WEBVTT - Ugh! Not Politics Again! 0:00:00.400 --> 0:00:03.960 Strap on your parachute. It's time for What Goes Up 0:00:04.120 --> 0:00:13.960 with Sarah Ponzick and Mike Reagan. Hello and welcome to 0:00:14.040 --> 0:00:17.360 What goes Up, a Bloomberg weekly markets podcast. I'm Sarah 0:00:17.360 --> 0:00:20.960 pons Porter on the Cross Asset Team, and I'm Mike Reagan, 0:00:21.120 --> 0:00:23.920 a senior editor at Bloomberg. This week on the show, 0:00:24.200 --> 0:00:27.840 is the market melt up? Finally? Over stocks came back 0:00:27.880 --> 0:00:31.440 to earth this week after a spectacular surge in the 0:00:31.600 --> 0:00:34.360 SMP five hundred from its lows in March. We'll talk 0:00:34.400 --> 0:00:37.800 with a veteran investment strategist and economist about what an 0:00:37.880 --> 0:00:40.839 unusual summer it was and how, like the changing of 0:00:40.880 --> 0:00:45.000 the seasons, markets maybe in store for some less favorable weather, 0:00:45.800 --> 0:00:48.680 and as always, will close out the episode with our 0:00:48.680 --> 0:00:52.920 tradition the craziest thing I saw in markets this week? Sarah, 0:00:52.960 --> 0:00:55.080 I got a warning. I'm double dipping on the crazy 0:00:55.160 --> 0:00:58.320 things this week. That's good because I really am lacking. 0:00:58.400 --> 0:01:00.400 So maybe I'll have to take one of yours, A 0:01:00.720 --> 0:01:03.160 good good Actually I got one from our collie, Emily Barrett. 0:01:03.200 --> 0:01:06.280 Well maybe you can use hers. But uh, and as 0:01:06.280 --> 0:01:09.600 you said, returning to the show, Uh, really a great 0:01:09.640 --> 0:01:12.800 guest I like this guest because every time we see her, 0:01:12.920 --> 0:01:17.080 she makes me think and makes me laugh about markets 0:01:17.200 --> 0:01:20.440 and just the world in general. Her name is Nila 0:01:20.680 --> 0:01:24.399 Richardson and she works at Edward Jones. Nila, welcome back 0:01:24.400 --> 0:01:26.120 to the show. I think this is your third time, 0:01:26.280 --> 0:01:28.920 is that right? Thank you, Mike. It's so great to 0:01:28.959 --> 0:01:31.319 be here. And I wasn't sure you were talking about me, 0:01:31.400 --> 0:01:35.200 so thanks for confirming that. No, I gotta say, I'm 0:01:35.240 --> 0:01:37.640 also happy to have you this week because I know 0:01:37.760 --> 0:01:40.959 you're a proud resident of the Great Garden state of 0:01:40.959 --> 0:01:45.240 New Jersey. And our friend Sarah here, believe it or not, 0:01:45.360 --> 0:01:48.800 has just discovered the Jersey Shore for the first time 0:01:49.000 --> 0:01:51.600 in my life. I went to the Jersey Shore, and 0:01:51.640 --> 0:01:54.480 I can say I will be going back. Sarah's from Florida, 0:01:54.520 --> 0:01:57.440 and I think the Jersey Shore is basically like Florida 0:01:57.560 --> 0:02:00.160 with with colder water. Yeah, I had a hard time 0:02:00.200 --> 0:02:03.200 getting in the water. Used to like eighty degree water 0:02:03.280 --> 0:02:05.920 in Florida. Wasn't the same up here. So, Dila, the 0:02:05.960 --> 0:02:09.160 first question has to be what's your favorite Jersey short town? Jeez, 0:02:09.240 --> 0:02:12.000 I don't know if I have one. I can't say 0:02:12.040 --> 0:02:14.360 that I have one, but I can say that in 0:02:14.400 --> 0:02:17.280 Florida you probably see a lot of New Jersey people, right, 0:02:17.800 --> 0:02:20.799 I mean, isn't it basically the same people? Right? The 0:02:20.800 --> 0:02:26.160 people are the same, the beaches are different. Do you 0:02:26.240 --> 0:02:28.840 have a favorite? Oh that's a loaded question, you know. 0:02:28.919 --> 0:02:31.360 Sarah asked me that, and I unloaded with about a 0:02:31.360 --> 0:02:34.799 four thousand word in response with footnotes. I like your 0:02:34.880 --> 0:02:37.120 diplomatic answer though. That was a good one. You can. 0:02:37.520 --> 0:02:40.200 It's a touchy subject, the most pressing question of the 0:02:40.360 --> 0:02:43.400 entire podcast. That's right, that's right. But I'm very excited. 