Bloomberg Talks
00:00:02 · Paul Sweeney, Joe Lavorgna, Tom Keene
[00:00:02] S0: Bloomberg Audio Studios. [00:00:04] S1: Podcasts. [00:00:05] S2: Radio. News. I mean, if you're thought-provoking with Tina Ford and Paul, you've got to migrate to Joe Lavorgna. Sure, we do that. Thought-provoking as well. Joining us now, the chief economist of SMBC Nikko Securities, his public service to the nation is noted with the Trump administration as well. Define Lavorgna gridlock. [00:00:28] S1: Lavorgna gridlock is the Democrats getting a blue tsunami, basically an effective wipeout, and the party believing it's got a mandate to govern in 28. [00:00:41] S2: Interesting. So what are your views? I mean, given your experience, Joe, how do you think this is going to play out over the next 12, 24 hours? [00:00:49] S1: So the problem I have with the betting markets is I don't think they understand the potential breadth and depth of a likely or highly likely Democrat victory. So, yes, the Democrats win the House, but they may have 235, 240 seats. [00:01:05] S0: In the Senate, Democrats probably pick up at least six seats. [00:01:09] S2: Really?
00:01:09 · Tom Keene, Joe Lavorgna, Paul Sweeney
[00:01:09] S2: Really? [00:01:09] S1: And people don't really understand that because, look, what happens is if you look at these localities, these districts, these states, they're highly predictive of other areas because of high correlation. So, for example, in a state like Kansas, which probably goes Democrat– As you know, you haven't had a Democrat win since 1932. So that's a farm state. So if you have a farm state, because they're mad at Trump, and understandably so, because of where diesel costs are. So, okay, then Iowa's in play. And then Nebraska's in play. Oh, and by the way, who's one of the biggest employers or an important employer in Kansas? [00:01:46] S0: Oh, Bombardier. I thought you were. [00:01:48] S2: Going to say the Kansas City Chiefs. Yeah, no, no. [00:01:53] S1: I was going to make another comment, but I'll refrain. So why does that matter? Well, because the trade war with Canada. So, well, what state is very important there? [00:02:01] S2: Well, Michigan. [00:02:02] S1: Look what Roger said against the tariffs. So, like, Michigan's in play. LSA, I think, wins there. So it's a real mess. And a large of it, a lot of it, I think, was unfortunately not self-inflicted. [00:02:14] S0: So let's assume that happens. Right. [00:02:18] S2: Economic policy, policy in general, change materially over the next couple of years? [00:02:21] S0: Well, you tell me. [00:02:22] S1: I'll throw a question back to you guys. How is the president going to react? Does he take accountability and responsibility for what's happened?
00:02:22 · Joe Lavorgna, Paul Sweeney, Tom Keene
[00:02:22] S1: I'll throw a question back to you guys. How is the president going to react? Does he take accountability and responsibility for what's happened? [00:02:28] S0: Does he deflect? Does he do executive orders? [00:02:31] S2: Okay, we're going to stop the show right now. And for all of you around the world, anybody of any walk of life absolutely thunderstruck yesterday. by a president of the United States out by the reflecting pool, that huge magisterial body of water from the Lincoln Memorial is a generalization down to the Capitol. Joe Lavorgna, this is a president who has people around him like you served. You took the pay cut, you went there, you worked the 80 hours a week. What does his government look like after tomorrow? Does everybody exit like Joe Lavorgna exited? [00:03:09] S1: Well, to be fair, I work for Secretary Bessent, who still, I think, has a very highly thought of view, at least among all the investors I talk to. And I wanted to work specifically in Treasury. And I did my term for less than a year with little kids. I wasn't going to be long. So my leaving was family related. And to the extent I can offer guidance and solace, I certainly would. [00:03:31] S2: Do you look for a huge turnover? [00:03:34] S0: Typically, you get turnover in a second term. after the midterms. [00:03:39] S1: Given the likely drubbing Republicans are going to get, yes, I would expect major turnover. [00:03:46] S0: So, changes in economic policy at all? Do you think that President Trump will lean heavily into tariffs, for example?
