Hey, it's Steve Eisman. Welcome to another episode of the Real Eisman Playbook. So, we began this whole project in early April of last year, and our very, very first guest was Dan Clifton, and he came on just as President Trump had recently announced his tariffs. Dan is the political analyst at Strategas. It was an amazing interview. Could not have been more timely. We had Dan back on a Friday episode talking about the big, beautiful bill, and we've got him back today to talk about the midterm elections, policies, tariffs, the Fed, the next presidential election. It's going to be great, and I'll be back afterwards with some final thoughts.
Hi, this is Steve Eisman, and this is another episode of the Real Eisman Playbook. So, today I'm very pleased to say that we've got a recurring guest coming back, Dan Clifton, who was actually our very, very first guest. So, Dan is the, I guess what you, for lack of a better term, you're the politics analyst at Strategas.
Well, thank you for having me. It's great to be here.
So, you were here, I was our very first episode. It was, I think it was April 6th of last year. Every word out of everybody's mouth was tariffs.
And the market bottomed like three days after our podcast.
And nothing has happened in the world since.
[laughter] Absolutely nothing. It's very boring. Thank you all, and we'll see you next week. So, let's start with something I don't know if it's not controversial, but not too emotional, because so much of what's going on is so emotional.
Talk to us about the midterm elections, which are coming up. There's the Senate, there's the House. Where do you see things right now?
Yeah, I think it all goes back to that first podcast. April 3rd was the actual date. Like, so Trump did his tariffs at 4:00 in the afternoon and we did your podcast at 9:00 in the morning the next day and...
Yeah, oh yeah, and stocks were way down. I mean, it was...
A disaster, and that was a very important moment for shaping the midterm elections because that was the moment that Donald Trump's approval rating on the economy went negative for the very first time.
Think about that, right? During Trump 1.0, Trump had, you know, double-digit unemployment during COVID. He had a 30% contraction in GDP and voters never blamed him for the economy during that time.
And that was his greatest strength.
The economy. Then he campaigns in '24 and he says, 'I'm going to end Biden inflation.'
Now he proposed tariffs. But what we began to see after April 2nd, 2025 was that Trump put out all those tariff proposals and his approval rating on the economy went negative right after that and has remained negative. So he turned his greatest asset, his strength on the economy, into a liability, and that's driven down his overall approval rating.
Okay, so that's the background of how we got here.
Where is his overall approval rating now?
38%. Okay. 38% is not a good approval rating. And let me tell you why. Midterm elections are referendums on the incumbent.
It's not about this congressman versus challenger. It's has Donald Trump made my life better or worse?
So the midterms are not really local.
They're local to a degree.
Of course. The Republicans are going to try and localize it. They're going to make every Democratic candidate the worst human being on the face of the planet.
Okay? The Democrats are going to try and nationalize the election and make it a referendum on Donald Trump. There's a very strong correlation between a president's approval rating and the number of seats they lose in the House over time.
So, lower your approval rating. But let me just give the context. Midterm elections happen in a very systematic way. Basically, a president comes in, his party's in complete control, their voters are like, we are going to solve all the world's problems, and then they have to start governing. And governing is messy. It's ugly. And the opposition voters, which in this case would be Democrats, are basically saying, this is so much worse than what we saw on election day. Like, Trump is doing a million times things worse. So, they get very energized.
And the party in power, their voters are like, well, we thought you were going to end the Middle East wars, or we thought you were going to slow inflation down. And they start to become divided. Okay. And that's what happened. So, in 2009, it was very clear to us after Obama's great victory that he was going to suffer a very big midterm election loss. And you see a very similar trend happening right now with Trump. And the Democrats only need three seats in the House, and they're probably going to get those three seats in the House.
Okay. So, you think they'll get the three seats in the House. What about the Senate?
For market participants, what they really care about is the Senate.
Yes. I mean, if the House goes Democratic and the Senate stays Republican, people say, 'Eh.'
If the House goes Republican and the Senate goes Republican, that's another ballgame.