0:02:43.440 --> 0:02:45.520 I think Sarah is gonna end up being a Jersey 0:02:45.560 --> 0:02:51.160 woman eventually. I can see it coming. Work on that hair. 0:02:51.240 --> 0:02:53.000 You need to work on getting that hair a little higher, 0:02:53.160 --> 0:02:56.160 work on it, tease it up. But Neila, you know, 0:02:56.200 --> 0:02:59.359 as Sarah said in the introduction, Wow, what a crazy 0:02:59.440 --> 0:03:03.360 summer it was. I mean, you know, this ferocious melt 0:03:03.480 --> 0:03:06.480 up in the stock market. I guess now this week 0:03:06.520 --> 0:03:09.799 we're looking at Thursday, a massive sort of sell off, 0:03:10.080 --> 0:03:14.040 the market coming back to earth. I mean, was that inevitable? 0:03:14.040 --> 0:03:16.720 Do you think? And how much should we worry be 0:03:16.760 --> 0:03:19.680 worried about this latest volatility in the market? In your mind, 0:03:20.000 --> 0:03:22.680 it was inevitable, and we shouldn't worry about it. I'll 0:03:22.720 --> 0:03:25.800 tell you. I mean, this is the early stages of 0:03:25.840 --> 0:03:29.240 what we think is a bear market recovery that could 0:03:29.280 --> 0:03:32.400 turn into the next bowl market. It's an early bowl. 0:03:32.480 --> 0:03:35.840 It's gonna wobble before it walks. And it's been so 0:03:36.000 --> 0:03:40.240 fast this rally that the economic fundamentals haven't had a 0:03:40.320 --> 0:03:43.720 chance to catch up yet. So I would frankly worry 0:03:43.840 --> 0:03:47.200 to see the rally continue in this relentless way. We 0:03:47.240 --> 0:03:52.880 should expect some occasional sell offs, an occasional pullback that 0:03:52.960 --> 0:03:57.040 would not be outside of historical precedent for any year, 0:03:57.600 --> 0:04:00.480 especially a year with so much economic inncer outanty is 0:04:00.520 --> 0:04:02.520 the one we're in now. So like you said, it 0:04:02.560 --> 0:04:05.520 was inevitable. I mean, you look at some measures of 0:04:06.080 --> 0:04:10.160 momentum for the SMP five hundred, for the nasdack reaching 0:04:10.160 --> 0:04:14.360 the highest level since January. I mean, there's no doubt 0:04:14.520 --> 0:04:18.039 that we had seen this unbelievable runs pretty much just 0:04:18.080 --> 0:04:23.800 relentless since the March bottom. Does this open up a 0:04:23.880 --> 0:04:26.760 window for a new regime? Though, I know a lot 0:04:26.760 --> 0:04:28.680 of people have been talking about this rotation, and the 0:04:28.720 --> 0:04:31.440 self we saw on Thursday was very much tech lad 0:04:32.680 --> 0:04:37.000 Can we possibly know that yet? Not yet, But this 0:04:37.040 --> 0:04:39.120 is what we expect, and this is why we're telling 0:04:39.160 --> 0:04:44.320 our clients to maintain a diversification, maintain exposure across asset 0:04:44.400 --> 0:04:48.760 classes and sectors, especially those sectors that are poised for 0:04:48.839 --> 0:04:53.920 an economic recovery. So that's international, small cap and sectors 0:04:53.960 --> 0:04:56.960 like financials and industrials. People say it over and over 0:04:56.960 --> 0:04:58.840 again because it's true, and it's true, and it's true. 0:04:58.960 --> 0:05:01.919 You can't put your eggs in one basket, even a 0:05:02.040 --> 0:05:06.000 kept friendly basket. It's better to be diversified across sector 0:05:06.120 --> 0:05:10.520 so you can actually gain in in sectors that have 0:05:10.640 --> 0:05:14.400 been hurt by the pandemic but poised to rise in 0:05:14.400 --> 0:05:17.000 the recovery. I always wonder about that. I mean, what 0:05:17.080 --> 0:05:19.680 do you have a different basket in each hand when 0:05:19.680 --> 0:05:22.240 you're carrying your legs. It's it's very complicated. I don't 0:05:22.240 --> 0:05:24.480 know how you you actually do that. But no, let's 0:05:24.520 --> 0:05:26.640 get back to that economic data. I mean, it seems 0:05:26.720 --> 0:05:30.000 like there is uh you know, one day there's a 0:05:30.080 --> 0:05:32.800 data point that looks great, whether it be say housing, 0:05:33.640 --> 0:05:37.120 um retail sales, something like that, and then the next 0:05:37.560 --> 0:05:40.400 you know, we're still looking at if you round up 0:05:40.400 --> 0:05:44.200 