Prof G Markets - How the Debate Moved the Market & Wall Street’s Take on Trump - with Josh Brown

Episode Date: July 8, 2024

Josh Brown, co-founder and CEO of Ritholtz Wealth Management, fills in for Scott to talk about how the markets reacted to the Presidential debate. Then Josh and Ed discuss how Trump and Biden presidencies could impact investors and Josh breaks down why he isn’t concerned about Trump’s potential tariffs on China.  Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

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He's floating around in Greece on a yacht right now. And I'm very embarrassed to say this on his behalf, but he does not have Starlink. I know he's been talking a lot about that. He has standard Wi-Fi on the superyacht, and apparently it's not good enough to record a podcast. So he is out. He's out of commission. But here's the good news. We have our favorite New Yorker standing in for Scott this week. He's the co-founder and CEO of Ritholtz Wealth Management. He's a regular on CNBC. We're working on that. He's a sharper, meaner, hungrier version of the dog, and at this point, a great friend of this podcast.

Ladies and gentlemen, please welcome the one and only Josh Brown. Josh, thank you so much for joining us. I'm just going to pause for applause. Hey, I actually got an update on Scott's Odyssey. Oh, you did? He has just passed between Scylla and Charybdis. Okay. The crew has slaughtered the cattle of Helios.

And shortly, they will be arriving at the land of the Lotus Eaters en route to Calypso's Island. Oh, dear. So, we're getting updates sporadically, and I will keep you posted. Do you want to deliver a message to Scott, who's going to be listening to this episode when he's probably in Bodrum or I don't know where else he goes, the Aeolian Islands somewhere? I'm going to let my performance on the pod be the message. Speak for itself. All right. I love it. We're already off to a great start. I'm not too worried about this one. So let's start with the headlines. A GameStop shareholder filed a lawsuit against Keith Gill, also known as Roaring Kitty, for an alleged pump-and-dump scheme.

Martin Radev claimed Gill was manipulating the stock for his own gain after Gill's posts in May triggered a 180% rise in GameStop shares. However, Radev dropped the suit within days of the filing. Warren Buffett has reworked his will to put nearly all of his remaining wealth, about $130 billion, in a charitable trust. The billionaire said his three children will oversee the trust and unanimously decide where to donate the money once he dies. And finally, the Supreme Court voted to overturn a 40-year-old decision that provided increased regulatory authority to federal agencies. That decision, known as Chevron deference, created a legal precedent that courts should defer to

federal agencies on how to interpret laws from Congress. With the ruling now overturned, federal agencies are likely to face increased legal challenges when regulating things such as the environment, healthcare, and taxes. Let's start, Josh, with this Roaring Kitty lawsuit, which we discussed a little bit when you were on the show last time, but there have been more developments. One, the lawsuit. Two, he also bought a stake in this company, this pet retailer, Chewy, which caused the stock to rise 20%. So this is kind of becoming Keith Gill's playbook. He buys a large stake in a small, kind of questionable company. He posts about it on Twitter. He watches the stock explode, and then it's up to him if he wants to hold or

sell. Any reactions to Roaring Kitty and his influence on the markets right now? Well, I'm a freedom of speech guy. So from my perspective, he's an investor. There is no rule that says he can't come out and say he bought a stock. In fact, I would argue he is more transparent in his transactions than most professionals on the street. If he were a hedge fund manager, the minimum requirement that he would have to meet would be to file within 45 days of the end of the quarter, whatever positions he finished the quarter holding, which means in real time, he would never have to say a word. So if any, if anything, he's been more transparent. You know, I think, I think the guy should be able to buy and sell

at will. And I think if he chooses to reveal his portfolio, you know, that there's nothing wrong with that, where it gets into a gray area is if we think he is deliberately manipulating the stock in order to pump and dump on other investors. The truth is he's not selling. So, you know, to have a pump and dump, there's got to be a dump, right? So I have no problem with what Keith Gill is doing. And nobody's, the last part of this is, Ed, no one's putting a gun to anyone's head and forcing them to follow his trades. People are doing that of their own volition. So I think he should be able to get long, get loud, so long as he's not running afoul of manipulation rules, which it does not appear that that's what's happening.

