Odd Lots - A Political Reporter Argues That Wall Street Doesn't Get DC

Episode Date: November 12, 2020

Investors have always had to pay attention to what's going on in Washington DC, but this year it's been on a whole new level. Between virus response policy, fiscal stimulus talks, and, of course, the recent election, there's been a huge demand for understanding of politics. On this episode, we speak with Jake Sherman, a reporter from Politico, who argues that investors are badly confused about how the city really works.See omnystudio.com/listener for privacy information.

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And I'm Tracy Allaway. So Tracy, we are recording this episode. I think just six days. Actually, I know, just six days before the election. I think by the time people listen to it, the election will have been passed. But nonetheless, we are in a period either way in which there is just an extraordinary amount of attention. paid to what's going on in Washington, D.C. Yeah, less than six days to go.

It's time to start making predictions about the outcome of the election. So everyone who listens to this after it actually happens can tell us we were wrong. Perfect timing. Yeah, that's exactly. That's the perfect way. Also, of all of our predictions are off, we just want to air the episode. No, I'm just kidding. But, I mean, I do feel like, A, I'm not going to stick my neck out and make any predictions.

And B, you know, election aside. course, the election is sucking all the oxygen out of the room in terms of people's attention. Just paying attention to what's going on in D.C. has been increasing in importance for markets. It seems like for a long time now. Yeah, I think that's right. And I mean, 2020 has basically taken everything to an extreme, all these long-term economic and business trends that have been in play for many years now seem to have accelerated this year. But I think you can argue. that there was more of a focus on politics after the financial crisis. You had a lot of attention paid to financial regulation, then you had the Eurozone crisis, you had Brexit, then you had

the U.S.-China trade war, and now in 2020, you have the fiscal stimulus and the response to the coronavirus crisis. So it does feel like we've been in this long-running trend of investors is paying more attention to politics and policy. And 2020 has really just shifted that into high gear. And now we have the election on top of it. Yeah, exactly right. And, you know, I think like one of the things we've learned, it's a pretty widely held view now,

but something that comes up a lot of times in our discussions, is that if the government gives people money, that is a very effective economic policy. It's very powerful. But, you know, the government doesn't always just hand out money, to people and you need to corral vote to get it done. So here you have this lever, this policy tool that's extremely effective. And there's not really much debate about can it be done sort of from a fiscal standpoint or a monetary standpoint, but about whether there's the political capacity to do it.

I think it's going to be, it's an issue now. It's probably going to be an issue in 2021, regardless of the makeup of government. And so I feel like there's going to be increasing demand on the part of investors, on the part of economists to understand whether that political capacity continues to exist in D.C. and what it takes to make it happen. Yeah, absolutely. And I think there's sometimes a tendency on Wall Street, I guess because a lot of investors and analysts tend to be quite rational people, I think there's sometimes a tendency to ascribe rationality to politicians. and you think, well, they're going to do what's good for people. They're going to do what's good for the economy.

And maybe in this case, that's fiscal stimulus. But sometimes they don't always do that. But also, wait, I'm not voicing this. No, I get it. You're making your point is spot on. No, well, I was going to say, sometimes I think there are also motivations that Wall Street isn't necessarily aware of. So they look at everything from a sort of zero-sum game. Totally.

Why wouldn't you do this? But there are things that politicians are thinking about that wouldn't necessarily jump out to your average sell side analysts. No, I mean, for one thing, they're all focused on re-election in large part. Right. The number of times I've read an analysts say, oh, maybe we'll get an infrastructure deal. It's just totally embarrassing. Anyway, this is a good setup to our guest because he has asserted quite prominently several times that Wall Street is just totally clueless or markets are totally clueless or maybe both. we can sort of get into the distinctions about how DC really works.

