The Dividend Cafe - Replay - National Conference Call on Market Outlook August 10, 2020

Episode Date: August 10, 2020

This is the replay of the Market Outlook National Video Call with David L. Bahnsen and Scott Gamm from August 10, 2020. 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 national video call, Current Market Outlook Around COVID-19, August 10, 2020. Your 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 the call over to your hosts. Gentlemen, you may begin.

bondsongroup.com. I will now turn the call over to your hosts. Gentlemen, you may begin. Thank you, Erica, as always, and thank you to all of us, to all of you who have joined us today. As you can probably tell, I'm back in the Newport Beach offices here at Bonson Group worldwide headquarters and enjoying lovely Newport Beach summer weather and being of course back with the great team that is the Bonson Group and we're very privileged once again to have Scott Gamm on with us. Scott I'm considering today the 10th call that we've done although you have been this will be your your eighth but there I did one on March 17th so it doesn't really count as the bi-weekly Monday call because March 17th was a Tuesday but it was the first of these sort of COVID era calls that we began and it was done

right in the midst of the hysteria and the real peak uncertainty, of course, in markets, in the economy, but really in the country. And interestingly, March 17th at that point, as markets have been dropping thousands upon thousands of points in the few days prior, we hadn't even begun quarantine yet. California only began its sheltering in place order the next day, the 18th. New York didn't even begin theirs till a day or two later, the 19th or 20th. So it's just amazing to think back that we've now done 10 calls from there

all the way to here. I did do one of these calls after that without you. And then we quickly realized we needed you to help stir us along. And so you've been gracious enough to join us ever since. And I will turn myself over to you to steer our dialogue today as you see fit. Well, David, thank you so much and great to be back with you as always. And I'm glad you brought up those sort of horrific times in March. I mean, it wasn't just horrific for the country, but also, of course, for the market, as you mentioned. I mean, there were single days where

we would fall 10% in the Dow or the S&P 500, let alone what the carnage was in individual stocks. Well, and that 17th, which of course was the Tuesday, came the day after one such day on Monday, March 16th, which was the worst day in the market since Black Monday of 1987. And if I remember correctly, we were down 9.1% or 9.6% that day, 3,000 points or no, it would have been over 10% actually. So it would have been over 10% actually. And the Thursday before that, which I guess would have been the 12th, we were down 2000 points.

Now the very next day, that Friday the 13th, we went up 2000. So some of these things got offset by some of the upside volatility that was getting intermixed with the violent downside volatility. But the fact of the matter is, to your point, on that Tuesday, we had just had in the three prior market days, a 2,000 point down day and a 3,000 point down day, both of which at the time they happened were the worst days on a percentage basis since Black Monday.

Yeah, pretty incredible times. Although, of course, the market has more than stabilized since then with the NASDAQ at record highs and the S&P 500 closing in on record highs. And I'm just curious on your temperature of the markets right now and kind of your near-term outlook over the next couple of months. Yeah, near term as next couple of months is interesting because, of course, there's so many people that look at near term as next couple of hours. And, of course, obviously, from our vantage point as real investors-term view could be a few weeks and an intermediate-term view could be a few months. And a lot of that's event-driven. It's because of things like the election coming up or stimulus negotiations or perhaps a potential catalyst in trade disruptions with China, for example, not to mention the real aspect of just ongoing pandemic developments, which has largely been driving markets ever since the month of March.

