The Dividend Cafe - How Investors Should be Thinking about Politics and their Portfolios - TBG Investment Committee

Episode Date: October 1, 2019

Topics discussed: What does history tell us about political ramifications to one’s portfolio decision-making? What are the four categories we look at when evaluating political relevance to market action? And what ought investors do in these highly complicated times? This latest podcast/vidcast from our investment committee provides a quality perspective on how to think about the present environment, and will leave you with actionable takeaways on what should be done, and just as importantly, what should not be. Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, financial food for thought. Hello and welcome to this week's Dividend Cafe podcast. This is David Bonson. I'm here with the entire investment committee of the Bonson Group and we're going to have a little conversation this morning about the role of politics in your investment portfolio. And who would have thought that investing would be the simpler of the two topics because I don't know that it can get much more heated, toxic, opinionated, controversial than all the realms related to politics, particularly in this day and age. So welcome, Brian, Julian, Daya, Robert.

I'm going to set the table for us a little and then let you guys go to town. My belief is that we're about to go for a full calendar year where investors are going to have more trepidation around their investment positioning because of fears about politics than we've ever had. And it is going to be completely two-sided. 50% of people will say, I am very skeptical about my investment outlook because what if Donald Trump is reelected and he's a loose cannon and he's impeachable and there's a trade war and he tweets too much. And then 50 percent will say, I'm completely paralyzed with fear because what if Donald Trump loses and Elizabeth Warren, Bernie Sanders and and Karl Marx are all elected in an aggregate milieu of collectivism to tax us and bring us back into the dark ages of economic prosperity. Chances are that both sides will be somewhat hyperbolic in their fears. But again,

the point being significant fears from both sides of the political aisle. More so than Obama, because it's on both sides. Is that what you're saying? Well, now, here's the thing I'm going to say. Sadea has done a good job to help us get a historical context around this. When Obama was running for the first term, I don't think people were saying in September of 08, hey, if Obama's elected, the market's going to crash because the market was down 50 percent. Down a little bit. And so the fear, there were obviously very strong opinions about the hope and change he could represent politically or the awful things he could represent, radicalism and leftism he could represent politically. People had their own views around Obama as a presidential candidate. But I don't think in the campaign there was a lot of fear around it.

There was a lot of fear around it after he was elected and you had a massive move down in the market. But you were in the middle of the financial crisis and there was a point I'll never forget. Both him and Tim Geithner being on the screen at the same time and Geithner would go and would talk and the market dropped 500 points and Obama would talk and drop 500. But again, that you can't really attribute that to the politics of the moment because we were going through the financial crisis, Brian, you remember it well. But I will say, and again, I'm kind of jumping ahead now at day as prodding. I think that definitely there are a lot of people once all the dust settled, that then you got into 2009, 10 and 11. And they said, look, he's the most left wing president. They want higher taxes. He's Obamacare. And we don't have to point to this hypothetically or using rhetoric. history, the Dodd-Frank bill, the most strict and constricting form of financial regulation ever in American history.

And then you had the stimulus bill, which was almost a trillion dollars of spending. And so there was a lot of fear on these things. Now, I want to jump into the discussion of it. I'll come back to that kind of political – to that point. But really, honestly, I think that the level of concern politically then was all one-sided. It was only people on the right who didn't like Obama. I was one of them. I'm a conservative guy. I didn't care for him as president.

But I didn't believe he was going to be tanking markets because markets are already trading at 11 times. And earnings had troughed at 50 bucks in the S&P. Couldn't get any worse. And the Fed was throwing candy around like it was Halloween. So I didn't share their views. But it does represent, I guess, kind of a lot of where this conversation is going and where the politics and the investment outlook have got to be separated. So Brian, you were managing money during the Obama years. We formed our partnership at some point along the way, even going back further throughout history. Is the next 12 months different? Should investors have a political fear about their portfolio?

