The Dividend Cafe - Market Outlook w/ David L. Bahnsen - Special Post Election Conference Call Replay - Nov 04, 2020

Episode Date: November 4, 2020

Post Election Perspective on Markets with David L. Bahnsen and Scott Gamm Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Welcome to the Bonson Group's special post-election Market Outlook with David L. Bonson, November 4, 2020. Our host for today's call is David Bonson, the Bonson Group's founder, managing partner, and chief investment officer, and Scott Gamm of Strategy Voice Communications. For this call, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. Please send your questions for that Q&A session to covid at thebonsongroup.com. I will now turn over the call to your hosts. Gentlemen, you may begin.

group.com. I will now turn it over the call to your hosts, gentlemen, you may begin. Thanks, Erica. And thank you, Scott, for once again, joining us here. Thank you. Those of you who are out there either listening on the video or audio. And of course, we're, you know, some of you are catching this on a replay later. We wanted to be able to do this in the middle of the day on Wednesday here, the day after the election. Obviously, really up until last night, we had absolutely no idea what we'd be covering on the call because we couldn't have possibly known where things would be both in the markets and in the election itself and in the national political landscape. And we know so much more now than we did 24 hours ago. I think we're going to be able to have a pretty substantive talk. But as I think an awful lot of people could have predicted, there are certain things we don't know. And I'm going to

comment on that as well. I'll encourage you. I hate the fact that we're still having the questions come into the email of COVID at thebonsongroup.com. But you recall when we first started doing these calls, it was around the COVID moment. And so just for simplicity's sake, email us there. The questions will come in real time and get to Scott as he guides our conversation. Because I do suspect there's a lot of things on your minds that you'd like me to cover. We'll probably go the full hour. Normally we stop after about 40, 45 minutes, but we'll wait and see what all you might have by way of questions. So send us in what you have. And in the meantime, I'll turn things over to Scott to start us off. Well, David, thanks so much. Great to be with you

as always on a very important week, not just for the country, but for the markets as well. So curious to hear your broader thoughts on how the process, I can't really say has progressed because it's currently progressing. you know, sort of the polls closed to now, what's your take on where things stand, just from a mechanical point of view? And then I guess, from a market point of view, we obviously have a pretty big rally today in the market. Yeah, I mean, I think that these two things are pretty well integrated, the political activity, and what we do know on the political realm and then where the market response is are highly connected. So it actually is easy for me to start things off here because the part that is most difficult to talk about, A, because of all the toxicity and strong opinions that exist around it, but be the ongoing uncertainty.

And what I strongly suspect will take several days, if not longer, is the presidential side of this, which is most certainly the biggest national story or has the most national drama around it. But it is not the biggest factor in what is happening with markets. And I think that it would have been impossible for me to talk about this more than I did building up to the election in the writings that we did, in the podcasts, the calls, various media appearances. But there was a certain degree of a tail risk, meaning an outlier bad outcome that markets could have been concerned about had there been a

so-called blue wave. And none of this has anything to do with whether or not people think it's the right policy or wrong policy or right for the country or not right for the country. I'm just simply talking pragmatically about how markets could have responded to the notion of potentially much higher capital gain rates or dividend tax rates or corporate tax rates amongst other various policy initiatives. And even structurally within the kind of ongoing administration of government, the talks around court packing or around getting rid of the filibuster, these are things that have sort of a structural stability associated with them that could have been undermined. And the markets may not know what's going to happen with the recount

of Wisconsin. And the markets may not know who's going to end up getting the final tally in Michigan or Pennsylvania. Therefore, the markets may not know who's going to end up being inaugurated president from 2021 to 2024. But the markets do know right now that the Republicans are keeping the United States Senate. And so politically, some of you listening right now may be happy about that. And some of you may not be happy. There's no reason for me to sit here and play dumb with anyone. I respect all of you way too much. I am happy the Republicans kept the Senate because David Bonson happens to be a conservative Republican person, but that's not what I'm referring to right now. I'm referring to the markets, knowing that some of the concerns

that could have been embedded are off the table. Now, there's a whole lot of other things that are out there, a whole lot of other unknowns, uncertainties, and so forth. But I think that overall, the night served as an incredible counter narrative to a lot of things that people might have suspected or wondered about within the country. And look, the betting odds right now, Scott, have Biden ending up prevailing as about 81%. Those numbers went way into Trump's favor in the middle of the night last night. But then now as the Michigan and Wisconsin vote continues, it's looking more like that's going to be tougher for Trump to end up prevailing. He has a pretty sizable lead in Pennsylvania, and we don't really know exactly what's going on with the count there. So let's just assume that Trump loses Michigan

