Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe, Wasn'tal, and I'm Tracy all Away. So Tracy,
Speaker 1: we are recording this episode. I think just six days gee,
Speaker 1: I know, just six days before the election. I think, uh,
Speaker 1: by the time people listen to it, the election will
Speaker 1: have been passed. Um. But nonetheless, we're in a period
Speaker 1: either way in which there is just an extraordinary amount
Speaker 1: of attention paid to what's going on in Washington, d C. Yeah,
Speaker 1: less than six days to go. It's time to start
Speaker 1: making predictions about the outcome of the election. So everyone
Speaker 1: who listens to this after it actually happens can tell
Speaker 1: us we were wrong. Perfect timing. Yeah, that's exactly that's
Speaker 1: that's the perfect way. Also, if all of our predictions
Speaker 1: are off, we just want to air the episode. Now.
Speaker 1: I'm justing, but I mean I do feel like, hey,
Speaker 1: I don't I'm not going to stick my neck out
Speaker 1: and make any predictions and be you know, election decide.
Speaker 1: And of course the election is sucking all the oxygen
Speaker 1: out of the room in terms of people's attention. Just
Speaker 1: paying attention to what's going on in d C has
Speaker 1: been increasing and important for markets it seems like for
Speaker 1: a long time now. Yeah, I think that's right, and
Speaker 1: I mean has basically taken everything to an extreme. All
Speaker 1: these long term economic and business trends that have been
Speaker 1: in play for many years now seemed to have accelerated
Speaker 1: this year. But I think you can argue that there
Speaker 1: was more of a focus on politics after the financial crisis.
Speaker 1: You had a lot of attention paid to financial regulation
Speaker 1: than you had the Eurozone crisis. You had Brexit, then
Speaker 1: you have the US China trade war, and now in
Speaker 1: you have the fiscal stimulus and the response to the
Speaker 1: coronavirus risk crisis. So it does feel like we've been
Speaker 1: in this long running trend of investors paying more attention
Speaker 1: to politics and policy and has really just shifted that
Speaker 1: into high gear. And now we have the election on
Speaker 1: top of it. Yeah, exactly right. And you know, I
Speaker 1: think like one of the things we've learned, and it's
Speaker 1: a pretty widely held view now, but something that comes
Speaker 1: up a lot of times in our discussions is that
Speaker 1: if the government gives people money, Um, that is a
Speaker 1: very effective economic policy. It's very powerful, but that but
Speaker 1: you know, the government doesn't always just hand out money
Speaker 1: to people and you need to corrall vote to get
Speaker 1: it done. So here you have this lever this policy
Speaker 1: tool that's extremely effective, and there's not really much debate
Speaker 1: about can it be done sort of from a fiscal
Speaker 1: standpoint or a monetary standpoint, but about whether there's the
Speaker 1: political capacity to do it. I think it's going to be.
Speaker 1: It's an issue now, It's probably gonna be an issue
Speaker 1: in one regardless of the makeup of government. Man. And
Speaker 1: so I feel like there's going to be increasing demand
Speaker 1: on the part of investors, on the part of economists
Speaker 1: to understand whether that political capacity continues to exist in
Speaker 1: in d C and what it takes to make it happen. Yeah. Absolutely,
Speaker 1: And I think there's sometimes a tendency on Wall Street.
Speaker 1: I guess because a lot of investors and analysts tend
Speaker 1: to be quite rational people. I think there's sometimes a
Speaker 1: tendency to ascribe rationality to politicians. Uh. And you think, well,
Speaker 1: they're going to do what's good for people, They're going
Speaker 1: to do what's good for the economy, and maybe in
Speaker 1: this case that's fiscal stimulus, but sometimes they don't always
Speaker 1: do that. But also, wait, I'm not voicing this, no,
Speaker 1: I get it. You're making on No. Well, I was
Speaker 1: gonna say, sometimes I think there are also motivations that
Speaker 1: Wall Street isn't necessarily aware of, so they look at
Speaker 1: everything from a sort of zero sum game why wouldn't
Speaker 1: you do this? But there are things that politicians are
Speaker 1: thinking about that wouldn't necessarily jump out to your average
Speaker 1: sell side analysts. No. I mean, for one thing, they're
Speaker 1: all focused on re election in large part. And the
Speaker 1: number of times I've read an analysts say well, maybe
Speaker 1: we'll get an infrastructure deal is just totally embarrassing. Anyway, Uh,
Speaker 1: this is a good set up to our guest because
Speaker 1: he has asserted quite prominently several times the Wall Street
Speaker 1: is just totally clueless or markets are totally clueless, or
Speaker 1: maybe both. We can sort of get into the distinctions
Speaker 1: about how DC really works. And so if that's true,
Speaker 1: that's something important for people to internalize given the increasing
Speaker 1: importance of DC. We're gonna be speaking with Jake Sherman.
Speaker 1: He's at Politico. He's also the author of the popular
Speaker 1: playbook Newsletter. He's going on to do something else after
Speaker 1: this year, but we don't know what it is, so
Speaker 1: we'll I'll be waiting to see where Jake goes next.
Speaker 1: But in the meantime we could talk about what, in
Speaker 1: his view, Wall Street gets wrong. So, Jake, thank you
Speaker 1: very much for joining us. Thanks guys, I'm a huge
Speaker 1: fan and I'm really happy to be here. Thanks. Yeah,
Speaker 1: it's great to have you. So we've gotten into some
Speaker 1: Twitter fights. I don't know if Twitter fights are the
Speaker 1: right word, but especially in these last few weeks about
Speaker 1: the stimulus up and ups and downs. Sometimes it look
Speaker 1: more promising, sometimes it's looked less promising. The market moves
Speaker 1: on these headlines. Pelosian Minuchin will say their meeting in
Speaker 1: the afternoon, stocks go up half a percent, meeting ends
Speaker 1: with no agreement, stocks go down. And in your view,
Speaker 1: the fact that the markets are so sensitive to these
Speaker 1: headlines just shows that somehow they don't really get it.