to something like a million jobless claims a week. What's 0:05:44.240 --> 0:05:49.800 the disconnect there? Can that data continue to improve on 0:05:49.880 --> 0:05:53.240 sort of the rosy end of the economic spectrum as 0:05:53.320 --> 0:05:57.039 this labor market still seems to struggle to get its 0:05:57.040 --> 0:06:00.240 head back above water. Is there sort of a meeting 0:06:00.279 --> 0:06:02.159 in the middle that will have to come or you know, 0:06:02.600 --> 0:06:05.039 some of the better data going to cool off as 0:06:05.120 --> 0:06:08.480 this labor data improves, or you know, what's what's your 0:06:08.480 --> 0:06:13.440 outlook for how to read the upcoming economic reports? You know, 0:06:13.600 --> 0:06:15.520 I think of it as a rally. It's like a 0:06:15.560 --> 0:06:18.680 four legged rally. The first leg of that rally was 0:06:18.800 --> 0:06:21.480 ran by the Fed when they cut interest rates, when 0:06:21.520 --> 0:06:24.120 they dived into the credit markets and promised to buy 0:06:24.160 --> 0:06:28.719 basically everything that had a cupon except for the lowest 0:06:28.760 --> 0:06:31.520 of the junk bonds. Um They were the first leg 0:06:31.560 --> 0:06:33.679 of the rally. And then it was followed very quickly 0:06:33.760 --> 0:06:39.719 by fiscal stimulus, bipartisan fiscal stimulus, almost four trillion dollars. 0:06:39.760 --> 0:06:42.120 That's a lot of stimulus. We're still waiting on the 0:06:42.160 --> 0:06:45.720 completion of that leg. And then the rally. The next 0:06:45.800 --> 0:06:49.240 leg was the stock rally. So quick the fervency of 0:06:49.240 --> 0:06:52.200 that rally from the March twenty three low. So now 0:06:52.279 --> 0:06:56.320 we're waiting for this handoff from the fiscal stimulus from 0:06:56.320 --> 0:06:59.240 the stock market to the economy. We're waiting for the 0:06:59.279 --> 0:07:02.360 economy to take the baton, so to speak. The problem 0:07:02.440 --> 0:07:05.640 is the data we've seen has shown a slowing momentum. 0:07:05.680 --> 0:07:08.040 You can see that in the jobs market, for example, 0:07:08.880 --> 0:07:12.400 the pace of job gains has slowed. And so the question, 0:07:12.560 --> 0:07:14.320 and this is going to be where you're going to 0:07:14.320 --> 0:07:17.480 see the volatility and the disconnect, is can the economy 0:07:17.760 --> 0:07:20.800 keep up enough to grab that baton and keep running. 0:07:21.120 --> 0:07:24.120 I think it's too early to do that without some stimulus, 0:07:24.160 --> 0:07:26.680 without some help, so we're going to need I think 0:07:26.760 --> 0:07:30.239 at that fifth round of stimulus that's stalemate NG sitting 0:07:30.240 --> 0:07:33.560 on the sidelines in Congress to really get the economy 0:07:33.920 --> 0:07:38.000 shirt up for a sustainable recovery. So this handoff that 0:07:38.040 --> 0:07:39.800 you're looking for, that and from the stock market to 0:07:39.880 --> 0:07:43.040 the economy to really take the baton and show that 0:07:43.120 --> 0:07:45.680 this was all worth it. The rally that we have 0:07:45.800 --> 0:07:49.840 seen off the bottom was worth it and made sense 0:07:49.960 --> 0:07:53.720 as well. How much patience should investors have? I mean, 0:07:53.880 --> 0:07:58.160 how long might that take? Especially considering we have not 0:07:58.240 --> 0:08:01.320 yet seen another fiscal pack cage, and like you said, 0:08:01.800 --> 0:08:04.720 the economic data is is a little bit mixed. Well, 0:08:04.800 --> 0:08:08.920 let's be fair, Sarah. Investors have been rewarded by being 0:08:09.000 --> 0:08:11.040 patient and they didn't even have to be that patient. 