You know, monthly today is very interesting. As we're sitting here talking, the Dow is up almost 300 points, which is about 1% on the day, and the NASDAQ is down today. And the S&P is barely up, like seven points. We're having a lot of days like this, oftentimes reversed, where the NASDAQ might be up a lot and the Dow might be flat or something. That type of non-correlation between three market indexes is very rare. And it can happen day by day because they are different indexes tracking different things of different methodologies. and S&P is so tight is that over time, 30 really Americana type companies and 500 companies end up heavily correlating together. We are not living in such a time. And I thought it was one of the

most profound things I put in Dividend Cafe on Friday. And whenever I say that, it doesn't mean because I thought, wow, I really came up with something brilliant that was profound for all of my readers. What I mean is it was profound to me. Like for me to learn it and then subsequently share it was amazing that the five companies in the S&P 500 that we think of as these big tech major behemoths are up 35, 36%. And 495 companies are down 6%. And one of the things that I'll be sharing in the COVID and markets missive today that I was reading over this morning is, again, you mentioned the S&P coming up near all-time highs. It is not quite to its all-time high of February, but it is up on

the year. It hasn't recovered its pre-COVID moment yet, but it's close. Well, it's only 20% of the companies in the index that are even within 5% of their high. 60% of the companies in the index are still down 10% or more, and 49% of the companies are down 20% or more. So the breakdown in logic because of the technical complexity of an index being market cap weighted is like something I've never seen in my life. I remain convinced that if one wants something that's a little more pure to the broad proper diversification of the economy in equity markets, the Dow is probably the best suited for that. And hence, the Dow being a little bit down relative to S&P and NASDAQ because, of course, the overall balance of the economy is not nearly in the same position that a couple of those big tech companies are. And by the way, just real quickly, I'll turn the mic back over to you. It isn't like the Dow is lacking in that tech exposure itself. The two largest companies in the S&P are in the Dow and have a tremendous weighting for those who buy a certain phone and those who use operating system software and whatnot,

they're Dow constituents too. It's just that the weighting aspect in the S&P is so heavily distortive. Well, and I'm glad you brought up those tech stocks. I mean, I think there's a lot of debate over what is driving some of that price action? Is it day traders, young people who are sitting at home on their phones, just kind of pouring money into these stocks? Or is it this belief that these companies, these multi-trillion dollar tech companies are going to be the ones that will continue to thrive in this post-COVID world as we're all more working from home and relying on technology. I'm curious if you have any thoughts on those arguments there.

No, but that's the argument that is going to be out there until it isn't, is that there's a fundamental reason that companies that were trading at 100 times earnings are now trading at 150 times earnings. So the e-commerce reality, the mobile technology, those things are huge now. They were huge pre-COVID. They're going to be huge post-COVID. And there is absolutely no way to correlate this violence in price movement. And by violence, I mean to the upside, not downside, to a fundamental change around it. I can understand those that want to try to rationalize things that are really particularly unique and temporal and that they think may go from temporal to sustainable. So, for example, the video type technology we're using now and some of the food delivery

services, those that think some of the home exercise bike type companies, those things did not necessarily have a pre-COVID catalyst the way the rest of big tech did. All of these things are vibrant technologies. All of these things are useful in American life. Some of these things have seen a particular highlight to their utility in American life during the COVID moment. None of them can even come close to rationalizing a long-term price earnings ratio that are currently being reflected. So then that brings me back to your question as to what is causing it. And what is causing it is the fact that these, that this is how momentum works. It's how it's always worked. Things get bid up because they've

been getting bid up. It starts with a fundamental catalyst, it snowballs into popularity, it then gets another outside mechanism, sometimes which could be fundamental and totally legitimate, but then all of a sudden it is totally devoid of logic at some point in time. So what makes this particular, what I consider to be a bubble, So what makes this particular, what I consider to be a bubble, very different than in the past is we had bubbles with things that were a joke. There were dot-com companies in 1999 that were just people like two 20-year-olds putting up something in their garage that had no revenue. That's not what we're talking about here. These are world-changing companies and technologies that cannot be taken lightly. Those that are not buying into the overall narrative of big tech right now are only, in my opinion, speaking for myself, but I think I represent a camp of thought here,