And so if that's true, that's something important for people to internalize, given the increasing importance of DC. We're going to be speaking with Jake Sherman. He's at Politico. He's also the author of the popular playbook newsletter. He's going on to do something else after this year, but we don't know what it is. So we'll all be waiting to see where Jake goes next. But in the meantime, we can talk about what in his view, Wall Street gets wrong.

So Jake, thank you very much for joining us. Thanks, guys. I'm a huge fan and I'm really happy to be here. Thanks. Yeah, it's great to have you. So we've gotten into some Twitter fights. I don't know if Twitter fights is the right word, but especially in these last few weeks about the stimulus up and ups and downs.

Sometimes it's look more promising. Sometimes it's looked less promising. The market moves on these headlines. Pelosi and Mnuchin will say their meeting in the afternoon. Stocks go up half a percent. Meeting ends with no agreement. stocks go down. And in your view, the fact that the markets are so sensitive to these headlines just shows that somehow they don't really get it. I think, yes, let me agree with all of the things

you just said. My argument has been, and I, just by way of background, I've been covering Congress since 2009. So I've been a part of covering every major crisis for the last decade. And there's been plenty, right? We've almost had our debt downgraded. We've had government shutdowns, all those things. I think that on Wall Street and generally speaking, people are making judgments about the probability of events without taking into consideration the personalities that are driving these events, right? And Tracy, you did a really good job, although you said you didn't, but you actually did a great job of explaining some of that at the top of this, right? Like, people are not rational. Politicians are not always rational in a traditional sense. They're not

going to just pass a trillion dollars of stimulus because it makes the most sense. You need to take into account a broad array of human behavior and assumptions of human behavior when making these predictions. For example, Nancy Pelosi hates Mark Meadows. She's not going to make a deal if Mark Meadows is there. Stephen Mnuchin, I think investors and markets, generally speaking, have not only been too sensitive to these things, but have just ignored fundamental realities of governing and are just passing off information as gospel when it really is just nothing but a singular data point in a broad array of data points that need to be under consideration. So can you elaborate on that point then?

You know, Joe mentioned in the beginning that politicians clearly want to be reelected. So that's always a focus for them. You mentioned some personal feuds and, you know, likes and dislikes. might be alliances in the background that people aren't even aware of. What motivates the average politician, in your opinion? Re-election and power, right? I mean, my personal hobby horse is one of my many personal hobby horses, and Joe could probably attest to this since he follows me on Twitter, and we have some back and forths. I mean, listen, we, I think the media is guilty in this, to because we concentrate on whether Congressman X believes there is a deal in the hand or not.

I'll pick a random member of Congress, right? I mean, Josh Gottheimer is a Democrat whose chair is the Problem Solvers Caucus, a caucus that has not solved any problems, but calls itself the Problem Solvers Caucus. He's a Democrat from Northern New Jersey. His district is heavily populated with people in the financial services industry and who work in New York. And he will go on TV or he will be. make some sort of remark to a newspaper to somebody that I think a deal is close and stocks will

go up or go down based on that or I'll get a thousand text messages from sources on Wall Street or people in the financial services community based on that. There are like four or five people in Washington that you need to understand to understand what's going to happen. And those people are Nancy Pelosi, Mitch McConnell, Chuck Schumer, Donald Trump, Stephen Mnuchin and Kevin McCarthy. It's no more complicated than that. And there within, you need to focus. on what's at stake for each individual participant, right? So let's let's dissect this a little bit more. Nancy Pelosi decided to not do a medium-sized fiscal deal because she wanted a large fiscal deal. And she was incentivized by Stephen Mnuchin, who kept running back to the negotiating table every single

time something was about to fall apart and giving into Pelosi. So then Pelosi takes a look at the legislative landscape and says, oh, I could get a lot out of this. So why don't I try to get a lot out of this? I could get tons of priorities because Stephen Mnuchin really wants a deal. And I've been in this game for 30 years. He's a new participant so I can string him along for a ride. Those are the kinds of things that, you know, I just think that we're oftentimes listening to the noise and not looking for the signal in understanding this. And some of my sources on Wall Street have indicated, well, we're trading headlines.

