The President’s diagnosis has created political fall-out and concern about the election. Our attention now turns toward our fragile COVID economy and our volatile stock markets. For a wide ranging discussion on the impact of the President’s diagnosis, both economically and politically, Steve is joined by Peter Morici. He’s an expert on economic policy and international economics, and professor emeritus of International Business at the University of Maryland. Peter has authored 18 books and is a nationally syndicated columnist for Dow Jones Market Watch and The Washington Times. His commentary is frequently featured on CBS, BBC, FOX, CNN, ABC, CNBC and NPR.
Listening Time: 24 minutes
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Welcome to the Your Life, Your Wealth network, helping you find clarity and comfort for your life and wealth. Now here’s your host. Financial adviser and CEO of Cordasco Financial Network, Steve Cordasco.
Welcome to the Your Life Your Wealth podcast.
Thrilled that you are joining us today. We have a lot to talk about. The president testing positive for COVID 19. We will be joined in a bit by Peter Morici. Peter is an expert on economic policy and international economics, who’s professor emeritus at the University of Maryland. You’ve seen Peter all over Fox News and different media outlets, CNBC. He’ll be joining me in just a bit to talk about the president’s diagnosis with COVID 19, and the effects that it may have on the markets, the economy and the election. But I want to give you a little bit of my views here. So what I want to get into, because I was surprised at all the media attention and frankly, just a lot of attention by the public in general during this election cycle, how much focus there is on the stock market and the Dow, even if you heard the debate, there was that tongue in cheek, off cuff comment by Vice President Biden, of all you care about is the stock market and the golf course.
And so when you hear things like that, he knows that the public is focused on the market. The president has had us focused on the market. And I’m here to tell you that I am still scratching my head for many, many Main Street investors who have a diversified portfolio. What diversification is? It’s a mix of different types of investment that match who you are. That’s what good diversification. It’s it’s diversifying your assets so they best match who you are, what you want your money to do for you. And I found all the news commentary over COVID 19. And the president testing positive for it brought us right to the stock market even before we were getting what the likely outcome of the president testing positive would be to his own future health. And what I want to say is, if you’re that focused on the stock market, let’s say you were caught up in it and you’re now worried you might be calling your financial adviser or maybe from your financial adviser, you want to call right away and say, what’s this do to our stocks? Stop for a moment and look at just how much stock you have in your overall mix. Because what I find is for a lot of people that I guide and help, they have a dose of stocks, but they also have a healthy dose, if diversified correctly, to match who you are of other instruments like fixed income, whether that’s an annuity or cash or bonds. What I notice is when they were talking about the market being down almost 500 points on news that President Trump tested positive for COVID 19, I found myself looking right at the bond market. I wanted to know what bonds were doing, what bonds were up. They were rallying. Interest rates were dropping. There was a flight to safety money moving out of equities into bonds. That gave me a good comfort feeling because I know I helped guide so many people who own bonds in their portfolio. As a matter of fact, many of you own just as much bond investments as you own stock investments. And I know we went every day to be an update, but the reality is it just doesn’t work that way. For those that are 100 percent in stocks, I can get the anxiety and the emotional reaction and the quick move to say, hey, don’t we get out of everything because you got all your eggs in one basket, you’ve got a high octane portfolio, you’re pedal to the metal, all equities. One hundred percent. But you know what? I know very few people that invest that way. Why? Because as people accumulate wealth and they get to the later years in life, they need more diversification. They don’t want the volatility. And they’ve gone from an accumulation phase of which they still might be partly in an accumulation phase. But they’re also in a phase where they want their money to send them some cash flow or be in areas that are less volatile, like bonds. So that’s important to note. And I want to share that with you. And now I would like to invite our guests to talk about the topic as well and share his view.
Peter Morici is an expert on economic policy and international economics. He’s professor emeritus at the University of Maryland. Hey, Peter. Thanks so much for joining me. It’s been a few years, but I’m thrilled that you’ve found time to be able to come on to the your life, your wealth. Program and just talk about the current moment that we’re dealing with, and that is the president testing positive for Kovik.
