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Speaker 3: All that seems kind of moot in the context of
Speaker 3: maybe our government's going to shut down tonight at midnight
Speaker 3: when we'll be fast asleep. But Wendy Schiller, she joined
Speaker 3: us in Brown University, and we want to get some
Speaker 3: informed comments about how this might play out here.
Speaker 4: So Wendy A, I'm.
Speaker 3: Not sure if you're in the business of predicting shutdowns
Speaker 3: or not, but I'd love to get your perspective on
Speaker 3: just kind of how the whole process here is unwinding.
Speaker 3: In Washington, We've got a couple of civilians, President elect
Speaker 3: Trump and Elon Musk right smack in the middle of
Speaker 3: the discussion in the news cycle. And I've got a
Speaker 3: President of the United States who I haven't heard anything from.
Speaker 3: So house is developing well.
Speaker 5: I think President Biden has seeded sort of the negotiating
Speaker 5: power of the Democrats to Jakim Jeffries, who's the Democratic
Speaker 5: leader in the House Representatives.
Speaker 4: And Chuck Schumer, Senator from New York.
Speaker 5: Who's still the majority leader of the United States Senate
Speaker 5: till January third. So there basically Biden said, you know,
Speaker 5: you decide what our position will be, and I'll likely
Speaker 5: you know, sign it.
Speaker 4: So he's seated all of that negotiating power to them.
Speaker 5: And I think this is really important for everyone to remember.
Speaker 5: We have a bi cameral legislature. You know, the founders
Speaker 5: set it up this way on purpose. You two institutions
Speaker 5: that have very different electoral incentives, very different internal structure,
Speaker 5: different terms of office.
Speaker 4: And we're seeing that play out right now. I mean,
Speaker 4: the Senate's just literally hanging out waiting.
Speaker 5: For the House to deliver something, and the Democrats control
Speaker 5: the Senate, so all of this is about.
Speaker 4: Well, the passes the House, it'll go through not so fast.
Speaker 5: The Democratic controlled Senate will say no, we're not going
Speaker 5: to pass it. So the Democrats have some risk here
Speaker 5: because they be party to the shutdown.
Speaker 4: The way the Republicans are.
Speaker 5: And since it's a divided government right now, it's really
Speaker 5: unclear for the voters who are you actually going to blame.
Speaker 5: Right now, the Democrats have decided they're going to blame
Speaker 5: elon Musk. They have made Musk a target of their communications,
Speaker 5: and you're starting to see a little bit of this
Speaker 5: creep into some of those Republicans who voted against the
Speaker 5: package yesterday.
Speaker 6: I mean, we just had a story that came out
Speaker 6: on the Bloomberg terminal saying that House Speaker Mike Johnson
Speaker 6: is currently strategizing a way to rush a spending bill
Speaker 6: through the Chamber to avoid a government shut down ahead
Speaker 6: of that midnight deadline that we've been talking about. I
Speaker 6: do know that the longest government shut down in recent
Speaker 6: history was in twenty eighteen under the Trump administration. It
Speaker 6: lasted thirty five days. If we were to enter into
Speaker 6: a government shutdown, how do people actually analyze and predict
Speaker 6: the longevity of how long it could last.
Speaker 5: Well, you know, if you're thinking Trump and Trump's strategy,
Speaker 5: you think, well, if we're going to go into US shutdown,
Speaker 5: let's shut it down till I get inaugurated, and then
Speaker 5: then of course we'll open it back up because at
Speaker 5: that point the Republicans will control the House and the Senate,
Speaker 5: so we'll have more sway and he's willing to sort
Speaker 5: of live with the costs that are incurred. Usually, you know,
Speaker 5: a shutdown on this length usually costs several billion dollars,
Speaker 5: not only in pay for federal employees, but for all
Speaker 5: sorts of disruptions to all sorts of services that the
Speaker 5: federal government provides to the economy. So you're going to
Speaker 5: see a cost here. But then Trump gets to be
Speaker 5: the hero by reopening.
Speaker 4: The government on his terms, and I think that's the
Speaker 4: way he's thinking.