Speaker 1: I think, yes, I let me agree with all of
Speaker 1: the things you just said. Um my argument has been
Speaker 1: and I just my way. Background. I've been covering Congress
Speaker 1: since two thousand and nine, so I've been a part
Speaker 1: of covering every major crisis for the last the last decade,
Speaker 1: and there's been plenty. Right, We've almost had our debt downgraded,
Speaker 1: we've had government shut shut downs, all those things. I
Speaker 1: think that on Wall Street and generally speaking, people are
Speaker 1: making judgments about the probability of events without taking into
Speaker 1: consideration the personalities that are driving these events. Right and
Speaker 1: and Tracy, you did a really good job, although you
Speaker 1: said you didn't, but you actually did a great job
Speaker 1: of of explaining some of that at the top of
Speaker 1: this right, Like, people are not rational. Politicians are not
Speaker 1: always rational in a traditional sense. They're not going to
Speaker 1: just pass a trillion dollars of stimulus because it makes
Speaker 1: the most sense. You need to take into into into
Speaker 1: account a broad array of of human behavior and assumptions
Speaker 1: of human behavior when making these predictions. For example, Nancy
Speaker 1: Pelosi hates Mark Meadows. She's not going to make a
Speaker 1: deal if Mark Meadows is there. Um Stephen Manuchin like,
Speaker 1: I think investors and markets generally speaking have not only
Speaker 1: been too sensitive to these things, but have just ignored
Speaker 1: fundamental realities of governing and um and are just passing
Speaker 1: off information shin as gospel when it really is just
Speaker 1: nothing but a singular data point in a broad array
Speaker 1: of data points that need to be under consideration. So
Speaker 1: can you elaborate on that point? Then? Uh, you know,
Speaker 1: Joe mentioned in the beginning that politicians clearly want to
Speaker 1: be reelected, so that's always a focus for them. You
Speaker 1: mentioned some personal feuds, and you know, likes and dislikes.
Speaker 1: There might be alliances in the background that people aren't
Speaker 1: even aware of. What motivates the average politician in your opinion,
Speaker 1: reelection and power. Right, I mean, my personal hobby horse
Speaker 1: is um, one of my many personal hobby horses. And
Speaker 1: Joe could probably attest to this since he follows me
Speaker 1: on Twitter and we have some back and forths. I mean, listen,
Speaker 1: we I think the media is guilty in this too,
Speaker 1: because we're we concentrate on whether Congressman X believes there
Speaker 1: is a deal in hand or not. I'll pick a
Speaker 1: random member of Congress, right, I mean Josh Gottheimer is
Speaker 1: a Democrat whose chairs the Problem Solvers Caucus, a caucus
Speaker 1: that has not solved any problems, but calls itself the
Speaker 1: problem solvers Caucus. He's a Democrat from northern New Jersey.
Speaker 1: His district is heavily populated with people in the financial
Speaker 1: services industry and who work in New York. And he
Speaker 1: will go on TV or he will make some sort
Speaker 1: of remark to a newspaper to somebody that I think
Speaker 1: a deal is close and stocks will go up or
Speaker 1: go down based on that, or I'll get a thousand
Speaker 1: text messages from from sources on Wall Street or people
Speaker 1: in the financial services community based on that. There are
Speaker 1: like four or five people in Washington that you need
Speaker 1: to understand to understand what's going to happen. And those
Speaker 1: people are Nancy Pelosi, Mitch McConnell, Chuck Schumer, Donald Trump,
Speaker 1: even Minuton and Kevin McCarthy. It's no more complicated than that.
Speaker 1: And there within you need to focus on what's at
Speaker 1: stake for each individual participant. Right, So let's let's dissect
Speaker 1: this a little bit more. Nancy Pelosi decided to not
Speaker 1: do a medium sized a school deal because she wanted
Speaker 1: a large fiscal deal, and she was incentivized by Stephen Mnuchin,
Speaker 1: who kept running back to the negotiating table every single
Speaker 1: time something was about to fall apart and giving into Pelosi.
Speaker 1: So then Pelosi takes a look at the the legislative
Speaker 1: landscape and says, oh, I could get a lot out
Speaker 1: of this, So why don't I try to get a
Speaker 1: lot out of this? Um, I could get tons of
Speaker 1: of priorities because Stephen Manuchin really wants a deal, and
Speaker 1: I've been in this game for thirty years. He's a
Speaker 1: new participant, so I could string him along for a ride.
Speaker 1: Those are the kinds of things that that you know.
Speaker 1: I just think that we're oftentimes listening to the noise
Speaker 1: and not looking for the signal in understanding this. And
Speaker 1: some of my sources on Wall Street have indicated, well,
Speaker 1: we're trading headlines, and we're a macro fund. We care
Speaker 1: about the headline that comes out and whether it's a
Speaker 1: positive or negative headline, and markets will go up and
Speaker 1: down based on that. But like, that is not that's mine.
Speaker 1: Maybe that's a business, but that's not that's not an
Speaker 1: indicator of whether there will be a deal. I mean,
Speaker 1: I have been on the on the since I think
Speaker 1: since August or September, and again we're taping this before
Speaker 1: we know for sure it's six days before the election.
