The Dividend Cafe - Market Outlook w/ David L. Bahnsen - Zoom Replay - Nov 16, 2020

Episode Date: November 16, 2020

Bahnsen Group, CIO and Founder David L. Bahnsen has a lively discussion of the markets and the economy with Scott Gamm from Strategy Associates. 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. Well, thank you so much, Erica, and thank you all who have joined us here today, kind of back in our Monday routine. And from the looks of things, Scott, it looks like we're also back to our routine of moving the market positively every time we congregate for this. We will go ahead and plan to do this call again on our normal rotation two weeks from today, which would be after Thanksgiving week. And so it kind of worked out well schedule-wise that next week would be an off week anyways,

because I think a lot of you will be out of town and hopefully traveling and doing good family things for Thanksgiving next week. But in the meantime, this is our first call together where we have a lot more clarity and certainty around the election results. Obviously, we did a call together the day after the election, election results. Obviously, we did a call together the day after the election, and we were maybe 75% of the way there, but now a lot more has moved around those things. So I imagine Scott might be asking me about some of that. And of course, ongoing COVID and vaccine and all sorts of other things. I'm going to just sort of let the questions be what they are. Scott, I'm sure, has his normal set of things to walk through. And then any of

you have questions, send them. And I'm going to do my very best to make this the last call where the email address we're giving out is covid at thebonsongroup.com. By next time, we'll have a different email set up for you to send in your questions because I'm tired of hearing the word COVID. But Scott, off to you, my friend. Well, thank you, David, and great to be with you as always. And to your point, we might as well start off with some of the news we got this morning from Moderna, obviously upbeat COVID-19 vaccine news, propelling the Dow closer and closer to that 30,000 mark. And, you know,

we haven't heard about Dow 30,000 really since January. And I remember this vividly because I was sitting with you in your Newport Beach office and we were reminiscing on just how close we are to Dow 30,000. And obviously we never made it there. COVID happened and we know the rest of that story, but here we are back near that level. So might as well just get your reaction to the vaccine front and kind of what you're thinking is there as it pertains to markets. Yeah, I mean, it's the most logical place to start. So it's a great question. And I certainly remember that time with you. It's interesting to think about the fact that when you were out here in our Newport offices, that was technically 2020. And as we're sitting here right now, it's technically 2020. But I don't know about you, it sure feels to me like your visit here was a totally different year from the one that we're all kind of living in. I don't want to

understate the importance of the announcement. It's huge, as was last Monday's news where the market was up even bigger. A lot of the vaccine realities already had been kind of priced in, first of all, well before either announcement, and then got even more of a relief around the reality of the announcement last Monday when the BioNTech and Pfizer joint collaboration released their results. And I'm going to talk for a second, if you don't mind, about the difference between the two now that we have the Moderna stage three clinical trial results that had been on a preliminary basis released here this morning. Now, the markets, as I'm sitting here talking, the Dow's up 320 points. The futures were up 200, both when I went to bed last night and when I was up at 3.30 a.m. this morning. And then they did go up to 500 on the positive side when the Moderna announcement came.

We're kind of halfway between that now. So it moved the market, but I don't think it moved it huge. But of course, the markets have already been in quite a rally, you know, really since October 30th going into Halloween weekend. The reality of a vaccine coming is one of the biggest reasons. And yet it is not because people think the whole COVID deal is going away immediately. immediately. Had there been, I think the expectations from the markets, because of the sheer volume of players in generating an effective global society-wide vaccine, the markets have had every reason to believe a successful one was going to come out of this potpourri for some time. Having the risk eliminated that all of a sudden you're going to get this kind of surprise disappointment announcement that, oh gosh, in our stage three, it turns out we did have

a hundred trial participants get violently ill or, you know, some of that kind of bad news that certainly could come. And what I frankly think is a huge difference marginally, which is that if we had gotten back that had a 75% efficacy, that would have been great news. And it would have been an approved vaccine that would come out of that. The influenza treatment we have, which is effectively what we call a flu shot, is as low as a 40% efficacy. And in a good year, it might be 60%, but it kind of stays in that range there. 91 to 92%, which was the Pfizer-BioNTech expectation for efficacy last week, is higher than the measles vaccine. Excuse me, it's just a tad lower than the measles vaccine.