Speaker 5: The debt ceiling is the interesting question here because the
Speaker 5: Republicans have voted against this bill yesterday, really voted against
Speaker 5: it because the dead ceiling extension ran through twenty twenty
Speaker 5: seven and basically gave Trump an unlimited checkbook. And they
Speaker 5: are deficit hawks, and even they were not willing to
Speaker 5: go there for Donald Trump. So there must be something
Speaker 5: that they're sensing about how they would face the voters
Speaker 5: again in twenty six that says we don't want to
Speaker 5: be responsible for blowing up the federal.
Speaker 4: Debt and the deficit even more than it is.
Speaker 6: I mean, we're sitting here in December, we're still about
Speaker 6: a month away from inauguration day. Paul and I were
Speaker 6: chatting earlier how typical Is it historically that we have
Speaker 6: the president elect implementing it weighing in on these things.
Speaker 6: Where is Biden and Harris in this conversation? Is this
Speaker 6: all typical?
Speaker 5: I mean, it's it's you know, we haven't had as
Speaker 5: much ringmanship, let's say, in December with an election switch.
Speaker 5: We've certainly hadmanship with Ronald Reagan in December, with Barack
Speaker 5: Obama in December.
Speaker 4: So you've had sitting presidents have this issue.
Speaker 5: But the transition in power, I mean, it does really happen, right,
Speaker 5: I mean, you won the election, You're going to be president.
Speaker 5: But in terms of the Trump sway of the GOP,
Speaker 5: that's what we're talking about here, is that it is
Speaker 5: a wholly owned subsidiary of Donald Trump. But right now
Speaker 5: we're seeing cracks in that coalition. And the question is
Speaker 5: what's driving those cracks. Is it get rid of Elon Musk.
Speaker 5: Is it thinking that this is just a bridge too
Speaker 5: far in terms of federal spending, or is that they
Speaker 5: think they'll get some political gain by shutting it down
Speaker 5: and we open under Trump with more capital with a
Speaker 5: Republican control House and Senate. We're just not getting any
Speaker 5: real signals from the Republicans that matter, meaning the ones
Speaker 5: that voted against the bill yesterday.
Speaker 4: But a shutdown is not a way to.
Speaker 5: Start an administration, no matter what Donald Trump thinks. It's disruptive,
Speaker 5: and he's got very high approval ratings. Now I'm not
Speaker 5: sure those are going to go higher by inconveniencing a
Speaker 5: lot of people over the next couple of weeks.
Speaker 3: Wendy is, do some people in Washington, on either side
Speaker 3: or both sides of the auduld that they view President
Speaker 3: elect Trump is maybe even a lame duck president. I
Speaker 3: don't really need to bend over backwards for this guy
Speaker 3: because he's only here for four years.
Speaker 5: Well, certainly, if you're a senator that was elected in
Speaker 5: twenty twenty four or even twenty twenty two, you're thinking
Speaker 5: you're probably going to outlast Trump. But then again, lots
Speaker 5: of people thought Trump might not run again, get the
Speaker 5: nomination and win again. I just don't think you can
Speaker 5: underestimate Donald Trump's political power. But you have an economy
Speaker 5: that seems to be coming along in terms of growth,
Speaker 5: and the employment numbers are sort of okay, you know,
Speaker 5: not disastrous or anything, but inflation is really sticky.
Speaker 4: And the question is if there isn't a real change in.
Speaker 5: People's perception of the economy by the summer, I think
Speaker 5: a lot of Trump's clout could diminish, even among his
Speaker 5: own base, and.
Speaker 4: Then you're looking at the next electoral cycle.
Speaker 5: So that is where separation of powers is really crucial here.
Speaker 5: It creates different incentives and we're seeing those incentives play.
Speaker 4: Out right now.
Speaker 6: When you am curious, do you know the intricacies of
Speaker 6: what the potential financial implications could be for non essential
Speaker 6: government workers? Do they get paid retroactively or do they
Speaker 6: just go without pay?
Speaker 5: Typically, Congress insists on passing a separate bill to authorize
Speaker 5: retroactive pay for federal employees that have been furloughed or
Speaker 5: not paid during a shutdown, So you know, it varies
Speaker 5: depending on the shutdown, depending on the Congress. You can
Speaker 5: see where most people would want to see people paid
Speaker 5: for work that they do, but if you're not working,
Speaker 5: then there could be an argument, well, you weren't working,
Speaker 5: so this is a bloat of the federal government, and
Speaker 5: we're not paying you for work that you didn't do.
