to that. But that's become a little bit of a lightning rod as we look ahead to potential Fed decisions around interest rates, the potential that Jerome Powell may be stepping aside at some point, and there may be a successor candidate that comes in that maybe has a different view on sure some of the Fed policies that may drive that so maybe, you know, can we, can we shift a little bit and just kind of talk about inflation and maybe the potential impacts to that as we go through this cycle,

15:02

So, Kamala Harris actually voted against Powell in 2018 when Trump suggested him and then Biden reappointed him in 2022 Trump has said publicly that he would replace him in 2026 I don't know what the Harris camp would do so we might see a shakeup at the Fed. It just depends. The Fed has a dual mandate right, to try to control inflation and to try to maintain full employment. And a lot of times those are competing goals. We look at the recent data, inflation, at least core inflation, is sort of picked back up just a little bit. We did have a little bit of a decline in the unemployment number recently, but that may or may not be transitory, because the jobs numbers are starting to deteriorate a little bit. If you look at the JOLTS (Job Openings and Labor Turnover) numbers, which are the jobs opens, those are starting to drop as well. So, in the meantime, we also have this sort of yield curve on inversion slowly happening over time. So, it remains to be seen what happens with inflation. We can't predict that. We do know that we're probably going into a rate cutting cycle, though, right, so that may or may not cause inflation to heat back up. It just It depends on more economic factors, and I think it does purely short-term interest rates.

16:21

So, one of the things that comes up often is sort of the independence of the Fed to make these decisions. And that's been, you know, certainly has come to the fore a few times over the course of the campaign, whether it's the insistence of replacing the Fed Chair upon being elected, to maybe the view that the Fed should prioritize or focus more on income inequality, wealth inequality, as part of their policy. Could the outcome of this election perhaps change or impact some of that perceived impartiality or separation of power of the Fed?

17:01

Well Harris, Kamala Harris, has said publicly that she prefers an independent fed. And Trump has said that he prefers for the President to have a little bit more power over interest rates. He's stated that he feels like there are better ways to fight inflation than through manipulating interest rates. I don't know what those are. I haven't seen it written down. So, on the Democratic side, it appears like it's, you know, let's continue having an independent Fed. I don't know if that's really what gets implemented, but at least publicly, that's what's been stated. I mean, I do think it's important for the Fed to remain independent and make those decisions, not put not having political pressure put on them, right? The worst thing to do is to have someone making decisions to extend, you know, a period of prosperity, or to try to avoid a period of recession, and then make it worse, right? Because the longer you stretch these things out, the worse the correction is when it comes. So, I do think having a separate body that isn't being, you know, isn't worried about reelection every two years for Congress, or every four years for the President, or every six years for the Senate, right? I think that that's a huge conflict of interest and that they should remain independent.

18:13

And I think most people out there probably would agree with the idea that it's exhausting going through elections every two years, yeah, and probably the last thing that we want is fed interest rate policy, you know, affecting everything from their mortgage rates to their, you know, auto loans, to the interest earning in the bank to possibly the employment cycle being somewhat tied to that same cycle of things. So, yeah, certainly, certainly something that we would want to pay attention to. So, you know, in looking then at sort of that Fed independence, the idea of, you know, how much should those in government maybe put their finger on the scale of things, okay, whether that's Fed policy or getting in and, you know, making dramatic changes to the not just the tax rates, but even the types of taxes that we levy. You mentioned some earlier, you know, the concept of going after unrealized gains, which is something we've never done. But then again, was it 1913 we hadn't, we didn't have an income tax right, either, right and correct me if I'm wrong, when that first came out, that was only supposed to target a very small,

19:21

yeah, it was only supposed to target the top 1 to 3% of the population, right? So, a lot of times, when these policies are tested out, they're sort of sold as, you know, this is only going to affect rich people. It's not going to affect you. And then they have their way of making, you know, making a progress down the right, down the hierarchy. So, yeah, the original income tax in 1913 wasn't supposed to affect average Americans.

