MIKE TOWNSEND: The idea that the first 100 days of a presidential term is an important time period dates back to President Franklin Delano Roosevelt. The phrase was coined by Roosevelt himself, in a speech in which he touted all that he had accomplished in those few short months in 1933.
Since then, almost every president has tried to downplay the first 100 days. John F. Kennedy, in his inaugural address in 1961, outlined a panoply of sweeping policy proposals, then said, “All of this will not be finished in the first 100 days. Nor will it be finished in the first 1,000 days, nor in the life of this administration, nor even perhaps in our lifetime on this planet.”
Talk about lowering expectations.
Yet the first 100 days remains a focal point of the media. It’s easy to compare things like how many executive orders were signed and how many laws were passed in the first 100 days of every administration since FDR. It’s become something of a barometer of each new administration to show that it is hitting the ground running and can get things done.
President Joe Biden just passed the halfway mark of his first 100 days, but he’s already got his signature accomplishment in that period. Yesterday, Congress approved a $1.9 trillion stimulus plan that hews closely to the plan he outlined before he was sworn into office.
This is just the second bill he has signed—along with issuing 44 executive orders. FDR signed 76 bills and issued 99 executive orders in his first 100 days. While Joe Biden has a ways to go to catch FDR in the next 49 days, it’s hard to see the passage of the economic stimulus bill as anything but a big win for this White House.
Welcome to WashingtonWise Investor, an original podcast from Charles Schwab. I’m your host, Mike Townsend, and on this show, our goal is to cut through the noise and confusion of the nation’s capital and help investors figure out what’s really worth paying attention to.
This week, my guest is someone that I think you’ll find very interesting. Bruce Mehlman is a long-time Washington insider who has carved out a niche as something of the capital’s resident futurist. He looks at the intersection of policy, politics, the markets, and history and makes some thought-provoking observations about what investors should be anticipating in the future. Our conversation is coming up in just a few minutes.
But first let’s take a look at some of the stories making news right now.
At the top of the list is final passage of that $1.9 trillion stimulus package that I mentioned a moment ago. Despite razor-thin majorities in both the House and the Senate, Democrats were able to use the parliamentary process available to them and an impressive show of party discipline to pass one of the largest aid bills in this country’s history in a span of about seven weeks.
The Senate used the budget reconciliation process to pass the bill—that’s the special set of rules that prohibits a filibuster and allows the bill to be approved by a simple majority. The final vote was 50 to 49, with all Republicans opposing the measure. Republican Senator Dan Sullivan of Alaska missed the vote to attend a family funeral. But not a single Republican in either the House or the Senate voted in favor of the bill—a stark sign of the bitter polarization on Capitol Hill.
The bill includes $1,400 stimulus checks for most Americans, an expanded child tax credit, money to expand vaccine distribution, aid for state and local governments, and money for everything from restaurants and bars to nutrition programs to public transit.
Senators made a few key changes to the bill that passed the House on February 27. As expected, they dropped the provision from the House bill that would have raised the federal minimum wage to $15 an hour after the Senate parliamentarian ruled that it violated Senate rules.
Senator Bernie Sanders of Vermont tried to add the minimum wage increase back into the bill by offering an amendment. Interestingly, seven Democrats, along with one independent senator, voted against the minimum wage amendment.
They did so for a variety of reasons. Some just did not think it belonged on a bill targeted at COVID-19 relief, and others, such as Senator Joe Manchin of West Virginia, are seeking a smaller increase. Manchin has indicated that he would prefer an increase to $11 an hour rather than $15.
Expect the minimum wage debate to come back in the weeks ahead. Senator Sanders has said he will continue to put pressure on his colleagues by calling for future votes.
It’s going to be interesting to see how this debate plays out. There is broad support, including from most Republicans, for some type of increase from the current level of $7.25 an hour. Compromise is a possibility, but whether there is the political will to make that compromise remains to be seen.