Speaker 1: There could there be a deal in the next six days.
Speaker 1: I put a point five percent probability on that, but
Speaker 1: just assuming there's not. But let me just finishes one thought.
Speaker 1: I mean, I've been saying since September. The dynamics have
Speaker 1: been obvious for people who understand this stuffs in September.
Speaker 1: So you say, like, okay, the guy from the Problem
Speaker 1: Solvers Caucus goes on cable news and said, I think
Speaker 1: there's a deal that's noise, and I get that, and
Speaker 1: I think a lot of people get that, and if
Speaker 1: they don't, you know, they really should pay more attention.
Speaker 1: On the other hand, your assertion that markets don't get it. Okay,
Speaker 1: so the SNP bounces a quarter of a percent, I
Speaker 1: could tell you that's noise. I don't think that's necessarily
Speaker 1: reflective of some broad consensus and to the extent that
Speaker 1: since the beginning of September, um the odds of a
Speaker 1: deal have really diminished. Well, markets are down since the
Speaker 1: beginning of September, at least a lot of them are.
Speaker 1: So doesn't that actually reflect perhaps a you're the one,
Speaker 1: uh reading too much into noise and be that markets
Speaker 1: have more or less gotten it right? Well, yes and no,
Speaker 1: Because when you have Nancy Pelosi go out and say
Speaker 1: I'm optimistic for a deal, we're putting pen to paper, uh,
Speaker 1: and you see stocks bounce on that, and you see
Speaker 1: and I see a headline in the morning stimulus hopes
Speaker 1: uh increase based on Nancy Pelosi saying there's optimism and
Speaker 1: you see, you know, I see Bloomberg charts on Twitter
Speaker 1: and stocks you're pointing up and futures are up based
Speaker 1: on based on renewed stimulus hopes. I mean, the dynamic
Speaker 1: here has been remarkably static since August or September, and
Speaker 1: still there have been these momentary swings where stocks are
Speaker 1: up a good deal and maybe they're not up net
Speaker 1: net over, uh, you know, since September, but you do
Speaker 1: get these momentary bounces which are just complete garbage. It's
Speaker 1: it's it's it's it's completely made up. It's not there art.
Speaker 1: I mean, Nancy Pelosi says she's optimistic about everything, So
Speaker 1: I think, uh, and maybe I'm maybe what I'm saying
Speaker 1: is that there the structure is off, and the incentive
Speaker 1: structure for Wall Street is off. But what I'm saying
Speaker 1: is that broadly speaking, the dynamics have been static for
Speaker 1: months and have not changed appreciably at all. Part of
Speaker 1: me wonders, and I hate to, I hate to be
Speaker 1: really self referential, but some of this could well be
Speaker 1: a financial media problem. Right markets. Markets are up half
Speaker 1: a percent because Pelosi said something optimistic about financial stimulus.
Speaker 1: I mean, that's a narrative that someone who covers markets
Speaker 1: is basically putting together when you could actually write. You know,
Speaker 1: it could be any number of things. It could be positioning,
Speaker 1: or you know, it could be something completely random that
Speaker 1: we don't even know about. I don't know what my
Speaker 1: point is, um, I guess like I wonder if there's
Speaker 1: a tendency in financial markets among investors to seek out
Speaker 1: narratives to explain market moves, and that's why we end
Speaker 1: up with this sort of simple, simplistic construction around what's
Speaker 1: going on in d C. I think there's some truth
Speaker 1: to that. I think it's Listen, everything boils down to
Speaker 1: a media problem at some level, right, But um, I
Speaker 1: think that, Uh, I think that's right and to some degree.
Speaker 1: And I don't mean to wrap on the media. We're
Speaker 1: all card carrying members of said groups. So I don't
Speaker 1: mean to uh to to wrap on the media. But
Speaker 1: also remember these politicians are are playing you to write,
Speaker 1: there playing all of us. They know broadly speaking, they're not.
Speaker 1: So I've heard a lot of times I have people
Speaker 1: that I talked to on Wall Street. I'm sure you
Speaker 1: talked to a lot of similar people to who say, well,
Speaker 1: what's the buzz like on on the markets? What are
Speaker 1: people thinking like? I could tell you that most members
Speaker 1: of Congress are only vaguely aware of financial markets in
Speaker 1: the sense that they know whether they are up and
Speaker 1: down as a general proposition. They don't know the momentary
Speaker 1: moves of markets, and probably north should they, right, I mean,
Speaker 1: they shouldn't be focused on that unless there's some calamitous
Speaker 1: events that they need to be aware of. But I
Speaker 1: don't know if I ever reported this, but Nancy Pelosi
Speaker 1: when she gave her press conference last week, I forget
Speaker 1: what she said exactly, but afterwards she said on a
Speaker 1: call with her leadership, the market was up when I
Speaker 1: was talking. She they understand what it takes to game
Speaker 1: markets and what it takes to to push markets up
Speaker 1: and to give more hope when there shouldn't be hope
Speaker 1: at all. They get this, They get this game better
Speaker 1: than anybody is. Donald Trump might say so uh and
Speaker 1: and they go on Fox Business, and they go on Bloomberg,
Speaker 1: and they go on CNBC because they know that they
Speaker 1: could instill hope whether where there might not be any
Speaker 1: reason for hope. So this is all part of a
Speaker 1: large game, and to be what I'm saying is the
Speaker 1: game is is stupid and rigged in every sense of
Speaker 1: the word, and and uh it shouldn't be, or maybe
Speaker 1: it should be. So that's kind of my my overall take.