and Wisconsin and wins Pennsylvania. Then you end up with Biden at, I believe, 270 to 268, based on Arizona and Nevada landing there as well. And presuming that Georgia and North Carolina stay with Trump. He has what seems to be insurmountable leads there. It's as tight as could be. It's a incredibly reflective outcome of what I believe is the state of the nation, which is a deeply divided and perfectly split 50-50 country. And so we could talk about the politics of it. We could talk about some of the good and bad and whatnot, but there were, it was an utter debacle for the pollsters. I mean, there's no way it could have been worse to have had him winning, Trump winning states by five, that he was projected to lose by five,

to see the whole thing shake out the way it did, even the fact that we're so close in Michigan, Wisconsin. And these were, you know, ABC had a poll last week of Wisconsin being up Biden 17 points. So you have a house of representatives and forgive me i'm all over the map now i knew i was going to do this but i can't help it you the house was conservatively projected no pun intended to pick up 15 more seats for the democrats a real strong blue wave it could have been more it looks like the democrats are going to lose at least six seats if if not more. So a lot of things did not go the way that some were expecting and perhaps some were hoping. But could we end up out of this scenario when all is said and done with still a Democrat majority in the House, but less of a

majority than they had, a Republican majority in the Senate, and Joe Biden in the White House. I think that that right now is what markets are attempting to price in. And that essentially is gridlock, right? Which we know historically the market's like. Can you speak to that theme? And is that what the market is telling us right now? Gridlock is good for stock prices. maybe not the country, but stock prices. Yeah, I think that you, it's a good question because I just want to make sure that people understand the context in which I'm answering it.

You're being really clear that you're asking about the market thoughts on gridlock. And I am really sensitive to the fact that some people may feel, hey, there are times in which it's better when government does nothing at all. And other people may feel there's times where government needs to sit down and compromise and work things out. I'm not so much speaking to that right now. I'm speaking to your question, which is that markets like it when there is a certain sense of gridlock. And if it isn't

gridlock, then it's compromise. But what there isn't is a kind of one party control of things being able to kind of run away. And I believe that that is very much what markets like. And I think markets have a lot of history on their side. Real quickly, for those of you that are my age or older, Reagan and O'Neill, you could very, Tip O'Neill, that is, you could very much describe as an era of gridlock or divided government. Tip O'Neill and the House Democrats had a very strong majority on that side. And Reagan was a popular president who won 49 states in 84. But there were two massive tax legislations, both in 82 and again in 86, that were passed in the two terms of Reagan's presidency. It was an era where there was divided government that led to a lot of compromise and markets very much like that. With Bill Clinton and Newt Gingrich, it started as a very divided government

in 94 when the House had this major takeover by the Republicans and the contract with America and some of those things. Then it was very much a divided government that led to compromise, welfare reform, NAFTA, some of these big legislative things that were accomplished in Bill Clinton's presidency. And then it turned into a gridlock where nothing got done. Now, in that second term, 97, 98, 99, I don't think I have to remind everyone how the stock market did. I think the S&P was up about 20% per year, high teen returns. You had the technology boom going on, a lot of economic prosperity. The markets didn't care at all that both sides were not doing anything and getting anything done.

Where the definition of gridlock turned really to just nothing but gridlock, nothing getting done, versus a little bit of compromise and a little bit of standoffishness was during the Obama years. And initially, in his first term, he had control, the Democrats had control of the House and the Senate. They passed Obamacare. They passed Dodd-Frank. They passed an almost trillion-dollar stimulus bill. The House took 63 seats to the Republicans in 2010. And then you went into a real full blown gridlock. And it all started for those

of you that are really in the weeds in the history here in the summer of 2011, when both President Obama and John Boehner, who was the Speaker of the House for the Republicans, worked quite a bit to try to develop a compromise around some of the fiscal issues that were looming and the debt ceiling and so forth. We're unable to get that done. I'm perfectly happy to say there could be blame on both sides. It's not a partisan comment, but that fell apart and no one did anything or talked to each other for really the rest of that presidency. And so right now, it's very clear that both sides are very opposed to each other. Both sides are very much concerned about their own bases. The House has to run for reelection every two years. So it's not just simply that the Democrats and Republicans can't get along and get things done. But a lot of Democrats are afraid to go back and

face their own constituents again, they can get primaried. And the Republicans have struggled with that for many years, as you've actually had a lot of successful primary takeouts. And so there's this kind of mixed bag of priorities there. All that to say, this is the longest answer I've ever given to Scott's very short and easy question. But I do believe markets like gridlock. But I also believe that you see even in some of the unwinding of trades or putting on of trades today, some of it is kind of targeted. Like, for example, the financials are down today, even with a big up day in the market, some of the banks. Well, if I wanted to give a pedestrian analysis of that, I might suggest that what was at concern for the financials was never legislative,