only down on the valuation, not remotely down on their prospects of being successful enterprises. not remotely down on their prospects of being successful enterprises. And so I think you have to distinguish company by company where the opportunity, where the risks may lie. But fundamentally, those that are trying to say it's because of the COVID moment, changing the need for e-commerce, I think are really disconnected from valuation. And those that are trying to, furthermore, blame it on day traders. That to me is a very self-refuting argument. And I'm actually surprised at some of the people willing to postulate it. If one believes that the micro volume that can come from

the Robin Hoods and do-it-yourself type mom and pop traders at home, that they can move markets of this gravity up against the hedge funds that, if they were so inclined, would take the other side of the trade, don't necessarily understand, I think, what moves markets. No, this is valuation. This is high growth receiving a bid up multiple as rates have been falling. And then now it's just completely based on momentum and people trying to guess how high up it can go. And I have no interest in timing it. I've had my position fundamentally, Scott, for some time. And it's principle driven.

And those that are really principled don't change their principles just because of popularity or headlines. The principle, I would fire me as a financial advisor if I changed my belief system. But see, my belief system has never said these things can't go higher. My belief system has never allowed me to time where that moment will come. All my belief system is dictating and the way we are responding to this at the Bonson Group is a byproduct of a risk reward trade-off. We're calculating that there's a greater degree of downside risk and there is upside potential. And even if that upside keeps playing out, keeps playing out, it's outside of the worldview of how we view investing.

It becomes more speculative. No one's ever said speculators can't make money. And sometimes it can last longer than one might think. So with that, we've got some questions coming in from people watching. Do you expect what someone is calling a crash in big tech or maybe something less dramatic given the run-up we've had in you know a number of these mega cap tech stocks no i think i think that's a good question and i and i've written about it a little bit in um in in the past that one of the theories i'm a little bit more open to is that it will be a non-monolithic response meaning that within those four or five or six major names,

you could end up having one of them really crash, one of them really hold together, a few of them drop 10% to 20%. In other words, you could end up getting a disparate response from each company. Now, they all should have had a different response. They should all have a different response because they're all different companies with different catalysts, different risks, different upside factors. They're all trading at different valuations to some degree, but they're, of course, in somewhat different subsectors. You know, social media, software, cloud, mobile technology, search,

online marketing, and e-commerce, and home streaming, they're all very different subsectors. And so they should be treated differently. And by the way, those keeping track, they haven't exactly had the same response going up either. They're all up a lot over the last several years, and they're all pretty much up a lot in the last few months. But we're not going into individual names on this video interview, so forgive me. But there's one of them that hasn't moved and others that have moved a lot and so forth. So you just, that's my expectation is that there will be a different response, but that the catalyst will ultimately be leadership transition. And then you will see some names suffer more than others within that constituency.

So on this note of the tech sector and sort of what sectors are leading the market, and obviously we have to think about a rotation and at some point if money is going to move out of the tech sector and back into some other sectors. And with that, I wanted to bring up the whole kind of wrinkle in this, which is the possibility and probability of a COVID-19 vaccine. And do you think that if we do get a vaccine, that that will spark a change in the leadership of the stock market? I believe there's going to be a change in leadership of the stock market. And I'm not totally persuaded that the vaccine would be the catalyst to that. I'm not at all arguing it wouldn't be. But when I read Goldman Sachs research paper arguing that a vaccine could create a leadership

shift, I was a little confused in what I found to be a non sequitur. I think that there will be a market response to a vaccine. And I think that there will be a leadership change that comes in the market, but I'm not sure those two things will necessarily be connected, which doesn't mean that they won't be. My view is that the market has absolutely priced in to some degree, maybe not entirely, the expectation that a vaccine is coming. I don't really know how it couldn't. I mean, for one thing, we obviously see this tremendous price movement to the upside across a good portion of the market. And we know that there are no less than six companies that are kind of in the vanguard