Speaker 5: You know, the problem with the Republican Party is that
Speaker 5: the federal government civilian force is large and diverse and
Speaker 5: spread out all across the country. So in every congressional
Speaker 5: district there will be federal employees or people associated with
Speaker 5: the federal government that will lose income because of a shutdown,
Speaker 5: and those congress people are going.
Speaker 4: To hear from those employees.
Speaker 5: So this becomes very sticky if they don't agree to
Speaker 5: retroactively reimburse these employees.
Speaker 4: But remember the reason that Donald Trump.
Speaker 5: Quote unquote caved in twenty eighteen and reopened the government
Speaker 5: was that the FAA and air traffic controllers and sort
Speaker 5: of our TSA employees, all of that became very difficult
Speaker 5: for people who weren't.
Speaker 4: Getting paid and decided not to show up for work.
Speaker 5: And that clog in the economy is what pushed Trump
Speaker 5: to the table, and so that's why it's curious that
Speaker 5: he'd want to start an administration with another clog in
Speaker 5: the economy.
Speaker 3: All Right, Wendy, thank you so much. We appreciate that.
Speaker 3: Wendy Shulis, she's a professor at Brown University and she
Speaker 3: is the intermim director of the Watson Institute. Joining us
Speaker 3: from Providence O Rhode Island versus that zoom thing. So again,
Speaker 3: I guess the initial deadline is going to be midnight tonight, right,
Speaker 3: so we'll wake up tomorrow and the government will need to.
Speaker 6: Be open or not right obviously, like you exactly.
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Speaker 3: doing this whole live thing from the Bloomberg Interactive Broker
Speaker 3: studio here in New York City. The government shutdown is
Speaker 3: a thing, and we kind of kind of getting used
Speaker 3: to it. I guess it seems to happen at least
Speaker 3: once a year these days. Let's put this whole thing
Speaker 3: in perspective and how the next several days might unfurlier.
Speaker 3: Christopher smart joint is he's a managing partner at our
Speaker 3: Growth Group, and he's a former Special Assistant to the
Speaker 3: President for International Economics. Joining us from Boston via that
Speaker 3: zoom thing. Hey, Chris, thanks so much for joining us here.
Speaker 3: I guess again, we've all in this market become I guess,
Speaker 3: kind of used to these threats of government shutdowns. What's
Speaker 3: a little bit different this time is we have a
Speaker 3: couple of civilians that are really weighing in and almost
Speaker 3: driving part of the conversation. That is President elect Trump
Speaker 3: and Elon Musk really involved here. What do you make
Speaker 3: of that whole dynamic, because that seems a little bit unique.
Speaker 7: It seems very unique. I'm not sure we're supposed add
Speaker 7: modify us to unique, but it is a very different
Speaker 7: rhythm from the traditional government shutdown background music that many
Speaker 7: investors are used to at this time of year. Along
Speaker 7: with the Salvation Army bell ringers and anybody singing carols
Speaker 7: at your door. There is always the drama of when
Speaker 7: Congress will go home, will there be a budget or
Speaker 7: will there be a continuing resolution? And what services married
Speaker 7: and I may not get shut down for a few days,
Speaker 7: as you say, the difference, one big difference this time
Speaker 7: is we have a president elect who's not really president,
Speaker 7: scuttling what had been agreed by all sides earlier this
Speaker 7: week we have, as you say, as civilians, somebody who's
Speaker 7: not even headed for a government role, an official government
Speaker 7: role at least, who's also sort of driving the dynamics
Speaker 7: on social media that we haven't really seen anywhere.
Speaker 2: In the past.
Speaker 7: And then I guess to me the third thing, as
Speaker 7: from the market's perspective, there's one thing that the markets
Speaker 7: always hate, which is the debt limit debate that comes
Speaker 7: up from time to time and the threat of the
Speaker 7: United States defaulting here the fact that President like Trump
Speaker 7: has sort of introduced this is one of his asks
Speaker 7: in the continuing Resolution, at least that's what it's been
Speaker 7: in the last twenty four hours. We'll see how that evolved.