Yeah, which is likely why it was rescinded. It seemed a flimsy argument to begin with. What if he sold though? Do you have any opinions on that? Say he dumped, he did dump everything. It's America. Would that change your opinion on this? He's allowed, he's allowed to like where I'm not saying he should get an exception and be able to do something that any investor isn't able to do. Um, and honestly, again, in the, in the first go round with the meme stocks, he was among the most transparent people. He came out and said, I haven't sold. I haven't sold. Okay. I'm planning to sell. And, you know, again, this is, this is, it, it's strange because it's very rare that an individual investor who is not registered, who is not running a fund, who is not working in an asset management firm would have this much influence over the actions

of other investors. If you tell me Bill Ackman came out and said, you know, he's, he's long a stock. Um, I could understand why so many people would want to follow him in. This is just one of those weird fluky things that there's not much precedent. He doesn't work professionally on wall street. He's just an individual and he's got an army of hundreds of thousands of people who want to do what he's doing. And he's got tens of millions of people who are paying close attention to it. It's really rare. I can't think of another example of it. And I don't think that that means that he should be held to some above and beyond standard that no one else has held to, even professional investors. about is Chamath or any of these other guys who have gone on CNBC and pumped the stock, and then they indeed do dump the stock. It's a very similar thing. I know that people had complaints with some of these guys, but it feels like, I hadn't thought of what you just said, which is the difference with this guy is he's not a traditional player. He's not your average hedge fund manager or

investor. He's sort of outside of the in-group. Do you think that's why we're seeing so much, I don't know, chaos and anger and issue? Is that why people are taking issue with this? Because he's not one of the traditional players? Maybe. I mean, look, it doesn't, if you're not a professional, but you buy over 5% of a public company, you still have to file notify. So that rule applies to everyone. And as far as I can see, he is doing what he's supposed to be doing. He is disclosing this activity. The fact that he's not a professional, is that creating chaos? I don't think so. I think these are small, heavily shorted stocks with small market caps and a torrent of buying from a million people at once,

especially utilizing options, is going to lead to that sort of wild volatility. But here's the thing about the stock market. It's like going to an amusement park. You choose which rides you want to ride. I don't do log flumes. I don't want to walk around with wet sneakers. So even if, even if the log flume looks like it's going to be the best attraction in the park, I I'm not forced to do it. If I don't want to do it, no one is telling any other investor

that they need to start trading in shares of GameStop and Chewy and AMC. Just don't take that ride. Or if you want to take that ride, buckle up and understand what's happening there. And you know, it's, you, you went through the park, you're in the investment game, but you don't have to ride all the rides. 100%. I love that. It's yeah. We've got a guy who is suing the log flume because he got wet at the end of the ride. Yeah. Maybe get off the log flume, you know, is how I would think about it. Let's move on to Buffett and this charitable trust.

So $127 billion to this charitable trust that's overseen by his children. I'm not one of these like radical, effective altruist guys, but I do believe in, you know, just generally speaking, we should be allocating capital efficiently, whether that's in private investment or in, in this case, philanthropy.

And what's striking about this move to me is there is no overarching mission or theme or vision as to where this money is going to go, how it's going to be put to work. He simply handed it over to his children. He said, okay, it's yours. You guys go figure out where to donate all this money, which is very different from say the Gates Foundation, which a lot of people are making these comparisons, which has been extremely precise, extremely intentional about its strategy. And then I look at this and it's like, there's no real strategy at all. Maybe I'm being a little cynical. It is charity after all, and you know, $130 billion, it's going to make a difference somewhere. But what is your reaction to this move by Warren Buffett? Do you agree with my cynicism?