The Moderna one today at 94 to 95% is higher than the measles vaccine, which obviously we treat the measles vaccination as if it's a universal, you know, treatment around that. So I really do believe it's very good news. And, and I think that the questions now center more around manufacturing and production. The questions now center more around manufacturing and production. Well, and it's interesting because we're also seeing, when you look under the hood, and we certainly probably saw this more last week, some of the work from home stocks, that kind of trade unravel a little bit. And I'm just curious, kind of your take there, because I know we've talked about overvalued tech stocks for many months now on these calls. Yeah, and so we should be a little careful.

I don't view the FANG and the work-from-home groups as necessarily the exact same. There's definitely some overlap. And I won't go into the exact names, but in that kind of work-from-home you have some food delivery names, and you have some exercise equipment names that are probably not really thought of as pure big tech, but definitely fit in that kind of work from home. You know, we're sitting here doing this call right now on Zoom technology. And so there's a lot of these things that people are using more and become more household oriented as a result of the quarantine. But whether we're talking about big tech, FANG, or work from home basket, what you have was a whole lot of good news that it got priced in very quickly and seemingly priced in with an expectation of that trajectory staying the same when that trajectory was never very likely to stay the same. I don't think the market's done pricing in the reality that a post-COVID world is not going to look like a pre-COVID world, but it's not going to look like a during COVID world either. And so getting multiples right and getting the earnings right, you have to do both

things. You have to put a price to earnings ratio on an earnings number. Well, some of these companies don't have earnings. That makes it difficult. The multiple is going to be a moving target. And then this is the biggest thing I'd say about the quote unquote work from home basket. It's going to become very, very dispersed, much like Fang has, by the way. There will be a different response in the marketplace in 2021 for some names versus others based on their own business model evolution, based on their revenue growth, and based on their ability to transcend a sort of transitory moment of peak homeboundness and instead translate that into a kind of broader revenue base across a more normalized economy.

So I think it's definitely happening, but I expect more of it. I think a lot of those names are quite overvalued. They got more of a peak boost in valuation, perhaps from some more speculative investors. And speculative investors can't sustain a market. They can push a market higher. They can create momentum. They can last longer than people, including people like myself think. But speculative investors cannot sustain a market. And I would almost ask people listening to this right now to write that down. Because that mantra is so important, not just right now here at the end of 2020, but going forward and really throughout all of our investing lifetimes.

Speculative investors cannot sustain a market. That's totally different than me saying they don't influence a market or that they don't create a price premium at a given point in time. But the sustainability is the important part here. And ultimately, the fundamentals and revenue growth and the ability to go into something that is more repeatable and then the market can put a fair price on. Those are the things that become sustainable in market pricing. Well, and David, to this idea of strong news,

positive news on the vaccine front, coupled with what we're seeing right now on the COVID front, which is rising cases, rising positivity rates, even rising hospitalizations. I'll kind of mimic the question you were asked this morning on Bloomberg TV, which is, how do you invest with those two worlds? Because I thought it was a great question. And I thought your answer this morning was great. And I figured it'd be worth you repeating your thoughts on how to grapple with those two dynamics. Yeah, I think that the whole entire issue around COVID case growth remains the same as it was the last time we had a kind of boost higher in daily cases. Now, in this case, the growth of testing is just exponential. And so now what we have is both all the lessons we've learned

from the spring moment of COVID and then the summer moment of COVID. And that's in the context of an awful lot of increase in testing. And the key number has actually not been the hospitalizations and it's certainly not been the growing number of cases. What the key number has been is the very low severities from the growing cases. Then when you get a growth of hospitalizations, you versus the summer have a discharge rate coming in half the time that we had, especially through the Florida, Arizona, Texas surges in the summer. And of course, if people are being discharged from the hospital, that means they're obviously not dying, and in fact, not even staying with a severe case of COVID. So the total amount of cases in our country, and when you divide the amount of

severity or critical cases into that total number, is at an all-time low right now. And that's really encouraging. The reason I believe for that is that we're testing an awful lot of asymptomatic or mildly symptomatic people. We're testing well over a million people a day that don't have COVID. We're clearly doing multiple tests on the same person over and over. There is no possible way that over half the people in our country have actually been tested. And so there's a lot of these data things that continue to maybe be a little confusing to some in the media. And of course, confusing to a lot of us at home reading it, but are not confusing to the markets that have a kind of profit and loss responsibility to price in the realities around it.