19:48

Yeah. Strange things happen, though, when you set a fixed income threshold right, right. Kind of back to that point of, you know, now it's 400,000 back then it was probably, I don't know what it was, 15,000 or something, you know, which nowadays most people look at and say, well, everybody does that. That's why the income tax applies to every right so, so a lot of you know, a lot of what seems to be taking shape, and this isn't a new debate, is kind of back to the point where you have this idea of how much involvement should government have? Should government policy have? Should legislative governments have over the workings of the economy, or the, you know, the freedoms of individuals to, you know, buy and sell the things that they want, or what have you. There's certainly some big differences in in what's been shared by the candidates so far. And this is something that we get asked about quite a bit is, if one party gets in, will there be areas of the market that do better than others? Will there be things that we should avoid if we think that one candidate or one party is more likely to win or lose, easy ones that come to mind, energy policy. 

21:00

Sure, there's a big dichotomy in energy policy here, right? You have one side that's sort of pro oil, pro drilling. Harris has sort of backed off of comments she made earlier in 2019 about fracking, and has now reversed and said, I'm not against fracking, but originally that was the position that was made. And then on the left, it's more pushes towards green energy and giving tax subsidies and awards for electric vehicles and solar power and wind power and those sort of things. So, I think there's a there's a big divergence in how, not the energy industry as a total, but how different segments of the energy industry will be impacted. Because I think if, if it's a democratic win, then you have the continued implementation of the inflation reduction act, which has a lot of renewable energy type incentives in there. And Trump has said publicly that if he's elected, he's going to try to get that Act repealed, not he may or may not be able to do that, but that's at least the plan. I think defense manufacturers, I don't think it matters which side wins. I mean, that's one of those things. Sometimes you have a war party and you have a dub party. But I don't think that's really the case right now. I think you know, the defense, the military, will probably continue to be built up. We have some conflicts that we're supporting throughout the world, so I think that will continue regardless. And so, I do think there's maybe a difference in manufacturing. So, you know, Trump has said publicly that he'll implement tariffs, 60% tariffs on China, 10 to 20% tariffs on the rest of the world, you know, removing most favored nation trading status from China, which I think would probably require an act of Congress, right, getting them removed from the WTO so that may build up internal manufacturing. Harris has said publicly that she wants to bring more jobs back to the US, but to have, you know, more normalized trading relations with China. So, I think there may be a difference there in how manufacturing economy performs under. 

23:00

So one of the things around tariffs has been the counter argument that, you know, you can apply a tariff to goods coming out of a foreign country, but fundamentally, it's the consumer that buys it that's going to cover that cost. Yep. And so, you know, it's, it's the turning of that phrase into it's a tariff, but it's a tax, and certainly from a first order effect that very possibly could happen, right? I mean, if the if the incentive is, we want to apply tariffs to try to equalize the playing field between the ability to use low cost labor to produce overseas versus, you know, building that that same product in the US. So tariffs are a mechanism to try to, essentially level that playing field. The initial stages is, well, that stuff is still coming from overseas, right? Just because you snap a finger doesn't mean that you're producing computer chips in Arizona tomorrow, right, right. So, first order is potentially that that increase in cost, but, you know, would it be reasonable, and this kind of goes back to a point that I mentioned in the intro to this, which is, there's the possibility of immediate effects coming out of an election, right. Could be changes in policy towards energy, could be changes in policy towards tariffs, etc, but also this idea that some of these decisions actually could have longer, lasting implication. So, what's the argument, or, I mean, what's your argument around tariffs beyond maybe it does increase my costs in the short run? I mean, there's a, there's a longer-term play there, right?