00:03:46 · Paul Sweeney, Joe Lavorgna
[00:03:46] S0: So, changes in economic policy at all? Do you think that President Trump will lean heavily into tariffs, for example? [00:03:53] S1: Well, so, I don't think the president's going to act like a lame duck. So, he's got executive orders. He's got veto power. Who knows if we get involved in more geopolitical skirmishes? [00:04:03] S0: Does the U.S. [00:04:04] S1: Consider, you know, upping the, um, the blockade against, say, Cuba or doing something there, but potentially militarily? Does the U.S. talk again or the president talk again about annexing Greenland? I don't know. [00:04:16] S0: I mean, it's certainly possible. [00:04:18] S1: I mean, as a risk manager and looking at markets, you've got to game theorize a whole lot of different scenarios that would not happen under, let's say, a more traditional president. So I don't know what happens. But to me, the gridlock is not good kind of gridlock. It's bad gridlock because the political divisions and divisiveness are worse. Things like shutdowns could be longer. We've got a debt ceiling that's going to break up the deal within the next year. That could be a lot worse. I mean, this is just not a pleasant picture.
00:04:18 · Joe Lavorgna, Tom Keene, Paul Sweeney
[00:04:18] S1: I mean, as a risk manager and looking at markets, you've got to game theorize a whole lot of different scenarios that would not happen under, let's say, a more traditional president. So I don't know what happens. But to me, the gridlock is not good kind of gridlock. It's bad gridlock because the political divisions and divisiveness are worse. Things like shutdowns could be longer. We've got a debt ceiling that's going to break up the deal within the next year. That could be a lot worse. I mean, this is just not a pleasant picture. [00:04:44] S2: From where you sit, and as a student of American history, going back to the Boll Weevils, going back to the Blue Dogs, they got a fancy new name for conservative Democrats. What will be the power of Democrats elected by 52 to 48 percent elections across the nation pockets of conservative Democrats that are going to say to the traditional liberal Democrats, you've got to be kidding me. Is that going to be a theme? [00:05:14] S0: It could be. [00:05:14] S1: I mean, the thing is, what I think could happen is, I actually think the Democrats are going to get more than 52 seats. [00:05:21] S0: I mean, 06 is a great baseline. [00:05:23] S1: If you look at presidential net approval ratings, enthusiasm, generic balloting, it suggests the Democrats should get at least six seats. [00:05:32] S0: And 31 House seats.
00:05:32 · Paul Sweeney, Joe Lavorgna, Tom Keene
[00:05:32] S0: And 31 House seats. [00:05:34] S1: So I think that's what you'll get, maybe even a bigger majority in the Senate. Democrats could take that as a mandate, understandably so, and move too far to the left, not unlike, Tom, what the Tea Party was back in 2010 when they got 60-plus seats. And then the question is, okay, what happens in 28? Do the Democrats govern more from the center or from the fringe? [00:05:55] S0: That I don't know. [00:05:56] S2: I have the clearest memory. The only one that covered 94 midterms was Dan Rather. Nobody else was on at nine o'clock at night for that monumental Newt Gingrich election. And the Republicans were all on the same page. Do you, a student of this, Joe Lavorgna, do you see Democrats all on the same page in December of this year or December? I don't see it. [00:06:20] S0: No, I don't see it. [00:06:21] S1: But that doesn't mean the party is going to necessarily be as fractured as one might think. I think there's going to be competing candidates. narratives to see who, you know, who's going to run in 28. And by the way, we should have a good sense by Super Bowl, by Valentine's, who's running on both sides. [00:06:36] S0: And then we'll see who they are. [00:06:37] S1: If it's someone, you know, there's a whole list of Democrats that could run and some of them are very centrist. [00:06:42] S2: I got to stop. This is bad form. I feel like Dustin Hoffman in Hook. I need the outfit in that. How impolite of meta platforms. [00:06:51] S0: Yeah.