There might be specific pockets here and there. We've heard things in El Paso and other stuff about hospitals getting a little too close for comfort with capacity. The ICU wards primarily have not seen any of that. And that was some of the fear that had existed in the summer that kind of came and went. So there's really no delicate way to say it. I think the markets just refuse to be fooled again by some of the fear mongering that had taken place in past renditions of where we are with this. But then when you bring up the vaccine, I think that brings up a more important point just to the kind of reality of markets, which is that markets are pricing in future activity. And I don't know anyone who believes the vaccine is

going to be widely available and we're all going back to complete normalcy here any day. Markets know there's still a little process to carry out but to be very candid markets are blown away by the speed and efficacy by which this vaccine has gotten here and now not just here in one front but maybe two or three or four fronts let me let me give you a little if you don't mind scott i'm sorry for the long answer i'll unpack that last comment a little more. Both of the Pfizer-BioNTech treatment of last week and now the Moderna one today are driven by what's called a messenger RNA approach in their technology, mRNA, which basically seeks to sort of create a genetic material that then is used to kind of simulate a viral infection, and then it creates the antibody.

And it's kind of the body, it's tricking the body to fooling itself and then giving that kind of resistance. And it's proven with these first two treatments to be very successful. But it requires a temperature storage that is very complicated. Well, one of the reasons that this is now going to become competitive, and people may not like the idea of talking about life-saving in a competitive environment, but this is where I think it's really wonderful to be part of a free market system and also to be part of a system that has this much level of innovation and different talent pool on a global basis. The Pfizer-BioNTech treatment has to, first of all, it's a two dose.

You have to take it twice. And it has to be stored at 94 degrees below zero Fahrenheit. The Moderna treatment can be stored basically at refrigeration level temperature while it has to be used. But then on a longer storage, about four degrees below Fahrenheit. So that's still pretty darn cold. It's still going to involve some complexity. But it's a much more feasible and more realistic approach. Well, there's room for both of these things, and there's going to be room

for other vaccines that come in as well. We still are waiting on more late-stage clinical trial results from our friends at the University of Oxford and their treatment that AstraZeneca is a part of. Johnson & Johnson is no joke in the vaccination world. These guys are dealing with something that will not require two doses, but on a little longer timeline for approval. I really do stand by my belief that we will end up at some point with four or five vaccines of different pros and cons to each one. The markets get to price that in. They get to understand that we're going into a society where there will be a lot of optionality in how we treat this and, most

importantly, are able to vaccinate our healthcare workers and those that are most vulnerable. And all of that leads to more normalcy and really takes the politicians out of the economy. Because right now, that's the biggest issue that holds the economy back is politicians saying that restaurants have to close at 10 o'clock or 12 o'clock, or it can be at 25% or 50%. And you get this kind of numbed down economic life out of the politicians' different rules and stipulations. As we look forward to what the vaccination era of the COVID-19 will look like, it's going to dramatically diminish the role of the politicos in all of this. And the headlines back in March and April, many of them were such that a vaccine is not possible this year, and that it's going to take several years. And so just to your broader point about comparing

and contrasting kind of where we are now versus where we were in March and April. Yeah, that's right. It's a great point. People were very bearish on the vaccination. And they were, you know, those that right now are bearish on the ability to manufacture and distribute, I think might be underappreciating the reality of this Operation Warp Speed that has really put a lot of government dollars into the, and then put a lot of military logistics behind the ability to get this thing out.

And almost everything in 2020 since the COVID moment, all of these different things have been bad. There's been bad things that have happened. And yet pretty much almost every one has been not as bad as the doomsdayers predicted. And that's really why we're in the situation we're in. That there's more and more economic normalcy, even as case growth is going up. That the economy is in a much better position. God knows the stock market in a better position. And I think most of that is because although it has been a very challenging year, and there's

so much collateral damage that's been done to different spheres of society, across the board, a lot of the worst case forecasts have not proven to be true. And the one you bring up is the best example. People have thought a vaccine might not come for five or six years. We need to really kind of maintain a more realistic vantage point, which in this case, realistic and optimistic have proven to be much more synonymous than the alternative. Yeah, well said. And when it comes to those really gloomy predictions, clearly, I mean, it affected some investors, right? I mean, we have a question from someone who wrote in who sold their portfolio to cash in April.