24:28

Sure, yeah. I mean, economists hate tariffs, right? Because they're for global efficiency, and I think that tariffs do create global inefficiencies, but they may create more income in the country that implements them, right? So, which necessarily means that consumers are going to be able to buy less things, but it means that the people will have more jobs. So, I think the longer-term consequences are that there's more internal activity, which means more people working, necessarily less goods because you're pulling in less goods from the rest of the world, but possibly more prosperity in a single nation because there's more employment, right? So now you're going to need a linear equation to sit down and figure out all the unintended consequences that are going on there. But it's really it creates global inefficiency, but it definitely could create efficiencies in a single economy, right? 

25:27

Which, in theory, if that's the mindset behind, you know, the Trump side of that argument, you know that would align kind of with that, America first, right? It's less concern about absolutely the international welfare and prioritize the domestic side of it, and sort of let the chips fall as they may. 

25:46

I think that's the article for it. 

25:50

Yeah, okay, let's kind of, let's shift gears a little bit. You know, we kind of glossed over energy policy a little bit and shifted over into this, this trade piece. But I want to come back to energy, because we have talked about this before on the podcast. You know, we've had a lot of questions around crypto. We've had a lot of we've had a lot of questions around AI. And one of the topics that we have consistently brought up in those discussions, and you've brought up in your writing, is the large increase in demand for energy that comes along with a lot of these modern technologies, right? Whether that's, that's the processing power for crypto transactions, or whether that's the computing power to run, you know, the the AI decision made as a data centers, that seems like it's not going away. That that growth of computing power, that consumption of energy, seems like it's becoming more and more real all the time, and it's certainly a contributing factor to what I think a lot of people have experienced with rising energy costs, not just here locally, where we're at in Cedar Rapids, Iowa, but nationally. 

So, it feels like energy policy is an important thing, not just in the immediate run, but in the long run, if, I guess, let's talk a little bit what, what's the importance of affordable energy for a thriving economy? You and I have had this conversation a lot, not in a setting but, but we've had this conversation a lot about the importance of cheap energy. So, you know, how do the policy proposals that are being flowed out there sort of square themselves with the necessity for affordable energy, whether that's to build industry, to build manufacturing capacity, to become a leader in AI and future technology. I mean, talk a little bit about that

27:43

Well, it depends on what the goal is. Right? Is the goal to replace all fossil fuels for the sake of replacing them, or is it to get there over time without causing economic dislocation? And right now, there are people that feel like economic dislocation is a necessity because they want to do it quickly. And there are other people that are saying, hey, wait, I'm all for wind, I'm all for solar, that's fine, but it's just not quite where it needs to be yet. You know, we don't have, we don't have appropriate battery technology. You know, the problem with a lot of the renewable sources is you have to use them when they're generated. We don't really have an effective way to store it. Whereas gas sort of comes in its own container, right? I mean, it's, you know, it's, sort of the energy itself is in the is in the substance. So it's, you know, it's portable. You can store it over time. You don't have degradation or loss, and so it's more efficient to use those things right now before we have technology to store the renewables. So, the question is, what does the time frame need to be? Do we need to pull the band aid off and stop using all fossil fuels right now? Or can we bridge that gap to get to more efficient production of renewable sources without, sort of, you know, going back into the stone age to get there.

29:06

And that does, maybe seem something that's a little different this election cycle, is, it's less of a black and white, I'm completely for or against renewable sources, and it's, it's become more of a debate over the timing of it, right, right. Election cycles in the past, it's been, you know, I'm either all for wind, solar, electric vehicles and what have you, or I think that we need to just completely abandon the concept and go back to oil and gas, right, right? Whereas now it feels more nuanced, which maybe that means we're evolving, right? 

29:40

I mean, I think at first it was very contentious, and some people thought it had to be one or the other. But I don't think that's true. But I think we can, you know, use our current energy system as a stop gap to get to where we want to go, and take our time and get there, you know, without having the lights go off all the time, right? I mean, we've seen some of these. We're. Now it's in power outages over the last few years in state economies where they've tried to push a little bit too fast. And I think maybe that's a noble goal, but at the same time, you know, you don't people dying from cold and heat because they you know, because the power is not going right.