I think I disagree, Ed. It's true that Warren Buffett doesn't specifically talk intensively about, you know, where he wants his money to go. But it's not true that we can be sure there is no plan. Understand what's happening here. He's turning the money over to his family members, and they've got their own foundations. And effectively, he's putting it in their hands, and they are pretty specific in what they've done philanthropically over the years. We do wealth management for high net worth individuals. And a lot of the stuff that we do is involved with

funding our clients' philanthropy. So I have a couple of people in-house who specialize in this sort of situation. And I turn this over to them to get their take on what's been announced. And I want to quote Gary Palford, who is in our Orange County office. And he said, I believe what he has created is a charitable foundation with a trust structure. So Buffett is calling it a charitable trust, but we think it's a foundation that is structured as a trust that is different from a foundation that's structured as a corporation, which is what you'll see most of the time. The difference here is that if Warren Buffett dies and his money is in a corporate foundation, the officers of the corporation can change the bylaws and therefore

they can change the philanthropic focus of the corporation. This is different. This looks more like an irrevocable trust. What makes it irrevocable is if he dies, that's the end. You know, nothing can really be changed there. So the kids couldn't, in some situations, say, oh, actually, I don't want to donate this. I want to keep this for myself. You're saying that that couldn't happen. Correct.

Now, Susie runs the Sherwood Foundation, which focuses on reproductive rights and college scholarships if you read their tax filings. Howard Buffett runs the Howard G. Buffett Foundation, which specifically works for food security, conflict mitigation, and combating human trafficking. Peter Buffett, the other son, leads something called the Novo Foundation. Those are projects that include working with indigenous communities. Warren Buffett is basically saying this, quote, it should be used to help the people that haven't been as lucky as we have been. There's 8 billion people in the world and me and my kids. We've been in the luckiest one hundredth of one percent.

There's lots of ways to help people. So, yes, it's broad, but no, it's not that unspecific. He knows what the pet causes are of his children. And that seems to be what he would prefer to have happen here rather than set up some corporation that, you know, 10 years after his death could completely choose to, you know, go in a different direction. Yeah. It seems that he's also just putting a lot of trust and faith into his kids that they're going to, they're going to make the right decisions here. I mean, this is, this is basically his life's work that he's handed over to them, which is pretty remarkable when you think about it. Yes. But it should be pointed out, Susie, Howard, and Peter have spent their lives on philanthropy. They're not software developers.

They're not lawyers, right? So they have always had this responsibility. They've grown up with it, immense, unspendable, unfathomable wealth. This is $130 billion, most of it Berkshire Hathaway stock. And the kids have grown up, kids, I don't know, they're in their 60s. The adult children of Warren Buffett are not strangers to giving responsibly. Let's finally move on to this Supreme Court decision. Now, this is different from the presidential immunity decision, which has also been making a lot of headlines. We're focusing on this Chevron decision because it, generally speaking, has more of a direct effect on companies and on markets. It means,

overall, it's going to mean less regulation for companies because, you know, what the decision does is it withdraws the power from federal agencies. It sort of takes away their ability to adjudicate based on their interpretation of the law. And that's going to be less incentive for companies to comply with federal agency regulations. This is generally a win for corporate America. As I've said on this podcast before, I feel that corporate America has gotten enough wins recently. Do we really need to hand corporate America another win, which will likely come at the expense of a whole host of other things, such as consumer protection and health and safety and all these things that regulations exist for? That's why we have

regulation. What is your take on this? So this Chevron thing dates back to 1984. And so for 40 years, this has been a hobby horse of the business community. And, you know, I think the, I think the big takeaway here is it's just a continued rollback of things that the business community doesn't want. And one of those things is being called in front of an in-house tribunal, for example, or having a disagreement with a regulator be adjudicated with no jury, with no judge, or with a judge, but under the terms of the agency itself. And the Supreme Court just ruled against

the SEC and their use of in-house tribunals as being unconstitutional in a case on June 27, Supreme Court versus Jarkeesie. So this is somebody that the SEC was seeking civil penalties for securities fraud. And Jarkeesie's argument was, no, the Seventh Amendment requires you to bring this to action in a court of law. And I am entitled as a defendant to a trial by jury. So this will slow down, I think, the ability of government agencies to quickly interpret the rules that Congress has set up and then make a judgment. It's definitely a victory for the Chamber of Commerce, folks. I don't think anyone would argue otherwise. How do you feel about, I mean, this podcast, we're pretty,

I would say Scott is certainly very pro-regulation and he makes that opinion very clear. I think I would say I feel the same way. How do you feel about this as an investor, as someone who has a financial interest in the success of corporate America? I'm pro-regulation. So my wealth management firm is 10 years old. We've already had two onsite examinations, which is pretty much the standard. Somewhere between three and five years, a registered investment advisor should expect the SEC to send a letter and then follow up and conduct an examination. And, you know, it's a lot of work.