Another key change the Senate made to the House bill was lowering the income limit for eligibility to receive a $1,400 check. In the House version, checks phased out for individuals with income over $100,000 or couples with incomes above $200,000. The Senate lowered those caps to $80,000 and $160,000, respectively.
The other big change by the Senate deals with those enhanced unemployment benefits. Individuals receiving unemployment assistance have been getting an additional $300 per week in benefits from the federal government on top of their state payments. That extra money was scheduled to run out this weekend. The House extended those additional payments through August 29 and increased the weekly payment to $400. The Senate knocked that number back to $300 but added an additional week of benefits, extending through September 6.
But the most notable thing the Senate did was to make the first $10,200 in unemployment benefits exempt from taxation for households with less than $150,000 in adjusted gross income.
The change applies to the 2020 tax year. What that means is that individuals who have already filed their taxes but may be eligible for this important tax break may have to file an amended return, though the IRS has not yet determined how this will work. It adds an entirely new level of complexity to an already complicated tax-filing season.
In the end, the success of this massive bill will be measured in how fast all of this aid gets into the hands of people and businesses that need it and how quickly it provides the anticipated boost to the economy.
And now the administration will catch its breath and start to figure out the inevitable question in politics: What’s next?
Another important development for investors is the fast-moving confirmation process for Gary Gensler, the president’s nominee to be the next chair of the Securities and Exchange Commission. Gensler testified before the Senate Banking Committee last week at his confirmation hearing, and the committee voted yesterday to approve his nomination. That means the only remaining step is a confirmation vote by the full Senate, which should come any day now.
Gensler’s hearing was a relatively low-key affair without much controversy. Three quick takeaways from the hearing:
First, there remains a lot of interest on Capitol Hill about the retail trading frenzy in late January that led to wild volatility in GameStop and other stocks. Senators brought up several topics in their questions to Gensler, including concerns about the gamification of stock trading and whether less sophisticated investors are getting enough information about potentially risky trades. There was also discussion of potential conflicts in the market plumbing, including whether individual investors are getting the best execution on their trades.
As expected, Gensler mostly deflected these questions, telling the committee members that investor protection remains a key part of the SEC’s mission and that the agency was already studying the issues raised by the explosion in retail trading. He did not tip his hand on whether new regulation was needed, but it was clear that these issues are at the top of his agenda once he settles in at the agency.
Second, Democrats at the hearing pushed Gensler to increase disclosure by public companies on things like political contributions, diversity, and climate change. Republicans questioned whether these issues were material to a company’s finances. Gensler said that the question of materiality should be decided by investors, a signal that he supports increased disclosures, though he did say any disclosure should be grounded in economic analysis. Expect this to be another priority during his tenure.
Finally, Gensler responded to questions about cryptocurrency at the hearing. He said it was important for the SEC to provide guidance and clarity in the cryptocurrency space and repeatedly emphasized the need for investor protection, saying that ensuring the crypto space was free of manipulation and fraud posed a particular challenge for the SEC. The price of Bitcoin briefly fell by about 3% during his testimony—a clear sign that this fast-growing segment of the markets will be watching carefully to see how aggressive the SEC will be in regulating the cryptocurrency marketplace.
On my Deeper Dive today, I’m really pleased to welcome Bruce Mehlman to the podcast. Bruce is the founding partner of the Washington political consulting firm Mehlman, Castagnetti, Rosen, and Thomas, but over a long career in Washington, he has served in a Cabinet agency, as an aid on Capitol Hill, and as part of the Washington team for Cisco Systems. So he has experienced Washington from all the angles. Welcome to the podcast, Bruce.
BRUCE MEHLMAN: Thanks, Mike. Good to be here.
MIKE: Bruce, over the last few years, you’ve achieved a kind of wonky fame—in a good way—here in Washington for a series of PowerPoint presentations that you publish quarterly. In these presentations, you look at big trends at the intersection of policy, politics, the markets, and history and use these trends to look ahead and share your thoughts on how the future might play out. It’s really quite an undertaking. So I guess I’ll start with, how in the world did you get going with this?
