How Trump's diplomacy impacts your portfolio

Welcome to Trader Talk, where we dish out the latest Wall street buzz to keep your portfolio sizzling. I'm Kenny Polkari coming to you live from the New York Stock Exchange, a place that's been my home for decades and still feels the pulse of capitalism, entrepreneurship, and really, most of all, freedom. Now, let's jump into it. Rate cuts are the new fairy tale, the market's favorite bedtime time story. Right now, rate cuts are coming to save the day. Investors clinging to the idea like a warm security bl, convincing themselves that no matter how bad the data looks, whether it's weak retail sales, inflation creeping up, or geopolitical uncertainty, the Fed is going to swoop in and lower rates just to fix everything. Well, here's the problem. It's not really reality. Look at the data. The economy is not collapsing. The labor market is holding steady. Inflation, while off its peak, is still running a little bit hotter than the Fed would like. Wages remain strong, and corporate earnings are mostly solid.

And.

And demand has not fallen off a cliff. So why exactly should the Fed cut rates? Because the market wants it. That's really not how it works. And let's be clear, rate cuts aren't a gift. They are a tool used when things are breaking. A real reason a cut would be a recession, credit markets freezing, or serious economic distress. If we get those cuts investors are salivating over, it won't be a bullish signal. It will mean the Fed sees serious trouble ahead. Right now, the market is pricing in perfection. A strong economy and lower rates. That's a contradiction. If things are so great, why do they need the rate cut? Cut rates. And if the Fed does cut aggressively, it likely means something is wrong. The real risk? The Fed doesn't cut as quickly as the market hopes for. The longer inflation stays sticky, the more the Fed will need to hold rates steady, and. And the more investors will realize that they've been betting on more of a fantasy. And when that bubble bursts, the adjustment may not be pretty. So what do investors do? Start making decisions based on wishful thinking. Rates will move when the data demands it, not when the market begs for it. Build a strategy that works in this environment, not one that's banking on a Fed pivot that may never come. Now, I'd like to introduce my next guest, Dan Mahaffey. And Dan is the President and CEO of the Dr. Scholl foundation in Northbrook, Illinois, where he oversees an international portfolio of grant making for charitable causes. He's also an Eisenhower Fellow at the center for the Study of the Presidency in Congress. In Washington, D.C. advising leaders on national defense, technology, competition, and strategic geopolitics. Previously, dan served the CSPC's senior vice president and Director of policy, managing critical programs across several US Administrations. With advanced degrees from Georgetown University and further studies in Chinese history and politics at the East China Normal University, Dan brings a wealth of expertise and global perspective. Ladies and gentlemen, please join me in welcoming Dan Mahaffey. Dan, it is a pleasure to have you. Thank you for joining us.

Great to be here with you in person. Person. You know, we talk so much on zoom and other things, but here we are at the New York Stock Exchange.

Last time you were here was when.

Oh, when I was a little kid. So they, they were yelling and screaming back here and stuff like that. Now it's such a different thing. But as you still say, the, the.

Heartbeat of capitalism, the heartbeat of capital.

Although it's even just quietly humming computers.

That's right. So listen, Dan, I want to talk to you. Listen, you bring a whole different perspective to kind of the investing conversation. So I want to talk to you first about kind of the, where you specialize in the geopolitics stuff that's happening around the world that may or may not affect US Markets. Right. So let's talk first about the European tensions, along with this potential Ukrainian Russian conflict deal that may or may not come to a. Come to an end. I'm hopeful that I think it will. But give me a little bit of your perspective first and we'll talk about the.

Yeah, no, I think, well, we all want to see the conflict come to an end because no side has the wherewithal to prevail. And you see, young men are dying on both sides. We want that to end. You want the. And I think you want to make sure, though, that we haven't given up too much of the moral high ground and the message there. And that's, I think, what's been really frightening for some of our European friends is to see this change in tone from President Trump. And I think if there's a silver lining to it, as we know, it's that he's trying to deal make if there's an art of the deal to be had there, maybe he's trying to give something to get Putin to the table and show that maybe Putin isn't a serious negotiator in the end. The problem, though, is it's really panicking our friends and allies that we're about to, in their minds, pull the rug out from under the Ukrainians, which I.