it was more administrative, it was more executive branch, and that whether it be the President Biden appointing far left officials in his cabinet, the Treasury Department or whatnot, or just more regulatory issues that are, again, able to be administered at the executive branch of government, those risks are still on. And what you see in market action today might be compatible with a Republican Senate, Democrat president kind of situation. But then what are the things that are doing really well today? Are things that are not affected negatively by divided government and are now benefit from that loss of tail risk around higher taxation and higher impact to corporate profitability, things like that. So there's a lot of consistency in what

we're seeing in the markets here today. I don't believe though, that I would overread any of the response today, because I think there is so much computerized trading, so much algorithmic and so much re kind of setting the table out of what had been a lot of volatility trades and hedges and, and cash built up that now needs to get deployed because the worst possible outcome didn't happen. So cash comes in. I still think you need a kind of resetting of the table. And by the way, and I'm saying this in the most nonpartisan sense possible, I'm freely telling you the betting odds are saying it's 81% Biden right now. But there's also the little uncertainty out there as to who the president is going to end up being. That's kind of a big thing, but from a market standpoint, it's a less big thing than it was 24 hours ago

because of the outcome of the Senate. So does that suggest one that the market is not worried about a contested election of this thing going to the Supreme court? a contested election of this thing going to the Supreme Court? And then two, do you think that that is a possibility? And I don't know if I'm phrasing this correctly, but is it, I guess, is it possible for the Supreme Court to be a possibility? And is it also possible for the market to kind of dismiss that possibility right now? If that makes sense. Yeah, it's a fair question, and I understand it's kind of an awkward way of saying it because it's an awkward concept. There's absolutely a possibility that it goes to Supreme Court. I think it's not just a possibility. I think it's a pretty high probability, but the question is what goes to Supreme Court. Will there be a specific outcome that is contested? Will there be a motion

for a delay of certifying results? Demands for recounts are done at a state level with individual states, Secretary of States. I think a lot of us, myself included, a lot of people on the call right now, can be very critical of the patchwork of laws that might exist around voting in our country. But really, the thing that markets can look through to is what those patchworks of laws are. It doesn't have to mean that they're good or bad. The fact that some states allow votes coming in for a certain date and others don't. Questions about why certain tallies were at a level they were at. And then all of a sudden, an hour later, there was 100,000 new votes for one candidate and zero new votes for the other. There's like logistical things that have to get kind of unpacked, but they get unpacked.

And the markets know that. And where you get a Supreme Court involved will be around a specific ruling to an administrative decision. If a particular state or locality were to say we're not counting these votes, or we are counting these votes, or we're changing one of our own laws, or we're interpreting one of our own laws in a kind of controversial way, it's entirely possible that one or both of the candidates would apply for administrative relief from the courts and that those things could work their way to the Supreme Court. Look, what could have happened to save our country from a lot of this is if the margin was such that by protesting one state,

is if the margin was such that by protesting one state, it wouldn't matter what happened because other states had made it clear what the total outcome was going to be. The problem, as it appears to me, Scott, is that with Trump winning Ohio, Florida, North Carolina, Iowa, and with Biden presumably winning Arizona, Nevada, and let's even say Wisconsin, just for sake of argument here, it really does mean that Michigan makes or breaks the presidency. And now that assumes Pennsylvania goes to Trump, but that one looked like a much wider margin. So you could pick which state you're going

to assume goes to a candidate and then therefore which state is the tiebreaker or what have you. But the point is there's a lot of scenarios where one state could be a tiebreaker. A lot of people don't remember this, Scott. In 2000, all of the controversy around Bush v. Gore in Florida, there was controversy in the state of New Mexico too. That was a contested race for at least a week and I think longer, but no one cared because how Florida went, it was going to either give Bush or Gore enough votes. And so if one of, let's say Gore prevailed in Florida and Bush prevailed in New Mexico, it was still going to be Gore. So New Mexico just didn't matter, you know, in terms of the electoral college, you're in a kind of similar position.

Now you could go nitpick about a Nevada thing or an Arizona thing or something like that. But we're really now in a position where it's going to come down to assuming Pennsylvania stays with Trump, then it's going to come down to Michigan. But if you think, well, we may lose, if you're Trump and his team, you may think we could lose Michigan if we do end up picking up Wisconsin or one of these others. So all I can do is look at the data. I'm talking to as many people as I can talk to. And I do happen to believe the betting odds are a really good way to price in statistical likelihood about things.