And they're acknowledging they missed out on a lot of the or really all of the gains that we've seen since March. But they want to know from you how they can get back into the market. Yeah, those things, by the way way i mean this real seriously those things break my heart um because it is very difficult and the fact that by april markets were already in a much better position they had been in march and then kind of slowly but surely began that climb forward didn't really have a negative month through the whole summer. And yet in this case, it sounds like the person's still not back in. It's that secondary derivative effect that I think is even harder. Knowing that someone may have sold out at or near a bottom is hard enough,

but then that difficulty of getting back in that is always driven by the worst emotion in investing, that is always driven by the worst emotion in investing, which is regret. I think that's really kind of the hard part of market timing. And I recall, I guess, you know, 12 years ago or so, dealing with this over and over and on into 2009, that as I would talk to people who came to the Bonson Group interested in our services, but had sold out and had panicked at the wrong time, or sometimes had an advisor who encouraged them to panic out.

And then now we're trying to deal with, well, I don't want to come back in at the top, but what do I do? And I want to acknowledge the emotion that is behind the question, acknowledge the legitimacy of feeling silly, like, what if I get in and the market drops 3,000 points when I come back in? Which, by the way, right now, 3,000 points would bring you to where we were about two weeks ago. Think about that one. I'm being serious right now. We were 26,200 on October 30th going into Halloween weekend, and now we're sitting here just a hair shy of 30,000. So 3,000 points, I don't think anyone wants to put all their money in the market

and have it go down 3,000 points. But literally, 3,000 points is what we were a couple weeks ago. However, the answer and what one ought to do, even while acknowledging the humanity of the question, is they ought to construct an asset allocation with a qualified financial advisor that takes into account their appetite for risk and volatility, looks at their income need or lack of income need, their total return aspiration, their tax consequences, and dives into their liquidity need and does a full process around what the portfolio ought to look like. And then whether it is November 1st or November 15th or Dow 30 or Dow 25 should begin allocating into that aspirational portfolio because the right target portfolio is never sensitive to two weeks here and two months there. Now, would I put every penny into that target portfolio on

day one? I would not, but I'd put probably 50% in and then average in the rest in a systematic way. And I'd be averaging in systematically expecting that to cost me money. More than likely, one will end up at the end of their averaging wishing that they had been fully invested the whole time. But because of the possibility of big checkbacks that can be emotionally unsettling, averaging in is a risk mitigation tool, and that's it. My answer here is very non-controversial and I'm totally, completely unwilling to budge. The right thing to do is create the right target portfolio and go get invested in it. And David, we obviously talked about the vaccine for this conversation so far, and I want

to shift a little bit and talk about some of the other issues the market is facing, like the possibility of more fiscal stimulus. And I think people would be interested in hearing your updated view on when we might get that stimulus package, how big, you know, how much money are we talking about and kind of what that means for the market right now? are we talking about and kind of what that means for the market right now? Well, I don't recall if you and I approached, addressed this on the day after call that we did. I don't think it was out there yet, but I've definitely addressed it in my thedctoday.com, my daily market briefing that we do. Senate Majority Leader Mitch McConnell has, to my surprise, expressed the desire and even offered the prediction that there will be a lame duck session for the stimulus bill. Now, again,

there's totally different leverage and totally different political realities now because a deal had not gotten done before the election. So I do not expect that deal, whether it's in lame duck or in Q1 of 2021 after the new House, new Senate, and new President are inaugurated, I don't expect that there is going to be anywhere near the dollar size on that package that there otherwise might have been when the president and Speaker Pelosi were wanting something together. However, I don't have any doubt that some bill is going to happen. And I'm a little bit curious as to whether or not it really will get done in the lame duck. I would not bet that it will, but I would not bet it wouldn't.

it will, but I would not bet it wouldn't. I think that a lot of it will just sort of depend on, quite candidly, whether or not the Democrats think they'll get a better deal into Q1 2021 for what they're going for. I'm not really sure they necessarily will, kind of knowing where the composition of the Senate is, and the fact that they even are losing a minimum of 10 net seats in the House. And the basics of what they're going to be able to get are pretty well agreed to. So as far as additional small business relief and a kind of reloaded PPP for some of the businesses that are on a targeted basis have been most damaged by this. I expect that to happen. And I do think it would be really good for the economy, for those businesses, and even indirectly for the markets if that got done before the end of the year. But you know, it's what, November 16th today and six weeks in Washington, that's not going to happen if they're not already talking