Yeah. So I look at it and I say to myself, Democrats having complete control of the House and Senate gives them control of the budget. When they have control of the budget, then they have real negotiating leverage with the president. I'll give you an example. 2010, the Republicans won the House, but not the Senate. And we just gridlocked for two years till the 2012 election. 2014, the Republicans took over the House and the Senate, and they were getting the crude oil export ban removed from the Obama administration, which was a climate change presidency.
You could see the power of both chambers, okay? And what the Democrats want to do is they want to win both chambers, and they're going to choose accomplishment over ambition. Get some modest changes on healthcare and renewable energy and point to those victories and say, 'Hey, give us complete control in 2028 and we'll be able to win.'
Let me just stop you right there. Let me challenge you on that.
Because it seems to me that the Democratic Party has moved much more left...
...than people thought. So, if you're saying to me that if the Democrats get both houses, they're going to have a moderate agenda...
Yep. So let me say that. There are really four political parties in Washington. Two in the Republican, two in the Democrat.
Right? So, you have the old establishment party in the Republican side and the Democratic side. These are your traditional politicians. Rahm Emanuel was a good example on the Democratic side, right? Glenn Youngkin on the Republican side. But what you have now is these forces of populism building on the right and the left and pulling the parties further and further away. If you're in a House of Representatives with only a three or four seat majority, it's really hard to govern that way. And that's what we've had the last three cycles. I think Democrats will have a little bit more cushion this time around. Okay? But what will happen is what can actually pass. And you have to use the budget to get what's going to pass. So, you got a lot of cuts coming to Medicaid from the one big beautiful bill that was scheduled for 2028. Democrats are going to use that budget to prevent those cuts from coming into place.
They're going to prevent the solar and wind cuts from coming into place. Those are real achievable victories. That does not mean that if they have complete control, that there's not going to be a subsegment of the population calling for like universal healthcare...
...right? Like doing a, you know, like a major climate change plan.
But they won't get that. They're not going to get that. Let's backtrack for a second. Okay, so you're pretty confident the House is going to go Democratic. How do you feel about the Senate?
Yeah, so I'm mixed on the Senate. Trump only lost two Senate seats in 2018 even though he lost 40 House seats.
So it's very different to win on a statewide basis than to win in these congressional districts. And it's really hard to beat an incumbent. What we know because we've had special elections since 2024, we've had about 85 of them and 75 of those special elections have moved more towards the Democrats relative to the 2024 election and by 11 points. So that's why when you see New Jersey governor's race or Virginia governor's race, they move somewhere around 7 to 8 points to the Democrats.
You apply that and the Democrats won't take over the Senate.
They'll get close, but they won't take over the Senate.
So let's talk about the seats that are... Just remind us, the Senate today is how many Republicans versus Democrats?
Yeah, so it's 53 Republicans, 47 Democrats when you include the independents who caucus with the Democrats, Bernie Sanders.
Yeah, so of all the seats that are up for election, walk us through the ones that are the most sure iffy that could go either way.
That people are focused on.
Right, and so the math here is that the Democrats need four.
Okay, and if they pick up three, you have a 50-50 Senate with J.D. Vance breaking the tie. So that's the magic number. North Carolina is likely to go Democrat. And it's a Republican state. You say, 'They're running a very popular former Democratic governor. And the state was only a couple percentage Republican. So if you get that national shift that's there, good candidate quality, they're likely going to win that seat.' So that's the first one.
The second seat that the Democrats have their eye on, which again candidate quality will matter, is Maine. And we see what's happening with Maine. You now have an...
Maine's getting a fear every day.
You have an official candidate after last night's primary, right?
And the Democrats have to make a choice whether they're going to try and replace him before the July deadline. And I think it would be very hard. He just won with like 70% of the vote.
But they're very worried that Susan Collins is a great candidate. Remember, Susan Collins won in 2020 with Trump losing the state very bad and she being a Republican. She's an excellent candidate.
So, Susan Collins versus Platner. How do you feel about that right now?
So, right now the market gives it a 60% chance that the Democrats are going to win that seat.
Absolutely. It's a very Democratic state.
