The Dividend Cafe - Replay - National Conference Call on Market Outlook August 24, 2020

Episode Date: August 24, 2020

Up to date information regarding Covid and Markets with a focus on the impact of the pending elections and Federal Reserve guidance. 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 national video call, Current Market Outlook Around COVID-19, August 24, 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 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. Well, thank you very much, Erica. And once again, thank you to Scott Gamm for joining us to make this happen. I'm going to turn things over to him for a rigorous Q&A session here today. But first, just want to do a little of the housekeeping. As Erica's mentioned, please do email covid at thebonsongroup.com throughout the session for any questions you may have and we should be receiving them real time and hopefully get to them right on this call. And of course, if we don't, we'll still follow up with you later. I'll write back to each and every question myself. In terms of our plans for this call, some of you know that we altered the communication schedule of the daily missive I've been doing at COVIDMarkets.com to kind of make it a little bit more realistic going forward and allow for the appropriate spacing as the news cycle has allowed in our kind of ongoing COVID news. However, I intend to keep this call going until we see that you all aren't interested anymore or I get enough hate mail

saying your call is terrible, please stop doing it. I really do believe the feedback we're getting indicates that it's beneficial to you. The replay of the call is beneficial for people that aren't able to listen live. So we want to keep that going, but we certainly welcome any feedback that anybody has about the time of day, the length of the call, logistical suggestions. You know, sometimes half the people say up and half the people say down, and we listen to the advice. It's just that there's not a clear direction as to something we might want to be doing different. And other times, you know, we get really good feedback and make changes. So we certainly do this for you all, not for our benefit. And we're open to your suggestions. In case you can't tell, I'm in my New York office. And I think I have done one of these from here before. I know I've done at least a couple from my apartment here in

the city, but one of the fun things about being in the office doing this today is that it's the first time that we're doing it with our new remote studio here in New York City, which has been something that was delayed getting set up because of all the COVID-related logistics. Nothing was able to get delivered to our building for several months. And then Terry Brake, who many of you have gotten to know, who's my executive assistant here in New York City, has handled really just the full install, getting this set up. Our communications team, led by Brian Tong out in California, kind of designed the studio. And there's just been a lot of hands that have gone into making this happen. And there's just been a lot of hands

that have gone into making this happen. So it's very convenient for us to be able to now quickly record things, hopefully give a better audio and video quality. And I'm really excited about that. So of course, I'm assuming, as I say all that, you can hear me. That assumes everything's working, but I think it is.

So again, special thanks to Terry, Brian, and everyone else who helped make this possible. So speaking of special thanks, Scott Gamm, again, thank you for being here. And I'll let you take it away from here. Grill me, throw it at me, whatever you got. Let's talk markets. All right.

Well, David, as always, great to be with you. And you look great. Studio looks good. I can see it well from my screen over here. So we should point out though, David, that since we spoke about two weeks ago, we hit a record high in the S&P 500, which was significant. We know the NASDAQ had hit too many to count in terms of record highs over the past couple of months, but the S&P finally did so last week. As we're speaking today, we crossed 3,400, another record high. How symbolic and how significant is that threshold right now in your view?

By the way, the easiest way to keep track of how many new highs the NASDAQ makes is just to listen to President Trump because he's now worked that into his stump speech and every single speech he's giving. He is saying the new number of highs that the NASDAQ has set. So it's pretty funny that way. But look, the symbolism is obviously that we are still in the midst of recessionary conditions, still in the midst of coming out of where that COVID pandemic ramification lies in our economy. And yet, from a market pricing standpoint, both NASDAQ and S&P being cap weighted, coming back to new all-time highs is just stunning. And I am writing in Dividend Cafe this week about a question I have, which is whether or not there is something kind of new normal-ish going on related to the speed of recovery. Because the last time we had a sort of 20%-ish plus drop, it wasn't nearly as dramatic. It wasn't nearly as

