Lou Basenese, chief market strategist at Public Ventures LLC, spoke with Quartz for the latest installment of our “Smart Investing” video series.
Watch the interview above and check out the transcript of the conversation below, which has been lightly edited for length and clarity.
ANDY MILLS: How should investors feel about Trump’s appointment of Scott Bessent as treasury secretary?
LOU BASENESE: Yeah, man, it should be a huge sigh of relief. I think this was probably one of the more challenging and difficult and anxiety-ridden cabinet appointments. I think there was a fear that he would pick someone that had a Fed DNA that would be very antagonistic with what Trump and the pro-markets stance has on it. So I think picking someone that’s experienced, that’s a known quantity to Wall Street, will give investors the confidence that he can thread that needle, right? So, because we have a president-elect coming into power that is defying pretty much standard economic principles, being pro-tax cuts, pro-tariff, pro-energy independence, those things don’t always sync up well together with a booming economy and inflation under control. So I think Scott Bessent is, if there’s a person for the job, it’s him. But that being said, he’s gotta deliver now, too.
AM: Do you think he’ll carry through Trump’s idea for tariffs?
LB: Yeah, I view tariffs as a big stick that we threaten with to really get some economic trade partnerships agreed upon. So it’s promising that Bessent came out with this 3-3-3 proposal, right, where you’re gonna get spending down to 3% of GDP, keep GDP growth at 3%, and then increase energy production by 3 million barrels extra a year. I think those are tangible, real goals and targets that he’s now gotta get after. So I think the tariff stance, I think he’ll soften Trump’s tariff stance. I think that’s what people and investors are responding to right now is the fact that it’s not gonna be just all Trump, all tariffs that best will really be the buffer for that.
AM: How do you see these tariffs affecting housing prices given that the majority of our lumber comes from Canada?
LB: Yeah, I think there could be temporary increases, right? Like I said before, I think that tariff threat is a big stick. If we look historically, these tariffs don’t last very long and they’re not really a huge percentage of the economy. I think if we looked at the data from last year, it’s about 80 to 100 billion dollars in tariff receipts. You’re talking about less than half a point on GDP growth if you really got rid of those tariffs or doubled them. So again, I think it’s more threat and fear of the down-the-road repercussions. And if we look at last time, the 2016 tariffs really didn’t kick in higher prices until 2018, 2019. So it’s not an immediate impact. Therefore it’s not one that we can put a finger and say if X then Y is immediately gonna happen. I think we’ll have to wait and see.
AM: Trump’s made some controversial picks, too. Who are the best cabinet picks for investors and the worst you think?
LB: Whew, I’m a glass half full guy, so I’ll focus more on the best. I think Makary for FDA makes the most sense. And we talk about biotech, he’s a practitioner and researcher first. So when a pancreatic surgeon, cancer surgeon — cancer is one of the areas of disease management that we have the most barbaric approaches to. So we really need a lot of innovation focus there on drug approvals that are in the clinic. It’s the hardest to get cancer drugs approved. It’s usually about 3% of cancer drugs that go into the clinic actually get approved. Takes seven to eight years, can cost up upwards of $2 billion. We need to shorten and compress that for good patient care. So I think that’s a great pick. A practitioner.
The one that scares me maybe a little bit is Dr. Oz. I mean that’s celebrity over practitioner for most practical purposes. I don’t know that that translates into politics, right? I think politics is a game of popularity on the front end and practicality on the back end. And a lot of politicians that get elected get into the machine and realize this is a lot harder to maneuver. It’s a lot harder to have an impact. I think Dr. Oz might be one of those guys that runs into that brick wall of reality. But to be determined.
AM: How might that be reflected in the market with a Dr. Oz appointment?
LB: Yeah, I think it’s tangential. I don’t think there’s any cabinet picks right now that scare me market-wise. Another good one for me was Chris Wright for energy secretary. I mean from Liberty Energy (LBRT), that’s a fracking operation that understands energy independence, but can be very pragmatic. I think what we have to learn is just this is not a complete abandonment of renewables. It’s getting to reasonable renewable targets, right? We can’t just set an arbitrary deadline to transition. And the reality is we can’t ever fully transition. We have to have a good balance. So I think that includes fracking, that includes wind and solar.
What that balance is, we have some practical guidelines from states like Texas. They got to north of 40% renewables and the grid started to collapse. So on a whole, the country’s at about 23% renewables. So that sweet spot is probably somewhere in that 30 to 35%. I think Chris Wright is a practical person that will understand the balance because he has been a businessman maneuvering between different administrations, both Republican and Democrat. I think he could do a good job of managing our energy policy to be both being conservationist, but also pragmatic about hey, what does our country need to be independent, keep prices down?
AM: Taking all this into consideration, what are some of your top stock picks going into 2025?
LB: Yeah, so not individual recommendations because I don’t know everyone’s situation. That’s the disclaimer. If I look at the market as a whole though, I think there’s areas of opportunity still. You look at small caps, they’ve just consistently lagged large caps. They’re trading at much cheaper prices. So at about 14, 15 times earnings versus 20-plus for large caps. I like to buy low, sell high. I think all investors do. Another area is biotech, right? We talked about the favorable appointments from a cabinet perspective, but if we just look at the valuations in biotech, that area of the market has really been left for dead unfortunately. But those innovations are desperately needed. So the XBI (XBI) index is a great way to measure the smaller innovators in biotech, still probably needs to increase another 50 to 60% to get to its 2021 highs. So there are areas of froth in the market for sure, but then there’s areas of opportunity and I think for us, we’re looking at small caps, biotech in particular.
AM: Gotcha. The XBI index, is that an ETF?
LB: There is an ETF by XBI. So the XBI, it tends to bring in some of the smaller biotechs. If you went for just a standard S&P biotech index, it gets a lot more larger caps in there. So yeah, the ticker on that is XBI.