Republicans do well. There's a congressional district there that's a little bit more blue collar that the Democrats haven't really been able to break. They think with Platner on the ticket, he'll actually do better in that district. You have to understand, Susan Collins is a great candidate. She's been able to win in that state even with...
For decades. Even with a Republican president who loses that state.
So, I think the race is going to be extremely close. So, now you got North Carolina, you got Maine. Okay? Now you're going out to the middle of the country. You have Ohio. Ohio's a 13% Republican state. The country's moved 8, 9, 10. Be competitive. Sherrod Brown, former Democratic senator, on the ticket. And the Republican gubernatorial candidate, Vivek Ramaswamy, isn't running that strong on that ticket. So, there's this belief that the Democrats can win the governor's race and then pull that Senate race above that. So, that's another seat that's important.
Who's running for Senate?
Sherrod Brown. And then you have the existing Republican senator who has a very low approval rating.
And so, when you pull that together, you look at it, you say to yourself, that race is going to be close. Republicans could keep that seat, but they're going to have to spend a lot of money to keep that seat and a lot of money to keep the Texas seat as well. So, that's how the map starts forming.
That Texas is up for grabs is shocking.
Right. And Republicans may win by 3% in Texas.
Okay? But it's going to be close.
And the Republicans are divided, and the Democrats, you know, their candidate's not that great. But, like, you know, 40% probability the Democrats win.
Any other seats that are kind of up for grabs?
Yeah. So, Alaska is the one to watch. Alaska has weird voting rules, you know, they have ranked choice voting. You got some candidates in there with the same name.
Right? So, you know, I keep an eye on Alaska. I'll be in Iowa next week. I keep an eye on Nebraska, Alaska. So, the Democrats have some opportunities, but I do think that it's going to be very difficult for them to pull off all four of them. And by the way, we just talked about where the Democrats can pick up. The Democrats are on the verge of making a nomination error in Michigan. Okay? And you have a very good Republican candidate with a very prestigious name running in New Hampshire. So, you know, there could be areas where the Republicans actually do better in some states.
Who's the prestigious name in New Hampshire?
And so, you know, you pull all that together, and you know, you're talking about a 50/50 country with a 50/50 Senate.
Let's move on. Let's go back to our original thing that we talked about a year ago, which is tariffs. I've kind of lost track. Like, where are we now?
So, why don't we take a step back? Last year, tariffs were a major headwind for the economy.
We fortunately had artificial intelligence just completely...
...overpowering it that made the tariffs not look as bad as it is. But, we've moved from a headwind on tariffs to a tailwind on tariffs. We have only collected in the US Treasury $35 billion of net tariff revenue year to date. Just an amazing number. Like it is...
It's nothing. Okay? And the reason is that the effective tariff rate was 11% in October. Today it's 7%.
Okay? So, you've got a 400 basis point reduction. Supply chains are adjusting. The IEEPA tariffs were thrown out by the court. But there's another thing that's happening. We're giving out tariff refunds now to companies. We gave out $23 billion of tariff refunds in the first month. Okay? Now, that's the context of what you're asking about. You're asking where we are. The Supreme Court threw out the president's tariffs in February.
The president's replacement plan, which is legally sound, will start to come into effect in July. Okay? And that's called Section 301. It's pretty, you know, pretty technical in terms of what they're doing. But they're basically going to have the old tariff system replicated through a new legal mechanism. What's interesting is as those tariffs come online, you have the tariff refunds coming into place. And so what you're actually seeing here on the tariff side is that the tariffs are actually working as a stimulus for the economy. And one of the main components of our view of what's cushioning the Iran conflict right now economically.
Is the fact that the tariffs are a tailwind.
Yeah, tailwind. And I'll give you an example. We did a podcast, you and I, in July right after one big beautiful bill passed.
And so we talked a lot about these expensing provisions. 100% expensing of capital goods and research and development and property.
We've handed out $75 billion of corporate tax cuts for new investment and collected just $35 billion of tariffs. So, you actually have more corporate tax cuts this year than you have actually in tariff revenue. So, it's a very interesting move. So, now you're getting the boost from AI and you're getting the tailwind from the stimulus from tariff reductions and corporate tax cuts. And last year you only had the AI, and that's why you're seeing growth really start to pick up here, even with the Iran conflict happening.