So generally, the answer is no. We look at political landscape and what's going on in the world and politics, and it's sort of a headwind or a tailwind with what we're doing as far as allocations and managing money and all of that. But as far as it changing something for people, what they're trying to accomplish and their goals and those types of things, I would say absolutely not. You would not be changing things based on what may or may not happen. There is no crystal ball. And so we stick with fundamentals. Fundamentals don't change overnight. Julian, tell me, do you believe when you think about the stuff, the angst that would normally enter the fray around politics

and policy impacting a portfolio, affecting the overall economy, what have you, do you think there's something unique around this coming election in this field of candidates? I don't think so. I mean, I'm not the best place to judge the candidates, but I'm just looking at history. I mean, you're still in a country with two dominant parties with check and balances. It's nothing like the UK going to a referendum to leave the European Union. That's a big deal. That's something they've decided to do. And after, I don't know if it's 50 years in a union. So this is just like the normal course of politics, I guess. And what's interesting is,

if you look, you know, I was trying to look at some studies online, and then basically, it's like, it's more, what's more important is like what it does to your mood as, you know, being on one side, you know, a Republican or being a Democrat. And it sounds like basically, there's some studies that have proven that, people are more optimistic and PC market to be less risky and more undervalued when their own party wins, so then they're more optimistic, then they don't trade as much and they end up doing better than if you feel like you lost the election and you're worried about someone being elected that's not in your party. Then you're going to be scared. Then you're going to want to trade out.

You're going to do some mistakes. So in other words, I think what you're saying is that when the party you wanted is in office, there's a self-fulfilling prophecy because you are less susceptible to doing stupid things behaviorally. Exactly. And I guess that's not – I mean that's something I'm saying. It's based on a study that was done in 2009 that's called Political Climate Optimism and Investment Decisions. So I guess it's been proven empirically. is do these political headlines incentivize the right kind of investor behavior? And so I think there's a clear distinction there. For the first part, do politics affect the fundamentals? I thought I was actually going to be somewhat – our group does do a lot of political content

or does produce a lot of political content. And I think that it is important, some areas of the policy is important to look at. But in general, I don't think it matters at all. And I'm going to go as far as to say is out of maybe 100 different political headlines you may see a year, maybe one of them might matter to fundamentals. And I just have a list here of a lot of political headlines from this year. And I'm just going to read them off to you and let me see if the listeners still remember if they mattered,

if they didn't matter or whatever. Okay. This is in January and then going all the way down. Pelosi resigned speaker at the house. Shutdown continues. Los Angeles teachers strike. Government shutdown continues. President Trump declares national emergency.

UN ambassador picked Trump's's border wall emergency denied. President Trump or Trump gives speech regarding Mueller. President Trump signs a free speech executive order. House fails to override Trump veto. And there's there's about 20, 10 or 20 more of these. My point is, is that I don't believe if you are a long-term investor that these political headlines matter at all. It is true that a lot of – there are some policies that do matter. And I know David talks ad nauseum about how certain policies may affect the supply side of things, may affect business confidence, may affect trade. And those are the policies that I think do matter.

And anything that promotes markets I think is a policy to pay attention to. I would largely agree with you and I think philosophically as well. However, I do want to play maybe devil's advocate a little bit. There's been an increasing tendency these days to legislate through the executive branch. We've seen a big deregulation push in the Trump administration. Things can happen that do affect fundamentals at that level. I mean, think of the proposal for a while to index capital gains to inflation, right? That would have a meaningful effect on a lot of security prices. So I don't want to say that there isn't anything that can affect it. It also didn't happen. That's right. That's correct. Yeah. So it's just another one

of those headlines that didn't come to transpire but i think that would be an example of a meaningful they're blips right i mean if you if you kind of take a wider view they're just not it's something to read about yeah it's hard to really position around them yeah anticipation of something that's right that's right you know because it can go either way capital gain inflation you know index may or may not happen doesn't look like it's going to but yeah you know so it's more about you know would we change what we're doing in anticipation of something in the political landscape? Potentially, it would be something that we would discuss, but I don't think we would

implement. Well, let me suggest that we get even more granular than that. And instead of just saying, would we incorporate politics, say, would we incorporate the four different categories? Okay. So to take your point, it's how it impacts fundamentals. So I'm going to suggest the four categories would be legislative realities out of the political scene. Two would be the point you're bringing up, which is things that can get done at the executive branch level.

Three would be the rhetoric. OK, the mood, the tone, which I think is where the biggest skepticism about market prospects came from during President Obama, is even though most of the things happening under the water were good for markets with earnings troughing and recovering, with Fed providing a lot of monetary stimulus, with recovery off of the financial crisis. The fact of the matter is, is that a lot of people said it can't be good because Obama says he's coming after the banks with pitchforks. And there was this sort of anti-enterprise messaging. So the legislative reality, the executive branch reality, which is largely regulatory, the rhetoric, and then the fourth category is what people just think of the candidate. Do they like the fourth category is what people just think of the

candidate. Do they like the candidate? So let's just start with that one because I think that's the easiest one for us to shoot down. I have no interest as chief investment officer of this company in infecting a client's portfolio based on whether or not we think someone's a good president or bad president. They can be bad or good legislatively with markets. They can be bad or good executive. But just in general, if you say, I don't like the judges or I do like the judges or I don't like their stance on social issues, I don't like his Twitter, I do like his Twitter. All those things matter as citizens. All those things matter to the way an investor may feel about the political climate, either positively or negatively.