about it. And so is the market right now putting that aside? Because as you recall, the narrative a couple of weeks ago was that this market needs fiscal stimulus, notwithstanding the actual need that people and businesses have we're you know just talking about sort of the market how the market is viewing the stimulus idea yeah yeah no i think the markets know one thing and don't know the second thing what the markets know is that some stimulus bill will get done the markets are not worried that there will be a gridlock lack of stimulus that there will be a bill um but what stimulus, that there will be a bill. But what the markets don't know and can't know, and in fact, what I don't know,

is what the final size, shape, and timing of that bill will be. I can forecast, and if I can forecast it, obviously the billions of movements and markets can do the same. That it probably will not include the same level of direct support to states, cities, counties. I don't expect that to really affect markets much. I do suspect it will include necessary medical support and ongoing funding around, obviously, vaccine and equipment distribution, hospital support, things like that, direct support to schools as needed. I think that kind of basic stuff we can anticipate it being in there. There's a kind of baseline, Scott, to what markets would expect out of a deal. But then the more market moving piece that we talk about what's

called a multiplier effect, where something gets done. And the reason it's stimulative is because for every dollar that was done, it has more than a dollar's worth of impact into the economy. And there are things that I frankly think would have had a very low multiplier effect that were in the past conversation about a stimulus bill. And I think there's things that have a very high multiplier effect in there now. And so even though I don't think you're going to get something over 2 trillion, like you were talking about before, I think something between

500 billion and 1.2 trillion with a higher multiplier effect is still going to be received really well by the market. And David, shifting to another topic that we probably haven't talked about in quite some time, tensions between the U.S. and China, somebody writing in with a question referencing an interview with Hank Paulson on Bloomberg this morning, where he said that Biden has a opportunity when it comes to the U.S. and its relationship with China. And then basically Hank Paulson saying that Biden should not remove the tariffs that Trump had put in place because the damage had been done and the tariffs are actually useful leverage for negotiating with China. And so this person wants to know, is that characterization that simple? And are these tariffs good leverage? And has the damage been done? And,

and of course, your broader thoughts on, you know, the outlook on relations, relations between the US and China? Yeah, I would, I would have loved to have heard that interview with Secretary Paulson, because there are very few people on earth who understand China economically and the American business relationship with China as well as the former secretary does. And so it's hard for me to unpack his exact answers not having heard them because there's a couple of things in there I'd really agree with and a couple of things I would just need to understand where he was going with them a bit. Yes, the damage has been done that came about from the tariffs. And yes, it's highly unlikely that President-elect Biden is going to take away the tariffs in one sitting. But I wouldn't say that just because the damage has been done, that means there's no more damage being done. Ultimately, I suspect that what will happen is the end result will be less tariffs, there will not be more tariffs, and that those things will be really useful to American importers

and American consumers, but that the powers that be will not want to come out of that with totally empty handed. The tariff thing bothers me a lot, Scott, because I think it's a really big distraction from what I consider to be the more important policy issue right now, which is the, the total dependency that we have on some very key and critical parts of American supply chain on manufacturing that is based in China, and whether it's national security or emergency products that are critical to the functioning of the U.S. economy, I don't know really where Biden and his team will take this. I don't really take anything from the campaign seriously, but I actually mean this in incredibly bipartisan sense. I don't take seriously the critics of Biden who would say that he's in bed with China, and I don't take seriously the tough talk from the Biden team about China.

And I don't take seriously the tough talk from the Biden team about China. I just don't know. I don't really know where it will go. And even if someone can make a credible argument that there's been this or that in the past with Biden around China, that is fair enough. It's a good starting point, I suppose. But it's entirely possible that we're in a different moment now and that there may be a different policy approach to dealing with China. My view would be that the tariffs will come down, but not come down super quickly, and that that will be beneficial to the US economy when they come down.