We're a macro fund. We care about the headline that comes out and whether it's a positive or negative headline and markets will go up and down based on that. But like that is not, that's fine. Maybe that's a business. But that's not an indicator of whether there will be a deal. I mean, I have been on the, on the, I think since August or September. And again, we're taping this before we know for sure it's six days before the election.

Could there be a deal in the next six days? I'd put a 0.5% probability. on that, but just assuming there's not. But let me just finish this one thought. I mean, I've been saying this since September. The dynamics have been obvious for people who understand this stuff since September. So you say like, okay, the guy from the problem solvers caucus goes on cable news and said, I think there's a deal.

That's noise. And I get that. And I think a lot of people get that. And if they don't, you know, they really should pay more attention. On the other hand, your assertion that markets don't get it. Okay, so the S&P bounces a quarter of a percent. I could tell you that's noise. I don't think that's necessarily reflective of some broad consensus. And to the extent that since the beginning of September, the odds of a deal have really diminished, well, markets are down since the beginning of September, or at least a lot of them are. So doesn't that actually reflect perhaps A, that you're the one reading too much into noise?

and B, that markets have more or less gotten it right? Well, yes and no, because when you have Nancy Pelosi go out and say, I'm optimistic for a deal, we're putting pen to paper, and you see stocks bounce on that. And you see, and I see a headline in the morning, stimulus hopes increase based on Nancy Pelosi saying there's optimism. And you see, you know, I see Bloomberg charts on Twitter and stocks are pointing up and futures are up based on renewed stimulus hopes. I mean, the dynamic here has been remarkably static since August or September. And still, there have been these momentary swings where stocks are up a good deal. And maybe they're not up net net over, you know, since September. But you do get these momentary bounces, which are just complete garbage.

It's completely made up. It's not their art. I mean, Nancy Pelosi says she's optimistic about everything. So I think, and maybe I'm maybe what I'm saying is that the structure is off in the incentive structure for Wall Street is off. But what I'm saying is that, broadly speaking, the dynamics have been static for months and have not changed appreciably at all. On April 4, 23, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco.

Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of California. Ash app. From Bloomberg Podcasts, this is Foundering, The Killing of Bob Lee, beginning April 16. Part of me wonders, and I hate to, I hate to be really self-referential, but some of this could well be a financial media problem, right? Markets, markets are up half a percent because Pelosi said something optimistic about financial stimulus. I mean, that's a narrative that someone who covers markets is basically putting together when you could actually write, you know,

it could be any number of things. It could be positioning or, you know, it could be something completely random that we don't even know about. I don't know what my point is. I guess, like, I wonder if there's a tendency in financial markets among investors to seek out narratives to explain market moves. And that's why we end up with this sort of simplistic construction around what's going on in D.C. I think there's some truth to that. I think it's, listen, everything boils down to a media problem at some level, right? But I think that, I think that's right, to some degree. And I don't mean to wrap on the media. We're all card carrying members of said groups. So I don't mean to to wrap on the media. But also remember, these politicians are

are playing you too, right? They're playing all of us. They know, broadly speaking, they're not. So I've heard a lot of times I've had people that I talk to on Wall Street. I'm sure you talk to a lot of similar people too who say, well, what's the buzz like on the markets? What are people thinking? Like, I can tell you that most members of Congress are only vaguely aware of financial markets in the sense that they know whether they are up and down as a general proposition. They don't know the momentary moves of markets and probably nor should they, right? I mean, they shouldn't be focused on that unless there's some calamitous event that they need to be aware of. But I don't know if I ever reported this, but Nancy Pelosi, when she gave her press conference

last week, I forget what she said exactly, but afterwards she said on a call with her leadership, the market was up when I was talking. They understand what it takes to game markets and what it takes to push markets up and to give more hope when there shouldn't be hope at all. They get this. They get this game better than anybody, as Donald Trump might say. So, and they go on Fox business and they go on Bloomberg and they go on CNBC because they know that they could instill hope where there might not be any reason for hope. So this is all part of a large game.