BRUCE: What I found is lots of clients were interested in the tactics, in what’s happening, what’s Congress going to do next week or next month. But from time to time, they would want you to speak to their executives who are outside of Washington, or to their investors. And in those audiences, it was never the tactical day-to-day so much as, what is the big picture, what are the trends, where are things going. So get past the current quarter and think about how the trends in technology or the trends in geopolitics are driving politics and policy, and where the big picture decisions for the types of investments that individuals might make, or the types of big investments that businesses might make, they need to be informed by the macro trends, by where the populism of today is likely to lead in terms of investing tomorrow. And what you find, of course, is that everybody in business talks in PowerPoints.
And so when I started publishing these things, I found that the Washington offices were sending them to their headquarters, who were sending them to their boards, who were sending them to their investors, and I started getting a lot of independent inquiries to be added, individuals wanting to be added to the distribution list. And, you know, it’s like all positive reinforcement: The more people who showed interest in and appreciation for these, the more time and effort I put into them.
MIKE: Well, Bruce, in your recent presentations, you’ve talked a lot about how the pandemic has accelerated a variety of changes that were already underway, and it strikes me that two of those changes are particularly relevant for investors. In the first one, you posit that we’re moving from a period where leverage and risk were priorities to a period where margin and safety are priorities. So after all these years of operating with a leverage and risk model, how does this play out in the real world?
BRUCE: Well, when you think about challenges, whether it’s the country, people, or the world, it feels like the single biggest challenge is we haven’t built a very resilient system. Our safety nets are inadequate. You take a look at … you know, we saw with the financial collapse, and while they made some changes after that, clearly, we have bubbles of various sorts. The Fed, you now, if the Fed decides that maybe they ought to even think about raising interest rates. You have taper tantrums.
We weren’t prepared for a pandemic, as foreseeable as that is. There’s a vast amount of cyber risk, and people haven’t prepared for that. It feels to me the next decade is going to see a lot more investment in a resilience economy. It’s going to think about things like public health. It’s going to assess things like climate adaptation and mitigation. As the fourth industrial revolution accelerates, it’s clear we need to do a better job, hardening systems against the cyber risk that’s so pervasive.
And I think we are going to spend some couple of trillion dollars this year—it finally will be “Infrastructure Week.” But when we actually focus on that, we don’t have to build back bridges à la 1950, 1960s technology. We can build a smarter system—systems that pair with what technology enables. All of that I see as investment in the resilience economy, which is needed, which probably creates a lot of opportunities, but it fundamentally reflects a greater fragility that people have come to realize over the last year.
MIKE: Another way that you’ve looked at the future is that you described it as we’re moving from a period of abundance to a period of austerity. Now, there’s a lot of chatter that once we’re through the pandemic, people will really want to just kick things into high gear, almost like the roaring 20sRoaring Twenties. Do you think that’s what will happen?
BRUCE: Well, I think a relief rally is almost guaranteed, at least in 2021, maybe 2022, and the amount of stimulus is off the charts. And, you know, this is the fastest growth in household savings during a recession they’ve ever charted. And so all of that demand to do things is going to run into a short level of supply, but we’re all going to party like it’s 1999, as they say. That short term will be pretty good for a pop. That said, there’s still millions of people who don’t have jobs who want jobs or used to want jobs. At the moment, maybe they don’t need jobs, but they’re going to want and need them again. I do worry about … you know, the country can’t just … I’m not a Modern Monetary Theorist. I don’t think you can add unlimited debt. I don’t think the amount of money and the types of inflation that we’re seeing within asset … certain asset classes is based upon, you know, true reflection of underlying value, as opposed to there’s nowhere else for a lot of the money to go.
A little bit, though, when you talk about the observation I made, it was a mindset, and to me, it’s a bit generational, too. If you’re 25 years old today, in the first month of first grade, you were sent home because of the 9/11 attacks. In eighth grade, when you got home, your parents were sitting around the kitchen table, wondering if they could afford the family’s mortgage because of the financial reset. You’re 25 years old right now, you’ve got a mountain of student debt from a college degree you were told you needed, which, by the way, won’t cover your whole career. It might get you through the next five years of relevance, but you’re going to need to maintain lifelong learning. You feel very exposed.