driving vaccine that are essentially in late stage trials. And there's over 10 in the kind of second phase that are in first stage type trials. But when I say six companies, these are major players with major government and grant money and balance sheet capital with distribution and the full kind of ecosystem available to go drive a result that have the intellectual capital and the institutional experience to drive a successful vaccine that are all into late stage trials. Things can go wrong. There can be administrative hiccups. There can be results that beg for additional results. There's a reason why a lot of people are so bearish on how quickly vaccines can get done. I've never shared that bearishness. I've always felt the vaccine should get approved

quicker. But I believe in that kind of trade-off calculation world whereby risk and reward have, you know, the notion of anything being foolproof in life has never really struck me as a standard that makes a whole lot of sense. But I think they're going to get a vaccine. And I think that the market believes that. But as to whether or not when a vaccine comes, everything is instantly different. I'm not totally sure. By the way, the other thought I would put out there, Scott, is I don't think a vaccine is coming. I think multiple vaccines will come of different approvals, different timelines, different distribution capacities, different consumer appeal, and you'll end up having competition in the COVID vaccine marketplace. Wow. Yeah. Pretty incredible stuff. Just the pace at which all these companies are trying to develop

this vaccine, or they have developed it, and now they're just trying to test if it works. Thank God for the profit motive in the private sector. Well, yeah, I mean, you've got a lot of these big companies, which we won't name, but big pharma companies that a lot of people have heard of and may even own stock in. David, on this note, I think we should also touch on the jobs report from last Friday. 1.8 million jobs added, pretty incredible, although the unemployment rate is still north of 10%. Your reaction to that jobs report and any sort of way that you're handicapping

all of this economic data into the investing themes? In other words, how should we interpret some of these employment numbers in the context of the market? Yeah, I do believe that the employment data, there were three numbers that came out within 24 hours late last week. On Thursday, we got the weekly numbers, which was the initial jobless claims had dropped from roughly about 1.4 million expected to about 1.1 million. And the continuous claims had dropped from roughly 17 to 16 million. And then the monthly report from BLS on Friday, where the unemployment rate dropped from 11.1 to 10.2%. And as you said, about 1.8 million jobs created in July, even as a good portion of the country

was kind of having a quasi resurgence of certain restrictions and whatnot. And your question about how to receive it as investors, I think is really a broken record for me in that most of what we are seeing investors know or should know, which is that the economy is opening up, but slowly there was a V-shaped recovery in certain aspects of the economy, and now that's teetering out a little bit. That kind of square root shape camp is definitely winning the day right now. We'll see if you get a second sort of acceleration up if we get on the other side of some of the summer surge stuff.

But see, we're not really fighting COVID right now in the economic data as much as we're fighting the uncertainty around policy response to it. So on one hand, you could come out and tell investors Florida cases are cut in half. Arizona is essentially off all the lists. They've really just remarkably beat it and seen their hospitalizations and ICUs go way, way, way lower than they even were pre the summer surge. And then you hear that the Big Ten is canceling college football this morning. So there's just a mixed, you see New York schools ready for reopening. You see California schools in counties that have really good data

saying they don't want schools reopening. So I don't know how investors can kind of handicap the reality of federalism and localism in our society, which is the different counties, different institutions, different regulatory bodies, different governors, mayors are responding in different ways. The bars may not be open in most cities, but the restaurants are open in a lot of cities and so forth. We obviously know, Scott, that the unemployment data is nowhere near as bad as it was in March, April, when no one could really work and all those initial layoffs happened. And I expect that the next month we'll get that unemployment rate down into single digits, which is pretty remarkable from where we were. But getting back to three or 4% is going to take

quite some time. And at some point, we're getting closer to knowing what the real number is of jobs that went away that are not coming back. We do not know it yet. Bearish economists don't know it and bullish economists don't know. So all they can do is speculate and then end up being wrong and then tell you why in hindsight they were wrong. And I think that's fine. It's impossible to know. But what we can know as investors is that generally speaking, it's been bad, but less bad than expected. And that's a theme I wrote about in Dividend Cafe last Friday. There's a much more important social and cultural story playing out than there is investor specific one, because the economic damage being done right now is largely in the bottom decile of wage earners