But that's the one that I think most of the conversation comes from. That's where most of the heat is. And that's the one that is easiest for me to say, I don't care. I don't care. It's immaterial. Are we in agreement on that? Yeah. So then the other three, legislative, executive, tone.

Let's start with the tone one, because you remember what I'm talking about the Obama years. I do. He said, now is not the time to go to Las Vegas. Yeah. And that's where the SkyBridge Alternative Conference came from was because Anthony Scaramucci said, oh, this poor town is getting decimated by recession. Let's bring a big – a bunch of big spenders back to Vegas and get tips going for the bartenders and the valet and all this stuff. And it turned around. It did.

Vegas bought it and it turned around. So they did it. Believe me, as somebody who's been at that conference every year, a lot of economic activity is taking place. Sure. But my point is, does tone and rhetoric matter? And if it does, how does it matter in our investment process? Does tone and rhetoric matter in our investment process?

No. I would say much less so. Does it matter overall? Well, to the extent it can change habits and trends of consumers, then I would say absolutely. But again, we're going to look at the numbers, not so much as a tone or a rhetoric or a feeling part of it, but more how is it actually coming into earnings or consumer sentiment and those types of things. So it can matter. But as far as what we're doing day to day, it doesn't. Less so marginally.

Marginally. Julian. Yeah, I agree. I mean, it can create volatility. It can make us talk about this all day. But at the end of the day, it's probably least likely to have any impact on fundamentals and valuation. So I guess legislative and executive order is probably much more important.

Yeah, I think tone and rhetoric matter, maybe in the short term, as far as maybe some might have some correlation markets. As far as long-term trends go, that's primarily what we focus on and what Brian said. I mean, if this is affecting culture, if the rhetoric is, let's give an example, is a bit socialist and there's data out there. the rhetoric is – let's give an example. It's a bit socialist and we – there's data out there.

Just as an example. Just as an example. Hypothetically. And there's data out there that shows that policies are becoming more and more oriented towards redistribution or whatever it is. I think that could cause us to look differently, potentially different sectors. But that's a long – that's an example of a long-term trend. Yeah, I think qualitatively you can say that politically maybe certain sectors or even certain companies might be under fire in the year ahead perhaps. But again, we look at the numbers.

I mean every single company has different exposures to some of those qualitative factors. So I think we're all kind of mostly saying the same thing, but I sort of want to add to it and see if you guys are uncomfortable with my addition. I would suggest that rhetoric has very little impact when it's negative, but potentially some impact when it's positive. Meaning that there is a sense in which business confidence and business investment and human action, which I believe is what the study of economics is, human action, which I believe is what the study of economics is, that it is more prone to activity and sort of what they talk about the animal spirits of capitalism when there is a positive message in the marketplace. But then when there is a negative one, I don't think you get the positive message, but I don't think that the negative message has the same impact.

In other words, I'm suggesting a sort of heads we win and tails we don't lose that much asymmetry around it. That if let's just say, for example, Bernie Sanders says we want to tax all rich people heavily. And I'm not being unfair to him. That's kind of part of his message. I think that the market and the environment of the country is more likely to say, no, you're not. But if President Trump came in and said, we want better opportunity for small business, we want more CapEx, we're going to have corporate tax reform, and we could even go back to President Reagan in the 80s. And to really be fully nonpartisan or bipartisan about

it, what was Bill Clinton's famous line? The era of big government is over. That was his line. It was a very pro-business. You remember he had Bob Rubin as Secretary of Treasury. Greenspan was an old Ayn Randian running the Fed. So I think that whether it was from Reagan to Clinton to Trump, you had a bit more animal spirits that were rhetorically beneficial to markets. And I don't think that the negative rhetoric can kill markets, but I think the positive rhetoric can help markets. Does anyone think I'm being too Pollyanna-ish here? No, I think that that's fair. I mean, I think the negative rhetoric can affect markets a little as well.