30:16

Well, it's, it's the age old elementary supply and demand of economics, right? If you have supply, or, excuse me, if you have demand that's increasing quite substantially, you can't just chop off your supply. You've got to just increase it at the same rate, which maybe dovetails into another piece this conversation, you know, we've hit on inflation, talking about energy, importance of, you know, affordability there. One of the big topics that's out there is obviously affordability of cost of living. You know, we hear about CPI consumer price index all the time. Certainly it was a bigger story a couple years ago as inflation, official, inflation was up into the 8% you know, pushing 9% range. And we can debate all day long about how accurate that number is and what have you, but that's also something that seems to be front of mind for people in a question that we hear often going into this election is, depending on how the election works out, is inflation going to ease? Are things going to become more affordable? Our home price is going to, you know, come down. I can't, you know, I can't afford to buy a home, right, right? We're stuck. We have a low interest rate. And, you know, homes are, you know, 100, 200 $300,000 more than what they were a couple of years ago. We know that that's been a story for a while. There's certainly been discussion around this election, around housing policy, you know, I guess, what are maybe some of the factors that are driving some of that housing cost inflation that people have experienced. I mean, maybe we, may we start there. 

31:54

Because I think that goes, I mean, I think it's clearly supply-related, right? I mean, I don't think we're building enough housing for the millennials who have sort of passed that age 35 peak household formation age and are trying to buy homes. You know, I think that regulations have stifled continued construction. I think there's another factor, which is, you know, a lot of large investment firms buying up a lot of housing. I do think that that is a factor. And if you have a big source of capital coming in and buying homes and leasing them out, it is going to impact the price a little bit. I've seen some proposals to, you know, maybe give a $25,000 credit for a first-time home buyer. I would hesitate to say that that's going to be effective, because it's just going to inject money into that system, and all it does is redistribute who's able to buy a house and who's not. That's more of a redistribution technique than it is really an affordability technique. And I think in the long run, all it does is it makes the price of houses go up by the by the increase in, you know, in money. I think we need to focus on building more housing. And, you know, tastes have changed. The houses that the that the baby boomers liked aren't necessarily the same type of houses that the that the younger generations want. Mean, I you know, there's more talk about walkable cities and, you know, smaller, you know, smaller living spaces and these kind of things. So I do think, I think there's a little bit of a there's a little bit of a gap in what's available in inventory, and, you know, what the newer generation wants to have, and then you got a lot of people stuck in 3% mortgages, right? I mean, if you're in a 3% mortgage, and you know, you need to pay six and a half to buy a new house, I you know, you're going to think hard about, yeah, I mean, that's, that's a big increase in your payment on a monthly basis, right? So, I do think it's created a little bit of inertia and people staying in the houses that they're already in, right?

33:50

And that's a cost increase at the same time, as we've already discussed that costs are increasing everywhere else, right, right? So, you know, doubling your mortgage probably doesn't sound like a great idea when you're paying twice as much on an electric bill and more on a grocery bill, and you had to buy a new car that costs, you know, 10 or 15 or $20,000 more than it did five years ago. 

34:07

And you have student loan payments restarting. They were supposed to start in October of last year, but there was a, you know, another deferment, and those student loan payments should start up again. And in October of this year, they know, there's a $1.75 trillion worth of student loans out there, right? That are, you know, so that's going to start to create a drag on the economy for people that weren't making that payment before.

34:30

So, you talked in there briefly about, you know, maybe some of the proposed approaches to tackle the affordability issue, you know, one of them that's been widely publicized and talked about, has been the idea of $25,000 tax credits, or, you know, down payment assistance, or whatever term that you want to use for it. And there's been various state level proposals that have been floated around, kind of to tackle that same thing. You know, we've sort of seen that approach. Taken to affordability questions and accessibility questions. Sure, for you know, it, it's hard for us to sit here and speculate and say, you know, would a policy succeed or fail? Right? Obviously, we don't know the details of it. You can say what you want in a campaign, but you know, things often look a lot different by the time pen hits paper on

35:16

legislation, and once all the other things are added to it, right?