violent. It didn't take down credit markets. And it was not even quite 20. It was 19, I think 0.5%. Whereas of course, this one dipped below 30%. So there's a lot of differences. But Q4 of 2018, we dropped 20%. And Q1 2019, we were back to new highs. So you do have this kind of interesting deal where you're getting some big drops and very quick recoveries. And I believe that the Fed has a lot to do with the rapidity of the recoveries that we're seeing in some of these equity drops. The significant versus symbolic piece about the market making new highs is behavioral. It speaks to what I consider one of the largest value propositions that we emphasize at the Bonson Group, which is behavior modification

and that sort of discipline that is so key during difficult times. There are people who naturally want to sell out when things are rapidly declining. And I think the problem with that is it sort of presupposes, even if people don't think through it all the way, that they have the ability to get out, that the market has the ability to keep dropping more, that the market has the ability to tell them, or they have the ability to detect from the market when it's going to hit a bottom and then they will be able to get right back in and avoid some further downside pain and in fact capture all that upside. When of course the opposite is very true. No one knows when the bottom will come and really no one knows when the re-entry point will be. And so market timers got walloped in this experience. And I think would-be

market timers right now are probably able to look back at what happened as if a car accident took place and they were almost in it and they avoided it. And so this is a lesson that is true of every market distress period I've experienced in my true of every market distress period I've experienced in my career and every market distress period I've studied. And I think that that's the probably most significant part of markets being at new highs is the ability to say, dear Lord, it's August. It was only March when things were falling 1,000, 2,000, cut one day 3,000 points a day, and we've come back to these new levels. Now then, finally, in this very long answer, I'll close with, I think, the most market-important comment, though. It is true that the new highs, they're not fake.

They are what they are. For someone who's been invested in a cap-weighted index, they are what they are. For someone who's been invested in a cap weighted index, these are the price levels. But in terms of the sort of democratization of equity results and the way things have been penetrated, the breadth of the market, we still are in a position where the Dow, which is a much more sector diversified index, is still 5% from where it was and a little more than that from, you know, excuse me, beginning of the year level and then a little more than that from its all-time high. And I think that even within the S&P, you still have 495 companies out of 500 that on average are down a couple percent. And so you do have a real dispersion of results within the index for everyone other than who's been very concentrated in four or five tech names.

So I still think from a healthy and sustainable and economic standpoint, the market's got some work to do, but it's done a lot of work already. And I think investors who have maintained a behavioral discipline should be very proud of themselves. Well, and that's such an important point, just that when you look under the hood at the, you know, within the indexes to see what stocks are performing and time and time again, you'll notice, as you mentioned, those five large cap tech stocks. But could that be interpreted as a bullish sign? Meaning, let's say the five tech stocks kind of plateau and we don't see as much growth from them in the coming months. And you've been pretty

vocal about your expectations for some sort of pullback in those five big tech stocks. But if we get some leadership and some participation from some of the other sectors, I mean, that's got to lift the broader markets as well. Yes, and that's very much the norm. That wouldn't be the exception. It would be the rule. You often will have, in a market recovery,

the leadership sector take a timeout while new names are able to rotate in. And in this case, it's just exaggerated because the pre-COVID leadership group was the same as the post-COVID leadership group. And so when the froth has to come out of those valuations, now I'm very vocal that that will happen. I'm very vocal that there's a risk-reward trade-off there

that is incredibly unfriendly to investors, but I'm not at all vocal about when it will happen. I just simply don't have the ability to time that. However, I agree with you that the market would be setting itself up in that sense for something I think very beneficial to the large number of investors in that you could get froth come out of the market and yet have an opportunity for new leadership coming in that replaces the overall growth catalysts and provide some of the undervalued names, the leeway to exert leadership and bringing the whole market forward. Post.com is one of the great examples of that because that was just a massive sell-off that took place in what was a dramatic market leader.