You know, are those folks going to look to take on more debt? Are going to look to buy a larger home? Do they feel confident about the future? And I worry that even though, right now, we’re seeing what has to be irrational exuberance in certain markets, by certain investors, I think if you take a three- to five-year view, there’s a very high risk of a snapback.
MIKE: So let’s think about how Washington can play a role in that. We have a new president, we have a new Congress, but we also have midterm elections looming. Those are historically terrible for the president’s party. So it seems like there’s a very short window of opportunity for any new president and certainly for this new president, and that window is getting shorter and shorter. So we’ve just had a major stimulus bill, $1.9 trillion. What else do you see as achievable and what would constitute success for the Democrats going forward?
BRUCE: Well, you’re right, of course, that every president since John F. Kennedy has lost double-digit seats in the House in their first midterm election, except George W. Bush after 9/11, and the current Dems can give up, is if they lose five seats, the House flips, because 222 to 213 is a margin of nine—you flip five, and they’re down 218 to 217. So I do think, particularly given that redistricting will also make it a little bit harder for certain Dems in certain seats, they’ve got to operate believing in two years they’re going to lose the House.
That said, they’ve shown incredible discipline. They’ve moved a reconciliation bill faster than anybody thought was possible. By the time this airs, they will have passed the $1.9 trillion COVID package, one of the biggest in American history spending. They’re planning to move to more reconciliation on infrastructure. They say … it will start bipartisan, but I think they’ll end with reconciliation, Democrats only, because they’re going to want to match $3 to $4 trillion of investment with $1 to $2 trillion of tax raisers to pay for it, and that will shake any Republican support, I suspect, from it. We’re seeing very aggressive efforts in the administration in the regulatory front. We’ve seen more executive orders in the first 50 days than any previous president.
A lot of this, remember, is from Joe Biden, the former vice president, to his chief of staff, Ron Klain, to a lot of the senior officials that they have, almost all of these folks are veterans of the executive branch. They’re not wondering how things work. They know exactly how things work. They know exactly what positions and what roles are going to be high impact. I would look particularly to enforcement agencies. Bringing a guy like Gary Gensler to the SEC is a big deal. That guy is as smart as anybody you’re ever going to find in any particular role. He knows exactly what can and might get done in areas like ESG reporting.
I think you’re going to see him hit the ground running. They’re bringing in folks, like Lina Khan has now been reported is going to go to the FTC. Now, she’s not been in Washington before, but she’s brilliant on antitrust. Bringing in Tim Wu into the White House, who, you know, the guy’s a professor at Columbia University and one of the premier authors on anti-monopoly and why we need to break up big tech.
It reminds me a little, Mike, if you remember the great scene from Butch Cassidy and the Sundance Kid, when after the umpteenth time they rob a train, suddenly there’s a posse coming after them. It’s unlike any posse they’ve ever seen. It’s more disciplined, that rides harder, is more capable. And they kept asking, “Who are those guys?” And it turns out that the head of the railroad had basically hired the toughest lawmen from across the United States to take them down. Biden is kind of putting that team together to really go after big tech when you look at some of the skill positions that he’s put people into.
MIKE: Bruce, you talked about how Democrats have passed the stimulus bill. They’re likely to use a Democrat-only process on an infrastructure bill later this year. One of the questions that I get all the time from investors is sort of how did Washington get this way? You’ve called this kind of hyperpolarization. But if the two parties only exist to beat each other up and undo what the other has done as soon as they get a chance, how can our government function?
BRUCE: I spend a lot of time, probably too much, thinking about this. I think one mistake people make is they assume it all somehow started with Trump, which it didn’t. It preceded him. My own belief is that the core of our challenges today are the fact that over the last three decades we’ve seen meaningful changes in technology driven by the fourth industrial revolution digitization, we’ve seen vast changes in geopolitics resulting from the end of the Cold War and the hyperglobalization that followed, and we’ve seen extraordinary changes in our culture, thanks to civil rights movements and meaningful demographic change driven by immigration. You know, ours is a very different nation than we were three decades ago, let alone more.