Is there anything left to Trump's agenda that he wants to get through, or is he kind of basically done?
No, I do think that there's probably going to be more to Trump's agenda, right? If you look at his trade policy agenda, it's really three steps. Step one was the tariffs. Step two was the business incentives to do more investment in the United States. So, we're at the beginning of that stage. But, the third step is probably a bigger step, and that is getting the dollar lower. The dollar's been propped up by the Iran war. When you have a conflict like this, people rush into the safety of the US dollar. He is probably trying to get the dollar closer to where it was 20 years ago, and get that dollar lower so that you then get the full impact of the investment. So, that's on the domestic economy. That's number one. Where Trump has been more focused in Trump 2.0 than he was in Trump 1.0 is on foreign affairs. And he is nowhere near done what he wants to do on foreign affairs. And the best way to think about this is that for 30 years, the US had unipolar leadership. Now, you have challenges from China and Russia and all their proxies, and the world's moving into a multipolar direction. So, Trump's view is he's got to control the energy and control the technology so that the US can be the leader for the next generation. So, we have the energy, a lot of countries have energy, but only two countries have the tech. And so, China in October basically started weaponizing rare earths to the United States, and Trump is now trying to realign the world with the US so that he has some counter to those rare earths. What do I mean by that? Venezuela, Argentina, Panama, kicking the Chinese out of Panama, shoring up the Western Hemisphere, getting better control of the oil resources, which you see in Venezuela, but also what you see, even what he was trying to do in Iran. Just basically make it more expensive for China to be able to buy those Iranian oil by competing with India and other places that are out there. And using that as some sort of counter to China overall. And for my money, this is what's going to consume him for the next two years, even if the Democrats win the House and Senate.
Interesting. Okay. Let's go to the Fed for a little bit.
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New man?
The irony is that, you know, when you listen to the commentary, like if we were talking six months ago, everybody's going, 'They're going to cut. How much are they going to cut? When are they going to cut?' Then it was there's no cutting, and now you're hearing commentary and they may raise. Any thoughts about all that?
Lots of thoughts about it. But you got to think about it. We've moved 75 basis points on the Fed funds rate expectations from 50 basis points to cut to 25 basis point increase, and stocks have just shrugged that off. Okay? And the reason is that the economy is way stronger than people anticipated. Like we don't even need the cuts right now. Okay? Now, as you start getting deeper into rate increases, that's going to cause some anxiety in financial markets. But this has been a big move. Okay? And I look at it and say, okay, that's a good starting point for Kevin Warsh. But when you start to think about where we are, if you take the five-year real versus nominal bond yield, markets think that the inflation rate's going to be 2.5%. Now, you could say, hey, I think it's going to be higher or I think it's going to be lower, but it's not at that 3% rate, which is the real danger sign that forces Kevin Warsh to raise, but it's not at the 2% rate where you say, hey, we're going to cut. So, I think from a rate perspective, we're just going to stay somewhat neutral until we begin to see how long the Iran conflict lasts, how long this growth begins. But I don't think that's the important issue at the Fed. I think that's where the consensus is talking about. But what's happening with a Kevin Warsh Fed is massively fascinating to us. He's literally saying after the financial crisis in 2008, we changed the entire framework for monetary policy and the way the banking system works. The Fed was able to pay interest on reserves, which was in the TARP bill. That allowed the Fed balance sheet to expand and boy did it expand. And now we've become dependent on the Fed balance sheet every time the system...
Gets low on bank reserves. So the Fed has been increasing its balance sheet since December. We were running low on reserves in September, October, and November, and we get these liquidity crunches every time Americans have to pay their taxes in April.
Okay. What Warsh is literally arguing is that we're making a policy choice to have a large balance sheet and high interest rates. And what I mean by that is that as you expand the Fed balance sheet, you're increasing the money supply, and the money supply leads goods inflation by 15 months.