And maybe what I'm saying is the game is stupid and rigged in every sense of the word. And it shouldn't be or maybe it should be. So that's kind of my overall take. You know, I'm curious, as we were talking about in the intro, we had an incredibly powerful fiscal stimulus this year. are arguably the biggest and most effective one in history in the form of the CARES Act. Setting aside the current gamesmanship right now, looking forward, we don't know what the makeup of government is, what did it take to make that happen? Why did CARES come into existence? How did the politics align for that one in your view? Because I think this is going to be an

important thing in terms of people thinking about prospects for another fiscal stimulus is what does it actually take for the wheels of politics to make it happen? What it took was the incentives of every member of the leadership to get this done, meaning Nancy Pelosi, Mitch McConnell, Chuck Schumer, and Kevin McCarthy. Every single person had to be bought in and had to agree to the general proposition that this was an extraordinary time and extraordinary measures need to be taken. So that's why it happened. Mitch McConnell was up for re-election and there was no question that something needed to be done. Then we moved into another phase where Senate Republicans were looking at decreasing unemployment numbers, increasing stock market numbers, and a general, marginally rosier

picture of the economy. And then the incentive started to diverge. And you had a president who was not really sure what he wanted and was out of the game, and a party that was generally a drift and a speaker, a Democratic speaker, that saw opportunity to play members of the administration off of each other. Mark Meadows against Stephen Menuchin, Stephen Menuchin against Mark Meadows and that, and Mark Meadows and the president against each other and against Stephen Manuchin. So let's talk about going forward. What will it take to get another stimulus deal passed? So the general conventional wisdom tends to be that no matter what happens on November 3rd, there will be what we call a lame duck stimulus deal. So some sort of deal between November 4th and January 20, whatever, when the new president's inaugurated,

and the new Congress takes its place. I'm very bearish on that. I think that's an unlikely scenario that there will be some sort of large-scale fiscal deal in that period. Now, that could change. I don't feel as strongly about that, and I'll tell you why. So let's talk about the incentives again. Nancy Pelosi, if she wants to clear the decks for Joe Biden, if she believes it's advantageous, for Joe Biden to come in and to not have to do that, then she will push for it. Does Mitch McConnell,

is he about to lose the Senate? Is Chuck Schumer want to get it off Biden's plate as well? If all of those things converge, then that could happen. But if any of those things slide away, I don't care would Josh Godhimer or Rokana or Pat Toomey or any of these people say it doesn't make a difference. All of the leadership has to be aligned. Now, listen, if this doesn't happen in the lame duck, you're talking about a fiscal stimulus deal that I would view as somebody, who's covered this unlikely until late February, you know, sometime in February or March. And I know that's not what people want to hear. But January is shot when the president doesn't get into office until the end of the month.

Then it's going to take some weeks. I mean, it takes the Senate a week to do anything. Then you have fights over whether to eliminate the so-called filibuster, the 60-vote requirement to do things. So, I mean, there's just things don't happen in a vacuum. Things don't happen because people want them to happen on the outside. this is an institution that could only take so much external pressure or so much water, and everything has to align for something big like that to happen.

So on that note, one of the conversations that Joe and I have had this year is about the idea of automatic stabilizers in the economy or basically the notion that you could bypass all this political gridlock if you had an automatic thing that kicked in when, say, unemployed, went above a certain level. So, you know, if unemployment reached 12% or something like that, that's pretty extreme, you would have, I don't know, additional checks that suddenly get mailed out to Americans making below a certain income. And that's something that we spoke about with the economist Claudia Somm. Do you think that's an interesting solution or potential solution to the problem that we're discussing here? So it's interesting.