There was nothing more prevalent in market leadership than technology, and tech got destroyed, and yet you still had an overall Dow that was up in that year because of the kind of more traditional names and the diversification of other sectors that were able to come in and maintain us or, excuse me, exert a leadership status. And so I really believe that that's what we're going to end up seeing in this case as well. And I think investors should be bullish about that and positioned accordingly. Well, and David, somebody writes in with a question wanting to know, in your view, what the biggest story in markets is right now. And I ago in 2016 when we were, you know, two or three months before the 2016 election? Because I remember talking about the markets with you then really on a monthly basis. Yeah, that's right. At the time you were at,

I believe the street.com before you'd gone to Yahoo. And I remember us regularly discussing kind of these types of things going on in the market, and what were they in 2016? It was election volatility. There was questions about China, questions about the Fed. Well, I would say that you still have two of those three. I don't believe the third one is obviously a headwind question. If it's a question at all, it's a tailwind in the fact that there is a couple trillion of liquidity, as far as the eyes can see, overt Fed willingness to support risk assets and capital markets. And that was very different back in 2016, when there were sort of questions as to when the Fed was ready to tighten and sort of extract some liquidity and tighten credit.

Well, the China issue is not being discussed a lot, which means it's probably a bigger risk than the things that are being discussed. There does continue to be some question as to what flexing will take place to kind of come after China a little bit, as well as what legitimate and maybe longer term tensions will exist in the two countries relationship that will have either a short term volatility effect on markets or a longer term impact on multinational companies. I think the election issue is definitely about to hit its stride as a really significant catalyst will happen to markets, but I'm not convinced that that's going to be directional between now and the election. I don't think the markets are going to be going down a lot to price in one outcome or going up a

lot to price in another pre-November. I think there will be up and down movements between now and November because I'm more and more of the thought that we're probably going to have a closer election than people were thinking even a month ago. Now, in 2016, Scott, we started off the year with the worst January in the history of the market. And that was all related to questions about China's economic slowdown, currency-related ramifications, what the Fed was going to do. slow down currency-related ramifications, what the Fed was going to do. February continued to decline. And then it sort of picked back up and you rallied substantially. And then Brexit happened in June. It was a surprise on a geopolitical level. I happen to think it was a tremendously good thing for capital markets ultimately, but it certainly led to a lot of uncertainty and volatility in the moment. I believe the markets dropped 800 to 900 points in about three days,

and the markets recovered all of that another week or so later. And then we know the remainder of the story for 2016. We kind of paused for the couple weeks before the election, We kind of paused for the couple weeks before the election, but then after the election results, the market rallied dramatically for the rest of that year and, of course, all the way through 2017 as well. So, you know, there's certain parts of history that repeat a lot of parts of history that rhyme. 2020 is really a very different year than 2016 for the obvious reason of the global pandemic, for the obvious reason of A, the dramatic downturn we've experienced economically around the government-led shutdowns, and then B, the dramatic increase in economic activity coming off of those very low levels that we're now experiencing and will continue to experience through the rest of the year. that we're now experiencing and will continue to experience through the rest of the year.

So where the market gets its P's and Q's in 2020 for, you know, the remainder of the year, the final four months of the year, I think will look a lot different than 2016. Yeah. And, you know, there's a lot of analysts out there talking about historically what the market and its performance in the prior, you know, three months before the election, what that means in terms of predicting the outcome of the presidency. And I'm wondering if you, you know, take any of those historical stats seriously, or if you have any opinion on the market as a way to predict the outcome of the election. Yeah, I wrote about this in DividendCafe.com about three weeks ago, I believe. First of all, the three months before the election, I think is

an 87% success rate. That isn't that high. I mean, over the last hundred years, 87 seems like a high number, but you know, 13% of the time, or maybe it was 17%, forgive me, it's around there. That's plenty of margin of error, more margin of error than anyone would want to invest around. But I think the much bigger point that I made, which I'm totally convinced of, is that most of those years, the election was not the effect of the market's cause, it was the market's movement was the effect of the election cause. What I mean by that is the markets were pricing in, in the one, two, and three months ahead, what the markets then deemed to be coming, and in many of those years, market friendly. Okay. So basically, I think back a lot because it was the first

election that was near and dear to my heart. And of course, you know, I was in first grade and that was Reagan Carter in 1980. And I may sound like I'm joking, but I literally walked neighborhoods handing out booklets. I'll let you guys guess which candidate I was handing out booklets for. But my point is this, the market rallied quite a bit before the election, and that didn't help Jimmy Carter get reelected. It was rallying once the market began to price in that it appeared that President Reagan was going to, that Ronald Reagan was going to be elected, and they deemed him to be a more market-friendly or business-friendly candidate. And we had been in a very difficult economic malaise under Jimmy Carter, who of

course ended up being a one-term president. So there are a lot of times like that throughout history that then we can look back and with hindsight say, oh, whenever the market does this, the election does this. But I think that you take a big risk of getting the cause and effect backwards. All things being equal, with that statistical correlation, even if it's not causation, I'm sure President Trump would prefer that the market be up a lot in the next 90 days. But I think that there's an awful lot of things that are going to influence this election more so than markets. And while I find plenty of interesting anecdotal information and past relationship between markets and elections,