It's not infallible, but more or less, I think now with, you know, I barely slept at all last night, but I kind of was following the same things everyone else was into the early hours of the morning. Obviously, if Trump had kept his lead where it was at 1130 or midnight last night, Pacific time in Wisconsin and Michigan. And then, you know, this whole thing might be moot, but if Michigan and Wisconsin are going to Biden, Pennsylvania is going to Trump, then, you know, we're going to be right there at that 270 level for challenger Joe Biden. Wow. So I guess then, David, if the

betting odds at 80% to a Biden win likelihood, I just not to harp on this, but I wonder what role the Supreme Court plays in that probability? Meaning how much are the betting odds factoring in that likelihood of this sort of drawn out process over the next few weeks? Well, if you believe in some form of efficient markets applied to betting odds, then you're supposed to believe that the prices you see in the betting odds are picking up. It's a signal of all inputs. So it's pricing in what may or may not happen out of Arizona, what may or may not happen out of Georgia, as pricing in potential recounts in some states, new votes found in another state. And even yes, to your point, Supreme Court type ruling. It won't just be, you know, the Trump administration potentially trying to get things into the courts either. The Biden campaign will certainly be looking for court help on enforcing certain things.

There will be restraining orders. I mean, I don't think people understand how many lawyers are involved on the ground at canvas locations all over the country, particularly now in these four or five or six States, it's thousands. Okay. Literally. So there's all kinds of moving parts around it, but markets have a way. Look, someone could try to Google a hundred stories of what's going on in this precinct and that precinct and these votes and

this and that. Or you could look into the betting odds and the betting odds are attempting to reveal a price to you as to what they think about those probabilities. I want to really remind people, though, it's so important. 19% probability does not mean zero. It means that if you roll the dice, you know, five times, it's going to come up once for you and four times against you. And so anyone that believes a dice can come one time for you has to think there's some chance. It just isn't the same as if you get four chances of the dice roll. You follow me? It's not that complicated. I think that it's a reasonably efficient mechanism, but you saw how much those betting odds themselves changed. As more votes come in, at this point, though, there is a little more

clarity. These anchors last night on the news didn't know what the hell they were talking about, what they were doing. Right now, we know. We can pull through with a lot more clarity what counties have come in, what those counties did in 2016, what percentage of votes are still expected. There are some wild cards that are unknown because you don't know what the total headcount was. When people say there's still X number of votes to go, they're making it up. They don't know how the total headcount was. When people say there's still X number of votes to go, they're making it up. They don't know how many votes are to go because we don't know how many people voted

when there's still mail-ins and provisionals and other things coming. So a lot of hair on it. I would not say that the markets are pricing in the certainty of a Biden win. And I would not say the markets have pricing in the certainty of a Biden win. And I would not say the markets have a particular response to the potential of a Trump loss. I would say that the markets are right now, meaning the equity markets, not the betting markets. The capital markets right now

are responding to what they do know. And as I've said, that really just alludes to the lack of a huge wave, the lack of a new paradigm of a particular political or ideological direction of the country, and the reality of perpetual divided government. Yeah, well, and David, speaking of the equity markets, to your point, a rally today, Dow up over 600 points, NASDAQ up over 4%. We seem to be giving back a lot of the decline from last week, recovering from the decline from last week. So I think a good part to focus on now is sort of the investment implications of all of this.

And perhaps it's too early to even discuss this. the investment implications of all of this, and perhaps it's too early to even discuss this, but I think people are curious kind of if this changes anything from a portfolio point of view, or are we still in more of a wait and see mode, just given the, for everything we do know, there's obviously a lot we don't know. Yeah. And I think in terms of short-term directional stuff, that's still the lay of the land. There's still plenty of things we don't know, even outside of where all these election results end up netting out. We still don't really know what some governors and mayors are going to do around COVID cases. We don't really know exactly where all the jobs data and economic data will go for the

next couple of months. So there's plenty of uncertainties in addition to the uncertainty that we might have on some of this political realm. So as far as what I would recommend an investor do, specific, Scott, to where we are right now, I think investors should be doing exactly what they would have been doing anyways. investors should be doing exactly what they would have been doing anyways. Trying to hedge around this uncertainty, trying to trade around it. I don't think people realize how totally irrational what happens is going to feel to them.

People formulate a viewpoint. It has five or six assumptions in it. Four or five of those assumptions have a very good chance of being wrong. And then even if all of them come up right, your interpretation of what those assumptions means to market behavior has five or six opportunities to be wrong. And so I think that people trying to short term game this right now are playing with fire. I think that people trying to short-term game this right now are playing with fire. Here's what I believe makes sense from a portfolio standpoint. If you don't know who's the president for another month, if you know who the president is in an hour,

here's what I think makes sense if it ends up being Biden or if it ends up being Trump. Here's what I think about almost any of these scenarios that are in front of us around the political variability. That the investments one has in their portfolio to deliver outcome to them over a period of time that matches their financial goals are totally unaffected by what exactly is in front of us in the hours, days, or weeks ahead. That the ability for given companies to generate profits and return those profits to shareholders is not impacted by what the specific vote recount may be in Wisconsin or a court ruling in Pennsylvania. All of it matters.