35:19

Yeah, you got all the pork in there and all that, but, but we have seen some, some big, noteworthy examples in the past where, you know, as a society, we have looked at a situation and said it would be great if more people could right, you know. And two big ones come to mind, education and health care. Health care, yeah. And, you know, education probably has the longest data track record, because that conversation really started, you know, before I was even born, probably before you were born. We're probably talking 40, you know, 40-50, plus years ago, with the idea that more people would benefit society would benefit more people had a college degree, right? And that's really where it started, right, was more people would benefit if they could get a college education. And so, initiatives were put into place to incentivize people to, you know, get a college degree, get the piece of paper. Once, we encourage everybody to do it, though, we realize that it's not affordable for everybody, right? We create a lot of demand, supply is slower to catch up. We, you know, we now reach a point where there's an affordability question. And, you know, the response with education was for government to step in and offer subsidized loans, you know, different types of grants, all sorts of programs and activities starting over the last 20-30, plus years geared towards making education affordable. 

36:47

Yeah so if you look, if you look in like the 1970s and early 80s, you could work at a hardware store part time and cover your tuition, right? You know? And that's just not the case anymore. It takes almost a median household income in order to afford one or two years of school, right? So, I mean, that is a huge difference. And then we've, you know, saddled students with $1.75 trillion in debt in order to pay for this education. And in the meantime, I don't know that we've increased the quality of the education as much as we've increased the number of administrators, right? And I think I read somewhere that number of administrators in education is up something like 88% now, I have nothing against educational administrators, but that's where most of that loan money is going, and it's going to big buildings and, you know, this kind of stuff, instead of going to the curriculum right of teaching. 

And in the meantime, we've created a shortage of plumbers and electricians and other types of laborers, right? So, if you look at other countries, like Germany, not everyone goes to post-secondary school. They start them in trade schools young, right? You know, you see someone who's sort of handy and isn't necessarily going to become a philosopher, and so you start training them. And you know, the things that people need done, brick laying and plumbing and electrical work. And I think we need to get away from this feeling that that type of work is somehow demeaning, because it's not right, you know, it's something that's completely necessary to the functioning of our economy. And as a matter of fact, now there's a really high paying jobs. I was just going to say there's

38:21

a lot of plumbers out there making a whole lot more than folks with business degrees, exactly

38:25

right? I mean, you have a lot of people making degrees, making less than the median household income of 65,000 and, you know, a lot of people in trades making six figures and more. So, I think that we need to be a little bit more directed and get people into the right place. I think, you know, the goal is get someone in a place where, you know, they they're happy, they're fulfilled, and they're successful, and encouraging everyone to go to four years of post-secondary education, you know, and party for four years, and, you know, that kind of stuff. I don't know that it's that productive to the economy as a whole, right?

38:58

You've often kind of talked about, you know that this idea that history doesn't always repeat itself, but it often rhymes, yep, you know. And so as we're evaluating and looking at the potential for, you know, how does government, and what is the appropriate role for government, and what is the appropriate policy to address, you know, perceived or real affordability issues with maybe, you know, is housing is the modern day education, is housing the modern day healthcare, right? You know, I can remember one of the earliest elections. I can remember was 1992 you know, Bill Clinton and everybody, you know, the effort was, everybody needed to have a home, right, right? We wanted everybody to be able to buy a home. And that sounds an awful lot like everybody needs a college degree, right? And so it's interesting to look back, you know, look back at that, you know, 30 years later now, and see that some of that same arc of history is sort of playing its way out. It feels like maybe education is 20 years ahead of that, and I think that's where some of that narrative and conversation has shifted focus the last few years, of people being more open to the idea that maybe not everybody does need a college degree, right? And certainly, they probably don't all need one that costs them $100,000 a year, right? So, you know, to be seen how some of these policy proposals maybe play out, but there may be some cautionary lessons to learn.