Don'T really think I don't think we're going to do that. Is that the sense you have, pulling the rug out?

I don't think, as we see them negotiate these mineral deals, if we get that over the gold line, some of these other things, can there be a package of measures? But I think also part of it we have to understand is the animus that Trump may have, perhaps personally, for Zelensky going back to 2018. And when you say that President Trump was misinformed, then all bets were off there. Yeah, well, that was not going to end well.

Yeah, no, I don't think that was going to end well. Talk to me a little bit about these mineral deals, because, in fact, the mineral deals certainly would help Ukraine, but would help the United States as well.

Yeah. And again, it's all about the access to these minerals that are now so critical in batteries, semiconductors, the modern economy, all the rare earths, rare earths which aren't that rare, they're just messy and hard to get to. And Ukraine has some. It has industrial capacity there. Longer term, though, how do you tie our defense and economic interests together? This is one part of it. We're also going to have a lot to learn from the Ukrainians on how you fight modern warfare. Things like drone technology, the stuff they've done, the experience they've had over the past couple of years is rewriting the defense playbook. So you see not only the demand for munitions in Europe, here in the US but then the future things. Drones, semiconductors, all those things that fits in with that mineral deal alongside the security guarantee.

So let's talk for a minute about the drones, because the drones clearly have played a significant role in kind of the conflict that we've seen happening. Right. Who's making those drones? The Americans?

We are not. Most of the drone production in the world is out of China now. The Ukrainians have started to do more on their own. The question we've always had in the US Is how much Chinese technology is getting to the Russians.

Right.

We don't want. But, you know, for the longest time, those Chinese firms were the leaders in drone technology. Now American ones are catching up, but the Ukrainians have their own considerable.

So wait a minute. So. So is it possible that both the Russians and Ukrainians are using Chinese?

Oh, yeah, there's. Yeah, there are scenes where it's Chinese drone on Chinese drone over Ukrainian.

I was completely unaware of that.

But you also have other things, like, you know, the Ukrainians to do their own version of the Israeli pager plot where they were Intercepting the goggles that Russian drone pilots use and putting explosives in the goggles.

In the goggles.

Yeah.

Yeah. Really Amazing, amazing. So let me ask you a question. So let's talk about then, the implications if, if Trump is able to make this deal with Russia, whether he includes Zelensky or not. Let's first talk about what it means for geopolitics and what it kind of means for the new world order.

Yeah, well, look, new world order is an interesting way to put it, but it does at least cement. There are these spheres of influence that large nations have. So does Trump start to want to create a, you know, what is the US Sphere of influence and what are those countries that fit in the security and economic system alongside the US And I think you hear some of the philosophy behind that coming together. When you even have these ideas of, you know, does it become much more transactional in the future? So you have Ukraine as an example. We want minerals in exchange for security. Do we start to tell the Japanese, you need to buy more Treasuries if you want to have our bases there, Things like that. Does national security become far more transactional and does that leave our allies wondering, are we reliable in the end?

That's a very interesting perspective. I hadn't, I hadn't thought about like that. But you know what, I guess it makes some sense.

Yes.

Especially as we see how this is going to play out.

Right, right. And that's why you even hear some of these rumors in the future of, you know, would you get NATO to buy hundred year non interest Treasuries, you know, even things like that that you hear rumored. How do you tie together security and economics in a way that we haven't previously?

Yeah, yeah, that's a whole, I guess that's a whole nother podcast and a whole nother conversation. So let's move on. Let's now talk about tariffs and let's talk about tariffs versus reciprocal tariffs versus is he succeeding and actually making the art of the deal using this negotiation?