All of it has relevance to the national situation. But from a real investor standpoint, the risk reward is far against people by trying to game around with this stuff versus sticking to what they believe are sensible and diversified and thoughtful investments. So do I think on the margin, one could come up with an example where a regulatory policy and financials here and energy policy here could hurt this company help that company certainly but i think markets and company management price through that and manage through that and ultimately well-run companies operate through that and shareholders receive the dividends, pun intended, that go there with. Yeah. Well, David, speaking of kind of the company specific implications, I do want to get to some

questions from folks who have been writing in. David, they want to know, what do you know about Biden's treasury secretary possibilities, assuming he were to win? Let's talk about that and kind of what the market implications for that position would be, that cabinet position. Charles Payne at Fox Business the other day where this question came up. It's interesting. Most of the questions around a potential President Joe Biden and his Treasury Secretary have never been about who he may pick, but wondering if a particular person he may pick, and that being his former primary rival, the Senator in the state of Massachusetts, Elizabeth Warren. And I've always found that idea to be rather ridiculous. That doesn't mean that people don't surprise you or do ridiculous things in politics, but Elizabeth Warren would not be a popular choice for him,

even apart from the things that would have Wall Street and the banks concerned about her and her very pro-regulatory approach to financial services and the kind of contempt that she has held the industry in in the past, both private equity, middle markets, wanting to eliminate the tax deduction on corporate interest expense, which would effectively kill a lot of the private debt markets in the country. I mean, even apart from the policy ramifications of her, I'm just talking politically. It wasn't like Joe Biden was in this position where he owed Elizabeth Warren a favor. You know, she didn't get out of the race so that he could have a path to win.

She was in like fifth place. She stuck around to the very end. She waited to endorse him to the last second. So I don't believe Biden's in a position where he owes Warren anything. And I believe that I'm right about that. So the risk of Elizabeth Warren being Treasury Secretary was not one I ever took very seriously. I just think it helps some of the right-wing cable news shows kind of get fired up on stuff and whatnot.

But it's a legitimate question as to who he will end up picking. If indeed Joe Biden does prevail in this presidential race, I think you learn a lot about what the ideological agenda economically will be. And when President Trump selected Secretary Mnuchin and he selected Gary Cohn as his initial National Economic Council director, his Treasury Secretary was a multi-decade Goldman Sachs guy

whose father was a multi-decade Goldman Sachs guy that both knew arbitrage markets and trading. And then Gary Cohn, who had been the presidentcade Goldman Sachs guy that both knew arbitrage markets and trading. And then Gary Cohn, who had been the president of Goldman Sachs. So it was sort of like, OK, it doesn't look to me like he's going with these kind of off-brand, you know, a little bit idiosyncratic, a little eccentric type folks. He went very conventional, very traditional, very establishment. And I think markets responded like, OK, that's a little bit more reliable, a little bit more dependable. Now, there were some other appointments that made their way into the cabinet that was

particularly around trade manufacturing that I think really pleased some of the people in the Trump base, but also might have concerned markets to some degree, particularly the trade war incident with China. I'm thinking right now specifically of a Pete Navarro, let's say. But you learned with a Mnuchin and a Cohn that Trump was kind of staying in a certain conventional lane around his economic appointments. I remember distinctly the same thing happening when Barack Obama picked Tim Geithner, who was at the time the president of the New York Federal Reserve, that he was really kind of staying in the same sort of Clintonian lane of center-left Keynesian economics. If Biden comes out and picks a name in that space, then I think markets will probably say, okay, that's sort of what we expected. No big

surprise. Could he pick a Roger Altman who was a former Clinton treasury official who is famously known at Evercore? Could he pick a Fed governor? I've brought up the name,el Brinnard, who is a female Fed governor who has kind of increased her profile to some degree. Just very candidly, and I'm sorry my friends on the right will get mad at me for saying this, and then my friends on the left may get mad at me, but I'm just being very objective. Those are names that I think would be pretty good in that position in the context of a Biden presidency. They're not the names that I would pick, but there would not be names that I think would be terrible for the market. And David, just as we're speaking, we're seeing some headlines from various news outlets pointing to a Joe Biden win in Wisconsin with 10 electoral college votes.

with 10 electoral college votes. And of course, Trump won that state back in 2016. So, you know, we're just going to have to get used to following these developments every hour as they come over the next couple of days. Yeah, and I think, I mean, the Wisconsin one was pretty well written off here a couple hours ago. Now they are looking for a recount in the state. It's going to be, it looks to be within that margin of error. All indications in Wisconsin are that Trump far outperformed in most of the state what he was expected to do. area where the university is big, big turnout and a younger millennial college age, whatever vote working against the president there. So I think that as we talked about a moment ago, Pennsylvania, Michigan are probably going to make or break the ultimate outcome of this election.