40:23

I think, be careful what you wish for right I mean, getting involved in areas of the economy and pumping money into them and creating regulations that try to shift incentives and try to shift outcomes for people, I think, is a little bit of hubris or arrogance on our part that, you know, we're that good, that we can come in and, you know, control the economy at that type of level. You know, we've seen that happen over, over history, and typically it doesn't end well. I mean, I think a lot of times it's better to, you know, to go back to basic economics and let individuals seeking out their goals interact with one another in order to, you know, find their proper incentives. And, you know, we're moving more and more towards trying to, you know, move the pieces around the board,

41:14

instead of the concept of central management, as opposed to kind of individual control, right? Yeah. 

So, one of the other topics you touched on this briefly, and we do get a lot of questions about this, and it's primarily related to potential impacts on labor markets and wages, but it has to do with immigration. You know, it's been a hot button issue. There's all kinds of conversations that you can get into around immigration that go beyond the financial impacts. But I think for purposes of this discussion, there's plenty we can talk about around the potential economic and financial impacts of immigration. One of the, one of the interesting statistics that I think we've both seen and many have probably heard, is this idea that nearly all, if not all, job growth in the United States over the last three or four years, I think, since 2017 so I guess we are getting older. Yeah, we are. We are getting older. So seven years has has effectively been through the immigration channel, right? There's been very little, if any, wage growth. In fact, declining wage growth, depending on which study you look at, for, you know, I guess what you would call, you know, native born,

42:27

natural born in the Fed data.

42:29

So, you know, how, what's the, what's the implication to that type of information? How does that impact people watching this. How does that impact our job market? How does that impact, you know, potentially, investment markets, economy and what, what's the relevance to immigration for finance.

42:51

So, you've got a sort of a cultural and an economic dichotomy going here, right? I mean, people want different things for different reasons, and so, you know, you've got one side saying we need to let as many people in as possible, and you have the other side saying we need to, you know, carefully control the people that we let into the country. And if you know, depending on who's elected, you know if, if the Republicans are elected and get in and immediately shut down the border, we do have to realize that almost all the job growth, or actually all the job growth we've had since before COVID, is going to non-natural born or foreign born workers, and so you know, you're going to have unintended consequences of that. Now I'm not saying that that satisfies your other goals, but at least economically speaking, you're probably going to need to be prepared for a recession right now, the jobs growth and unemployment numbers are two of the things that are keeping the economy afloat, so to speak. 

Now, I think that there's a big difference between coming to the country legally and coming to the country illegally, and we could argue about those things all day, but the basic matter of fact is, because we're trying to stick to finance here, the basic matter of fact is that if we shut off the flow of immigration coming into the country right now, that it's going to impact the economy in a negative way. So, we just need to be careful, be prepared for that. We need to make choices. We can still make that choice. We just need to make sure that, you know, the benefit is worth the cost, right? And we may analyze it and say that it is. But the problem is, when you have contentious issues like this, both sides want to hide the negatives and, you know, preach the positives. And there's rarely ever a situation where something is all good or all bad, right? We need to take a very middle of the road view of this and say, okay, here are what the facts are. Here's what happens if  happens, here's what happens if Y happens. And then make an educated choice on what we should do.