I don't think they're very causative. And obviously you'll have more commentary on this, not just in the missives, but the Weekly Dividend Cafe. And then I also believe you're working on a separate white paper about this topic in particular. Can you give us a preview or an update on that? Yes. I mean, by way of update, I wanted to get through the Democratic Convention last week for any revelations of policy that were presented there. There really weren't very many, and I don't say that critically. I think the Democrats had a reasonably effective convention for what they were going for. It just wasn't very heavy on policy specifics. And that's not uncommon.

I think that there's times in which it's politically advantageous to be more granular policy, and other times you're trying to message something different, and that's what the case was for them last week. And then now with this week, I want to see, of course, what comes out of the Republican Convention. If there is any sort of reframing of President Trump's vision for a second term in office, where the various speakers and contributors to the convention bring a kind of policy message that might give us some hint at what an economic

vision looks like coming out of COVID going in the next 40 years? Are they doubling down on nationalism and protectionism? Or will there be a more expansive message, maybe continued embracing on some of the supply side messages, whether it's payroll tax cuts or corporate tax reform or deregulation. We'll see what that messaging is, but I've pretty much completed this white paper and I have some fine tuning to do, but I think it's going to provide readers a lot of historical context. Some of it will be unorthodox to what they may be expecting. And then a lot of positioning around where I think

investors want to be thinking about the potential outcomes that continue to be largely very difficult to predict, not just because of the presidential race, but because of the senatorial races. And that's the theme that unfortunately I can't let go of. I think that so much of what we face in terms of policy and then obviously legislation is going to depend regardless of what happens to the White House race on the Senate races. And so we're in for some uncertainty here for the next few months. Well, and David, hopefully you and I can do some sort of a debrief on that report once that's done on one of these future video calls. Yeah. You know, it's funny you mentioned that. Now that I think about it, why don't we go ahead and, and just commit that in two weeks, we'll dedicate our next call to

unpacking that white paper and having a really thorough election special national call. Cause I think by then it will be near the middle of September and, and we'll be ready to really get ready for two months of the race to the election. All right, deal. Meantime, David, we've got some other questions coming in from folks. You know, earlier we talked about sort of the similarities and differences of 2020 versus 2016. And if I remember correctly, the financial sector had a big boost after President Trump was elected and really throughout 2017. And somebody wants to know what you see happening in the bank sector. And then they also want to know where energy stocks will be by the end of the year.

Well, let's start with the financials, because I think that that is the bigger surprise to me this year than the energy side. The energy has been in love for some time, and it's such a tiny part of the index now that there's not a sentimental boost that comes from index ownership with energy. And right now you see the disconnect between oil prices and energy stocks at its widest that we've ever seen it. And so there's a lot to say on both the upstream and midstream sectors of energy, and I'll come back to that. But with financials, as you see,

basically the market telling you, we don't think the world's ending from COVID. We don't think there's going to be another government force lockdown. Even as some candidates and states and governors talk about keeping restaurants closed and schools closed and other such things, you see, you know, reasonably government heavy nation states like Italy and France saying we're not doing another lockdown no matter what.