Yeah, no, I think, look, the tariffs, at least as we see them as a negotiating tool, successful, of course, limited. So far we've seen, you know, deals with Colombia, Mexico, they come right to the table. They come right to the table. So effective for negotiation. Longer term. The questions you see, reciprocal ones, I get the, you know, again, negotiation. If you're charging me this, I'm going to charge you that, I get that. The other ones though, where you say, okay, for national security, how do we move this industry or chips or things back I don't know if tariffs are going to get to that when other things like loans, cost plus contracting, defense production, that's the long term answer there. And ultimately, I think where we hear of tariffs as a revenue generation tool, that's a pipe dream.

Yeah, that might. But I think, you know, at this point, I think like a lot of what he does, he throws everything into the middle.

Sure.

And he, you know, he kind of sees what.

Right. And I think using them as that negotiation tool has paid some dividends. It's. How long can you stand that noise and uncertainty?

Yeah. Well, my guess, he could probably stand it for a while. Oh, he can. Yes.

I think he likes having the will. He won't he.

Right.

You know, he loves that.

Right.

You know, it's the kind of the question becomes, then what are you, how comfortable are you on Friday evening.

Yeah. Right.

For what he'll say by Monday morning.

Right. What'll happen over the weekend? But let me ask you a question. Do you think these other countries, because it's across the board, how do you think most of the other countries are going to react? Do you think they're going to come to the table and renegotiate trade agreements?

I think they're going to want to in the long term, but in the near term, you're just going to see more reciprocal stuff to inflict pain on US Industry. So you already have the playbooks from the first term that we saw where you'll see tariffs on, like bourbon and major US Exports.

Where do you think that's going to come from? From Europe.

From Europe. From others. In Asia, too.

Yeah. You think in Asia? Yeah.

As well as the Canadians probably have a plan ready.

Yeah. The Canadians aren't real happy right now.

Oh, no. Gosh. As I, as I said on the other podcast, you know, where you're ticking off the people who say thank you to an atm.

Yeah. Really? Oh, my God. All right, so let's talk about this. Let's talk about now. We've seen Trump in office for a little over a month now. We've certainly seen the kind of, the geopolitical negotiations and kind of policies. But let's talk closer to home. What's happening here in America in terms of immigration and, and you know, in my mind, going after the, going after the worst immigrants, going after the worst offenders.

Right. Going after the egregious cases. Yeah.

100%. I don't think anyone is going to stand in the way that. Or at least I hope people wouldn't.

No, I don't I didn't, I don't think people will stand in the way. There's still strong support for those policies. I think where you have overreach and you know, things where if they're arresting people who are caught up alongside other sweeps who have no record.

Right.

Certainly concerns too, where you hear, are they sending folks to Guantanamo or third countries before deportation? Those are the things that give people pause over what's a largely positive sense of a at least change in immigration policy.

Well, okay, I hear you, but I would, I would argue that if you're rounding up the criminals, you're rounding up the people that are doing bad things in this country, sending them to Guantanamo. I don't necessarily. My heart's not breaking for you.

No, and I get that. I understand the practical, I think just the political imagery of it, how long the Americans want these things, but they don't want it to appear too dystopian or authoritarian. And it's that sort of that comfort with these policies. It's the, you know, again, the security and lower costs message that he ran on, if it continues to be undone by some of the either more egregious in the minds of folks policies or policies that are also, as we say, ready, fire, aim.

Right. But is he not, is Trump not doing what he ran on?

Oh, he is very much doing what he ran on. And I majored.

The country voted for this the most.

The majority of the country voted for, for lower costs. They're waking up. You know, they're saying I wanted groceries to be cheaper, not necessarily to fire the rangers at Yellowstone. You know, those are the trade offs and the things that we're hearing from these policy moves that are starting to at least get the public opposition back. You know, you've kind of had this period of quiet since his inauguration. You know, Democrats on the Hill have been, you know, largely silent, you know, tumbleweed kind of.