Speaker 7: But markets would love to see this thing go away.
Speaker 7: The problem is getting the math to work on that
Speaker 7: particular part of an already complicated bill becomes very, very difficult.
Speaker 6: It feels like in markets we have so many things
Speaker 6: to worry about right now. Honestly, my eyes are on
Speaker 6: so many different things right now, especially with this being
Speaker 6: a FED week. But of course as a concern, as
Speaker 6: we're thinking about the uncertainty that could be upcoming in
Speaker 6: this situation, what is the impact on markets here? Historically
Speaker 6: do we really care about a government shut down in
Speaker 6: terms of the near term, I.
Speaker 7: Think probably less so this time around. First of all,
Speaker 7: the sell off that we've seen this week was squarely
Speaker 7: linked to the fed's statements and more hawkish music coming
Speaker 7: from that part of Washington. If we were sort of
Speaker 7: really on the verge of a recession and you worried
Speaker 7: that government spending would be cut off and government activity
Speaker 7: would tip the balance into a recession, then I think
Speaker 7: markets will be paying much more, much closer attention to
Speaker 7: what's going on right now. But you have an economy
Speaker 7: that is on the margin running a little bit hotter
Speaker 7: than the FED would like, and you know, from a
Speaker 7: macroeconomic perspective, a little bit of cooling, even if it
Speaker 7: comes from a shutdown, is probably not a bad thing overall. Obviously,
Speaker 7: from a governance perspective, from a predictability perspective, from a
Speaker 7: political perspective, it's it's never a good thing when you
Speaker 7: have it this kind of dynamic in the in the background.
Speaker 7: And I think the thing around these government shut off
Speaker 7: shutdown excuse me, is that once they happen, it's never
Speaker 7: clearer if it's going to be a quick one or
Speaker 7: a long one, and once ide start digging in, this
Speaker 7: could go on well into the into the new year.
Speaker 3: So again, we were just talking with one of our analysts,
Speaker 3: Bloomberg Intelligence, who covers the Washington policy, and he had
Speaker 3: raised his risk of a shutdown or os of a
Speaker 3: shutdown to forty percent. That's up from I think twenty
Speaker 3: or thirty percent just a day or two ago. My senses,
Speaker 3: you feel like it's maybe even higher than that.
Speaker 6: Here.
Speaker 3: What are the what's the politics of a shutdown here?
Speaker 3: How would you view the politics of a shutdown that
Speaker 3: might go through the holidays.
Speaker 2: Well, I'm not.
Speaker 7: Sure anybody benefits from a shutdown, but the question is
Speaker 7: always can you blame the other person more? And obviously
Speaker 7: I think at this stage it looks like this has
Speaker 7: been a shutdown that's been triggered by Elon Musk and
Speaker 7: Donald Trump scuppering this late deal that the Republicans Democrats
Speaker 7: had agreed to. Having said that President Trump just won
Speaker 7: a big election, it's very easy for him to write
Speaker 7: the narrative that this is Washington insider backroom dealing that
Speaker 7: he is fighting against and has promised to eliminate in Washington.
Speaker 7: So I'm not sure I think both sides feel like
Speaker 7: they've got the upper hand here, which should think, as
Speaker 7: you say, leads me to believe that the odds are
Speaker 7: maybe higher than forty percent. Although you know, these things
Speaker 7: tend to change very quickly from one hour to the next.
Speaker 7: It just doesn't seem to me that anybody's got a
Speaker 7: real reason to compromise at this stage. The one, you know,
Speaker 7: minor deadline that's coming up is actually the president's inauguration.
Speaker 7: Does he want to be sworn into office with the
Speaker 7: government still shut down? But between now and then, I'm
Speaker 7: not sure what's going to force one side or the
Speaker 7: other to come to the table.
Speaker 6: When we're thinking about the market, what sectors in particular
Speaker 6: could be potentially exposed to the impact of a government
Speaker 6: shut down.