But like you said, I think it's a little bit skewed more towards the other. Towards policy. Well, that's a fair point, Brian. This is probably what I should say. The negative rhetoric doesn't hurt markets if people believe it's just rhetoric. Right. Yeah. So in other words, at the point at which Obama was saying some of the most anti-market stuff, the Republicans are already taking back the House.

And the market had the ability to just say, well, OK, so he wants to go after bankers with pitchforks. It's not going to happen. Can't get it done. Yeah. Okay. So he wants to go after bankers with pitchforks. It's not going to happen. Can't get it done. Yeah. And so I think that the Newt Gingrich, Bill Clinton stalemate, the Ronald Reagan, Tip O'Neill stalemate, and I think that the John Boehner, Barack Obama stalemate kind of offset the rhetoric. The rhetoric of Liz Warren or Bernie Sanders becomes more concerning if they also have 70 people sharing that rhetoric in the U.S. Senate. What do you think, Jordan?

Now, I was thinking about what happened in 2008 being like, probably we should talk about that as a very important political decision. I mean, you decided to let Lehman go bust, and that's where they draw the line. You could have decided to not let any bank go bust. It would not have that big, probably, a crisis. Or you could have decided to have a few more banks go bust. It would have been much worse. So this was a huge political decision. And it sounds to me like that's probably even more important than any,

you know, who's going to be the next president and like what happened in these times. But is that a 100-year flood issue? Like in other words, the issue there around Lehman, I don't think was political at all. Um, the issue there around Lehman, I don't think it was political at all. It was, you had free marketeers and Hank Paulson deciding to go bail out AIG. They had a range fed financing for Bear Stearns. They let one bank go under. There was no amount of financing.

I think that there's maybe a difference of opinion on it. I believe that they knew Citi, B of A, other companies themselves were insolvent and they said let's let Lehman be the scapegoat. They got to go down. They were functionally insolvent. There was no capital hole they could fill. But again, in that case, if there were politics involved, it would have been contrarian to their political impulses, not in line with it. The people who passed TARP were Republicans that were going to drive it. The people who passed TARP were Republicans that were going to drive it. It was Hank Paulson begging Nancy Pelosi for the votes to do a $700 billion bailout. So I think all those, and it was Schumer and Barney Frank that were kind of originally anti-TARP. They came around, but you

had everyone's sort of political instincts were kind of off kilter because of the hundred year flood that was the financial crisis. Does that make sense? Yeah. I mean, I think your hundred year flood thing is a good analogy. I mean, it's a black swan. It doesn't happen all that much, but you're right. I mean, the Lehman thing, they didn't have a buyer for Lehman either. So I think there were some other things there too, but yeah, I agree. Unless the US, but they had no legal authority. Sure, sure. But I guess after Lehman, you know, when they saw the stress they put in the system,

letting Lehman fail, they had to, you know, and then they decided to intervene. They could have said, okay, let's let another one or two fail. Yeah, but again, I honestly believe that that represents a real outlier in political convention. For sure, yeah. It doesn't line up with any partisanship. There was just a bunch of people throwing fingers over holes in the dam that makes it harder to trace to political... Yeah, but I guess I want to say

I think in this moment that it's like really critical probably to focus on politics and understand, you know, what these people are willing to do. Are they willing to let the whole system collapse or not? Because then you would have to really tactically probably do something about it. I don't know that systemic breakdown of the system

is the biggest issue that's going to affect politics in the coming years. I think that those things, the banks are so de-levered. It's a very different world. To generalize. Julian's going to scare the hell out of us. No, I'm saying it's like, I mean, I feel like this is something, you haven't had to worry about that in this country

for a long time, and this is great. But, you know, you look at other jurisdictions, like in the UK, you look at, you know, you can have. Here's a list of presidents that would bail out the financial system if the entire thing were collapsing. Elizabeth Warren, Bernie Sanders, Hillary Clinton, Donald Trump, George Bush, Hank Paulson, Julian, Mitchell Bonson. They all would. But I think that rather than those kind of outlier events, let's go back to those categories about legislative and executive. Robert brought up the executive branch that now they have a lot more authority around regulatory and enforcement. Brian's response was accurate.

Yes, but it's kind of transitory. Brian's response was accurate. Yes, but it's kind of transitory. You know, Obama was blocking production of a bunch of oil and gas pipelines, and that was hurting that sector. Trump came in and approved it. It helped the sector. But as long as things are not being done legislatively, perhaps just as much as the corporate tax reform for the reason for the huge move up in the stock market under Trump in the first year and a half of his presidency. On the flip side, a negative aspect, all at the executive branch level has been the trade war.