It's a ton of document production. It's a ton of back and forth. But in the end, if that doesn't happen, if that doesn't exist, no one would trust a registered investment advisory firm like mine. We're doing business in all 50 states. If there's this sense among the general public that nobody's paying attention and there are firms doing whatever they want and running through the rules willy-nilly, it doesn't benefit us. So I actually, the way I think about regulation on Wall Street and in the investment advisory world it's a barrier of entry to bad actors and it increases the public trust and they don't see it that you know they

don't uh the public doesn't really see all of the work that regulators do they hear about things every once in a while when there's a blow-up like the archegos hedge fund, for example, or Bernie Madoff or FTX, but they don't see the day in day out dotting eyes and crossing T's that in my opinion, keeps the, keeps the train on the track. So I'm pro regulation. And, and, uh, you know, I think the thing that we always have to guard against as a society is regulatory overreach. When somebody at the head of an agency decides that they want to redefine what the rules are and they want to use fines and they want to use public executions as the way they're going to do that. I think that's the other end of the spectrum that, of course, nobody wants to see. Would you say that you're alone in that opinion in terms of people on Wall Street? Are

you a rad breed? No, I wouldn't say that. There are 18,000 registered investment advisory firms. And I think what they mostly have in common, of course, a few bad apples at all times, but what they mostly have in common is their rule followers. The type of people who are attracted to wealth management are not renegade, rock star, Steve Jobsian, you know, geniuses who want to break the rules. It's just not the type of people who gravitate toward our side of the business. So I don't think I'm alone in that. I think if you talk to a typical investment advisor, and again, we're not a hedge fund,

we're not high-flying investment bankers. If you talk to a typical person in my neck of the woods, in my part of the industry, they would probably say something similar to what I've just said. All right. We'll be right back with Josh's reaction to the presidential debate. Fox Creative. This is advertiser content from Zelle. When you picture an online scammer, what do you see? For the longest time, we have these images of somebody sitting crouched over their computer with a hoodie on, just kind of typing away in the middle of the night. And honestly, that's not what it is anymore.

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to step aside for a new candidate. Now, Josh, we're going to discuss Wall Street's reaction to this debate, but I first just want to offer an observation about this idea of managing expectations. And this is something we talk a lot about on this show, particularly as it relates to earnings calls. And that is, if you are a company and you're about to report a bad quarter, let the market know ahead of time. Give them some signals. Tell them maybe it's the demand is softening or that the macroeconomics aren't as good as they used to know, give them some signals, tell them maybe it's the demand is softening or that the macroeconomics aren't as good as they used to be. Give them some guidance and make it clear that you know what the problems are and you also know how to address them. Now, let's shift to

Biden's performance here in this debate. This to me was like delivering the worst earnings call ever and at the same time doing nothing to prepare your investors for it. He had this weak, raspy voice. They're saying he had a cold. Tell us he had a cold ahead of time. Tell us that he's tired. Tell us maybe he's not as good as he used to be. That's what he's now saying. But tell us something and don't lie to us that he's sharp as a tack and then suddenly shock us with the reality of the situation on the biggest stage in the world. You are, you know, you're a student of the markets, and I feel like a lot of markets is just communication. Is this not one of the worst

PR management disasters you've ever seen? You know, look, I'm not a partisan, like I'm not somebody that's overly political, but I think, I think even, even if you're, even if you're someone that is hoping the Democrats win the white house or you're okay. I don't think Biden has like diehard Biden fans, but like, if you're a pro Biden person, it's probably because you're anti-Trump or anti-Trump's policies. All right, fine. But so even if you're in that camp, a couple of things you have to admit. Number one, it was the Biden camp that wanted the debate. So talk about mismanaging expectations. Not only did they not sandbag or give you any sense that, hey guys, debating's not really his thing. they actually pushed for it. Trump would have been perfectly happy to have no debates. He doesn't need them.