0:08:11.320 --> 0:08:13.640 What was it too bad weeks and then we saw 0:08:13.680 --> 0:08:19.200 this huge rally. I mean, patients hasn't even been required 0:08:19.520 --> 0:08:23.000 the summer for investors. But investors are going to have 0:08:23.120 --> 0:08:25.800 to get used to not flinching by a daily move. 0:08:26.520 --> 0:08:30.320 I think that the market has been actually rather complacent 0:08:30.560 --> 0:08:34.760 given how dire the economic fundamentals are. So this is 0:08:34.800 --> 0:08:37.880 a time for for investors to get real in terms 0:08:37.880 --> 0:08:40.880 of their expectations. If you look back for the last 0:08:40.920 --> 0:08:45.680 three years, Uh, going into this week, stocks had been 0:08:45.760 --> 0:08:50.760 returning the last three years, even before the pandemic. We 0:08:50.880 --> 0:08:53.600 did not expect that level of stock price return for 0:08:54.960 --> 0:08:58.280 so we need to reset our expectations for more reasonable 0:08:58.320 --> 0:09:02.520 growth going forward and occasional pullbacks and volatility and not 0:09:02.640 --> 0:09:24.000 let that shake us from our strategy of a diversified approach. Yeah, Neil, 0:09:24.040 --> 0:09:25.960 I was reading some of the notes you sent over 0:09:26.520 --> 0:09:29.880 before this interview, and one of the things you mentioned was, 0:09:30.320 --> 0:09:32.640 you know, if you're if you have a balanced portfolio, 0:09:32.760 --> 0:09:38.720 say a sixty percent stocks bonds type of portfolio, obviously 0:09:38.840 --> 0:09:41.560 right now is the time to rebalance that your your 0:09:41.600 --> 0:09:44.680 stock portion of the portfolio has gotten way above six 0:09:45.320 --> 0:09:48.960 to you know, whatever it is currently after this melt up. 0:09:49.520 --> 0:09:51.760 But the reason I bring it up is I helped 0:09:51.880 --> 0:09:56.040 edit a story for the magazine last week talking about 0:09:55.400 --> 0:09:59.319 sixty portfolios, and there's been sort of I wouldn't know 0:09:59.360 --> 0:10:01.520 if i'd called it backlash, but a lot of people 0:10:01.559 --> 0:10:04.880 on Wall Street out there saying sixty forty is not 0:10:05.040 --> 0:10:08.720 the way to go going forward, given that treasury yields 0:10:08.760 --> 0:10:12.240 are so low, no one really expects them to go negative, 0:10:12.320 --> 0:10:13.760 and you know, so you could get that sort of 0:10:13.840 --> 0:10:17.840 less leg of capital appreciation, and the stock market valuation 0:10:18.160 --> 0:10:21.040 is so high that both of those are sort of 0:10:21.160 --> 0:10:25.440 foreboding for for future returns. I mean, the obvious question 0:10:25.720 --> 0:10:28.320 then is a tough one. What do you do to 0:10:28.360 --> 0:10:31.280 replace a sixty forty? And I think that could be 0:10:31.600 --> 0:10:34.679 the subject for about a five hour podcast. But I'm 0:10:34.720 --> 0:10:37.560 just curious, from where you're sitting and talking to clients 0:10:37.559 --> 0:10:40.480 of Edward Jones, has it reached the level of sort 0:10:40.480 --> 0:10:43.240 of the individual investor yet that they're worried about the 0:10:43.280 --> 0:10:47.880 classic approach to a stable, balanced portfolio like sixty forty? 0:10:47.960 --> 0:10:51.640 Are they asking about alternatives about sort of you know, 0:10:51.960 --> 0:10:55.200 taking a little more risk besides say an index fund 0:10:55.320 --> 0:10:58.400 or or a real conservative mutual fund. Is there any 0:10:58.440 --> 0:11:01.839 interest from sort of the mom and pop investors and 0:11:02.320 --> 0:11:06.720 institutions even to go beyond sixty to say well, this 0:11:06.800 --> 0:11:08.920 worked great for the last I don't know, forty years, 0:11:08.960 --> 0:11:14.760 but yeah, yeah, however long you measure it. Is this 0:11:14.840 --> 0:11:18.280 a false alarm? I guess to finish off my thirteen 0:11:18.320 --> 0:11:21.960 part question, it's also a false false alarm about this 0:11:22.040 --> 0:11:25.440 sort of the outlook for a sixty type of strategy 0:11:25.559 --> 0:11:29.160 or is it worth considering sort of branching out and 0:11:29.200 --> 0:11:33.160 looking at some alternatives. It is a real placeholder of 0:11:33.360 --> 0:11:37.080 perspective for clients. I will say that, look, we are 0:11:37.240 --> 0:11:40.240 in this current environment that is likely to stay with 0:11:40.320 --> 0:11:43.120 us for a long time of lower for longer interest rates. 0:11:43.360 --> 0:11:45.800 And we thought they couldn't go any lower. They actually 0:11:45.800 --> 0:11:49.480 went lower in and they're likely to stay there longer. 