And what I think we’re seeing is that the institutions, the parties, and the policies of the 20th century don’t make people feel protected against the disruption and the changes of the 21st century. They’re voting for populists. They’re voting for change because the system hasn’t kept up with the reality. And we’ve seen this in American history before. When you go back to the Gilded Age, you know, they weren’t … it wasn’t Bezos and Microsoft and others back then, it was Rockefeller and Carnegie, these new business conglomerations that nobody had ever seen before. They invented antitrust law to deal with it.
The last time income inequality was as high as it is today was the tail end of the Gilded Age, which the Progressive Era took down through things like changes to the Constitution, a progressive income tax. You know, politics felt broken at the end of the Gilded Age heading into the Progressive Era, and they amended the Constitution to have direct election of senators, to give women the constitutional right to vote, to have a high school movement, where students hadn’t been getting educated past the eighth grade, yet starting in the Midwest and going all around the country thereafter, they decided there needs to be high school. American kids ought to go to high school. They ought to learn the skills that they’re going to need to compete and succeed in the 20th century. That’s all happened in the Gilded Age.
And I think we’re going to need to see systemic reforms that find ways to widen the winner’s circle. I’m a capitalist. I’ve got my own company. I believe in the capitalist system, but it needs to continue to tweak and evolve as the world changes, as technology changes, as business changes. And I think we’re lacking some changes in our polity and in our politics that would make them more responsive to 21st century reality. I think this next decade, the new Roaring Twenties, is going to involve a lot of systemic reform, and I’m hoping that based upon U.S. history, they’re going to help bring more into alignment our present realities and the policies and politics we all expect to ensure a level playing field and to protect those who need protection.
MIKE: It strikes me that one of the things fighting against that is this lack of trust people have in institutions. And in that kind of atmosphere, how do those kinds of changes get made if people don’t trust the institutions that are responsible for making them?
BRUCE: Boy, it’s a great point, and, as you recall, my most recent—I put out these quarterly PowerPoints—and the most recent one I put out said I think the biggest challenge that President Biden faces is not COVID, is not the economy, isn’t China, it’s lack of trust.
To have greater trust … we’ve seen this before in American history. Samuel Huntington, a professor, observed that it’s more or less every 60 years we go through moral indignation with a state of affairs, lack of trust in established institutions, and then you have folks who are outside the mainstream kind of emerge to help lead change and lead the types of reforms I was talking about a moment ago.
Trust comes when people feel like the system is fair, when they’ve got a fair shot to work hard and to get ahead. And right now on the left and on the right, you know, Trump’s message at the end of the day was “The system is rigged.” In ’16, his message was “The system is rigged. The way trade works advantages the multinational big established players and hurts the little guy.” That’s Bernie Sanders’ message, too.
Obviously, they differ on some of the culture war fights. But the core theory is that the in-crowd takes care of the in-crowd. That’s the voice of populism. It’s not just in the United States. Look at AMLO in Mexico, Bolsonaro in Brazil, Modi in India, Boris Johnson and the Brexiteers in the U.K.
It’s consistent around the world that huge amounts of the population feel like the current set of institutions and policies and parties aren’t protecting them against the current realities. In part because they’re not, and in part because the radical transparency of the internet exposes the weakness of institutions.
To fix it, ultimately, I think you need policy reforms. You also need the right brand of leadership. Trust starts with truth. And the reason, right now, we’re seeing more CEOs trusted, weirdly, than political figures is because they’re speaking directly and they’re speaking truthfully through this pandemic period to their workforces. And that’s so far generally building a greater sense of, you know, “I hear what they’re saying, I understand it, I trust it.”