Right.

Going through their caucus room type mentality.

Right. Okay. But let's talk about the. Look what's happened to the price of oil since he's been in office. It's down about 10%, eight and a half or not close to 9%. So lower oil prices across the board are going to help everybody in terms of inflation, manufacturing cost, utilities, transportation, of course. And that's going to affect everything in terms of overall inflation, not only the United States, but really around the globe.

Really. And I think that is where you've seen two administrations both try to tackle inflation in the ways they can. For the Biden administration, it was Largely to let immigration and keep labor costs down.

Right.

For the Trump administration, it's going to be to push energy costs down.

Okay, so, but, but you can look at that under the Biden administration and say, okay, how'd that work? Didn't really work.

No, it's a lot. Well, and again, it's, this is going to be a question that I think we'll see unfold with Trump because there's so many points and the Biden administration, I could say, was the equivalent of getting in your car and slamming on the gas and the brake at the same time. And with the Trump administration, as you point out, oil, for example, yes, we want to bring the price down, but how many US Producers do we lose if it goes too low? There's that Goldilocks window. Exactly how we do these things.

Okay, so the Goldilocks, I think it costs about $45 a barrel for US producers to produce oil right in that range. I, I think that's about right. So anything above there, right now, oil starting at 70 a barrel. So everyone's good right now. If oil comes down to the $45 a barrel, then, then we run into that problem. Right now for the Saudis, they can reduce it nine twelve dollars a barrel. Right.

They're happy to be.

Although, although they want oil to be at 90 a barrel because they need.

They need to pay for the golf league.

Right. They need the cities in the desert. So there's this ying and yang, of course, where it's going. Now ultimately, what do you think the Saudis do? Because now there's that rumor in April, are they going to increase production? Not going to increase production. And so, you know, if they increase it and they force the price of oil lower, they're going to, at some point they're going to end up hurting the US Producers.

Oh, sure. And I think that's where they've always wanted to try and flood the market and get the US Producers out. The problem is with our market system, we just come back more efficient and.

Leaner, which is what happened under the first Trump presidency when oil crashed. Right. The Saudis kept pumping, pumping, pumping, which they would.

And then ideally, you hope that there will at least be people in the room who say, then we're going to buy from US Producers to refill rspr. Yeah, right.

The Strategic Petroleum Reserve that the Bidens depleted as they tried to bring, as they tried to bring inflation back.

But a little national cantango.

All right, let me ask you another question that seems to be concerning markets at the moment is this whole is hold the whole Trump budget tax policy. Right. The sense is, or at least I'm sensing that the sense is that if Trump is not able to get it through in one big bill right up front, the tax, the tax reform package, all that stuff and it starts to drag out, that's going to weigh on markets because then people start to get nervous about whether or not it's even going to happen.

Right. And that's the traditional Washington uncertainty where and with only one or two votes now to spare in the House, you have to move this package through. And they're now they're trying to move quickly but there's gonna be costs and trade offs and that's when your constituents start to come back on Medicaid, on federal jobs, on programs that a lot of people, while they support the Trump administration and the overall agenda, they still have their federal programs that they like and don't want cut. So this will come up to that. And I think this is the uncertainty lasts well into the holidays because, and I'm talking the Christmas 2025 because Washington won't, you know, ask me three minutes before the deadline and I'll tell you the solution that DC Arrived at.

Right, right, right. Well, so, so, so let me ask question though. You bring up the point about federal employees. Is the government not a little bit bloated? Isn't there room to make some certainly.

Any like any entity, particularly one where it's been hard to get rid of underperforming folks and underperform.

Right.

But even this ties back to that budget discussion.

Right.

One of the reasons in Washington it's been so long and so hard to close down programs is when you keep doing continuing resolutions and keep things going. You can't shut down dated programs.