However, the bigger policy priority I would put out is that there needs to be a massive, and I mean like the world's never seen, incentive for American manufacturers to re-onshore their critical manufacturing, things that have particular sensitivity, American national security and intellectual property and so forth. We should never again go through a period where we can't get wipes in a global pandemic, because they're stuck, you know, and part of the supply chain out in an Asian country. I think it's a multi-year process. It's very complicated. But I see that as a much more significant part of the economic, either headwind or tailwind that we face in the U.S.-China economic relationship. Yeah. And speaking of all of these policies, like you mentioned at the top of our conversation,

you mentioned at the top of our conversation, we now have a lot more clarity on, I guess, the landscape of the government in 2021, and at least for the next couple of years after that. Just curious, your broader reactions on the election front over the past few weeks, and as it pertains to markets and the policies that markets care about, like taxes and like regulation, things like that? Well, you know, it's interesting that you say the last few weeks, it's November 16th. So tomorrow will be the 17th and tomorrow will actually be the two week mark from the election day. And yet I think for a lot of people, it feels like it's been a lot longer than that. We know enough right now to say that the Senate is going to be staying in Republican control. We don't know exactly what that margin will be.

We also know from at least one or two more moderate Democrats that they have said they have no intention of coming in and voting along the lines of some of the bigger concerns the market might have had out on the left tail risk. I speak to most explicitly Joe Manchin, the Democrat senator in the great state of West Virginia. So we know that there is going to be divided government. And we also know that directionally, the Republicans look set to pick up at least 10, in between 10 and 15 seats net in the House of Representatives. And so the Democrats majority, they were at 235, and you need 218 to be the majority party. They could, it looks like they're gonna end up with 222 or 223, just four or five seats above that majority. And of course, we do midterm elections every two years in our country for the House congressional seats. And so I would be very surprised if some of those

things move really strongly leftward. And that's, at least when you talk about taxes, corporate taxes, regulation, capital gain taxes, that's pretty positive for markets. I need a lot more information in the next four to six weeks, and I'm very confident I'm going to get it as to what the regulatory environment will be out of the executive branch of government. There's been a couple appointments that have really surprised me in the transition team of President-elect Biden, folks that are significantly further left than I would have thought. But then the names that are being put out there regarding some of the actual cabinet appointments themselves have been more in line with what I would have expected. So I don't think people can overreact to a team of advisors. Each cabinet department

has like 10 to 20 different advisory names. So once you go through five, six, seven different departments, add the COVID advisors and other things, there's a couple hundred names floating around out there. And so someone can take a name and say, oh, look, this person's really far left or far right and extrapolate something out of that that I don't think really necessarily connects. Ultimately, we'll get a little bit better of an idea. feel for what he is reading in the tea leaves of what is politically sensible and then also ideologically compatible with the vision he has. So there's definitely question marks that are still out there on the election side, what the impact will be, but we just, it's too new into this. And I think it'll be into December before you start seeing more concrete names announced.

As far as I know, the only name he's actually announced as a real appointment is Ron Klain as chief of staff. And that's someone who is his chief of staff for many, many years. So no big surprise there. And David, earlier you mentioned this idea of a divided government. And we often hear that markets like gridlock. But I want to bring up something you wrote in Dividend Cafe, not last week, but the prior week, that it's an incomplete thought to say that markets like gridlock. And I'll let you kind of expand on that thinking. But I definitely think that's a unique point of view on this term, this phrase

that we always hear, which is that markets like gridlock. Yeah, I think that the markets like gridlock phrase, when it's just merely describing a number of eras in modern American history, wherein there was gridlock, meaning divided government, and out of that we had positive returns in markets. It's descriptive and it's mathematical and certainly historically accurate. But then there's also different kinds of gridlock that we've experienced. And that's what I was referring to about the incompleteness of it, that Tip O'Neill, as a pretty far left Democratic head of the House of Representatives, Speaker of the House in the 80s, and Ronald Reagan as the president and the gridlock that went on there, that was always gridlock that led to compromise.

And it was compromise that both sides claimed they were totally unhappy with. they were totally unhappy with. And yet there was landmark legislation that was passed out of it, including a world-changing 1982 tax cut in Reagan's first term, and then a pretty large tax cut that took place in 1986. And that one was a real barn burner getting it there because of that divided government. But then there's gridlock, which I think is more descriptive to the word, which is because of divided government, nothing getting done at all. That's pretty much what you experienced through the whole Trump administration. Other than the tax cut, the margins were so thin in the first two years, there was a couple of things that were able to get done. Democrats took control of the House in the second two years. Nothing got done legislatively. Similar in the Obama administration, first two years, some big pieces of legislation done, but they had full control of the government.