0:11:49.559 --> 0:11:51.959 If you really think about what the Federal Reserve has 0:11:52.040 --> 0:11:55.600 done cutting rates near zero. Yes, okay, that's the first thing, 0:11:55.920 --> 0:11:59.200 But then introducing a whole new concept, a whole new 0:11:59.280 --> 0:12:03.120 level of flex ability in terms of saying, we are 0:12:03.160 --> 0:12:06.480 not going to start raising interest rates as soon as 0:12:06.520 --> 0:12:09.960 we see inflation creep up to two. We're actually gonna 0:12:10.040 --> 0:12:12.080 let it creep up, and we're gonna let it creep 0:12:12.160 --> 0:12:16.320 up for some unspecified amount of time. What that basically did, 0:12:16.800 --> 0:12:20.119 um when the FED announced that last week average inflation 0:12:20.480 --> 0:12:23.960 targeting policy, said we're going to keep interest rates, short 0:12:24.040 --> 0:12:27.200 term rates very low for a very long time past 0:12:28.640 --> 0:12:31.959 and perhaps even longer. And so what that says to 0:12:32.080 --> 0:12:34.680 clients is, WHOA how am I going to get income 0:12:34.679 --> 0:12:37.160 on my bonds that are paying me nothing? And so 0:12:37.400 --> 0:12:41.120 bonds have really two purposes, right, One is for income 0:12:41.240 --> 0:12:45.040 and the second is to cushion against volatility, and both 0:12:45.080 --> 0:12:48.960 of them are. The income one is for sure lower 0:12:49.040 --> 0:12:52.920 when you have lower yields, but also the volatility cushion 0:12:53.280 --> 0:12:55.920 isn't as strong as if you can't see the interest 0:12:56.000 --> 0:13:00.000 rate decline a thousand basis points like like we've seen 0:13:00.160 --> 0:13:03.480 under certain economic environments, there's not a lot of room 0:13:03.520 --> 0:13:06.080 to move for interest rates to go lower. So the 0:13:06.160 --> 0:13:08.959 question is how do I get that kind of growth? 0:13:09.000 --> 0:13:10.760 How do I get that kind of yield, and this 0:13:10.840 --> 0:13:15.080 is why diversification matters. When you see a move like 0:13:15.160 --> 0:13:18.560 you have seen recently with a text sell off, it's 0:13:18.600 --> 0:13:22.559 important not to abandon that growth strategy because you're going 0:13:22.600 --> 0:13:25.480 to need it in your portfolio. This is an environment 0:13:25.520 --> 0:13:29.079 where you have to play both offense and defense because 0:13:29.080 --> 0:13:31.160 you're going to see volatility, So you need to have 0:13:31.200 --> 0:13:36.120 some defensiveness in your portfolio. That's fixed income, that's utilities, 0:13:36.200 --> 0:13:38.920 that's consumer staples, which you're going to have to play offense. 0:13:39.120 --> 0:13:42.040 And the last thing I'll say is people who get 0:13:42.040 --> 0:13:46.040 close to retirement think, oh wow, I'm going into retirement 0:13:46.200 --> 0:13:49.680 my distribution stage of life. I need to really pay 0:13:49.720 --> 0:13:53.400 attention to markets now. And I think what gets lost 0:13:53.440 --> 0:13:57.120 in that thought process is that you could spend twenty 0:13:57.120 --> 0:14:00.080 five years in retirement. Uh. If you think that there 0:14:00.120 --> 0:14:02.760 was a bear market every three to four years, you 0:14:02.760 --> 0:14:06.800 could see eight bear markets in retirement. So so to 0:14:06.920 --> 0:14:09.679 give up on growth too early could be a mistake 0:14:09.760 --> 0:14:12.920 for your long term enjoyment of your retirement. Eight bear 0:14:13.000 --> 0:14:16.439 markets sure, and retirement is not by that that you're 0:14:17.440 --> 0:14:20.280 going into retirement. No, I'm never going to retire. That's 0:14:20.320 --> 0:14:23.240 the only solution retire. You know, Mike, I think Nila 0:14:23.320 --> 0:14:26.040 needed more patients though for that question you asked than 0:14:26.280 --> 0:14:30.320 stock investors maybe needed all year that it was the 0:14:30.320 --> 0:14:34.040 long one. She answered, that's not bad. That's that I'd 0:14:34.040 --> 0:14:35.720 give it an a plus. Nila, I do want to 0:14:35.720 --> 0:14:37.680 ask you a hypothetical though, and kind of put you 0:14:37.720 --> 