A negative aspect, all at the executive branch level, has been the trade war. For whatever reason, I happen to totally disagree with it constitutionally. Congress has delegated to the president control over these trade arrangements, and he doesn't need – look at the dichotomy. We're waiting around for the House to pass NAFTA 2.0, but we're sitting here waiting for Trump and Xi to get a deal done on China. And yet they're both trade arrangements. It's just that we have said treaties go through the House and everything, trade pacts go through the executive branch. So my question is, legislatively, I think we can all concur that on a temporal executive level, that probably the markets would prefer President Trump be reelected versus some of the more far left Democrat candidates. And that those things are not the primary movers of market,

but they affect it. But legislatively, I'm going to list three things that are heavy on the platform. And let's discuss how that may impact our client portfolios or not impact it as the case may be. Medicare for all, somewhere between $30 trillion and $70 trillion of additional government spending on a kind of universal health care system in the United States, depending on the candidate. Student loan forgiveness, wiping away a trillion and a half dollars of student loan and basically promising free higher education to all go forward. I don't believe in fairness. That's in the blank of every Democrat candidate, but it is in the case of Warren and Sanders. And then third, what should we focus on here? A wealth tax, just a stronger, stricter taxation

around balance sheet wealth in the country. So anti-supply side and anti – just very redistributionist. Legislatively, would those three things coming from a president scare us in our investment positioning? I don't know if scare is the right word. Disappointed maybe. I don't know the right word. But would it cause us to rethink positioning? I think it would cause valuations to come under scrutiny, particularly in the equity market just as a whole. I think it would be bad for markets and personally bad for the country the way that I look at things.

I think everybody's got their own opinion on that. I'm going to skip ahead to Robert because I have a feeling Robert's going to get the trick in the question. And I don't want to – I'm not purposely trying to do a trick question. Would markets be scared of a president feeling this way legislatively? I mean markets are individual actors across the board. So I don't care what markets think because this is an opportunity if they get scared for us. True. These things are – can I comment on a couple of them?

Why would it be an opportunity as opposed to a death sentence? OK. A wealth tax to my knowledge isn't constitutional. So it's kind of a nonstarter. How would you even value, to my knowledge, isn't constitutional, so it's kind of a non-starter. How would you even value assets to tax them? So that's not happening. The student loan issue, that's something worth discussing. I think there'll be fixes around that.

Is that something to scare markets? Not necessarily. I don't think that's going forward either. Okay. So let me – Talking about it and having it be a legislative there you go kind of disconnected just because it would still have to pass so someone can talk about taxing everybody so let's say someone ignored the first if you ignored the first 20 minutes of the podcast and

you're going to ignore the next 10 minutes here's the one sentence brian just bowing down for us you you can't evaluate the concern to markets around a president's campaign speech only around what you actually think will happen. And the reason why wealth tax, Medicare for all, and what was the other one I said? Student loans. Student loans. It would not be a threat to markets is because the markets would not take seriously the idea that it would become law. Therefore, the hedge, the put option that you have long in your portfolio is named Alexander Hamilton and James Madison. The separation of powers in the United States Constitution that keeps the ability of a presidential candidate to do those types of things they say they want to do.

Am I right or am I wrong, Dan? Yeah, absolutely. And it's something that Julian mentioned early on, why politics matter – those headlines matter less in this country is because of the way our founding fathers set up our government very brilliantly to limit those people who want to abuse their power. What if you had a wave election and you end up with 60 Democrat senators and 300 Democrat House? See, I still make the same argument. Just like you did out of 2008. Then they passed Obamacare.

There's a number of things that happened. And then 63 Democrats were thrown out of the House two years later. You could very well. I don't know. None of us know if Elizabeth Warren is going to be elected or not and if Democrats are going to take the Senate very well, I don't know, none of us know if Elizabeth Warren is going to be elected or not, and if Democrats are going to take the Senate or not. I don't know. But I do know this. If they do, the legislation that they advocate is not liked by 70% of the country. So if Medicare for All were to pass, it will be thrown out one year later because we have

congressional races every two years in our country. So that, again, it comes back to the system of government being the best hedge that we have. You follow what I'm saying? I do. And I agree. And I think the one thing we haven't talked about as a potential outcome is we're talking about the election and how to construct your portfolios and all of that. We haven't talked about the word impeachment yet. So I thought I would open that up here a little bit, Robert.

we haven't talked about the word impeachment yet. So I thought I would open that up here a little bit, Robert. Yeah. Let's assume that Democrats are going to forward with this. Let's assume hypothetically that President Trump is going to really fight against it. I don't know if he will or not. He obviously will. So here's the question. Does that elevate portfolio volatility? And before I answer, I'd like to point out the market is up 350 points since the announcement was made last Tuesday about this impeachment inquiry. Yes, it elevates market volatility, but I think this was a catastrophic mistake. I disagree with you on that. On the mistake aspect? No, no, no, on the volatility.