David, it's hard to even mention this, but believe it or not, we do have a Fed meeting this week. May not get that much attention given everything else going on. But somebody writing in wanting to know, you know, of course, the Fed is buying $120 billion worth of treasury and mortgage-backed bonds each month. And they just want your take on the significance of that for the overall economy. Of their bond purchases? Yes. Well, it's very well priced into market expectations right now. The Fed has gone above and beyond the call of duty to telegraph exactly what they're doing. They've actually told you the number. They're buying $120 billion a month. That's $80 billion in treasury bonds, about a third short-term, a third intermediate, and a third long-term.

And then it's $40 billion in mortgage-backed securities. So if they were to go through that whole process for a year, that represents about a trillion dollars added to the balance sheet. But then there's some bonds that mature over that time period. And so we don't know if they will be replenishing those or letting those kind of run off. But the reason that that matters to the economy is it speaks to the Fed's posture about fostering liquidity. And because our economy, particularly in capital markets and financial markets, is so incredibly dependent on a heavy flow of credit, that anything that seems like a

tightening of credit becomes very bearish for markets and anything that seems like an expansion of credit becomes very bullish for markets. It's bullish because of the liquid environment for money flowing, but it's also bullish because it speaks to corporate profits because the more liquid environment you're in, the lower cost of capital. And the lower cost of capital, the higher corporate profitability you have. Debt gets serviced at a lower rate.

There's ability to take on more debt, to acquire more earnings through M&A or CapEx. So that price of money speaks to a lot of other things in the economy. And the Fed is taking the step of bond buying as a way of manipulating the price of money. And it's a tool that's been used in Japan. And in our own central bank's case, it was the primary tool they use post-financial crisis. Originally almost an emergency level, QE1. On a pretty short-term level, a QE2 gave a big boost to markets.

But then when Bernanke really went all in was with QE3 and that lasted. It was over $2 trillion and it lasted for a couple of years. And that was mostly the long end of the curve. So that really pushed interest rates lower and boosted risk assets quite a bit. So what the Fed's doing right now is priced into markets. It's known they're not going to come announce tomorrow, ha-ha, we're pulling away the punch bowl. But could they even add more by way of the liquidity? They could. I don't expect they will, but they could adjust their maturity spectrum on the bonds they're buying.

There's little things on the margin they could do to impact their facilitation of corporate credit. Okay, makes sense. And David, somebody else also writing in just on your updated outlook for municipal bonds and if any of the recent developments have any impact on the price structure or the attractiveness of that. Yeah, I really want to apologize in advance if it sounds like my answer here is unnecessarily partisan or political, because it's not. I'm really trying very hard to be quite objective and realistic about it. But I think that there is a lot of angst this morning from some municipalities, mayors, governors, at Speaker Pelosi.

Because essentially, here's kind of what I think politically went on. The Trump administration got more and more desperate for a big relief stimulus deal to happen. The Republican-led Senate wanted a much smaller deal. It would have been virtually impossible for them to say no to the president had a deal gotten out there for vote if he was out, you know, job owning and demanding it. And so that was this opportunity for a pretty big bill to get passed that would have spent a lot of money. There would have surely been things in the bill that anybody would have liked, and there surely would have been things in the bill anybody would not have liked. But what I think Pelosi determined was that the

polls were indicating there was such a strong chance that not only was Biden going to win, but that the Senate was in a flip, that she would just not risk giving the president a victory. And then, of course, the White House took a very long time to get organized. Did their negotiations. They were on and off and they were engaged and disengaged. So you could put blame or credit, depending on your viewpoint, for a bill not getting done, that so-called fourth stimulus, with any side you want. But the point is there's very certainly a political calculus that was at play. Well, here's the problem now. Let's say that Biden wins,

the Republicans keep control of the Senate, a stimulus bill is going to get done. The House Democrats will want one, the White House will want one with its new leadership, but now it's going to have to require Senate participation. And yeah, they can go break up the filibuster and they can try to do other things like that. But the Republicans have the majority. So really, I think that they're going to need a bill that everyone agrees to. And that bill is going to be less favorable for direct relief to states and cities and counties than was previously desired. So in the municipal bond sector, we're not seeing spreads widen this morning. I've been watching it since very early in the morning. But you have to remember that municipals are very inefficient and thinly traded marketplace. We need a little bit more time to kind of see how these things settle. But in theory,