I think that we are in kind of a post lockdown thinking about COVID. And I've made the comment all summer through the Arizona, Florida, Texas responses that we really are living through a period in which markets and society adapt to the reality of living with a thankfully not very lethal, but nevertheless very infectious virus. That is COVID-19. And truthfully, we do have an economy that is rebounding in a lot of ways, but rebounding from very low levels. But you see reflected in the market that so many technology names, consumer names, industrial, the pro cyclicals on an industrial side, all really doing well out of the sort of expectation of ongoing economic recovery. And yet the financials that would be financing so much of it and that would be involved in the transactions that go there with have not participated. And the best thing I can come up with is A, they're interest rate sensitive,

certainly with the flatter yield curve and lower rate levels, you take away some net interest margin from some of the big banks. I don't think that explains all of it, though. I think that the biggest factor seems to be them trading on fears of loan loss provisions, that they have taken provisions for loan losses, and the market either is upset about what those have done as an impediment to earnings or is of the belief that they could end up being worse than what they've provided for. And I don't believe either of those things. I think they've overstated loan loss provisions. I think that the banks are in much healthier position on their balance sheets and their leverage ratios coming into this crisis were

so categorically different than the financial crisis that I think there's a certain kind of deja vu that is causing people to not respond fully rationally and markets have overstated their fears on the banking sector at large and then some of the particularly high quality names in the big financials especially. So I do see opportunity in much of the financial world. You have to separate the big banks that are in the lending, credit card, bank deposit business, where a lot of my comments are just focused, and also look at the investment banking, where I think you're going to see a lot of transactions, a lot of M&A, a lot of debt offerings, a lot of activity that will feed the profitability of some of those franchises, whether it be publicly traded private equity firms, asset managers, or investment bank advisory type firms. There's some great names in those sectors.

advisory type firms. There's some great names in those sectors. The other question then on energy, I made the comment that the disconnect is gigantic between energy stock performance and commodity price movement. But I will say this, I think that the popularity factor is waning. The idea that energy is an unpopular sector and that's held it down. Energy does not need to become a popular sector to reprice at this point. There's been such an incredible re-rating of the sector around its unpopularity, that Benjamin Graham moment of fundamentals taking over is very imminent, in my opinion. So when the question is, where will prices be by end of the year, I don't like those three, four-month prediction type games. What I will say is that for leadership names upstream, they're heavily involved in production and exploration and have the ability to turn knobs on their expenditures to protect their dividend,

control their debt, and allow for more strategic decision-making around CapEx. And then on the midstream sector, those with counterparties that are not subject to bankruptcy, that have a significant flow of oil and gas coming through their pipelines, I think you have a tremendous opportunity. And it remains more important, I think, for prudent investors to focus on the cash flows of these investments one will generate rather than the price recovery, because the price recovery will happen in time and there isn't any reason to be excited about it happening. I'm excited for the fundamentals undergirding those cash flows. So both of the energy and financial sector opportunities, I think, are

tremendous. Well, and you mentioned oil prices in relation to energy stocks. Would the similar comparison in the financial sector be financial stocks to the 10-year treasury yield, which is still really low at 0.65%? Yeah, but I'm not sure that financial stocks have had a big correlation to the 10-year, the absolute yield. I think it's more to the shape of the yield curve and that you can historically extract some relationship between the big banks and periods of curve flattening that hurt bank stock performance and periods of curve steepening. And if in theory, I'm making up the numbers, but if in theory you got curve steepening at a very low level in yields, that would still bode well for the financials. And if you got curve flattening

at a very high level, it would not bode well. So it's not so much the level of the yields as it is the steepness on the curve, meaning the relationship of a two-year to a 10-year or a 90-day to a longer dated, that kind of relationship between short and longer term treasury yields. It's in that curve that you get a net interest margin and you get reinvestment opportunity. And you also get market signals about incentive to go produce new projects that feed a lot of banking activity. So there is a overall market signal. It's such a low 10-year yield, but the low 10-year yield, I think, has far more to do with the deflationary cycle that we're in

and the high levels of government debt than anything else. David, let's also talk about the Federal Reserve. We have a couple of developments to watch there, most notably Jerome Powell's speech this week, which normally would be in Jackson Hole, Wyoming at the annual symposium that's held there around this time of year. But of course, everything's going to be virtual given COVID. Anything you're expecting there? And then, you know, is there anything we should expect in the weeks leading up to the Fed's September meeting in mid-September? Yeah, Jackson Hole is a pretty big place. You would think they could do an actual conference there and have some social distancing. But I digress. Listen, this is the thing about this annual symposium at Jackson Hole. There have been