0:14:39.960 on the spot. Oh, that wasn't putting me on the 0:14:40.000 --> 0:14:45.200 spot just now with Mike, Okay, the entire time, Nila 0:14:45.280 --> 0:14:48.880 lives on the spot. Right. So it's very early on. 0:14:49.280 --> 0:14:51.520 We don't know if this volatility that we have seen 0:14:51.600 --> 0:14:53.600 is going to continue to the extent that we have 0:14:53.680 --> 0:14:55.760 seen what we saw towards the end of this past week. 0:14:56.360 --> 0:15:00.000 If we were to see this continue, is it possible 0:15:00.000 --> 0:15:01.920 old that we could see the Fed at its meeting 0:15:02.640 --> 0:15:06.240 this month do something more or say something more to 0:15:06.320 --> 0:15:08.440 try to ease the situation. And if they do, what 0:15:08.480 --> 0:15:12.320 would that mean from a portfolio perspective? You know, there's 0:15:12.480 --> 0:15:15.160 a variety of ways to answer that question. I'm going 0:15:15.200 --> 0:15:17.720 to answer it this way. I would like to think, 0:15:17.760 --> 0:15:19.640 and I do believe this, that the Fed will not 0:15:19.720 --> 0:15:23.080 be swayed by market moves. They know that they have 0:15:23.240 --> 0:15:26.920 done what they intended to do by their action, which 0:15:26.960 --> 0:15:30.080 is to add liquidity to the market and to improve 0:15:30.160 --> 0:15:33.400 credit market functioning, so we could continue to see the 0:15:33.400 --> 0:15:38.080 flow of credit to hard hit consumers and businesses. Beyond that, 0:15:38.160 --> 0:15:41.680 to change policy to make sure that markets keep climbing 0:15:41.880 --> 0:15:44.480 is not part of the two pronged mandate that the 0:15:44.480 --> 0:15:48.800 FAN has. That mandate is to price stability and and 0:15:49.200 --> 0:15:52.760 full employment. And so what I hope you see is 0:15:52.920 --> 0:15:55.720 what's in that input function for the FED is the 0:15:55.800 --> 0:15:58.920 unemployment rate, which is still very high, and we know 0:15:59.000 --> 0:16:02.400 it's higher for our minority groups. And so I think 0:16:02.440 --> 0:16:05.160 what the FETE is doing actually is really taking a 0:16:05.200 --> 0:16:09.200 deep look into its practices of full employment and making 0:16:09.240 --> 0:16:11.880 sure that that is as broad based and reaches as 0:16:11.920 --> 0:16:15.400 many communities as possible. What you might see, though, the 0:16:15.520 --> 0:16:19.400 volatility do in terms of actors is to nudge Congress, 0:16:19.440 --> 0:16:22.360 which is sitting on a fifth round of stimulus that 0:16:22.720 --> 0:16:25.520 you know, we're gonna quibble over these numbers. But if 0:16:25.520 --> 0:16:28.800 the Republicans initial bid was a trillion dollars in new 0:16:28.880 --> 0:16:32.400 stimulus and the Democrats was three trillion, look, it's still 0:16:32.480 --> 0:16:36.360 a trillion dollars in stimulus. That's a lot of stimulus 0:16:36.800 --> 0:16:41.080 and Act five of the bipartisan legislation would do so. Um, 0:16:41.120 --> 0:16:44.360 I think that's what vulnerable households are waiting for. But 0:16:44.560 --> 0:16:47.560 you might need a market nudge, unfortunately, to get policy 0:16:47.600 --> 0:16:49.920 makers to that point. Yeah, that's a big bid esk 0:16:50.000 --> 0:16:52.840 spread there between a trillion and three trillion, But you're right, 0:16:52.840 --> 0:16:55.400 it's you know, starting with a high base. You know, Neila, 0:16:55.480 --> 0:16:58.320 they say not to talk about religion and politics. I'm 0:16:58.320 --> 0:17:00.320 not gonna ask you about religion, but you you did 0:17:00.320 --> 0:17:02.960 bring up the politics, and I think we can't help 0:17:03.040 --> 0:17:05.399 but have to talk about it these days. Uh, the 0:17:05.440 --> 0:17:08.400 election coming up in November. Um, we've had a few 0:17:08.440 --> 0:17:12.840 stories out at Bloomberg talking about the way people are 0:17:12.840 --> 0:17:15.240 sort of trying to hedge the event risk of the election. 0:17:15.560 --> 0:17:21.000 Really almost unprecedented hedging taking place across all asset classes. 