Speaker 1: You know, I'm curious is as we were talking about
Speaker 1: the intro, we had an incredibly powerful fiscal stimulus this year,
Speaker 1: arguably the biggest and most effective one in history, in
Speaker 1: the form of the Cares Act. Setting aside the current gamesmanship.
Speaker 1: Right now, looking forward, we don't know what the makeup
Speaker 1: of government is. What did it take to make that happen?
Speaker 1: Why did CARES come into existence? Why? Why how did
Speaker 1: the politics align for that one? In your view, because
Speaker 1: I think this is gonna be an important thing in
Speaker 1: terms of people thinking about like the prospects for another
Speaker 1: fiscal stimulus is what does it actually take for the
Speaker 1: wheels of politics to make it happen. What it took
Speaker 1: was the find was the incentives of every member of
Speaker 1: the leadership to get this done, meaning Nancy Pelosi, Mitch McConnell,
Speaker 1: Chuck Schumer, and Kevin McCarthy. Every single person had to
Speaker 1: be bought in and had to agree to the general
Speaker 1: proposition that this was an extraordinary time and extraordinary measures
Speaker 1: need to be taken. Once Mitch, so that's why it happened.
Speaker 1: Mitch McConnell was up for reelection and there was no
Speaker 1: question that something needed to be done. Then we moved
Speaker 1: into another phase where Senate Republicans were looking at decreasing
Speaker 1: unemployment numbers, increasing stock market numbers, and a general marginally
Speaker 1: rosier picture of the economy. And then the incentive started
Speaker 1: to diverge, and you had a president who was not
Speaker 1: really sure what he wanted and was out of the game,
Speaker 1: and a party that was generally a drift and a speaker,
Speaker 1: a Democratic speaker that saw opportunity to play members of
Speaker 1: the administration off of each other, Mark Meadows Againsteven Manuchin,
Speaker 1: Stephen Manuchin against Mark Meadows, and and that and Mark
Speaker 1: Meadows and the President against each other, and against even Manuchin.
Speaker 1: So let's talk about going forward, what will it take
Speaker 1: to get another stimulus deal passed? So the general conventional
Speaker 1: wisdom tends to be that no matter what happens on
Speaker 1: November three, there will be what we call a lame
Speaker 1: duck stimulus deal. So some sort of deal between November
Speaker 1: four and January twenty whatever, when the new Congress is in,
Speaker 1: when the new president's inaugurated and the new Congress takes
Speaker 1: the seat takes its its place. I'm very barish on that.
Speaker 1: I think that's an unlikely scenario that there will be
Speaker 1: some sort of large scale fiscal deal UH in that period. Now,
Speaker 1: that could change. I don't feel as strongly about that,
Speaker 1: and I'll tell you why. So let's talk about the
Speaker 1: incentives again. Nancy Pelosi, if she wants to clear the
Speaker 1: decks for Joe Biden, if she believes it's advantageous for
Speaker 1: Joe Biden to come in and to not have to
Speaker 1: do that, then she will push for it. Because Mitch McConnell,
Speaker 1: is he about to lose the Senate? Is Chuck Schumer
Speaker 1: want to get it off? Biden's played as well. If
Speaker 1: all of those things converge, then that could happen. But
Speaker 1: if any of those things slide away, I don't care
Speaker 1: what Josh Kodheimer or Rocana or uh pat to me
Speaker 1: or any of these people say, it doesn't make a difference.
Speaker 1: Every all of the leadership has to be aligned. Now, listen,
Speaker 1: if this doesn't happen in the lane you're talking about
Speaker 1: a fiscal stimulus deal that I would view as somebody
Speaker 1: who's covered this, unlikely until late February, you know, sometime
Speaker 1: in February or March. And I'm I know that's not
Speaker 1: what people want to hear. But January is shot. The
Speaker 1: President doesn't get into office until the end of the month.
Speaker 1: Then it's going to take some weeks. I mean, it
Speaker 1: takes the Senate a week to do anything. Then you
Speaker 1: have fights over whether to eliminate the so called filibuster,
Speaker 1: the sixty vote requirement to do things. So I mean,
Speaker 1: there's just things don't happen in a vacuum. Things don't
Speaker 1: happen because people want them to happen on the outside.
Speaker 1: This is an institution that could only take so much
Speaker 1: external pressure or so much water, and everything has to
Speaker 1: align for something big like that to happen. So on
Speaker 1: that note, one of the conversations that Joe and I
Speaker 1: have had this year is about the idea of automatic
Speaker 1: stabilizers in the economy, or basically the notion that you
Speaker 1: could bypass all this political gridlock if you had an
Speaker 1: automatic thing that kicked in and say, unemployment went above
Speaker 1: a certain level. So you know, if unemployment reached twelve
Speaker 1: percent or something like that. That's pretty extreme. You would
Speaker 1: have I don't know, additional checks that suddenly get mailed
Speaker 1: out to Americans making below a certain income. And that's
Speaker 1: something that we spoke about with the economist Claudia some
Speaker 1: Do you think that's an interesting, uh solution or potential
Speaker 1: solution to the problem that we're discussing here. So it's interesting,
Speaker 1: but it's not going to happen. And I'll tell you why.
Speaker 1: I mean, this would require Congress, Congress giving away the
Speaker 1: one thing that it has, which is power. People don't
Speaker 1: get into this business by and large for noble reasons.