But it's not going to happen, and I'll tell you why. I mean, this would require Congress giving away the one thing that it has, which is power. People don't get into this business by and large for noble reasons. They don't get into it because they want to solve some sort of major crisis in many cases. They get into this business because they want power and want to increase it and exercise it in ways that benefit them and their constituents and their party writ large. if you have some sort of automatic turnoff switch that turns off that power that says, well, like, think about it. Think about it this way, Tracy.

Like, the big argument here over fiscal stimulus is the White House's disagreement with Nancy Pelosi that states and local governments need money. This entire argument has been over that dynamic at its core, right? Like, and it's a difference of really $150 billion, and there's a ton of disagreements that come off of that. So an entire deal is being held up because of one dynamic. People wouldn't have the ability to do that

if they set something on a glide path. We've had similar discussions when I mean we, I mean like America and Congress, over the debt ceiling, whether there should be some sort of automatic trigger by which Congress should raise the nation's borrowing limit

to avoid kind of, you know, crises that come up when the borrowing limit is reached. And Congress has by and large said no to that because they see it as a safety valve. Congress likes this conflict. This tension animates Congress. This tension drives Congress. If we had automatic switches in our government system, the power would diminish it would almost not need to exist in the same way that it exists. So I just think that everybody has an incentive to keep these things on the table because it lends it lends leverage points for other things that congress wants to accomplish i think this is a super super interesting point uh just an interesting thing to think of

you know you also hear it in the context of well what about giving the federal reserve more tools through legislation such that it could print money and put uh put dollars into people's bank account, but all of that, as you say, implicitly means that Congress would have to be willing to permanently give up its power in the future and permanently sort of be willing to not be there. And it sounds like the sort of the fiscal cliffification of policy in the end is something that even though it's miserable is actually something Congress wants to keep. Yeah. And Congress likes inefficiency, right? Inefficiency drives. Congress and drives policymakers because it gives opportunity to get other things done. I mean,

you see this all the time. Mitch McConnell said no fiscal stimulus will come to the Senate floor unless we have the chance to overhaul liability laws. That is a, it's a related issue, but like everybody agrees on a subset of things. Everybody agrees the Paycheck Protection Program should be extended. Everybody, most people agree with a set of stimulus checks, some level of state and government funding. There is a lowest common denominator, but these kind of leverage points exist for a reason in our system of government, maybe not for the best and most noble reasons, but they exist. And it's difficult to remove those because that would be basically undermining our entire system of government and the system of government that allows these leverage points.

You put it earlier that politicians are basically playing the American public and that a lot of these choke points in the system and these varying motivations that prevent politicians from actually doing what might be needed by the economy is fairly obvious. Why don't Americans see that? Why don't they put more pressure on politicians? And, you know, for instance, one of the things that's been coming up a lot lately is the notion that even though under the Trump administration, the U.S. federal deficit, jump to, I can't remember what it is right now, but, you know, like, I think the highest on record and we've seen government debt really balloon. Republicans haven't said much about that. But if Biden gets elected and is in office come January, a lot of Republicans

have been talking about they are going to potentially start complaining about the deficit. And they've been like pretty open about that. And it seems fairly obvious that when Republicans are in office, they don't say anything about U.S. debt levels. And then when they're out of office, suddenly U.S. debt matters and it's basically a hammer at which to, you know, with which to hit the Democrats. How come people don't see that? Like, why does this work? Why is T.C. able to to play this game? Well, I think of many reasons. I mean, when I started covering politics in 2009, 2010, Republicans were unwilling to spend a single dollar of federal money without offsetting it in another area. It was a way to ding the president, and it was a way, at the time, Barack Obama,