Right. Okay, hold on. We're just going to take a break. We'll be right back. Okay. So welcome back. Thank you for that conversation. Let's just wrap up with three essential market tips to keep for every investor to keep in mind no matter which way the wind is blowing. Right. Number one, you want to tune into Fed chairs briefings. Right. So Jay Powell, this week you're going to make it a habit to catch the Fed chair's speech or any other official updates that are coming from the central bank, from other central bankers. Right. Whether you're tuning in via your favorite financial news channel or checking the Fed's website, these updates can provide early hints about potential shifts in interest rates or liquidity conditions. I recommend taking a few minutes each morning to, to just Make a note of policy and tonal changes. The insight will help you anticipate market moves and you can adjust your positions, especially if you're in sectors that are particularly sensitive to interest rate moves and monetary policy. 2. Analyze your earnings Seasonal dynamics deeply, deeply affect earnings season. And it's not just about the quarterly numbers. It's about an opportunity to gauge underlying trends and market sentiment of which you're seeing a lot of that now as we move into the Walmart and Home Depot, right? Keep your eye on a select number of companies that are reporting. Look beyond the headline figures, compare the actual results to the analyst expectations and recognize were they too aggressive. Pay attention to emerging technical patterns around those stocks and if you notice that a company is consistently beating their estimates, consider reinforcing your position but also tighten your stop losses if momentum appears to be overheating. The the detailed analysis can help you make more informed adjustments and capture long term trends within the sector. And three Stay alert to the geopolitical developments Now Global against can send ripples through the market. They create a lot of noise, often in unpredictable ways, but they don't price stocks in the long term. But set yourself up for news alerts on any significant geopolitical or trade related events this week. So for instance, the negotiations with Russia and Ukraine, diplomatic shifts or unexpected international tensions which always catch the market by surprise. Then review your portfolio to assess the exposure to the high beta stocks or sectors like energy and industrials that tend to be more volatile during such times. If the news suggests rising uncertainty, it may be wise to trim those positions around the edges or shift some capital into the more defensive assets. And we saw that happen last week with consumer staples. This proactive approach helps you to manage your risk while positioning yourself for emerging opportunities. The three tips tuning into central bank queues, delving into earnings and keeping a vigilant eye on geopolitical developments will help you navigate your market the market with confidence. So every week we end the show with a market recipe and today's dish is the Luncheon Club Lobster Roll. Now back in the day, the New York Stock Exchange Lingerie Club was the members restaurant up at the here at the Exchange. It was on the seventh floor, tucked away from the chaos downstairs and it was full of old world charm. 20 foot ceilings, gilded gold columns, mahogany walls and an iconic grandfather clock anchoring the room. Vintage, vintage Wall Street. The classic clock was a timeless piece that had long been a silent witness to the ebb and flow of the market and it was a steady reminder of the passage of time. It was a beautiful clock, and to me, it set a kind of rhythm in the place. The trading floor was where we yelled. The Luncheon Club were where traders talked. It was a hell of a time to be in an era where camaraderie was king. Now, for a long time, I thought that the golden age was gone, but it really isn't. The players are here. They're just around a new table. When I talk to the young traders on Discord, I see the band is still playing, and I'm happy they're here. But let's give them something good to eat. So this one's a nod from the Old Haunt, and it's my gift to the new players in the game. It's the Luncheon Club Lobster Roll, and it is a classic. So from my table to yours, you can get the full recipe in the show notes, Tweet me your takes on my Twitter account ennipolcari, and join us next week for another episode of Trader Talk. Dan, have you ever had the Luncheon Club Lobster Roll?

I have not. No.

Listen, it was a classic and sorry you missed it. They don't make it. The Luncheon Club doesn't exist in the way that it did.

Right, right.

The lunch the Roll was a classic dish and it really defined one of the defining recipes at the New York Stock Exchange. Anyway, it was a pleasure to talk to you. Thank you for coming. I hope to do this again with you.

Yeah. Likewise. This was great. Thank you. This content was not intended to be financial advice and should not be used as a substitute for professional financial services.