Speaker 1: They don't get into it because they want to solve
Speaker 1: some sort of major crisis. In many cases, they get
Speaker 1: into this business because they want power and want to
Speaker 1: increase it and exercise it in ways that benefit them
Speaker 1: and their constituents and their party a large. And if
Speaker 1: you have some sort of automatic turn offs which that
Speaker 1: turns off that power, that says, well, like think about it,
Speaker 1: think about it this way, Tracy. Like. The big argument
Speaker 1: here over fiscal stimulus is the White House's disagreement with
Speaker 1: Nancy Pelosi that the that states and state and local
Speaker 1: governments need money. This entire argument has been over that
Speaker 1: dynamic at its core, right like, and it's a difference
Speaker 1: of really a hundred fifty billion dollars, and there's a
Speaker 1: ton of disagreements that's that come off of that. So
Speaker 1: an entire deal is being held up because of one dynamic.
Speaker 1: People wouldn't have the ability to do that if they
Speaker 1: set something on a glide path. We've had similar discussions
Speaker 1: when I mean we, I mean like America and Congress
Speaker 1: over the debt ceiling, whether there should be some sort
Speaker 1: of automatic trigger by which Congress should raise the nation's
Speaker 1: borrowing limit to avoid kind of you know, uh crises
Speaker 1: that that come up when the borrowing limit is reached.
Speaker 1: And Congress has by and large said note to that
Speaker 1: because they see it as a safety valve. Congress likes
Speaker 1: this conflict. This tension animates Congress, This tension drives Congress.
Speaker 1: There's no if we had automatic switches in in our
Speaker 1: government system, the power would diminish and it would almost
Speaker 1: not need to exist in the same way that it exists.
Speaker 1: So I just think that everybody has an incentive to
Speaker 1: keep these things on the table because it lends it
Speaker 1: lends leverage points for other things that Congress wants to accomplish.
Speaker 1: I think this is a super super interesting point, just
Speaker 1: an interesting thing to think of. You know, you also
Speaker 1: hear it in the context of, well, what about giving
Speaker 1: the Federal Reserve more tools through legislation such that it
Speaker 1: could print money and put put dollars into people's bank account.
Speaker 1: But all of that, as you say, implicitly means that
Speaker 1: Congress would have to be willing to permanently give up
Speaker 1: the power or in the future and permanently sort of
Speaker 1: be willing to not be there. And as it sounds like,
Speaker 1: the sort of the fiscal clip ification of policy in
Speaker 1: the end is something that even know it's miserable, is
Speaker 1: actually something Congress wants to keep. Yeah, and Congress likes inefficiency, right.
Speaker 1: Inefficiency drives Congress and drives policymakers because it gives opportunity
Speaker 1: to get other things done. I mean, you see this
Speaker 1: all the time. Mitch McConnell said, no fiscal stimulus will
Speaker 1: come to the Senate floor unless we have the chance
Speaker 1: to overhaul liability laws. That is a it's a it's
Speaker 1: a related issue. But like everybody agrees on a subset
Speaker 1: of things, everybody agrees to paycheck protection program should be extended. Everybody.
Speaker 1: Most people agree with a set of stimulus checks um
Speaker 1: some level of state and government funding. There is the
Speaker 1: lowest common denominator. But these kind of leverage points exist
Speaker 1: for a reason in our system of government. Maybe not
Speaker 1: for the best and most noble reasons, but exist, and
Speaker 1: and it's difficult to to remove those because that would
Speaker 1: be basically undermining our entire system of government and the
Speaker 1: system of government that allows these leverage points. You put
Speaker 1: it earlier that politicians are basically playing the American public
Speaker 1: and that a lot of these choke points in the
Speaker 1: system and these varying motivations that prevent politicians from actually
Speaker 1: doing what might be needed by the economy is fairly obvious.
Speaker 1: Why don't Americans see that? Why don't they put more
Speaker 1: pressure on politicians? And you know, for instance, one of
Speaker 1: the things that's been coming up a lot lately is
Speaker 1: the notion that even though under the Trump administration, the
Speaker 1: US federal deficit jump to I can't remember what it
Speaker 1: is right now, but you know, like I think the
Speaker 1: highest on record, and we've seen government debt really balloon.
Speaker 1: Republicans haven't said much about that, but if Biden gets selected, uh,
Speaker 1: and is an office come January. You a lot of
Speaker 1: Republicans have been talking about they are going to potentially
Speaker 1: start complaining about the deficit, and they've been like pretty
Speaker 1: open about that. And it seems fairly obvious that when
Speaker 1: Republicans are in office, they don't say anything about US
Speaker 1: that levels, and then when they're out of office, suddenly
Speaker 1: US that matters. And it's basically a hammer at which to,
Speaker 1: you know, with which to hit the Democrats. How Come
Speaker 1: people don't see that, like why does this work? Why
Speaker 1: is TC able to to play this game? Well? I
Speaker 1: think many reasons. I mean I when I started covering
Speaker 1: politics in two thousand and nine, Republicans were unwilling to
Speaker 1: spend a single dollar of federal money without offsetting it
Speaker 1: in another area. It was a way to to ding
Speaker 1: the president. And it was at the time Barack Obama,
Speaker 1: and it was it was organizing governing theory right um.