I do think some of the more troubled financial states are less likely today to get a big amount from the government than they were before. And people can say, how could that be if Trump maybe looks to have lost and Biden won? Well, Trump would have given those cities and states a lot of what they wanted as well. The key was that the Senate would have had to kind of go along with Trump and the Senate's not going to have to go along with Biden. So I expect that this will change the shape of an eventual stimulus bill. It will not shape the inevitability of one, but it will change the shape of it. And I think that a lot of people on the Democratic House side are probably frustrated with Speaker Pelosi about that. Well, it's interesting, David, you mentioned stimulus. I'm just curious on any time horizon

you expect there. I mean, are we talking before the inauguration, after? Because you can kind of argue they pushed it off this long. I mean, I feel like there's a case to be, to be made that this might be an, after a post inauguration play. Um, for a stimulus bill. Yeah. A hundred percent post inauguration, no possibility of that happening at lame duck. Now I'm not allowed to say no possibility because, uh, everything has a possibility, I suppose. But, um, I think we're going to spend most of the time between now and inauguration fighting over the results. And I think that you are really very likely to have a situation where the two sides don't want to or need to talk to each other. So no, I don't, I would be very surprised if there's any lame duck action here.

So, no, I don't I would be very surprised if there's any lame duck action here. And David, we do have another question, which is a great question from somebody watching. Do you think that the perspective of a new president will improve the outlook as far as the pandemic response, whether real or perceived? And what does that mean for the markets? No, I really don't. And I appreciate that caveat, real or perceived. I think it's important. But I think things like really pushing for adequate amounts of equipment, PPE, for the proper resourcing of the national response. I think that both sides are and have been fully on board with that for some time. I think it affects the messaging.

I think it affects the kind of national mood around it. But no, ultimately, the pandemic response right now is in this order, Ultimately, the pandemic response right now is in this order, first and foremost, about the national consciousness accepting the reality of cases, not being shock and awed when there's a big headline about case growth, and having a better understanding of the percentage that's asymptomatic, the percentage that's mild symptomatic, and then having a better understanding of heal rates, cure rates, hospitalization discharges, and of course, limiting fatalities wherever possible by keeping the virus away from the most vulnerable who are imminently more identifiable than they were six, seven months ago. So that's the first biggest thing that affects the response to the pandemic. And I think that that's been a process in motion since the summer. And that this latest wave of case growth has had far less success in scaring people unnecessarily. That most people understand, okay, we have to continue to be vigilant,

continue to exercise responsible behaviors, but no, we aren't going to shut down the economy over a positivity rate of 6% instead of 5%. And with the fatalities and overall hospitalizations way, way down from their peak levels in the summer. But the second piece to it then, I think, becomes where the local policy administration will be in cities, in counties, and in states where there will be an appetite for more stringent rules around restaurants, around public places. We've seen, obviously, what some of our European friends have done here in recent, the last week. And I don't think that most of those decisions are going to be coming out of the White House, whether it's

with President Trump or President Biden. I think you're going to see certain city states kind of have greater reopening and others to try to tighten a little bit here and there. But most people listening probably have their own opinions about it and own opinions, not only what should happen, but will happen. But as a generalization, I feel very comfortable saying that the country's appetite for another stringent lockdown is rather close to zero. is rather close to zero. So if we were to see more targeted lockdowns in the US, does the market reflect that at some point? Or would it really need to be more of a national lockdown like the one we had in March? Yeah, I don't think that targeted and local lockdowns or partial lockdowns shake up the entire market. And the reason I say that is because it's been happening ever since late May.

You've had certain pockets where all of a sudden things got real strict in Florida, but then they're reopening in other places. And then they got stricter in some. New York kind of shocked everything by deciding to keep indoor dining shut down all summer it hurt new york dining but it didn't hurt the overall stock market it didn't hurt you know the market went up thousands of points after that uh to my knowledge illinois is still shut down california's got all kinds of things they're still shutting down um you know the schools that have reopened in most parts of the country and without really any

fanfare at all any kind of big problems out of that that's given a lot more confidence so there's i totally understand that there's going to continue to be um uh different uh responses in different areas but no not um one that on a local level creates a national market response. Well, David, as we kind of move towards the end of our discussion, curious if you have any final thoughts or just sort of advice for how we should be watching all the developments in the coming days and weeks, or at least any insight on how you'll be watching them? Yeah, I think that I'm open to taking questions that people will have in the days and weeks ahead about any specific kind of tactical thoughts. But I will tell you that I,