years where history-changing things have been said at the symposium, and there have been years where they were real duds, that nothing new came out of it. I never expected you're going to get history-changing monetary policy out of a symposium that really serves as more of a kind of vacation-y event for elites than anything else, particularly this year when it's virtual and there's been so much Fed communication coming up to it. It would really surprise me if the Fed used Jackson Hole to surprise markets. We got the minutes from FOMC July last week, and it was clear that there are some Fed governors that are trying to talk down the use of yield curve control. And I can

understand that because there is no need for yield curve control right now when the market's doing it for them. The Fed does not have to buy a single 30-year or 10-year or 8-year or 7-year treasury, and those yields are staying plenty low. That is a force of markets. Yield curve control comes in when markets start to rebel a little and the Fed has to kind of hold it down at different points to their desired policy mandate across the term structure of the yield curve. I believe they're going to do yield curve control, but I don't believe they're going to do it until they need to. And the heavy level quantitative easing, soon some of the forward guidance they'll offer. I think the market right now has implemented yield caps without the Fed intervening. So he could speak to that a little. If he speaks at all about negative interest rates, I'm pretty confident he'll be speaking to it to talk it down, to explain why they do not see that in their

future. I think Chairman Powell has expressed himself pretty clearly throughout. He took pretty decisive action and has more or less stated, without ambiguity, what he sees the Fed's role going forward here, which is an aggressive role, a very interventionist role, and one in which he's pretty determined to continue to provide necessary conditions of liquidity and credit for recovery. Their intention is to allow that for the sake of the overall economy. But of course, the byproduct of that, which they pretty much freely admit, is it does provide a big boost to risk assets. I think he's concerned with optics to some degree. It wouldn't surprise me if they try to re-message what I just said, that their primary objective is for the overall economy, not for risk assets. But you can't really escape the fact

that in what they're doing for the real economy, it does provide a benefit to places that some may wish it did not. And I think that's a difficult predicament that they're in. The issue, Scott, I would throw out around the Fed right now that is bigger than anything. Until a fourth stimulus bill is passed, until they decide that there's a real ground zero crisis at the municipal finance level, I think their hands are reasonably tied legislatively about providing further assistance to cities and states. They have really put most of their effort thus far into corporate credit, and it now looks somewhat silly because corporate credit appears to be the place that needs the help the least, and it's really hard to unpack because corporate credit looks like it needs help the least because

it got so much help or because it was so evident that help was there that it kind of immediately began pricing in. I cannot tell you how much it's affected equity markets that companies had access to 1% level of debt. I look at my screen every single day. And if I want to find a corporate bond paying 2% of yield to maturity, I have to go to a triple B credit nine or 10 years out. Whether it's duration or credit quality, you are not going to get paid to hold corporate credit right now. Even if you go further out, even if you buy lower rated credit quality. That's how much confidence there is in credit markets.

And that confidence comes from the feds pulling out of their bazooka, which they've only fired a little bit and intervened in credit markets. That's brought cost of debt service down for corporate America. That's pushed corporate earnings up in the S&P 500. And it's a huge part of why capital markets are functioning right now the way they are. What are you hearing in terms of more fiscal stimulus? How should investors be processing that possibility or the failure of more stimulus to come from the fiscal side? Yeah, the caveat in your question by inference is how should investors

think about it, which may be different than how particular targeted recipients or would be targeted recipients of stimulus ought to think about it. I don't think investors seem to have minded the lack of a stimulus deal at all. We're now over three weeks into this kind of stalemate between the White House and House Democrats, and there's no real progress being made. There's certainly some that still believe a deal's coming. There's some that I respect a great deal that not only believe it's coming, but are adamant it's coming much sooner than people think. But no, I think that my forecasting on this has been pretty right so far, that a deal will come when one side really believes it politically needs it to come. And so far, the White House and

the House Democrats have not felt they needed it. And I don't mean to be cynical here. I don't mean to be crass. And I'm certainly not being partisan because I'm speaking about both sides. But the Democrats had certain lines in the sand they wanted and a negotiating stance. And the White House did not capitulate on those things because they have not felt the political burden being put on them. And the president was able to buy himself some time and intent with some executive orders to show what he's willing to do.