and bottom decile of skilled labor. And so I think you're going to have an economy that will operate at a much higher productivity than its unemployment rate is going to suggest when we get on the other side of this because it's less productivity that's been taken out of the labor force. But that's not going to help the people that have been dislocated. Yeah, no, well said, David. And, you know, I think on that note, we should also touch on gold prices still above $2,000 an ounce. And we've got somebody writing in about your reaction to that elevated level of price and any change in your perspective on gold and its outlook for price since we last spoke a few weeks ago? Well, I didn't have an outlook on price a couple of weeks ago and I don't have an outlook today. So in that sense, my non-outlook is the same, but I just think it might be helpful for me to reiterate my view.

Gold can go to $3,000 an ounce. Gold can go to 1,000 an ounce. I don't have a view that it won't do either of those things. I just don't have a view that it will do either of those things. I believe that gold has seen an all precious metals ETF. So it's not just gold, but those ETFs, exchange traded funds that are represented by either gold or other metals have seen 32 or 33 billion dollars of inflows in the last couple months. And equities, this entire massive stock market has seen about $22, $23 billion. Now the bond market's seen $125 billion. So do I think that there are some euphoric drivers moving things like gold higher that maybe are not coming from some of the smartest and most sophisticated investors in the world?

Yeah, I think that's probably true. But that just has nothing to do with what gold could do from here. So I'm perfectly fine with speculators speculating further on gold. I just feel it very important that I be a constant reminder of what they're not doing. And what they're not doing is buying something that has historically been a hedge against central bank experimentation. It could prove to be a hedge against central bank experimentation this time, but it wasn't over the last 10 years. So I mean this very humbly.

I'm not suggesting what it will or won't do in the next five years. I'm not suggesting central banks are not acting insane. I'm not suggesting that there shouldn't be some investment out there that remedies it. I'm just simply saying that from 2011 to 2020, gold didn't move a dollar. It literally dropped 30 or 40%, stayed down, stayed down. And then nine years later, you got back to where you were. And yet what did central

banks do in that period? $16 trillion of negative yields, QE3, Bank of Japan buying everything under the roof that was, you know, buying equities, buying corporate bonds. ECB becoming one of the most experimental central banks, where the European tradition going back throughout 60, 70 years of the 20th century was incredibly disciplined and conservative central banking. So the last nine years gave all kinds of opportunities for gold to respond to central bank kind of novelty, and it didn't do so. And so to me, I don't see gold as a great investment for the reasons I'm being presented. But as a trade and as a speculative vehicle, it's just outside of what my investment mandate is as a portfolio manager. David, we have a question coming in about

debt in the US, government debt, now approaching $30 trillion. And so somebody wants to know if you think that that will result in runaway debt servicing, meaning more of our tax dollars will go to pay for keeping up those debt payments versus some of the other things that the government typically spends money on. Well, I'm an incredibly metaphorical type person, very, very open to the law of large numbers where at some point a trillion there, a trillion there, it doesn't make a difference. But in fairness, we're not really at 30 trillion yet. We started the year 2021 and we're moving into the past 25 range. And I wouldn't be surprised if that 27, 28 feels like 30,

but either way, 27 trillion, especially at the magnitude at which those additions have come, has been something else. And that's all without a fourth stimulus bill that very well may end up happening by the end of the year. We'll see. As you know, there's a lot of political uncertainty around that right now. So we've added a few trillion to the debt, and you now probably do have a budget deficit, by the way, that is equal to the amount of government revenue. So I expect that's basically a fancy way of saying that we'll spend double the money we bring in this year. So the question is, will the cost of servicing the debt go higher? And here's the thing that might blow you away. Did you know that with all