He doesn't, he doesn't necessarily win as a result of debates. He wins as a result of the rallies and his own social media activity. So he didn't, so not only did they not

manage the situation or prepare us, it went hard the other way. It gave people the impression that Biden was about to kick the door down. The other thing I would say is he's never been good at this. He was good. He was good enough at debates throughout his career. But I don't think I've ever seen him do well in a situation where you've got to come up with rapid fire answers. He's got to stutter even when he was younger. This is just not his strong suit. I heard some of the coverage on

MSNBC. I was curious to hear if there would be as much panic there as there was at CNN. There wasn't. Their primetime people came out the next night and said, Lawrence O'Donnell, his monologue is, president as part of his duties as the president ever has to debate anyone else in a format like this. It's not part of the job. It may be a part of how you get the job, but it's not part of the job. So don't worry. That's not if that's the best argument for like why we should just gloss over this. It's not going to it's not gonna it's not gonna the so the

impression that people now have is everything the anti-biden people have been saying is wrong with him has now been confirmed like like we've all seen it with it with our own two eyes so you could say well who cares he never has to debate again once he wins all right fine um but for most people that's not the the, that's not the takeaway they're going to have. The takeaway they're going to have is this is not the guy right now. Yeah. Lawrence O'Donnell can gloss over it all he wants, but you look at the prediction markets, Biden's chances of winning fell 30% after that debate. So a huge drop. Well, so from a market perspective, the knee-jerk reaction that we saw was what's called a bear steepener. So in English, we saw the two-year treasury rise about five basis points, very little, because everyone knows the short-term rates are coming down. If they don't come down by the end of this year, they'll be coming down next year. But longer term rates is where the action was. And so you had that steepening of the yield curve, which is indicative of Wall Street

placing a bet that the Trump tax cuts, the Tax Cuts and Jobs Act 2017 tax cuts will be extended because it's less likely that Biden will win, more likely that Trump will win. And that's also sort of pricing in a faster economy, the rise in tenure rates. So that was the Wall Street reaction. And if you look at the betting marketplace, Predict It, that's confirming that. And the reason why I like Predict It better than polls, Predict It is people buying contracts on Kamala Harris, on Biden, on Trump winning the election. And that's people putting up their own money. That's not people blowing smoke at a pollster or people virtue signaling to their neighbor. That's like actual dollars being bet. And immediately,

you saw Trump separate himself from Biden and you saw the Harris contract pick up steam as well. Yeah, that's a great point. Just going back to the treasury yields, you mentioned that that's Wall Street placing a bet. One, placing a bet, I assume, that Trump is going to win. And two, that the tax cuts will go through. How do the tax cuts going through relate to higher yields? Let me just clarify that. The tax cuts aren't going through. to higher yields. Let me just clarify that the tax cuts aren't going through. The issue is that they will sunset at the end of 2025 if they are not extended. So a Trump presidency means a higher likelihood that he will be signing the bill in the white house that extends those tax cuts. Why is that meaningful on wall street? Well, number one, we're not going to have

a billionaire's tax, which is a minimum 25% tax on billionaires. One of the difficult things about taxing billionaires is they don't exactly have W-2s. So they're not paying income tax the way people that are on a salary pay income tax. But more importantly, the corporate tax rate under Trump was taken down to 21%. Biden says he wants it up at 28%. That would have a material impact on the stock market and probably on economic growth. So that's really acutely felt in stock prices. Number two, or number three, the buyback tax. Biden wants to quadruple. I think it's a 1% excise tax on share buybacks, and Biden wants that to be 4% or 5%. Again, that would have a material impact on the stock market. If those things are not going to happen

and the TCAJ is going to be extended, then you would bet on faster economic growth, that curve steepener makes sense in the treasury curve, and you would certainly bet on a better stock market. And I think that's exactly what the reaction was to the debate. It sounds like Wall Street, all they care about really are the tax cuts. I want to bring up one other economic proposal that Trump has proposed, which is the tariffs. He wants to charge 60% on goods coming from China and 10% on goods coming from everywhere else, which every economist has said is going to make everything in America more expensive. And the number that they're saying is that for middle-income families, it's going to be

an extra $1,700 per year. Larry Summers called it, quote, a prescription for the mother of all stagflations. These tariffs, and by the way, I can't tell if he's actually serious about them. I mean, I can't tell if it's a legitimate proposal or if he's just saying it to kind of rally up the base. But these tariffs seem to me to be probably the worst economic idea that Trump has ever come up with. Is Wall Street not more worried about this? I mean, couldn't this lead to, I mean, if Larry Summers is predicting stagflation, this could lead to a depression. Why doesn't Wall Street care about this? Wall Street doesn't think he's going to do it.