0:17:21.560 --> 0:17:25.760 But you know, how do you communicate to clients about 0:17:25.840 --> 0:17:30.000 the risks and opportunities ahead of the election. Um? Does 0:17:30.040 --> 0:17:33.040 it make sense to sort of take some risk off 0:17:33.040 --> 0:17:36.119 the table to to try to sort of, you know, 0:17:36.480 --> 0:17:38.639 book some profits ahead of the election or is is 0:17:38.680 --> 0:17:41.040 that a fool's errand to try to do that given 0:17:41.840 --> 0:17:43.960 how how this market has just been melting up anyway. 0:17:44.280 --> 0:17:47.440 You know, we've had one and very consistent message about 0:17:47.480 --> 0:17:52.520 elections and election years, even elections in UH don't play 0:17:52.640 --> 0:17:56.600 politics with your portfolio. I'm gonna grant a number of things. 0:17:56.640 --> 0:18:00.359 I'm going to grant that we've seen an unprecedented prize 0:18:00.400 --> 0:18:02.760 this year in terms of the pandemic. I'm also going 0:18:02.800 --> 0:18:06.000 to grant that this is a very divisive election where 0:18:06.280 --> 0:18:11.800 because exacerbated by the pandemic, you're seeing social upheaval. You're 0:18:11.800 --> 0:18:16.040 seeing racial injustices being protested in the streets. You're seeing 0:18:16.560 --> 0:18:22.200 higher than ever before, jobless numbers g d P declining 0:18:22.440 --> 0:18:24.520 by the most since the Great Depression. So there's a 0:18:24.560 --> 0:18:28.800 lot going in to a vote in November this time around. 0:18:29.080 --> 0:18:32.880 But if you look historically, it really doesn't matter over 0:18:32.920 --> 0:18:37.119 the long term who controls Congress, who controls the White House. 0:18:37.480 --> 0:18:42.280 UH stocks have performed on average ten percent regardless of 0:18:42.560 --> 0:18:46.160 who controlled what in Washington. And I know I lived 0:18:46.200 --> 0:18:50.919 in Washington for fifteen years. It's full of very important 0:18:50.960 --> 0:18:53.159 and very self important people. So I know that this 0:18:53.240 --> 0:18:55.280 is going to be heart wrenching to know that they 0:18:55.280 --> 0:18:59.399 don't control everything in the economy. But it's really economic 0:18:59.440 --> 0:19:03.399 and corporate fundamentals that matter the most for a rally, 0:19:03.560 --> 0:19:05.800 so any reaction we see, and I do think we'll 0:19:05.800 --> 0:19:09.439 see a reaction to the November when it's likely to 0:19:09.480 --> 0:19:11.840 be short lived. It's likely to be a knee jerk 0:19:11.920 --> 0:19:15.560 reaction to what's going on, and it's likely to wash 0:19:15.600 --> 0:19:34.840 out over the longer term. I do always wonder what 0:19:34.920 --> 0:19:38.359 that said, with the amount of research notes that landed 0:19:38.400 --> 0:19:41.520 my email in box this time of year, how much 0:19:41.560 --> 0:19:45.840 are people just almost forced to comment on election volatility 0:19:45.960 --> 0:19:48.280 because it's coming up, because it's a talking point, and 0:19:48.320 --> 0:19:50.880 you just have to have something to say. If you're 0:19:50.880 --> 0:19:54.080 a strategist or if you're a financial adviser. Well, I'm 0:19:54.119 --> 0:19:56.800 always warried of being prompted to say something I don't 0:19:56.880 --> 0:20:00.560 have anything to say about. That's not a good But 0:20:00.840 --> 0:20:04.119 I think there is also a difference between policy and politics, 0:20:04.200 --> 0:20:07.119 and we conflate the two all the time. But you 0:20:07.160 --> 0:20:11.520 can talk about policy. Policy has an effect on companies. 0:20:11.840 --> 0:20:14.639 It has a disproportionate effect, and so the nuance is 0:20:14.640 --> 0:20:19.239 actually really interesting. But it's not a headline, it's not 0:20:19.359 --> 0:20:22.800 a talking point that's easily given. It's so much easier 0:20:22.840 --> 0:20:27.280 to just make this bipartisan reference to Republicans, Democrats, Biden, 0:20:27.320 --> 0:20:30.880 Trump instead of digging into the policy details, because that's 0:20:30.880 --> 0:20:33.480 where the devil lies, and the devil is what controls 0:20:33.520 --> 0:20:38.320 the outcomes, Uh unfortunately in some of this policy legislation. 