and it was a organizing governing theory, right? And it was led by John Boehner and Mitch McConnell, who at that point were fiscal hawks and sought within their interest to do that. Obviously, that all changed with Donald Trump, who's not a conservative or even really a Republican by any traditional definition when it comes to fiscal policy and things of that nature, without putting Donald Trump on the proverbial therapist's couch, I will try to answer the underlying question, which is here's what I've found. I found that voters and interested parties, and when I say interested parties, I mean financial markets and Hollywood and Silicon Valley only engage in politics when they absolutely need to and don't really understand the general organizing

philosophies. So when these kinds of things happen, they're taken by surprise. And listen, I would say broadly speaking, that we live in a tribal society. We really do. And our country is organized in congressional districts that are extremely partisan and where the top of the party sets the agenda and no one has the incentive to go toward the middle. Because when Republican Congressman X goes back to his district and faces his voters for the first time in a week or two weeks. The question is not, what are you doing to keep Donald Trump in check? The question is, what are you doing? Why aren't you supporting him more? And it's really a tone set by the top of the party because Donald Trump has spent like a drunken sailor. Everybody agrees with that. But people fell in line because that was

the thing to do. And it's not an intellectually honest exercise. It's just not. I mean, the tax, we saw that with the tax reform in 2018, 1718. And just people are looking for intellectual honesty where there really is none. And I do believe, to be honest with you, if Joe Biden is elected, an organizing theory will be fiscal discipline. And Donald Trump has said, if I'm elected to a second term fiscal discipline will be my priority, as if we're to believe that after four years of it, not being anyone's priority. I'm June Grasso, inviting you to join me for. for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that

shape the nation and the world. Listen for complete analysis of the biggest court cases, the latest actions from Congress and regulators, and the legal moves driving the markets, from corporate law to constitutional law and from state courts to the Supreme Court. At Bloomberg Law, we go beyond the day's headlines. We speak with top attorneys, judges, scholars and policy experts to break down what the rulings really mean. We do this every weekday, then bring you the best conversations in our daily podcast. Search for Bloomberg Law on YouTube, Apple, Spotify, or anywhere else you listen. On the East Coast, listen as you start your day, and on the West Coast, catch up in the evening. That's the Bloomberg Law podcast with me, June Grosso.

Subscribe today wherever you get your podcast. So I actually want to go back to this question of the politics of automatic stabilizers because I'm curious, you know, you've like described the last 10 years in D.C. And the one consistent theme is that under Obama and under Trump, Republicans, as you described it, sought to use crises to sort of enact certain policy goals. So obviously, there was sort of this desire to use the 2009 through 2011 period to get some sort of austerity spending cuts as opposed alongside the debt ceiling hike. The current phase four stimulus talks have hit a snag largely around the view that Republicans have seen this as an opportunity to exact reforms for cities and states. I mean, I know this is a huge issue on, say, like, talk radio, this idea of like a blue state bailout. out and the perception has been forever that they have unsustainable pensions and so forth. And so the GOP has seen this as a moment of like, okay, this may be a moment of reform. Meanwhile,

on the left, more broadly, there is this sort of like policy push that, yes, you know, automatic stabilizers, more aggressive, more aggressive unemployment insurance should be a thing. If there is a, you know, and again, by the time people are listening to this, who knows, but if there is a big Democratic sweep, is it possible that it's like that the Democrats may view it's like, yeah, okay, there's some political gains to be had by governing in a cliff, but the last 10 years have showed us that's largely Republicans using these moments to get spending cuts or reforms. We could have a permanent gain in our sort of like policy agenda by taking some of these opportunities off the table. Is it possible that the dynamics show?