these trillions of dollars of new debt, that the government is going to spend less on servicing the debt this year than last year? Now, how could that be? Very simply, the interest rates were zero. The cost of financing the debt was pretty low last year, but it was something over 100 basis points as a blended rate. And now it's effectively right around, I think, 14 basis points is the term structure of the United States debt. So this is a huge argument for why I think we're in a low interest rate, deflationary, self-reinforcing cycle that is very negative for capital investment in our country. But as far as that argument of debt servicing costs going higher, the cost of debt is equal to

the amount of debt times the rate of interest they're paying for it. And the rate of interest they're paying for it has come down so much that we're, and they can hold those numbers. And in fact, we'll hold those numbers down for quite a great long time. Ultimately, what becomes a big bang moment for our debt is the principle, not the debt servicing, the inability to roll the debt over. Well, and we've seen, you know, even President Trump last year, well before this COVID situation, tweet frequently about the need for lower interest rates just as a function of keeping those debt service payments lower, in addition to, in his view, being more competitive with the direction that other central banks globally have been going in. the direction that other central banks globally have been going in. Yes. And I'm not sure, I'm critical of the president on this issue, but I'm not sure if the president was ever even attending it about our own debt servicing cost,

or if he meant it in the kind of larger construct of the U.S. economy that all borrowers from sovereign, municipal, corporate, and individual were worthy of a lower borrowing cost and that that would be more competitive. I don't think that that nuance was necessarily ever provided, but really that is an important point. Most people that advocate for lower rates in a given environment are not secluding it to one silo of borrowers. I was addressing that question about debt servicing costs and its ramifications on sovereign borrowers. But look, of those four silos, by the way, the one that can least afford higher interest rates is not corporate or sovereign America, it's municipal America. Okay, there's all the incentive in the world for the

Fed to hold rates down for a long time because the amount of insolvency that it would create at cities, counties, and states to have their refinancing of debt go more expensive is unfathomable. And especially now with the COVID situation, which has really crippled the financial, whatever financial stability that states had is really gone in many cases. Yeah, most of the states that have been really hit by COVID economics were not stable before, and now they've gotten even more unstable since. The ones that were stable before now all of a sudden have issues. But then you notice that category of state is largely trying to be more proactive. They're looking at various revenue sources, expenditure cutting. I do think a lot of states are sort of wondering what Washington, D.C. is going to offer them. Some states, in

fairness, so let's sound like I'm being partisan here because I'm really not. Some states, in fairness, unless it sounds like I'm being partisan here, because I'm really not, some states don't have a lot of good options. I mean, New York is really not going to, there's not much New York can do here. And so I'm sure that there's some federal money coming that way. to your point, both with the COVID fundamental change, the loss of revenue from sales and property taxes, and then the issue I bring up on debt servicing. I think that the municipal finance is something that we have to be very careful about. By the way, the revenue, this is a really important thing on the property taxes, which fund a lot of school districts and fund a lot of local government, the healthiness that we've seen so far in home prices is a really important dynamic as houses are transacting. And there's been a lot of appetite for new homes. There's new home construction coming online. See, the financial crisis saw those numbers crater along with income tax and sales tax revenue. Those numbers being stable are probably the glue that is holding

municipal finance together. Sales tax revenues, of course, are a disaster. And to your point on the demand for housing, is that this rotation out of cities and into suburbs, or is there something else at play in your view while we're talking about housing? Yeah, I wish I knew. I think that there is some of it where there are people that are looking to go relocate, but see, relocation doesn't only apply to new purchase apps. That would be someone who's selling one property and buying another. And you're not seeing a ton of that. Otherwise you'd be running in place.