On the volatility. I don't think the market is carried on. You think it's taken in stride at this point? It's a charade. Well, you know what's funny? You said this at the beginning of the year. I don't want to cut is carried on. You think it's taken in stride at this point? It's a charade. Well, you know, it's funny. You said this at the beginning of the year. I don't want to cut you off here. No, no.

But remember that we were talking about does Trump have a discount or a premium to the market basically. So if Trump goes away, Pence comes in, does that mean things are going to be more volatile? There's going to be more kind of shooting from the hip policy type of thing or less? And I would argue that there's probably less. I think short term there would be volatility. But I think – You said it. I don't know if it was on air in an article a couple years

back, you said, what would the market be doing if not for Trump? You know, for all these business friendly policies and whatnot. But him getting on Twitter is kind of damaging in some respects. So that's what Brian's bringing up. I was arguing Trump was not getting a premium to market, he was getting a discount. I think that's mostly right. But I think as it pertains to the impeachment stuff,

I think it significantly elevates political volatility, societal volatility, dinner table volatility, Twitter volatility. Probability of a China trade deal. I think it increases probability of a China trade deal. But I think that markets from the Mueller investigation, you go back to the Lewinsky impeachment in 1998. People say, well, yeah, but look at when they, when Nixon was under the investigation, markets were tanking. Well, I don't know. Mass recession.

9 percent inflation. Secular bear market to begin with, the whole thing. I just don't think it has teeth either. I mean aside from all that stuff. But he also hasn't been necessarily – you have Adam Schiff and all these congressional democrats that are saying this or that. They've said those same things for years now about the that stuff. But he also hasn't been necessarily, you have, you know, Adam Schiff and all these congressional Democrats that are saying this or that. They've said those same things for years now about the Mueller stuff.

So until there's someone that actually attacks him on valid points, I don't think it's going to increase volatility, but I think it will at those junctures. So if there's a debate and they talk about, oh, you did this or that in Ukraine,

I think it'll, you know, create a little activity in the market temporarily, but not over the long term. But the Mueller investigation didn't. From day one to the last day, it really didn't. Yeah. This is also why it's so difficult to link what's happening politically to markets,

is that we don't know whether Trump's going to get impeached or not. I assume no. But then you have to play out the second and third order effects. But then you have to play out the second and third order effects. Like Brian said, maybe this whole noise about impeachment facilitates some sort of U.S.-China trade deal, which would be beneficial. So it's so difficult to analyze, number one, what's going to happen and the linkage to actually how it affects the market. And to pretend to know with a high degree of confidence exactly how the market's going to react to something and if something is going to happen, I think is a bit ludicrous. Julian, do you think there's a sense where the Fed plays a role into this?

Does elevated political volatility make the Fed FOMC meeting that changed history. That was October of 1998 where we had 5.4% GDP growth and Greenspan cut the discount rate – cut the Fed funds rate 50 basis points. And then at that point, what Greenspan put became really codified in American economics. The impeachment of Clinton was going on, but as Dave is bringing up, it's hard to find post-Hawke, ergo propter-Hawke, because you had Asian crisis, you had Russian ruble, you had long-term capital management. But does, if anything, does it just sort of provide a little more rationale for the Fed to kind of play into this insurance cut nonsense? Yeah, I mean, the Fed is theoretically, you know, supposed to focus on unemployment and inflation. That's really the mandate they have.

But clearly, they're looking at so many other data. And so I guess, you know, it's just looking at how they reversed, you know, last year policy with two cuts already this year. It's pretty clear that they're very closely following what's happening in Washington, I think, and the impact they can have on the economy with the tariffs. It's pretty much a cut based. That's a response to the tariffs, I think. So fast forward, let's pretend it's January of 2020. I think.