I think part of the way Trump operates is he throws something out there to provoke a reaction. We saw him do that with NATO. And look, again, I'm not like a Trump guy, but you can't argue with the fact that he threatened to pull out of NATO. And within a month, Germany, France, all of these countries started writing checks again and honoring their commitments to NATO. So in a very weird way, his threatening of NATO, which at the time looked like, oh, my God, he's about to roll back a 50 year, 60 year peace we've had since World War Two. But in reality, the effect that that provoked, throwing that out there and just like a grenade and just letting it go off the effect that that provoked actually strengthened nato so i i look there there was a a meeting of ceos with trump i think last week um nobody does press after that people are like sneaking into the building nobody wants to be seen talking to him but i think there's the public trump

um who throws grenades and then i think there's the private Trump who's much more pragmatic. And one of the observations that I had about Trump during his first term where I wasn't so freaked out every time he tweeted something, he sort of agrees with the last person he talks to. Now, the problem in the first term was he had this maniac i forget the guy's name uh peter something or other as his economic advisor maybe one of the ones that's like indicted or something now who had written a book about about why china needs to be tariffed into the stone age so that was a guy in his ear he had bannonannon in his ear. He had China Hawks, professional China Hawks in his ear. But he does kind of have a tendency to just like sort of listen to whoever the last

person he talks to. And as evidence of that, he got a meeting with Kim Kardashian. And the next thing you know, he was freeing people from prison. That was not the platform, the tough on crime, pro law enforcement platform. So that's why I'm not so freaked out about it. The third thing I would say, the experience of 2018, I think, taught him something. There were two separate 20% declines in the S&P 500 in calendar 2018. The Fed played a role in that. The Fed was tightening during the onset of those

Chinese tariffs. So if you think back, 2017, the S&P went up like 25%. It was a great year. Why? We got the Tax Cuts and Jobs Act in November or December. So the market ran up into that. We were pricing it in in advance. 2018, you get like an 18% sell-off in February. You get another one into Christmas Eve, both of those caused by global economic strain as a result of the first round of Trump tariffs. I think he's heavily fixated on the stock market. And I think he does not want to repeat what went on in 2018, which by the way, was not a great midterm election for him. The tariffs were unpopular on both sides. So I'm not as worried about that as maybe other people are. It's interesting because it sounds like what you're saying is Wall Street just believes to its

core that Trump is on Wall Street's side. Well, he is. Exactly. And even if he says that he's going to go through with these tariffs, they're like, no, he won't because ultimately his true loyalty lies with us and he's not going to do anything to piss us off.

Or he will do them and then when he pulls them off, the Dow Jones will go up a thousand points. You see? That's a good point. Yeah. You see?

There's an element of showmanship. There's an element of bluffing and he gives himself the option of saying he's going to do this big bad thing seeing how other people react to it and then at the last minute saving the day but by calling it off dude it's i i don't want to ascribe too much like strategy to him or give you the impression that I think he's playing 12 dimensional chess, but just going by the first term to say that because he said something from behind a lectern, it's definitely what he's going to do. I think it would be a really big mistake. We'll be right back. Stay with us. We built HubSpot. It's an AI-powered customer platform that builds campaigns for you,

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listening to their needs, and working together to find innovative solutions. Nestle is committed to helping support thriving, resilient communities today and for generations to come. Together, we can help to build stronger, healthier communities. Learn more at nestle.com. We're back with Profit Markets. Shifting focus to the stock market itself, there's been some debate on which candidate would be better for the stock market. So just some numbers here. The S&P generated an annual return of 16% during Trump's tenure. Under Biden, that number was 12% or 12% so far. At the same time, on average, markets have performed better under Democrat presidents versus Republicans. 12% under Democrats,