Speaker 1: And and it was led by John Bayner and Mitch McConnell,
Speaker 1: who at that point were fiscal hawks and saw it
Speaker 1: within their interests to do that. Obviously, that all changed
Speaker 1: with Donald Trump, who's not a conservative or even really
Speaker 1: a Republican by any traditional definition when it comes to
Speaker 1: fiscal policy and and things of that nature. Um, without
Speaker 1: putting Donald Trump on the proverbial therapist couch, I will
Speaker 1: try to answer the underlying question, which is, here's what
Speaker 1: Here's what I found. I found that voters and interested parties,
Speaker 1: and when I say interested parties, I mean financial markets
Speaker 1: and Hollywood and Silicon Valley only engage in politics when
Speaker 1: they absolutely need to and don't really understand the general
Speaker 1: organizing philosophies. So when they when these kinds of things happen, uh,
Speaker 1: they're taken by surprise and um and listen, I would
Speaker 1: say broadly speaking that, um, we live in a tribal society.
Speaker 1: We really do. And our country is organized in congressional
Speaker 1: districts that are extremely partisan and where the top of
Speaker 1: the party sets the agenda and no one has the
Speaker 1: sentive to go toward the middle. Because when when Congressman
Speaker 1: Republican Congressman X goes back to his district and is
Speaker 1: faces his voters for the first time, uh in a
Speaker 1: week or two weeks, the question is not what are
Speaker 1: you doing to keep Donald Trump and check? The question
Speaker 1: is what are you doing? Why aren't you supporting him more.
Speaker 1: And it's really a tone set by the top of
Speaker 1: the party because uh, Donald Trump has spent like a
Speaker 1: drunken sailor. Everybody agrees with that, but people fell in
Speaker 1: line because that was the thing to do. And it's
Speaker 1: not an intellectually honest exercise. It's just not I mean
Speaker 1: that the tax that the the we saw that with
Speaker 1: the tax reform in two thousand and uh eighteen, seventeen, eighteen,
Speaker 1: and and it just people are looking for intellectual honesty
Speaker 1: where there really is none. And I do believe, to
Speaker 1: be honest with you, if Joe Biden is elected, uh
Speaker 1: and organizing theory will be a fiscal discipline and Donald
Speaker 1: Trump has said if I'm elected to a second term,
Speaker 1: fiscal discipline will be my priority. As if we're to
Speaker 1: believe that after four years of it not being anyone's priority.
Speaker 1: So I actually want to go back to this question
Speaker 1: of the politics of automatic stabilizers because I'm I'm curious.
Speaker 1: You know, you've like described the last ten years in
Speaker 1: d C. And the one consistent theme is that under
Speaker 1: Obama and under Trump, Republicans, as you described it, sought
Speaker 1: to use crisis to sort of uh in the certain
Speaker 1: policy goals. So obviously, UM do a sort of this
Speaker 1: desire to use the two thousand nine through two thousand
Speaker 1: eleven period to get some sort of austerity spending cuts
Speaker 1: supposed alongside the dead sailing hike. The current Phase four
Speaker 1: stimulus talks have hit a snag, largely around the view
Speaker 1: that Republicans have seen this as an opportunity too exact
Speaker 1: reforms for cities and states. I mean, I know this
Speaker 1: is a huge issue. I say, like talk radio, this
Speaker 1: idea of like a blue state bailout, and the perception
Speaker 1: has been forever that they have unsustainable pensions and so forth,
Speaker 1: and so the GOP has seen this as a moment
Speaker 1: of like, Okay, this may be a moment of reform. Meanwhile,
Speaker 1: on the left, more broadly, um, there is this sort
Speaker 1: of like policy push that yes, uh, you know, automatic stabilizers,
Speaker 1: more aggressive, more aggressive unemployment insurance should be a thing
Speaker 1: if there is a you know, and again by the
Speaker 1: who by the time people are listening to this, who knows.
Speaker 1: But if there is a big democratic sweep, is it
Speaker 1: possible that it's like that the Democrats may view it's like, yeah, okay,
Speaker 1: there's political gains to be had by governing in a cliff,
Speaker 1: but the last ten years have showed us that's largely
Speaker 1: Republicans using these moments to get spending cuts or reforms.
Speaker 1: We could have a permanent gain in our sort of
Speaker 1: like policy agenda by taking some of these opportunities off
Speaker 1: the table. Is it possible that the dynamics shift on
Speaker 1: automatic stabilizers if Democrats were to win really big No,
Speaker 1: I don't think so. I think Pelosi's against them, although
Speaker 1: her number two, Stenny Hoyer of Maryland, who's her uh
Speaker 1: sometimes ally and sometimes rival, is for them. Broadly speaking,
Speaker 1: I think he has spoken favorably because there are people
Speaker 1: in the Democratic Party who want that done. Um. I
Speaker 1: think again, I think members of Congress like the opportunity
Speaker 1: to review policies, and if things are on autopilot, they
Speaker 1: get that opportunity taken away. I will say this though, Um,
Speaker 1: I think there is a period of time in the
Speaker 1: first hundred days of this if if let's let's work
Speaker 1: with a base case that Democrats when the White House
Speaker 1: to Senate in the House, there will be a hundred
Speaker 1: or so days where Democrats will have a huge mandate
Speaker 1: to get things done and Republicans will be de incentivized
Speaker 1: to block them and will be incentivized to work with
Speaker 1: them on some order fiscal package coupled with maybe some
Speaker 1: sort of infrastructure element, and I think that that will
Speaker 1: be easier, and you know, I think it will be
Speaker 1: easier than it is now. I think that they could
Speaker 1: get away with more in that time period. I don't
Speaker 1: think they can get away with automatic stabilizers. I just
Speaker 1: think that's a bridge too far. One other thing I
Speaker 1: want to mention that I don't want to. I don't
Speaker 1: want to get off of your platform without mentioning this.