44:48

That might be one of the most masterful ways of tackling probably the hottest social button issue that I could have come up with. So bravo. Thanks. Well done. Yeah, I think out of this conversation, you know, we've covered a lot of ground, and I think we're kind of getting to the point where, you know, we can sort of look to wrap this up. Sure, the message, I guess, that I would take out of this in listening to you is we need to be very careful about separating to use one of your other phrases, you got to separate the signal from the noise, right? There's a lot of noise in any election cycle. There's a whole lot of noise around this one. The truth of maybe the best possible outcome is probably somewhere in between the talking points that you hear on both sides and in general the markets, getting back to kind of the opening of this, which, again, I think, is where most people are looking to us and saying, how is this going to impact us? The markets actually do a fairly good job of kind of navigating it in a reasonable fashion, sure, right? And so, you know, probably the message that a that a listener or a viewer could take out of this is, don't lose sleep at night, right? Certainly not as far as your portfolio goes.

46:02

Yeah, not over this. There are other, other ways to lose sleep, but worrying about the election. You know, in I see the people thinking that, you know, this is the end of the world, one way or the other. And both people, both sides, truly believe it, right. But you know, we've been through this before. This is not the most contentious that the US has ever been. If you go back to 1865 or 1776 right? You know, we're nowhere near that, that level. So, you know, we all just have to focus on the things we can control, right?

46:35

And that's harder to do these days, right? I mean, if, if you go back 100 years, you know, you threw some important dates out there, you know, where some things. So go Google the dates, yeah, and you can see things have been more contentious than they are today. You know, politics has always, to a degree, been a game, right, right? It's always been theater. In large part, it's always been theater. You know, there's always been lots of hyperbole. Just, you know, go watch the English parliament. They still wear wigs, and they get up and, you know, it's very if you go to Asia, they still fight right, right. So, politics has always been to large extent, theater. But for us, you know, all of us on the outside, we were always separated from that by the slowness of the news cycle. Well, in the control of the news like and they control the news cycle. And, you know, so, so the hyperbole and the theatrics that happened inside the chambers of Congress or Parliament or what have you, they weren't immediately visible to us, right? It was expressed through written word that showed up on a horse, you know, three weeks later, right, at one point and so politicians could be theatrical in what they did and what they said and and how they spoke. Now, because of social media and cameras and the immediacy of our access to this, you know, we're watching the theater in real time. And I guess I always try to step back again as a kind of a political junkie, and realize that what we're seeing in real time is essentially the act right? And we haven't done a good job, collectively as a society, of probably recognizing the theatrics in that and we tend to maybe take too literally some of the statements that get put out there for you know, for hyperbolic effect, right? Our politicians, yep, and so, you know, back to the don't lose sleep about this overnight. Understand, there's a little bit of some acting that goes on. 

48:33

I think it should be taken seriously, but not literally, right? And those are two different things, and when you take it literally And seriously, then you get in trouble. So, yeah, I think we have to remember that, you know, this is a 200 plus year old country that's been humming along fine, been through periods of turmoil and depression and all these things and war, all these things have happened before. And you know, our system has risen to the occasion and gotten us through it. And I think we just, you know, need to focus on our daily lives and less on Twitter, right, right? Because if you get down that Twitter, I'm sorry. X, yeah, apologies to Elon, but, you know, focus on your daily lives, right?

49:17

Well, I think it's a good way to kind of draw this to a close. So, hope you enjoyed this conversation. Lots of ground obviously got covered, and there's probably some there's probably some topical areas in there for future episodes that we can dive into. So, we really appreciate you taking the time to listen in or watch us if you're catching us on YouTube again. For Allen Wallace, Landis Wiley, we thank you. If you have any thoughts, questions, topics that you'd like to hear us banter about on a future and we'll get back to drawing things out of the hat. Sure going forward, be sure to send those into us and then tune in, because who knows, we might be talking about your topic one day you're on The Point, Until next time.

49:59

Thank you for joining us for this episode of The Point Podcast, sponsored by Basepoint Wealth. As always, you can submit questions or topics you'd like to hear discussed to info at basepointwealth.com be sure to subscribe so you don't miss any future episodes. Basepoint Wealth LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed Be sure to consult with a qualified financial advisor or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.