MIKE: Bruce, let me end here. Our founder at Charles Schwab, Chuck Schwab, has always said that investing is itself an act of optimism. But over the last six months, a huge challenge for investors has been the disconnect between the strong market performance and the fact that few people feel like their actual lives are anywhere close to getting back to normal. You said that you are optimistic about the future despite some of the things that you’ve outlined as challenges. So do you think investors should be optimistic?
BRUCE: It depends on your time horizon, I suppose. I mean, I’m really optimistic in the medium- and long-term about the United States, about the ability of our system to self-correct. I’m really optimistic that when we read books, Mike, 20 years from now about this period in history, one of the chapters will be about the Cambrian explosion of innovation and investments that’s been going on. You know, the mRNA technology platform is going to cure a lot more than just creating COVID vaccines, for example. And a lot of the technologies … you know, we’re all sick of being on video calls all day, but two years from now, three years from now, we’ll have found ways to integrate it in ways that actually keep the good stuff but shake the stuff that we’re getting a little sick of. I’m really optimistic that that means there are huge opportunities for society. As to, you know, will FAANG continue to dominate? Will they get broken up? Great question. Don’t know. You know, is Bitcoin a bargain at $54,000, or have they jumped the shark? Don’t know. I’m very bullish that we’re going to have healthier, more productive, more innovative opportunities. And, for me, the big worry is how do we make sure that those opportunities are inclusive. But the overall level of society, I think, has huge upside potential.
MIKE: Well, Bruce, you’ve given us a lot to think about today. Thanks so much for joining me.
BRUCE: It’s an honor to be here. Thanks for having me, Mike.
MIKE: That’s Bruce Mehlman. You can follow him on Twitter @bpmehlman.
On my Why It Matters segment, a quick follow up on something I mentioned in the last episode—the possibility that the IRS could delay the tax-filing deadline.
On Monday, two senior Democrats on the House Ways & Means Committee issued a statement in which they demanded that the IRS delay the April 15 tax deadline.
Committee Chairman Richard Neal of Massachusetts and the chair of one of the Ways & Means subcommittees, Rep. Bill Pascrell of New Jersey, pointed to data that showed that the number of tax returns filed by the end of February was down nearly 25% compared to last year, and the number of returns processed by the IRS was down by 31%. The lawmakers also noted that only 27% of phone calls to the IRS are being answered.
Why does it matter? These are perhaps the most prominent Capitol Hill voices we’ve heard yet calling on the IRS to delay the filing deadline. The pressure on the IRS is growing—but with just about five weeks to go until April 15, no announcement has been made beyond giving residents and businesses in Texas and Oklahoma an extra two months to file their taxes due to the brutal winter storms there last month.
And finally, we may still be 20 months from the 2022 midterm elections, but in Washington, the next election is never too far from everyone’s minds. This week brought the news that a fifth Republican senator has decided not to run for re-election in 2022.
Senator Roy Blunt of Missouri has served in the Senate since 2010, following 14 years in the House of Representatives. His decision not to run for re-election was unexpected, as he had been showing all the signs of gearing up for another election. And while Blunt’s announcement said nothing about any frustration with the bitter, divisive state of affairs in the Senate, it’s hard not to think that was a contributing factor to his decision.
Why does it matter? Because it means there will be a fifth open seat for Republicans to defend in 2022. And while Missouri is a reliably red state—Donald Trump won the state by 15 points in the November presidential election—it’s now a state that will require more resources and focus to defend in a mid-term election in which Republicans believe they have a very good chance to re-capture the Senate majority. It will also likely be the site for a tough primary that could be a test of former President Trump’s ability to impact Senate elections with his preferred candidates.
Well, that’s all for this week’s episode of WashingtonWise Investor. I’ll be back in two weeks, so please take a moment now to follow the show in your listening app so you don’t miss an episode. And if you like what you’ve heard, leave us a rating or a review—those ratings and reviews help new listeners discover the show.
For important disclosures, see the show notes or schwab.com/washingtonwise, where you can also find a transcript.
I’m Mike Townsend, and this has been WashingtonWise Investor. Wherever you are, stay safe, stay healthy, and keep investing wisely.