Speaker 1: Another thing I think people are vastly misreading, and I
Speaker 1: could be wrong on this. My confidence level is relatively low,
Speaker 1: is that Joe Biden will be eager to raise the
Speaker 1: corporate tax rate. I think that is a I just
Speaker 1: don't see that right now. Um as, especially in the
Speaker 1: first year of his presidency. I think it's unlikely. I
Speaker 1: think that the economy will still be shaky, and I
Speaker 1: don't think Listen, the question that is going to drive
Speaker 1: both my world, which is the political world and the
Speaker 1: market world in the next year is whether Democrats learned
Speaker 1: lessons from two thousand and nine and two thousand and ten.
Speaker 1: I mean, the last Democratic president came in when the
Speaker 1: world was on fire and had to pass the stimulus,
Speaker 1: passed a cap and trade deal through the House of Representatives,
Speaker 1: and then passed a healthcare bill and lost sixty something
Speaker 1: seats the next year. Have Democrats learned from that experience?
Speaker 1: And I don't know the answer to that yet, But
Speaker 1: if you assume they have, then attacks increase on corporations.
Speaker 1: I don't think. I don't feel confident about this. I
Speaker 1: don't think is going to be a top agenda. Heighter,
Speaker 1: you know, I just want to go back to the
Speaker 1: sort of fundamental question about like what what markets or
Speaker 1: Wall Street gets wrong. I mean, you know, there is
Speaker 1: all this noise and I you know, even people in
Speaker 1: who are active market participants laugh at the sort of
Speaker 1: market headline driven, maybe elgo driven reaction of market sometimes.
Speaker 1: I mean, we had this also um in the UH
Speaker 1: the a lot during the trade talks with China, up
Speaker 1: and down market. In the end, a lot of this
Speaker 1: hasn't seemed to matter. I mean, in the end, the
Speaker 1: fact that our trading relationship with China changed, I didn't
Speaker 1: make much of a difference, and markets were sort of
Speaker 1: right to ignore it. And to not get you know,
Speaker 1: not to read too much into anything at the time,
Speaker 1: like in the end, like maybe is it? Is it
Speaker 1: the kind of thing where it's just short term. Sure
Speaker 1: you can point to things where the markets get it off,
Speaker 1: but in the big picture, markets sort of all get
Speaker 1: it right and most of the stuff doesn't really matter
Speaker 1: either way. But aren't we and this is a question
Speaker 1: for you guys more than anybody else, aren't we living
Speaker 1: in a an economy at least? Uh? In a micro sense,
Speaker 1: I guess that that there are so many retail investors
Speaker 1: that are playing these swings. I mean, I listened to
Speaker 1: a previous episode of your of that you guys did
Speaker 1: um about these options and puts and stuff like that,
Speaker 1: and people are people are You might have taped that
Speaker 1: a million years ago, But I just listened to recently
Speaker 1: and I and um, I was. I was struck by
Speaker 1: the fact that there are people that are like me,
Speaker 1: who know, who have no business in these kind of
Speaker 1: daily market swings, who are making big bets based on
Speaker 1: kind of momentary swings in the market that are driven
Speaker 1: by what I consider to be b s headlines. So yes,
Speaker 1: if you're if you're a long term investor like me,
Speaker 1: Like my the money that I have is in an
Speaker 1: account that I don't even know. I could barely get
Speaker 1: access to it, have to search my email to find
Speaker 1: the password. And I just hope that at some point
Speaker 1: when I retire there will be some money in it
Speaker 1: for me to live on. Like but there are people
Speaker 1: with robin Hood accounts who are sitting around making these
Speaker 1: massive making what are massive bets to them based on
Speaker 1: these based on the momentary movements of the S and P,
Speaker 1: which are largely based on nonsense. So I think I
Speaker 1: think our final concluding thought from this point is nobody
Speaker 1: followed Jake Sherman. If you're in the market, unfollow him
Speaker 1: on Twitter, don't subscribe to his newsletter or anything like that.
Speaker 1: Just look along. I assume that's where you wanted us
Speaker 1: to take it. To take this converse, unfollow him. Um No,
Speaker 1: But seriously, Jake, thank you so much for joining it.
Speaker 1: I enjoy I really enjoy your coverage. Looking forward to
Speaker 1: seeing whatever it is to do next your next mystery project,
Speaker 1: and I'm thanks for coming out a lot. Thanks guys,
Speaker 1: I appreciate it. Take care of Jake. Thanks man. You
Speaker 1: know I joked about that that last comment, and but
Speaker 1: I have sort of like, but you're you're really serious. No,
Speaker 1: But it's like it's kind of an interesting question. It's
Speaker 1: like we always preach there is this tension, right, because
Speaker 1: we're always like you all, there is just so much noise,
Speaker 1: long term un economic data point, a headline out of DC,
Speaker 1: a virus number, um and mortkets do react on it,
Speaker 1: but at the same time, and they sort of like
Speaker 1: feature this idea of like ignoring the noise, Like there
Speaker 1: is kind of like a tension between following the media
Speaker 1: and following all this stuff and then looking back and saying, like,
Speaker 1: how little of it actually matters. Well, this is the
Speaker 1: old signal versus noise debate, And I know you touched
Speaker 1: upon it, but to me, you know, it's easy to
Speaker 1: say that markets should ignore the short term noise and
Speaker 1: they should focus on longer term trends and you know,
Speaker 1: stay committed to their core positions and things like that.