So fast forward, let's pretend it's January of 2020. And on a Tuesday, the headline is House impeaches Clinton. And on a Wednesday, the headline is China and U.S. announced generational trade deal. Which one moves the markets to a higher magnitude? Impeach Trump. Well, but I said House. Oh, OK. And that's a very important thing by the way i will offer the political consensus as my economic and market view which is that the house

will end up impeaching trump and the senate will not end up removing them i would say that there's a 99 chance the senate will not remove them and that there is a 60%, 65% chance the House will impeach them. Sort of like the Clinton thing. Yes. And the only ones we've ever had. Yeah. Markets would be up on that. I mean, honestly, I think that they would.

On the China news. Yeah. The China news would impact markets more than the House impeachment. I do. I think that's very true. The fact that the impeachment is never going to succeed, right? I think it's pricing. Like nobody can see it work.

Third and fourth orders is something that we talk about a lot internally. We should share with our listeners. It's not just the news itself. It's what comes out of it. So you say, okay, House impeaches Trump. But then we're answering the question is if that's the news. But we have to look to the third and fourth order. Is Trump polling at 20% or is he polling at 51%? Well, but at the time,

that's what the crux would be. That to me is the bigger question. Well, will his policies become undone before, you know, with the next takeover? I don't think that that would be likely to happen either. And so that's why I think when we talked earlier, I think markets would actually be up, not necessarily on the news of impeachment, but up if there was a China trade deal as well. So overall, let's wrap up just some summary points. Some of you guys already made some of this about how clients ought to be thinking about it, regardless what side of their aisle. Now, look, I think that anyone listening to this probably knows I tend to lean right and

have a lot of strongly held political views. And I manage money very agnostically around what I believe ought to be the case, but manage money very not agnostically about what I think is the case. I want and owe clients ROI regardless of what I happen to like or not like. That's why we dismissed that fourth category of this subject. But in the context of everything we've been talking about here today and our beliefs about how clients ought to be allocated, I'm respecting the fact that there are people that are adamant that Trump being around more is bad for markets. And there were a lot of people felt that way going in 2017. And we'd have meetings in 2017 and dinner events and market was up huge.

And people would say, I don't understand why the market's up huge. Trump's tweeting this stupid stuff. And I'd say, well, you answered your own question. The market is up and Trump is tweeting this, so therefore the markets don't care, right? So whether your fear is I don't want Trump or I don't want Liz Warren, Bernie Sanders, whoever, it's reasonable in American society that people fit in one of those two buckets. I happen to be a guy, by the way, I think it's fair to say, and you guys can share whatever you want.

It doesn't matter, that I don't like the idea of a far left person being president. And I'm very, very disappointed in a lot of the ways President Trump handles himself. And I think both those things can be true at one time. How the American people feel about it in November 2020, well, that's a pretty big question. I don't know the answer. But 130 million people are going to vote on that question, and we'll know more then. But along the way, my view is that we have to look at the politics, understand it, but understand it around legislative realities primarily, executive realities secondarily, tone and rhetoric third, and not at all the popularity contest of nightly politics. Anything to add to that?

Everyone add to it. Go around the circle. I would just say as far as wanting to do something or make a decision that's important based around something that you cannot predict perfectly like a political outcome of some kind. I just don't think that it's prudent. You can't predict the political outcome and you can't predict how the market will react to that political outcome. That's true. Yeah. Both things can be true. Yeah. So at the end of the day, it comes back to what each individual person's goal is and how that is affected by what may or

may not come down the pike in the political landscape. And for the most part, many times, it just doesn't change those fundamentals. I was going to say check and balances really work well in this country. And then just like in the- They should try it in other countries too. Well, actually, I was going to say check and balances really work well in this country. And then just like in the… You should try it in other countries too. Well, actually, I was thinking about what happened in France in 81. There was for the first time a socialist president elected and they even had some communist… Mitterrand? Mitterrand, yeah, exactly.

And then so he was elected and he lasted two years. Well, I guess he lasted three years, but his socialist policies only lasted two years. years, but his socialist policies only lasted two years. Two years later, the whole population was so against it that he reversed to more like, you know, capitalist and more market-friendly policies and changed the whole government, kicked out those communists. So, you know, even whatever happens in the election, it's not, you know, it's just, you know, you'll have another one two years later and, you know, it'll change very fast. Great point. And we invest for the long term.

Tea Party was a very quick response to some of the overreach that a lot of people believed was taking place under the Obama administration. So that's a beauty. And this is true in a lot of Western governments. I mean, France and America have a lot of difference in the political structure. But both cases, there's a populist component where politicians have to respond to the people. And were you impressed that I knew Mitterrand in 1981? No, I knew him to say his name properly. I did.