Speaker 7: Again, if it's shutting things down for a week or
Speaker 7: a month, even two months, the macroeconomic impact is fairly
Speaker 7: fairly limited. Obviously, you can see government contracts that don't
Speaker 7: get written, you know, maybe defense contracts that don't get
Speaker 7: done this year or get pushed into next year. You
Speaker 7: get a lot of uncertainty. You know that maybe some
Speaker 7: businesses aren't planning their investments the way they would like
Speaker 7: to given the uncertainty around government spending. But the real
Speaker 7: questions are not so much around the shutdown itself, as
Speaker 7: I think everybody is looking to both the tax debate
Speaker 7: that's going to come into line very quickly and what
Speaker 7: sort of differences they can expect in terms of corporate
Speaker 7: taxes and potential rollbacks of President Biden's subsidies to the automotive,
Speaker 7: to the electric vehicle, to the clean energy industry. And
Speaker 7: then the other piece of that I think that he's
Speaker 7: driving things are the terraff wars that are building up.
Speaker 3: Christopher Smart, thank you so much for joining us. Chris Smart,
Speaker 3: he's a managing partner in a growth group, former Special
Speaker 3: Assistant to the President for International economics, just giving us
Speaker 3: his thoughts here on the potential shutdown. I think as
Speaker 3: Chris was just mentioning, he kind of feels like this
Speaker 3: is somebody that may come to fruition and so have
Speaker 3: to see will pay attention. That's starting midnight tonight.
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Speaker 3: Charlie Pellet, I'm trying to figure out what the heck
Speaker 3: going on in this market, what's driving the higher here?
Speaker 3: You know, I'm seeing a couple of things, maybe, you know,
Speaker 3: I'm looking at the top go on the Bloomberg terminal,
Speaker 3: Fed's favorite inflation gauge cools to the slowest pace since May.
Speaker 3: So maybe this economic data people is really starting to
Speaker 3: digest it and say, all right, maybe this inflation thing
Speaker 3: is is not as concerning as maybe we thought. That
Speaker 3: might give the FED some room on the rates here,
Speaker 3: you know. And I think the question is maybe the
Speaker 3: reaction to the Fed's meeting on Wednesday again, SMP off
Speaker 3: two and a half percent last top of three and
Speaker 3: a half percent. Maybe that's a little bit of an overreaction.
Speaker 6: We're seeing real estate the best performing sector today and
Speaker 6: then information technology is the second best.
Speaker 3: Real estate and that's my career.
Speaker 2: Real estate.
Speaker 3: All right, very good. We appreciate that Sandy Berger joins us.
Speaker 3: She's the chief client officer. I'm sure she's got some
Speaker 3: thoughts here. The firm's experient and she joins us via zoom. Sandy,
Speaker 3: what do you make of the last I don't know,
Speaker 3: four five, six days in this marketplace. We've got geopolitics,
Speaker 3: we've got domestic politics with the government shutdown, We've got
Speaker 3: federal reserve. Boy, there's a lot of cross currents for
Speaker 3: investors to navigate.
Speaker 1: Well, it's been an exciting week, and every day there
Speaker 1: is a new twist. In turn. We've been telling our clients,
Speaker 1: who are corporate executives, family business owners and entrepreneurs to
Speaker 1: be ready for anything and to be thoughtfully and thoughtfully
Speaker 1: diversified in their portfolios. That's what we've been doing for them.
Speaker 1: But in terms of the economy right now, things are
Speaker 1: looking pretty good in our We have a strong economy,
Speaker 1: strong corporate earnings. There are some wild cards on out
Speaker 1: there that could change things, and I think we got
Speaker 1: a taste of some of those wild cards this week,
Speaker 1: especially in terms of the Fed's decision regarding interest rates
Speaker 1: and slowing down the pace. There so a lot of
Speaker 1: volatility within the week. We wouldn't be surprised if volatility
Speaker 1: continued into twenty twenty five. But at this point on
Speaker 1: our base case scenario, we're not expecting any major changes.
Speaker 1: We think things look good out there.
Speaker 6: Sandy, you mentioned wild cards. There's so much volatility. Where
Speaker 6: are you guys staying, what do you like right now?
Speaker 6: And where are you avoiding?
Speaker 1: So within our portfolios, as I was mentioning, we really
Speaker 1: truly believe that now more than ever, diversification is important,
Speaker 1: and we're pretty well balanced between bonds and equities, though
Speaker 1: tilting toward equities. Within the equity markets, we do like
Speaker 1: the US market, particularly large cap value. It really has
Speaker 1: not been the place to be for a long time.