What you're seeing is a lot of net new organic appetite. So I do think there are some, it could be renters that were in high density that are looking to be in suburbia for whatever reason. And I also just think there are people who are not economically impacted. I think there's a ton of people who are not economically impacted by what's going on. And so they're kind of viewing it like, okay, let's go get stable now. There's been a lot of shock and awe to our lifestyle, to our, you know, kind of structure. And the home becomes a source of stability through that. But overall, I think that what you see is that the areas in which

we're seeing a lot of appetite for new home purchase are areas that are, we're doing very well before COVID. And the areas that are doing worse post-COVID are the areas that were doing worse pre-COVID as well. And David, as we wrap up here a little bit, I do want to end with your election outlook. There really hasn't been a whole lot of, I guess, news that may have changed your outlook on the election in terms of its impact on the market since we last spoke? I mean, I think we're awaiting Joe Biden's VP pick. Perhaps that is some sort of a short-term market moving event. Maybe it's nothing. But anything to say on how investors should be watching the election over the next couple of months? Yeah, you know, I actually

will say that there's been a little bit of a change in the last two weeks, and it is only a little bit of a change, but the polls have tightened a bit, and they still do show a pretty comfortable lead for challenger Biden over incumbent Trump. But what was looking to be like a 10 or 11 point average has come into a six point or so, six or seven point average. I believe there was a CNN poll just this morning that had the national tightened to four or five points. And I expect some more of that. I don't expect polls that are going to be coming out anytime soon that have it fully reversed, but I do expect there to be more tightening.

You know, the question, but all of that is very difficult to predict. And I don't view political prognostication as something that anyone does very well. Most people just simply report on what the data already shows and try to sound as smart as they can doing that. So yeah, Biden's picking of his VP in the next week or so.

It has the capacity to be a certain moment in the election. And then whenever the debates start, that could potentially be. But the conventions are not going to hold the same weight or national attention they did. I'll share with our listeners a theory of mine that is not a political opinion. It's not a worldview. It's not ideology. that is not a political opinion. It's not a worldview. It's not ideology. It's more just a potential caveat that could enter this discussion that would have market impact and political impact. I'm not wishing for it. I'm not wishing against it. Well, maybe I am wishing against it, but that's not my point in saying it. I do wonder, and by the way, I'm only alluding to

something that might have a 5%, 10%, 20% chance. I don't really think this is something that I would bet will happen, but I'm trying to think to your question, a potential catalyst that could get in there and kind of disrupt the narrative a bit. If there is going to be this sort of, I saw Neil Kashkari, the Minnesota Federal Reserve Governor, who's not a politico, but he did run for governor here in the state of California a few years ago, but he's a central banker. But he's a national figure. And I saw him go give a speech advocating that we re-lock down the whole country for six weeks. I haven't heard any national political figure calling for something that draconian. But if that's the place that you end up going to in the fall, where all of a sudden you get a real blue state, red state, and Republican-Democrats split,

where there is this whole movement for more lockdown, more canceling things, shutting things down, and if the appetite of the country goes the other way, that could end up becoming a politically transformative moment. I don't know what the national appetite for such things would be. And I don't know that either party would necessarily go that way. I'm just simply saying if one did, and if the American people really didn't like it, I could see that potentially changing the narrative. Other than things like that, that are probably small likelihood, I think you're going to end up seeing the polls tighten a bit. And it certainly appears that challenger Biden has a good advantage in the battleground

states over incumbent Trump. And it appears that the Senate is going to be very, very tight. And it appears that the Senate is going to be very, very tight. And in fact, a couple of the polls on some of those battleground type Senate seats have improved for the Republicans last couple of weeks too. So I'm more and more on the side that if President Trump's reelected, the Republicans are definitely going to keep the Senate. And if Biden is elected, the Republicans are probably but not for sure going to lose the Senate. So there's still the possibility of split government, but nothing, everything just seems to be so polarized these days. I assume it'll be all one or all the other, but, you know, I am ready

to complete this weekend what has been about three weeks of intense research and preparation to lay out various market implications for the election. I plan to submit it to my people this weekend. And I think it will have a lot of my thoughts as we go into the kind of final stages of the election season. But for those listening to call, clients or guests or friends of Bonson Group, and a lot of you are very politically engaged, as a lot of you know I am. Some of you may not be, but let me share something with you that might be an interesting thought. For a significant portion of the country, the election is just now beginning. Like, in other words, a lot of us are not normal. A lot of us that have been falling through the