shift on automatic stabilizers if Democrats were to win really big? No, I don't think so. I think Pelosi's against them, although her number two, Steny Hoyer of Maryland, who's her sometimes ally and sometimes rival, is for them, broadly speaking, I think he has spoken favorably because there are people in the Democratic Party who want that done. I think, again, I think members of Congress like the opportunity to review policies and if things are on autopilot, they get that opportunity taken away. I will say this, though, I think there is a period of time in the first hundred days of this. Let's work with a base case that Democrats win the White House, the Senate, and the House, there will be a hundred or so days

where Democrats will have a huge mandate to get things done, and Republicans will be de-incentivized to block them and will be incentivized to work with them on some sort of fiscal package coupled with maybe some sort of infrastructure element. And I think that will be easier in, you know, I think it will be easier than it is now. I think that they could get away with more in that time period. I don't think they can get away with automatic stabilizers. I just think that's a bridge too far. One other thing I want to mention that I don't want to get off of your platform without mentioning this. Another thing I think people are vastly misreading. And I could be wrong on this. My confidence level is relatively low is that Joe Biden will be eager to, you know,

raise the corporate tax rate. I think that is a, I just don't see that right now. Especially in the first year of his presidency, I think it's unlikely. I think that the economy will still be shaky. And I don't think, listen, the question that is going to drive both my world, which is the political world and the market world in the next year, is whether Democrats learned lessons from 2009 and 2010. I mean, the last Democratic president came in when the world was on fire and had to pass a stimulus, passed a cap and trade deal through the House of Representatives, and then passed a health care bill and lost 60-something seats the next year. Have Democrats learn from that experience? And I don't know the answer to that yet. But if you assume they have,

then a tax increase on corporations, I don't think, I don't feel confident about this. I don't think is going to be a top agenda. Right. You know, I just want to go back to the sort of fundamental question about like what what markets or wall street gets wrong i mean you know there is all this noise and i you know even people in who are active market participants laugh at the sort of market headline driven maybe algo driven reaction of market sometimes i mean we had this also um in the the uh the a lot during the trade talks with china up and down markets in the end a lot of this hasn't seemed to matter. I mean, in the end, the fact that our trading relationship with China changed, it didn't make much of a difference. And markets were sort of right to ignore it and to not get,

you know, not to read too much into anything at the time. Like in the end, like, maybe is it, is it the kind of thing where it's just short term? Sure, you can point to things where the markets get it off. But in the big picture, markets sort of all get it right. And most of this stuff doesn't really matter either way. But aren't we, and this is a question for you guys more than anybody else, aren't we living in an economy, at least in a micro sense, I guess, that there are so many retail investors that are playing these swings. I mean, I listened to a previous episode of your, that you guys did about these options and puts and stuff like that. And people are, people are, you might have taped that a million years ago, but I just listened to it recently. And I, and I was, I was struck by the fact that there are, people that are like me who have no business in these kind of daily market swings who are making big bets based on kind of momentary swings in the market that are driven by what I consider to be BS headlines. So yes, if you're a long-term investor like me, like my, the money that I have

is in an account that I don't even know I could barely get access to. I have to search my email to find the password. And I just hope that at some point when I retire, there will be some money in it for me to live on. But there are people with Robin Hood accounts who are sitting around making what are massive bets to them based on these, based on the momentary movements of the S&P, which are largely based on nonsense. So I think our final concluding thought from this point is nobody follow Jake Sherman if you're in the market.

Unfollow him on Twitter. Don't subscribe to his newsletter or anything like that. Just look like that. I assume that's where you wanted us to take it to take this. conversation. Unfollow him. No, but seriously, Jake, thank you so much for joining it. I really enjoy your coverage, looking forward to seeing whatever it is to do next, your next mystery project. And thanks for coming on Nodlod. Thanks, guys. I appreciate it. Take care, Jake. Thanks, man. That was fun. You know, I joked about that last comment. But I have sort of like. But you're really serious.