I think the Republicans have done a reasonable job at messaging that they were willing to give now on anything the Democrats were willing to do now and then work out the things they didn't agree on later. I'm not sure how many, I would imagine most people receive that message or interpret it in a partisan way. That's kind of normal. But yeah, I don't think that Pelosi and Schumer feel a big burden to go out and get something done. Although I do know that there are a lot more House Democrats reaching out to Speaker Pelosi privately saying, hey, we got to get something going here. But look, this is the part that I don't want to

sound cynical, but I know I'm right about. I believe I'm right about. Neither side is going to do anything if they think the other side is going to get the credit. So you're a few months away from the election, very toxic times, and there's a lot on the line politically. And I think that to get a forced stimulus deal done, it's not about what they're going to agree to and not agree to. It's about how are they going to do it in a way that is not going to make either the other side look like the victor. And that's the part that's going to require some massaging if we're going to get a deal done. Yeah, well, it's very interesting because you would also think that there should be or is pressure on both sides to get a deal done, not just because people might need the help, but also to your point, we're two months away from

an election. And it's not just the president that's up for re-election. A lot of, you know, folks obviously on the House and Senate side are up for re-election. Yeah. Yeah. I think it's tricky because there's different political constituencies. I don't think that some of the Republicans want to be seen as giving in to Speaker Pelosi on, you know, just massive hundreds of billions of dollars of aid to states that a lot of those senators' constituents see as being fiscally irresponsible, even pre-COVID. And I don't think that the White House wants to be seen as being insensitive to the needs of those that are still struggling on the business level. I think that a lot of people feel they can take some credit for the way in which the unemployment factors have kind of improved around PPP, but there's no question that additional

aid through the PPP program is going to be needed and a revamping and more targeted small business support. And so I think there's a lot of risk in them not going forward that way. But it's not as black and white as everyone wants a deal and no one will do a deal. There's different moving parts to the political ramifications. And like I said, there are a lot of people on both sides of the aisle whose focus is on not letting the other side look good. And David, as we wrap up here, maybe we should end with any updates or any changes that you're

making to client portfolios or just anything else on the investing strategy that you want folks to know today? No, that's a good question, Scott. Thank you. We continue to, when certain positions get to levels above our target allocation that we think produce a risk environment where we're better off to kind of trim those positions instead of letting them continue to ride. We're actively trimming. And likewise, if any positions get real oversold, if there is some sort of story where the price breaks down from the underlying value, we're adding to positions on the margin, even if we're not changing the target allocation of some of those key names. But we do definitely have a kind of revamping going into the fourth quarter of how we're sort of organizing some of this construct. What has now been multiple months of work around

how we're restructuring client bond portfolios. We have a lot of progress that's been made there and will get made going into the fourth quarter. And in terms of our view about overall market levels, we continue to believe that there's compelling reasons to be bullish, compelling reasons to be cautious. And so we're juxtaposing those two with the appropriate level of balance. But more than anything, I really want conversations individually, client by client, take someone's temperature for risk appetite, and then allocate accordingly. But we feel very confident that the dividend sustainability of our client portfolios is well intact. Very proud of how those dividends have grown and been sustained throughout this incredibly tumultuous year. And whether it's things like emerging markets and small cap that have really just done a huge degree of catch up in the last couple of months or into the future where we see some of more than anything else have absolutely no intention of changing our principles and our belief system that has created the portfolio construction that we work with.

We think it's very important to stand for something right now other than just finger in the wind investing. And I see too much of it. We intend to be vigorously engaged in what is happening in capital markets for the remainder of the year. All right, David, I think we'll leave it there for now on this record-breaking day for stocks. But always great to be with you. And thanks for all your insights today. Well, thanks as always, Scott.

And I'll turn it over to Erica to adjourn us and look forward to a special election national call. But it will not be two weeks from today. We're going to get off cycle because two weeks from today is Labor Day. So I believe that will rotate us to September the 14th, if I'm saying this correct. That will be our next call, which is actually three weeks from today. And that will then be our special election national Zoom call. But Erica, I'll hand it back over to you.

This concludes today's conference call. Thank you for attending. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and 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. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. 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 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. Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.