8% under Republicans. Slightly an obtuse question, but we're having fun here. Which candidate do you believe would be better for the stock market? On the surface, I think the stock market itself, if I can anthropomorphize the billions of trades that go through each day, I think the stock market itself believes it would be better under Trump. We've done tons of work on this. And the actual reality is this is very fluky and dependent on factors that have nothing to do with who the president is. Clinton comes in immediately following a recession and savings and loan crisis in the early 1990s and the spike in oil prices as a result of the first Iraq war. He comes in and it just so happens that the internet and mobile telephony are both basically

have their renaissance during his second term. It's nothing that he did. Barack Obama took office literally after Lehman Brothers went under and made off and the great financial crisis. He had one of the all time great starting points. He was sworn in on January 20th, 2009. The stock market bottomed in March of 09. Are we going to say that Barack Obama's policies led to the stock market tripling? Or did he inherit a stock market that had just been cut in half twice in seven years, by the way? So these things are very fluky. I think the other thing to observe is actually the best outcome is

a president from one party and either party, it doesn't matter, and a Congress that's under the control of the other party. Those actually are the things that have led to the best possible outcomes. And let's go back to Clinton. He's in the White House. Newt Gingrich takes over Congress in 94, contracts with America, and we get six years of incredible prosperity. So it's not true that any one party is necessarily better or worse for stock prices. The real story is that stocks go up three out of every four years.

This goes back 95 years. You could tell me at some point that paradigm will shift. Okay, maybe. But really what's more important in the long run is corporate profits and interest rates. And here's the setup right now. All 11 of the S&P 500 sectors are expected to have earnings growth in calendar 2025. And we know that the Fed's next move, whether it happens in July, September, December, is lower. So if I tell you the most important things are corporate profits and interest rates, the setup is not looking bad, regardless of which these guys ends up winning in November. Yeah, we've had the best half of an election year for the stock market. And this is the best half in 50 years. The S&P is up nearly 15% year to date. And, you know, that's also

saying something because generally speaking, if you just look at the data, election years have been pretty good for the stock market. But it sounds like you're saying that we can expect this to continue regardless of the candidate. I think you'll get some volatility as we get closer to the election. One thing that's interesting, my firm's chief market strategist put out a note last night, Callie Cox. She notes that the month of June is the calmest month for stocks in five years. We've had effectively no volatility so far this summer. We haven't had a down 1% day for the S&P 500 since April. She went back and looked at 50 years of market history and on average, so half the year is more, but on average, the S&P 500 has seven down 1% or worse days during the course of any given summer. So I would say the incredible

calmness in the market that we've experienced in June historically should not be expected to be repeated in July and August. So we are, I think, in a really interesting place because of the AI boom, the nature of the companies that are involved in it. They happen to be the most stable companies with the most stable cash flows, the biggest cash cushions, the largest market caps, the most institutional support. And that is why we've had this placid S&P 500 beneath the surface. There's been much more turmoil. It's just that those stocks are so much smaller and less consequential that if you're an index fund investor, which more than half the population is, you don't feel the volatility of those individual stocks. It's very interesting because you mentioned that because the political volatility

is higher than ever right now. And then you compare that to the stock market and the market's reaction. And you've just described it as placid. Has it surprised you, just sort of the lack of correlation between the two? I don't believe the political volatility is higher than ever. In 1998, Bill Clinton spent that year testifying about sleeping with interns and whether or not he lied about it. But there were impeachment proceedings, and 1998 was an incredible year for the stock market. Why? Because the market doesn't prioritize political volatility.

The market prioritizes, remember what I said, earnings growth or lack thereof and interest rates. We had had a massive interest rate cut, emergency cut in the summer of 1998 after the currency crisis rippled through Asia and Russia. And in the meanwhile, we had this internet build out, this Y2K build out that was propelling earnings, not just for tech, but for the entire economy. And so as a result, that political volatility, which I would argue is as great or greater than what we're experiencing at this current moment.

Debatable, but fair. Well, we had the, Trump had two impeachments. We had that volatility. And it's back. We had a riot at the Capitol. So you would argue this is more volatile than that? I wouldn't. Yeah, I don't think it was more volatile than that. But I think it goes to a larger point, which is that the market seems to be largely unresponsive to those sort of volatile events. I mean, what we saw during the pandemic too,

and the market was generally doing very well, and it didn't seem to be tied to whatever fundamentals were happening in the market did not seem tied to what was happening in politics. Do you think that generally that we maybe overestimate how the two are connected? Well, I don't think professionals do. think civilians uh overestimate i think they draw connections that just aren't there when the market reopened after jfk was assassinated it went up um most people don't know that did not know that so interesting no it only it only took i think it only took five months for the market to regain what it had lost after 9-11 So this idea that geopolitics has this sustained impact on stock and bond prices is just flatly incorrect. It's just incorrect. In fact, it's world war two that put an end to the depression.