Everyone would follow Jake. No, but it's like, it's kind of an interesting question. It's like we always preach. There is this tension, right? Because we're always like, there is just so much noise long term, an economic data point, a headline out of D.C., a virus number. And markets do react on it. But at the same time, they sort of like preach this idea of like ignoring the noise. Like there is kind of like a tension between following the media and following all this stuff and then looking back and saying like how little of it actually mattered. Well, this is the old signal versus noise debate, and I know we touched upon it. But to me, you know, it's easy to say that markets should ignore the short term noise and they should focus on longer term trends and, you know, stay committed to their core positions and things like that. But I think what we overlook when we do that is that markets are inherently forward looking and everyone is trying to pinpoint the next turning.

point. And I think that's why you end up getting a lot of focus on these short-term things. And you know, I've seen some pretty good points made about, for instance, how the market reacted in the lead up to World War II. And that actually people looked through a lot of statements and political developments that in retrospect marked a clear change in the way the world's political system was actually functioning. And I think that's what we're missing. Like everything, hindsight is 2020. In retrospect, you could say, well, it doesn't really matter that Pelosi said she was optimistic on this particular date. But if you do get that stimulus bill in the next week or so, then suddenly that noise looks like a signal, right?

And that's what everyone's trying to figure out. Yes. I think that's exactly right. And I think this is where I would like push back. And I could have done it while I was here. I meant to, but, you know, like, I think when you see these moves, you know, people might say, like, oh, the market believes that there's a stimulus or the market doesn't believe that there's a stimulus or the market saw this headline and believed now. These moves may not be the market believing in a stimulus. These moves may be the market believing there was a 1% chance of a stimulus moving to a 2% chance of a stimulus. And I think that's sort of like, and maybe like it should be less, like maybe these comments should. cause the market to go from 1% to 1.1% or whatever it is, and maybe the calibration is off. But I don't think that these reactions are so binary. Like, we don't really know what the

market's like implied stimulus odds are at any time or how much it's weighting stimulus. But these moves may not really be that much. And so I think you're exactly right. Most news items are noise, but you don't really know which ones are going to mark some sort of turning point. And so in the short term, investors have to assess probabilistically how much they could represent something new. And so I think, like, well, it may look like, that's irrational. Headline-driven markets, how it goes, whatever, may be less crazy than we think they are just because sometimes headlines do turn into things that then become something else. And I think like, you know, like the virus itself was at some point a thing back in January, February that markets had to assess based on sort of conditional odds and without some sort of clear idea of how big it would be. Sometimes big things happen.

Oh, yeah. And anyone trading short-term headlines that were coming out of Asia in, you know, January and February, it would have been in a really good position for the rest of the year, I think. The one other thing I would say is I feel like there's there's this undercurrent. of sort of market nihilism in this conversation, this idea that nothing really matters. And I think, I think there is a portion of the market where I feel that. And I got to say it's, it's, I mean, Jake kind of touched on this, but he went in a different direction. For me, it's Robin Hood, right? It's Robin Hood and Bitcoin where people are trading stuff that is almost completely divorced from fundamentals and economic reality at this point. And it's all based on headlines or,

you know, just getting together and saying that you're going to push up this particular stock using options and things like that. Like, to me, that particular market seems to have gone off in a totally different direction. Yeah. I mean, that exists. Does that make sense? This is like, this is the sort of like betting, you know, like that that part of the market has just descended into short-term betting and gambling. There is a lot of gambling and game playing for sure. Whether that results in major mispricings of how a given stock or index is relative to the earnings of the components of that stock or index, I think is another question.

But there is a lot of sort of pure online poker happening in the financial world these days. Yeah, I think that's fair. Okay. Well, six days to go until the election and by the time we've released, this, lots of stuff might have changed or... It'll all be irrelevant. Yeah, it'll all be irrelevant.

I don't know if that's comforting or not. Hopefully it is. Okay, should we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Allo. You can follow me on Twitter at Tracy Allo. And I'm Jill Wisenthall.

You can follow me on Twitter at The Stallwork. And you should follow our guest, Jake Sherman, at Jake Sherman. Follow our producer Laura Carlson at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts under the handle at podcasts. And if you like Oddlott, please leave us a five-star review on iTunes, help more people discover the podcast. We'd really appreciate it.

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