And you've got to remember, back then they had 59 and, in fact, 60 senators, where the Republicans at their biggest were at a 53 majority. And that looks like it's going to come down probably by one here into the next couple of years. And so, yeah, the first two years of the Obama administration, they passed Obamacare, they passed their stimulus bill and they passed Dodd-Frank. Republicans took control of the House. And again, there was kind of total gridlock for the rest of it. So divided government that leads to compromise is one thing and can be

good for markets. Divided government that leads to nothing getting done is another thing. And it can also be good for markets, but it can be bad for markets too. It depends really what you're stuck over and what the kind of lay of the land is. I hope you're not getting tired of me saying it, but I can't tire of saying it. The biggest ramifications of where we are right now in the country politically are cultural. They are a byproduct of a really strained social environment and an incredibly divided American population. And yet, because I'm here to talk

about markets, and your question is specific to how markets respond to that, I think that division ends up kind of holding in place some things. I think it's very important that crazy things on each side don't get done. And that's really what the advantage of divided government has been to keep some of that from happening. But to the extent that if we were in a position where something just plain can't get done that needs to happen, I don't think markets would respond positively to that. Yeah. And I guess the polarization of where we are right now creates on both sides, to your point, some of those crazy ideas that come about that get markets jittery at times. It's a great point. I guess I would love to add into that.

I don't want to be overly optimistic. I'm an optimist at heart, but I'm also painfully aware of the reality of our present political moment. But is there a chance that in the outcome of the presidential race for Republicans and in the outcome of a lot of the Senate and House races for Democrats, that both sides may say, it's actually not in our best interest politically to dig our heels in around inactivity and inaction, but perhaps it would be beneficial to us to at least posture

as if we're trying to go get something done. And then will what they go try to get done be beneficial, be positive? Because by the way, I think we talk a lot and some of the comments I've made in the last few minutes could be misconstrued that way, as if getting something done is always a good thing. Getting something done is only a good thing if what you're getting done is a good thing. And sometimes it may not be. But I think there's a possibility of a kind of realignment of what people believe the political tea leaves are and what their own constituencies are expecting of them in the couple years ahead. and what their own constituencies are expecting of them in the couple years ahead. In terms of what we should be watching, I guess between now and the end of the year,

and obviously we'll have several more video calls to kind of debrief about that, but given how we have six weeks left in the year, you mentioned cabinet appointments, watch that. Any more sort of benchmarks that you're going to be looking for, either on the policy front or on the COVID front or any of that kind of stuff, any metrics we should be watching over the next six weeks? Yeah, I certainly do wonder if the little dibbles and dabbles with additional COVID lockdowns and restrictions might be tempting in some places to go further. In an almost kind of contrarian or sort of counterintuitive sense, one could argue that there's a greater incentive for some that are leaning that way to go do so because they know the vaccine's coming. So they kind of look at it like, well, let's go ahead and suck it up for a few months and

it'll be OK. And I think that would be really, really detrimental to markets. I'm not seeing a lot of that. I'm seeing little headlines here and there and posturing. But I think one of the reasons we're not is that the expectation right now for some of those types of movements that could be really economically destabilizing, you lose the incentive to do it if you have a low expectation of compliance. And I think their expectation of compliance with anything that kind of smells or rhymes or looks like more shutdown, their expectation of compliance is rightly very minimal.

So I'm not expecting it, but I have to watch that. It's an outlier that lingers out there, particularly as we continue to see infections growing as a result of the infectious nature of this virus. China stuff lingers out there. We had someone earlier in the call that had sent in a question on China. You know, it was a huge area of policy throughout the Trump administration that had a lot of impact to markets.

And there's been very little conversation about it. And I thought Biden did a really good job in the campaign of not saying that much about it, but saying enough that kind of, you know, kept everything sort of in check. But you know, at some point, he's going to have to kind of elaborate on what his China portfolio is going to look like. And so that is the potential to move markets. And then of course, we see how companies have done here in the fourth quarter and earning season will start in mid January of Q1. And now companies are going to have to start giving some forward guidance. A lot of the companies that have been able to say, look, there's just too much uncertainty and cloudiness

around the COVID moment. We'll resume forward guidance when we feel we have a little bit better vision. I think Q1 of 2021, companies are going to have to start giving some full year guidance ahead. That would be market moving as well. And David, I think it's a good topic to end on another question that somebody wrote in asking what books you read on your weekend getaway this weekend?