Speaker 1: But I think what we overlook when we do that
Speaker 1: is that markets are inherently forward looking and everyone is
Speaker 1: trying to pinpoint the next turning point. And I think
Speaker 1: that's why you end up getting a lot of focus
Speaker 1: on these short term things. And you know, I've seen
Speaker 1: some pretty good points made about, for instance, how the
Speaker 1: market reacted in the lead up to World War two,
Speaker 1: and that actually people looked through a lot of statements
Speaker 1: and of coal developments that in retrospect marked a clear
Speaker 1: change in the way the world's political system was actually functioning.
Speaker 1: And I think that's what we're missing. Like everything, everything
Speaker 1: hindsight is in retrospect. You could say, well, it doesn't
Speaker 1: really matter that Pelosi said she was optimistic on this
Speaker 1: particular day, but if you do get that stimulus bill
Speaker 1: in the next week or so, then suddenly that noise
Speaker 1: looks like a signal, right, like, and that's what everyone's
Speaker 1: trying to figure out. Yes, I think that's exactly right.
Speaker 1: And I think this is where I would like push back. Um,
Speaker 1: And you know, I could have done it while it's here,
Speaker 1: and I meant to. But you know, like I think,
Speaker 1: when you see these moves, you know, people might say, like, oh,
Speaker 1: the market believes that there's a stimulus, or the market
Speaker 1: doesn't believe that there's a stimulus. So the market so
Speaker 1: this headline and believes, now these moves may not be
Speaker 1: the market believing in the stimulus. These moves maybe the
Speaker 1: market leaving there was a one percent chance of a
Speaker 1: stimulus moving to a two percent chance of a stimulus,
Speaker 1: And I think that's sort of like and maybe like
Speaker 1: it should be less like maybe these comments should cause
Speaker 1: the market to go from one percent to one point
Speaker 1: one percent or whatever it is. Maybe the calibration is off,
Speaker 1: But I don't think that these reactions are so binary,
Speaker 1: Like we don't really know what the market it's like
Speaker 1: implied stimulus odds are are at any time, or how
Speaker 1: much it's waiting stimulus. But these moves may not really
Speaker 1: be that much. And so I think you're exactly right.
Speaker 1: Most news items are noise, but you don't really know
Speaker 1: which ones are going to mark some sort of turning point,
Speaker 1: and so in the short term, investors have to assess
Speaker 1: probabilistically the how much they could represent something new. And
Speaker 1: so I think, like, well, may look like that's a
Speaker 1: rational headline driven markets how it goes whatever, Maybe less crazy,
Speaker 1: uh than we think they are, just because sometimes headlines
Speaker 1: do turn into things that then become something else. And
Speaker 1: I think, like, you know, like the virus itself was
Speaker 1: at some point a thing back in junior February that
Speaker 1: markets had to assess based on sort of conditional odds
Speaker 1: and without some sort of clear idea of how big
Speaker 1: it would be. Sometimes big things happen, Oh yeah, And
Speaker 1: anyone trading short term headlines that we're coming out of
Speaker 1: Asia in you know, January and February, it would have
Speaker 1: been in a really good position for the rest of
Speaker 1: the year. I think the one other thing I would
Speaker 1: say is I feel like there's there's this undercurrent of
Speaker 1: sort of market nihilism in this conversation, this idea that
Speaker 1: nothing really matters, and I think I think there is
Speaker 1: a portion of the market where I feel that, And
Speaker 1: I gotta say it's it's I mean, Jake kind of
Speaker 1: touched on this, but he went in a different direction.
Speaker 1: For me, it's robin Hood, right, it's robin Hood and Bitcoin,
Speaker 1: where people are trading stuff that is almost completely divorced
Speaker 1: from fundamentals and economic reality at this point, and it's
Speaker 1: all based on headlines or you know, just getting together
Speaker 1: and saying that you're going to push up this particular
Speaker 1: stock using options and things like that. Like, to me,
Speaker 1: that particular market seems to have gone off in a
Speaker 1: totally different direction. Yeah, I mean that exists, Does that
Speaker 1: make sense. This is like this is the sort of
Speaker 1: like betting, you know, like that that part of the
Speaker 1: market has just descended into short term betting and gambling. Yeah,
Speaker 1: there is a lot of gambling and games playing for sure.
Speaker 1: Whether that results in major miss pricings of how it
Speaker 1: given stock or index is relative to the earnings of
Speaker 1: the components of that stock or indec I think there's
Speaker 1: another question. But there is a lot of sort of pure,
Speaker 1: sort of pure online poker happening in the financial world
Speaker 1: these days. Yeah, I think that's fair. Okay, Well, um,
Speaker 1: six days to go until the election, and by the
Speaker 1: time we release this, uh, lots of stuff might have changed,
Speaker 1: or it'll all be irrelevant. Yeah, it'll all be irrelevant. Um.
Speaker 1: I don't know if that's comforting or not. Um, hopefully
Speaker 1: it is. Okay. Should we leave it there. Let's leave
Speaker 1: it there. This has been another episode of the All
Speaker 1: Thoughts podcast. I'm Chracy Alloway. You can follow me on
Speaker 1: Twitter at Tracy Alloway and I'm Joe Why Isn't All?
Speaker 1: You can follow me on Twitter at the Stalwart, and
Speaker 1: you should follow our guest Jake Sherman at Jake Sherman.
Speaker 1: Follow our producer Laura Carlson at Laura M. Carlson. Follow
Speaker 1: the Bloomberg head of podcast, Francesco Leavi at Francesco Today,
Speaker 1: and check out all of our podcasts onto the handle
Speaker 1: at podcasts. And if you like Odd Lots, please leave
Speaker 1: us a five star review on iTunes help more people
Speaker 1: discover discover the podcast, but really appreciate it. Thanks for
Speaker 1: listening to