All of a sudden lately I've been getting inundated with French pronunciations of things around my work life. I think we've given listeners a great framework for how to evaluate political headlines and how politics links to fundamentals and furthermore how maybe they should look at their own behavior when it comes to these different headlines. And more often than not, you should stay invested. And although all these, all these headlines and all this sensationalizing

maybe causes you to want to do something, most often the proper response is to just do nothing. Give us a goal. Yeah. Yeah. Yeah. So, yeah, I'm leaving it at that. Yeah. I think Julian brought up some particularly very good points about our system. I wish more people would learn about civics, things like that, you know, that we're a republic,

we're slow. One of the funnier things I think about democracies and we're in California, there's a ballot thing like what do they call two wolves and a sheep deciding what to eat for lunch? That's a democracy, right? So, you know, we are a republic. We have checks and balances. The other thing that's I think particularly important to remember is economic reality sometimes forced a degree of pragmatism on leaders, right?

We talked a lot about the economic crisis and what people who otherwise philosophically thought what they actually did during those periods of time. So leadership requires leaders. Yeah. Well, I agree completely. And I do think that it's understandable that there would be heightened angst around some of the political drama. I don't discount people strongly how political views that they would kind of intuitively transpose those into their view of the market. I think it's very

compatible human nature. But again, as we have to talk about all the time, whether it's talking about index funds or talking about how to respond to market volatility, human nature is a failed investor. And in this case, politics exposes a lot of the sharpest realities of human nature, more so than other things do, but that can become really problematic in one's investment decisions. The fact that there's a little bit of validity with some of the concerns in the legislative component and other aspects mixed in with a lot of the not so legitimate aspects, it makes it more complicated. We have to unpack a lot of that.

But honestly, I think that it is very silly to worry right now about what will happen in over a year when this thing is going to take so many twists and turns. As far as I can tell, Elizabeth Warren right now is polling somewhere between 25 and 30 percent as a Democrat candidate. She was at four percent two and a half months ago she was literally left for dead as a candidate after that whole in india indian um uh you know dna test debacle and so forth uh you guys remember 2008 john mccain was in fifth place they were trying to raise money and they couldn't even get people to come to a fundraiser here in orange county i think at the time he was trailing the front runner it was rudy giulianiiani who ended up not winning any states.

You know, you had Mike Huckabee, Mitt Romney, Fred Thompson, and fifth place John McCain. He ended up getting the nomination. Who could forget that Hillary Clinton is the foregone winner in 2008, and this junior senator from Illinois no one ever heard of named Barack Obama comes in and chances her in the primary. Fast forwarding into 2016, I mean the greatest example probably in American history is this very crass and kind of not just controversial but sort of not really totally respected somewhat real estate developer, mostly reality TV star. But this kind of trust fund kid from Queens

ends up coming down this famous escalator. And a lot of people, myself included, didn't take it seriously at first. And then through more and more time, people had to take it seriously. And of course, he became president. So here we are right now, and it is just about to turn October of the year before the election. I think there are some outcomes that I would not be fond of as an investor, and even more outcomes I would not be fond of as a citizen. There are some outcomes I could be very comfortable with as both an investor and a citizen. But so much time to go here. The idea of worrying about who's going to win the presidency in 14 months when we don't have a China trade deal, when there's all the question marks about what earnings season, I mean, Julian knows we're about to get ready for third quarter earnings

results to come in. If earnings expectations are beaten by 6% quarter over quarter, markets are the last words on the market's tongue are going to be Warren and Sanders. And inversely, if you have significant forward guidance worries out of earnings season, the last thing markets are going to say is, hey, we might get four more years of supply side tax policy. So really, you've got to keep focused on the biggest things, not worry about, as Brian pointed out, the stuff you can't control anyways. And trust Hamilton, Madison, Jefferson. They did a wonder. And they didn't just do a wonder for the reality of how this stuff affects our portfolio.

They did a wonder in creating the greatest nation on God's green earth. Thanks for listening to The Dividend Cafe. Thank you for listening to the Dividend Cafe. Financial food for thought. through high tower advisors llc this is not an offer to buy or sell securities no investment process is free of risk and there's no guarantee that the investment process or the investment opportunities reference herein will be profitable past performance is not indicative of current or future performance is not a guarantee the investment opportunities reference herein may not be suitable for all investors all data and information referenced herein are from sources

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