primaries and all the debates and everything, you know, there's a ton of people that don't. And all of a sudden now you get into the final stage. And I think that that's where a lot of people that are just not politically minded, it's not interesting to them. It's sort of an annoyance to them. Generally speaking, the attention span of this becomes most intense in August, September, October. So think about that. It's going to be an interesting few months, Scott. Yeah, to say the least. And to your point, with all this COVID stuff and everyone's mind being focused on that, you could argue that maybe the election sort of focus is being pushed out even later than it normally would in an election year. Yeah, I think that's true. I think that if you think back to all the years here,

myself, I've been a political junkie since I was a kid. And there hasn't been a single convention that I haven't been, you know, in my living room every night watching three or four nights that week, even both sides of it. And there's sort of an event and a little bit of pageantry around all of it that we're not going to have this year. They're going to do speeches. They're going to do nightly news coverage. But without the big crowds and all that, it's just going to feel very different. So I don't think anyone really knows exactly what to expect around that. And the market doesn't either. But my best guess is that the market is unwilling to fully price in a Biden victory.

They still know that there is a chance it goes the other way. And then even if the market wanted to price in a Biden victory, they can't price in a Republican loss in the Senate because it's just too close. There's too many moving parts in four, five, or six very vulnerable Senate seats. Well, and I think we should throw this curveball at you, David, from a viewer writing in, the possibility of a contested election and what that means for markets. Is that something you were thinking about? Should investors be thinking about that? And if that were to ever come to fruition, what kind of market moving event might that be? I mean, there was not much of a precedent for that. Is there any precedent for that?

Well, there is a precedent, I mean, contested in the Bush-Gore of 2000. It was, I mean, I guess kind of textbook definition of contested. You had a candidate who was suing and the Supreme Court had to take up the case. And what I think if that were to happen, it would depend on what the grounds for the contesting are. If it's just simply there is a declared result, but one candidate felt that it shouldn't have been declared or that part of the votes were illegitimate or something, then the courts come in and settle it. If you do have allegations of fraud that are met with really substantiated incidents of fraud, that becomes a constitutional crisis pretty quickly.

And so you're certainly right. We haven't had any kind of allegations like that. And I don't really know what the stock market did. Was it 1828 on the Andrew Jackson? You did have an election. When you say never contested, of course, the House had to pick a president once. I mean, we've had some interesting things in our nation's history, but Bush Gore is the best example. And it's what would happen this time too. The market went into disarray. It was a very uncertain, volatile period. And of course, every day you were getting new updates,

these votes counting, and everything going on in those counties in Florida. And the markets weren't fully able to price in what was going to happen. And if you had something that close, perhaps the question asker meant this, because I think this is more likely than a drawn-out legal battle. You could end up in a situation where neither side is accusing anyone necessarily of a funny business. You just don't have the votes counted yet.

And so the market has to go into a week or 10 days while they're still counting delayed mail-in ballots. And that itself would, first of all, indicate a very tight election, because if you're doing that and you can't declare a winner, it means that it's close somewhere else. And then, of course, the uncertainty of what that would mean as all those votes end up getting counted. So I would put the odds at 50% or better that you're going to get some volatility in November around the election. You could just have a blowout victory

one way or the other. That takes away all the uncertainty. Or you could get a very tight election where you don't have a winner declared on the night of. And in which case, I mean, I hope it wouldn't take as long as Bush v. Gore did.

That lasted a few weeks. But I don't know. Does anyone want to bet against that happening in 2020? Yeah, well, you know, so much has happened this year that I don't think anyone would be surprised by something like that happening in 2020. Yeah. Yeah, I would agree. Well, David, I think that wraps up our time for this broadcast. But thank you so much. It was great to be with you as always, and we'll be back in a couple of weeks. We will indeed. Thanks again, Scott. And anyone with any questions, please feel free to reach out anytime. Thanks so much.

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