So, so one of the things that people forget, look at the pandemic, uh, 2020, the stock market closed higher. If so, if I told you in january hey ed two months from now your employer is going to tell you to stay home for the rest of the year the kids the kids will be out of school nationwide a million americans are going to die um the president is going to pretend that nothing's happening there's going to be a black plague spreading around the earth. Would your assumption be stock market ends the year up? Absolutely not.

Of course not. The thing that people forget is that when something negative happens in geopolitics, there is usually a policy response. And that policy response is just keep shopping. Yeah.

Here's money. Yeah. Buy fucking. Yeah. Here's money. Yeah. Buy more, buy fucking meme stocks. Here's money. Go, go open your Robin hood and gamble. That's,

I mean, I wish I could, I wish I could say it more artfully, but so, so I think, so I think you have to, you have to know the history. Yeah.

You have to understand the history. I'm not saying like, Oh, never worry about anything. I'm just saying for every action is a reaction and for every geopolitical crisis there's probably going to be a policy response if it affects the economy and those policy responses lead to higher earnings higher profits higher stock prices not immediately but ultimately that what you and i are talking right now within 3% of all-time highs for the S&P 500. What else could you conclude? Just to wrap up here,

what would your advice be to investors when they read the news? I mean, it's going to be- Don't read the news. Yeah, I was going to say, is it don't read, don't pay attention, don't worry about it. How much should we be? Cause it's going to be an assault. Okay. It's not, don't worry about it. It's don't react to it. That's the answer. Now, if you had been reading reports in early 2020 from the Italian Alps or dispatches from Wuhan, China, and you had gotten this idea that, you know what? This sounds really bad. This sounds like it's going to get much worse. I'm selling my stocks. You might've had a temporary reprieve where you would have said, thank God I got out. You know how long that lasted for?

11 days, 11 days. If you had done the same thing a generation earlier during the Ebola scare, which I think was 2014, you would have missed out on some of the best years in the S&P had you not known when to buy back in. So it's not don't worry about it. Definitely worry about it. The better thing to say is don't think that your reaction is going to be the right one. And don't think that there's

some sort of logic whereby something scary happens in the news. Therefore, something scary is going to happen in the market. I love that. Let's take a look at the week ahead. We'll see the consumer price and producer price indices for June and second quarter earning season kicks off with JP Morgan, Wells Fargo, Citi and BlackRock all reporting. And finally, we will get the lowdown from Scott on his vacation in Greece. Josh, thank you again for filling in today. You have a book coming out September 3rd. It's available for pre-order now. Could you tell us a little bit about it? Yes, the book is called You Weren't Supposed to See That. And some of the things that we talked about in terms of inequality and the issues with our economy and why it's not working for anyone.

Those things are in part the focus of the book. So I have much more to say on these topics and you will be able to read all about it, uh, this September. And Josh, where should people follow you? Uh, just don't like, you'll see. You'll find, you'll find Josh. I have a, I have a podcast. It's called The Compound and Friends. It's twice a week. We talk markets.

I'm not like doing Twitter shit. Like, don't worry about following me. You'll be better off. I'll be better off. It's fine. Josh Brown is the CEO and co-founder of Ritholtz Wealth Management. His new book, You Weren't Supposed to See That, Secrets Every Investor Should Know, is available for pre-order now.

Josh, you are the hero we need and don't deserve. Thank you so much for joining us. Thanks, Ed. And thanks, Scott, for the shot. And I'll be listening next week. Thanks, guys. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss.

Our executive producers are Jason Stavis and Catherine Dillon. Mia Silverio is our research lead. And Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us on Thursday for our conversation with Anthony Scaramucci, only on Prof G Markets. You held me In kind Reunion

As the world turns And the dove flies In love, love, love, love