0:20:38.440 --> 0:20:40.920 So it's really digging into those details and seeing how 0:20:40.960 --> 0:20:44.119 that affects particular sectors and who benefits and wins. And 0:20:44.160 --> 0:20:46.600 that's hard work. I think we got the headline there, 0:20:46.600 --> 0:20:51.360 Sarah Nili says, the devil's in charge. You know, as 0:20:51.440 --> 0:20:53.960 much as I try, I can't get the headline right. 0:20:58.000 --> 0:21:02.080 You you are very good at at uncovering the best headlines. 0:21:03.600 --> 0:21:09.000 That's that's our job. But I guess from a sector standpoint, 0:21:09.040 --> 0:21:11.800 maybe it makes sense to pay closer to the election, right. 0:21:11.800 --> 0:21:14.359 I mean, you got Biden is a clean energy guy. 0:21:14.480 --> 0:21:16.840 Trump's a dirty energy guy, and you know you could 0:21:16.840 --> 0:21:20.080 you could go down the list. Um is even that 0:21:20.160 --> 0:21:22.680 fullist you think to try to game that too much? Mike, 0:21:22.720 --> 0:21:27.120 I would never say anything you said was foolish. But 0:21:27.119 --> 0:21:31.480 but I I know because I was a gut I 0:21:31.560 --> 0:21:35.120 was a government economist. I worked on the Dodd Frank legislation, 0:21:35.280 --> 0:21:38.439 and I know firsthand that what is promised on the 0:21:38.480 --> 0:21:41.760 campaign trail looks a lot different by the time it 0:21:41.800 --> 0:21:46.360 makes its way through Congress and into the government agencies 0:21:46.640 --> 0:21:51.160 which actually right and enact law. So again, then first response, 0:21:51.240 --> 0:21:55.320 the knee jerk response, it's it's too early, it's short lived. 0:21:55.600 --> 0:21:58.240 Seeing how these policies play out as they moved through 0:21:58.280 --> 0:22:01.960 the democratic process is what's really important. This is why 0:22:01.960 --> 0:22:05.200 we're so lucky to have someone like you on the show. Alright, Mike, 0:22:05.320 --> 0:22:09.080 I I think it's that time, though, Is it time? Okay? Nearly? 0:22:09.200 --> 0:22:10.840 I know you're a veteran of the show, and you 0:22:10.880 --> 0:22:13.960 know it's time for the craziest thing. Stand clear of 0:22:14.040 --> 0:22:18.440 the craziest things we saw in markets this week? All right, well, 0:22:18.480 --> 0:22:22.240 I'll give you Emily Barrett's oar calliguet. Emily Barrett gave 0:22:22.400 --> 0:22:25.600 us this one via Marty Frisden. So the year to 0:22:25.680 --> 0:22:29.160 date return on high yield debt turned positive in August, 0:22:29.320 --> 0:22:32.920 and the distress ratio, that is the percentage of bonds 0:22:33.119 --> 0:22:37.360 yielding greater than one thousand basis points over treasuries hit 0:22:37.440 --> 0:22:41.720 an all time low for recession. That's kind of a mouthful, 0:22:41.760 --> 0:22:43.440 but I guess that is a that is a pretty 0:22:43.440 --> 0:22:48.200 crazy thing. I guess not that surprising giving the purchases 0:22:48.280 --> 0:22:51.480 the Feds making in the in the corporate bond market. Um. 0:22:51.520 --> 0:22:53.359 But now, how do you pay close attention to the 0:22:53.359 --> 0:22:55.800 credit markets? Uh? You know, as far as trying to 0:22:55.840 --> 0:22:59.359 suss out the prospects for the stock market. You know, 0:22:59.560 --> 0:23:05.840 I I did. But the credit the fixed income markets 0:23:05.840 --> 0:23:09.879 have been so appeased by the Fed. I mean, there's 0:23:09.920 --> 0:23:13.720 been a remarkable level of stability. So if they're telling 0:23:13.800 --> 0:23:16.000 us anything, they're telling us the same thing over and 0:23:16.040 --> 0:23:18.920 over and over and over over again right now. Um, 0:23:19.320 --> 0:23:22.520 So it's really a disconnect from what we're seeing in 0:23:22.600 --> 0:23:25.280 terms of Riley. The fixed income markets are staying high. 0:23:25.480 --> 0:23:29.160 I mean, we might see some courage stepening, but they 0:23:29.160 --> 0:23:33.520 are at high levels and their price for the economy 0:23:33.600 --> 0:23:37.679 that we're in, whereas stock markets continue to drive towards 0:23:37.800 --> 0:23:40.480