as we get more clarity on where all the election results net out, I don't think there's very much that will be a surprise to people. You know, you see some of the publicly traded private equity names that are up huge, 5% on one name, 6.5% on another today alone. That's priced in now that some of the more draconian measures against that industry are not likely to happen. The oil and gas industry was never really going to be as much controlled by negative relationship with the White House, just like it wasn't very helped by a positive relationship with the White House. That's really going to be more about its own supply-demand fundamentals. And so I think in the days and weeks and months ahead, you're going to get a better idea of where the beltway is overrated in its relationship to certain sectors and companies and economic realities, and then where there is going to be more of a factor. The Fed,

monetary policy, the kind of central bank prominence in American economic life are going to continue to be far and away the biggest thing. But you look at a day like today, the emerging markets up really substantially, and the dollar down a little bit. Is there a response that's more macro, that's not like, oh, Trump likes this sector, or Biden doesn't like that sector, and all that kind of silly stuff? Something that is more, in a secular sense, directional into a currency, well, that's a big deal. So I do think there's going to be opportunity for macroeconomic assessment on the chessboard. But what I'm adamant about is that

the biggest thing that has affected investors this year is the total tripling down on monetary policy as our solution to economic woes and debt woes, and how that's affected the bond market and risk appetite and how investors have to prepare accordingly. So no matter who is putting their right hand on that Bible in January of 2021, and no matter who it was going to be three weeks ago or six weeks ago, my view was, is, and will be that it's going to be a challenging couple of years ahead for investors. And that has nothing to do with politics. It has everything to do with high valuations, with low cost of capital, and with a flood of liquidity that makes discernment very important.

So in a lot of ways, I'm excited to have all the election stuff behind us. I say that as a political junkie. People think I love this stuff. I hate it. I can't stand the bitterness of the divide in our country. And I do not believe like, oh, that's about to go away. Once this election stuff settled, then we're all going to, things are not good. It's not good how bitterly divided we are as a nation. But as I wrote about in Dividend Cafe a couple of weeks ago, I'm firmly convinced that's mostly a cultural and social reality and not one directly pertinent to the immediate economic side of things. You know, my own views on all this stuff I look, I have no idea how it's all going

to net out. That's why I'm kind of cheating by talking about the betting odds. I think that a whole lot of people putting a whole lot of money in their own interpretation of a lot of moving parts of events that to me is more telling than anything I can say, because my own reading of the tea leaves is totally fallible as well. But 2021, Senate is what it is. White House is going to be what it's going to be. But we still have plenty of work to do. I foresee no situation where anyone on my team gets to take a break anytime soon. Yeah, absolutely. Well said. And David, I think that's a good place to leave our discussion for now, unless there's anything else you wanted to bring up, but we'll certainly be watching how everything plays out over the next coming

days. And great to be with you as always, David. Thank you. And thank you, Scott. And please do read DC Today for, sign up at thedctoday.com. If you're not getting it, we'd love for you to get that daily missive. We're going to have plenty more unpacking today around all this action and we'll see how things shake out

for the remainder of the week. I just want to say right now for everyone listening, these are emotional times in the country. I don't think they're about to get any less emotional. No matter who ends up being president, it's going to be on razor thin margins that are going to leave inevitably half of the country upset. And so we know what we face in that regard. But as I try my best to objectively talk through what I think that means to markets, what I kind of believe it means in the economic unpacking of things in the days, weeks, months ahead, to the extent that I cause offense to any of you, I apologize. But I really do feel that I've done my very best to be an honest broker about this stuff,

to call balls and strikes, to be very transparent around my own ideological framework. I don't believe anyone who's ever heard me talk for 30 seconds doesn't know my love for free markets and my commitment to the concept of a free and virtuous society, which is my life's work. This is not partisan for me. And in fact, I promise you, those of you who are on the other side of the aisle than I happen to be, I get 10 times more hate mail from people who are Trump supporters than I do from people who are Trump opponents, because I've been very critical of the president so much over the last four years. Everyone at the Bonson Group has different political inclinations, different feelings.

We all get along like a family because we're committed to a common mission. I don't want to be Pollyannish about that. I don't expect everyone in the country to be able to just pack up and move forward here. It's going to be a rough go to some degree. But to the extent that people do not look to the Bonson group to be their psychologist about the state of the nation or a political pundit, both of which were totally unqualified to be, that's where my focus is, is trying to give objective investment advice around it. And sometimes that means I have to try to calm people down from their own instincts about things because their instincts are really engaged in the political moment. And where I'm trying to

keep my instincts on are these multiple screens I have all around me and do my best to help my clients meet their financial goals. That's all I care about here. I hope you understand that. Okay, I'm going to let us go here. Erica, why don't you take us home? And Scott, thanks again for being willing to do this as always. Thank you, David. And this concludes today's conference call. Thank you. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice.

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