Well, that's kind of fun. I actually read three books this weekend, and all three were just profoundly wonderful. And on our website at thebonsongroup.com, we have a little section saying Get Smart. And under the Get Smart section, we have a section of recommended reading. And we've done two things there. One is we keep an ongoing log of each month, the books that I'm reading, just in case it's of any interest to

people, including the person who sent this question. And then we also have the list of books that I recommend, just evergreen books to any investor that are kind of like the various sort of gospel have to read books for a lot of investors. And so that's there on the website. And right now from in November, we posted what I'd read in October. I think there were four books that went up about that. But then now in December, we'll be updating what I read in November, which includes these three books that I read this weekend, all of which were pretty investor-oriented, business-oriented. I read a new book that's just come out about the rise and fall of WeWork, the large office landlord, and kind of really a sort of tragic American business story. really a sort of tragic American business story. And I may get up the time to write a review of the book here in the days ahead. But then I read, and that's just a brand new book that's come out, and I think has really important investment principles embedded in it. And really,

this whole saga will be a big part of now that we're going into the 2020s, the last decade, the 2010 decade is going to have a lot of incredible moments. And we talked about the first decade of this century is very easy to define when you had 9-11 and you had the financial crisis at the end of the decade, you had the Iraq war. And so there were all the things coming out of the technology blow up that defined the first 10 years of the decade, you had the Iraq war. And so there were all the things coming out of the technology blow up that defined the first 10 years of our decade. But if you look back to the last decade with the Obama years into the Trump years, the market recovering, the Fed, but really there is this whole kind of classification of companies that were pre-public companies that most of the attention was centered

on. And WeWork was one of them. And I think there's just a really, really fascinating lesson to be learned from it. And that was one of the books I read this weekend. The second one was a book by Andy Kessler called Wall Street Meat. He was an analyst at Payne Weber. Kind of interesting, his career evolution. I adore Andy. So if you're familiar with the name, he writes in the Wall Street Journal a lot. But Andy started his career as an analyst at Payne Weber, which is the firm I started at. He ended up becoming a senior analyst and kind of lead banker at Morgan Stanley, which is the firm I went to second in my career. And then he left and went and started his own firm, which is what I ended up doing. So his three companies kind of mirrored mine, although in different decades. He started in the mid 80s and this book was written in 2003. And it was just kind of his story throughout Wall Street. But it took place in a very different era about the relationship between analysts and

traders and bankers and kind of the way Wall Street works. And he really concludes with principles and lessons that came out of the dot-com blow-up, the technology blow-up, that I think are unbelievably crucial and important about investor responsibility and about the distinction between speculating and investing. And he was writing this, you know, almost 20 years ago. And here we are, I was reading it feeling like it could be applied now. And then the last book was a book called The Maker Versus the Takers. And it offers a faith centric view of social justice and a really interesting view about New Testament economic

ethics. And I'll definitely be writing a review on that book. So there's my three. And maybe after hearing me talk about the three, you're out there saying, I don't want to read any of those. But it was what I spent my vacation weekend doing. All right. So you read those three books. Did you write any books this weekend, David? No, I did not. I didn't even bring my computer. So any writing that I did was just simply dabbling around on my phone a bit. But I did not do any writing, just pure reading and most of all, quality time with my beautiful wife. All right. Well, glad to hear you had a good relaxing weekend away from the devices. Yes. All right. And David, I hear you had a good relaxing weekend away from the devices. Yes. All right. And David, I think that's a good place to leave our conversation for today.

And I'll toss it back to you with any closing thoughts. And thanks again for your insights. And it was great to be with you as always. And thank you, Scott, of course, for joining us and driving the conversation. And for those of you listening, please do make sure you're subscribed for the dctoday.com, that daily bulletin, all the up-to-date market info. We will, if you join this call late or miss part of it or want just the replay for your own purposes, they'll have the replay posted here in due time. But we started the call about 50 minutes ago, market was up 340

points and we're finishing the call 50 minutes or so later and the market's up 340 points. So there we go. Thanks. Please do follow up if you have any further questions. We're here for you. And because our next call

will take place just after the Thanksgiving weekend, I will give early best wishes for you and yours to have a happy Thanksgiving. Thanks for joining the Bonson Group, and we look forward to talking soon. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC.

Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. 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. The Bonser Group and Hightower shall not in any way be liable for claims and make no express or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only. The opinions expressed are solely those of the Bonson Group and do not represent those of Hightower Advisors LLC or any of its affiliates. Thank you.