Speaker 1: On balance, we think that there's some real opportunity there.
Speaker 1: We also like small caps in the United States, also
Speaker 1: on the value side, and really looking at the higher
Speaker 1: quality small company so companies that have strong balance sheets,
Speaker 1: that have great business models, that are going to do
Speaker 1: well during good economic times and bad. And then we
Speaker 1: do have some of our allocation overseas. We're particularly more
Speaker 1: bullish on Europe at this point and also Japan.
Speaker 6: When we look at the fact that we've hit so
Speaker 6: many record highs for the S and P five hundred
Speaker 6: in the market more broadly this year more than fifty times.
Speaker 6: Is there any discussion around whether or not market valuations
Speaker 6: have been too high?
Speaker 1: In our estimation, the US large cap growth area is
Speaker 1: running pretty hot. Still, we think valuations are high there.
Speaker 1: You look at the SMP five hundred earnings currently pees
Speaker 1: at twenty two, an average is more like sixteen. So
Speaker 1: you could make some arguments that some stocks have gotten
Speaker 1: ahead of themselves. That's why we are tilting toward value
Speaker 1: in some of the areas of the market that haven't
Speaker 1: gotten as much play. But you know, it all depends
Speaker 1: upon what happens in the economy in how corporate ar
Speaker 1: needs continue in the period ahead. And again, without some
Speaker 1: of these wild cards coming into tuition I talked about inflation,
Speaker 1: interest rates would be another wild card, and of course
Speaker 1: we have deficits and tariffs out there as well. We
Speaker 1: could see sustained levels in the markets if those wild
Speaker 1: cards don't show their ugly faces and create some surprises
Speaker 1: and sandy.
Speaker 3: You know, since the election, at least from my perspective,
Speaker 3: has been a palpable sense of optimism, economic optimism, optimism
Speaker 3: about the markets, optimism about taking risk. Do you get
Speaker 3: that when you talk to your clients.
Speaker 1: So, our clients are mostly based in the United States,
Speaker 1: we have some that are located overseas, and they represent
Speaker 1: all aspects of the political spectrum. And so what I've
Speaker 1: noticed it's clients who have strong political views on one
Speaker 1: side of the spectrum, where the other that are either
Speaker 1: the most bullish around economy or the most concerned. So
Speaker 1: we're hearing a lot of different things from our clients,
Speaker 1: and our jobs really is to meet them where they are,
Speaker 1: keep in mind what they're trying to achieve with their
Speaker 1: long term financial plans and what they're really focused on,
Speaker 1: and making sure that we're helping them make decisions about
Speaker 1: their portfolios that are going to be invested in service
Speaker 1: of what they're trying to achieve, and keeping them keeping
Speaker 1: a check on any strong feelings one way or the
Speaker 1: other between bolishness or bearishness. We hear it all, Paul Sandy.
Speaker 6: One of the latest wildcards, of course, that we're monitoring
Speaker 6: and the rest of the market is monitoring today is
Speaker 6: the potential government shutdown. How have markets historically responded to
Speaker 6: government shutdowns and what are you all thinking about what
Speaker 6: we're seeing today in about thirty seconds.
Speaker 1: Or less, Nora, the shutdowns tend to be a non
Speaker 1: market event, in a non economic event, so we've been
Speaker 1: telling clients who've been concerned not to worry about it.
Speaker 1: The interesting thing about this potential shutdown is that it
Speaker 1: really is an early test, perhaps of the cohesiveness of
Speaker 1: the Republican Party. So if we were to see a
Speaker 1: prolonged shutdown, and that's not necessarily what we're expecting, but
Speaker 1: if we saw one, that could put into question some
Speaker 1: of the Republican Party's ability to rally around other policies
Speaker 1: that people are expecting to come into fruition, like tax
Speaker 1: reform later next year.
Speaker 3: Sandy, thank you so much. We appreciate it. Thanks for
Speaker 3: your time, Sandy Berger, Chief Client Officer, Experient giving us
Speaker 3: her thoughts on the markets.
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