Yeah, it sort of makes you wonder about security at the White House. I find it silly to believe that that someone who had tested positive for Kovik got near him and for an extended period of time. But apparently that’s the case. I’d like to know what the testing regime is. I mean, to my mind, you shouldn’t be able to get into the Oval Office if you’ve got symptoms of the flu. Never mind. You’ve tested positive for coalbed. Would be interesting to hear how that story unfolds. It certainly creates just more uncertainty and reduces his opportunity to close Joe Biden’s lead because now he’s down to perhaps one debate. And the last debate did not go well for him. And so the window just got smaller.
When you heard the news that the president and some of those around him and the first lady tested positive. And the markets sold off. Did that surprise you or was that to be expected?
That’s to be expected. You get some news like this about any president. And, you know, suppose we had read waiting for. I got it early this morning before markets opened. I was up at two a.m. here for business reasons. And, you know, it came across the transom some time after that. And, you know, I just wasn’t surprised because suppose we had gotten a text that he had been hospitalized. He had broken his leg or something like like Bill Clinton did. That would be enough to tank the markets. Never mind a 74 year old man getting cold.
There’s an eight point differential. President Trump’s eight points behind, if you believe the polls, 51 43. If the markets want certainty, it looks as if statistically Biden wins this thing. But yet the president gets covered and the market has a knee jerk reaction. What’s the market thinking? Something different, possibly, than what the polls are showing until this morning.
The polls were showing the president actually making a little bit of progress. He some of the polls through, say, the 27 28 September showed Biden trending down. Polls taken after that showed Biden starting to trend back up. The latest poll, the CNBC change research all on Real Clear Politics, has Biden ahead by 13. The four polls before that are more in that seven point range, seven points. An interesting number because. Suppose he were to gather himself and hit a couple of home runs in the last two debates? Because, you know, prior to today we were looking at two debates and I think of all the missed opportunities that he had. And Joe Biden’s performance was hardly spectacular and he prepared to death. So Donald Trump changed his approach to things he could do. Well, if you get down within four points. Then you start to get into the realm of losing the popular vote again and winning the electoral vote. In that environment, you know, there is some prospect that he could win. I think you have to get down to more like two and a half point percent, but at four percent. Analysts on his side say they’ve got math considering population shifts since the last time and voting patterns that make it doable at that point. And I say four points and I’m not. I’m not. And that’s that’s after we factor in, you know, Scheid, Trump, people who are afraid to tell a pollster who they who they like and all that business. I mean, that’s that’s putting that aside. So I think that it was still considered possible. And now it’s becoming less possible. And so we’ve got a guy there who’s going to be pulled to the left on taxes, for example. American corporate taxes are hardly low if you compare them to other countries, even with the tax cuts that they got. That’s not good for the market. If you look at all the people clamoring for wealth taxes and there was a lot of sentiment in that direction, for example, during the New Deal, a lot of this is a replay of 1936 37 when the economy was pulling out of the depression and Roosevelt pushed through some AOC style taxes and there was talk of a wealth tax and so forth, and the Dow Jones collapsed. I don’t think we had the S&P in those days and the economy went back down again, only to be finally rescued by World War Two.
What’s on the minds of many, especially baby boomers, have accumulated wealth and worked hard over their years, their uber sensitive with the upcoming election and this signal that the president could be vulnerable. Obviously testing positive and you see the market react to it now. This brings up the thought to many who are listening to us right now. If the market sells off with a positive COVID test from the president and a very high probability that the president will come out of this. Okay, healthwise, what happens if he loses the election? What would the reaction of the market be? And some are saying, hey, actually is a prelude to some negative times ahead if the president loses this election.
It depends on how he loses. My feeling is that if it’s a clean loss and that is November 3rd, he is behind in the tallies at the end of the evening based on the people that went to the polling booth. If that’s the case, you know, if he’s lost the Electoral College on November three at midnight, he’s lost the election because the mail in ballots are going to fall much more in favor of by. If it’s a close election, we could go through a period of three, four or five weeks of hanging chads in Florida in multiple states and in particular, for example, Pennsylvania, where it isn’t clear that they’re probably going to be counting votes that come in for a week later because of all the lawsuits that are going on. You know, Democrats are bringing all kinds of lawsuits to, you know, ballots in some places don’t even have to be postmarked. They just have to arrive some time. You know, whenever the judge says it’s OK and all that’s going to end up in the Supreme Court, you know that. And it’s not going to be like the Bush v. Gore where there was one issue to resolve. It’s going to be like 30 issues to resolve across many states. And in that environment, if people start to become concerned, then the political analysts come forward and they say, oh, what happens if no one has a majority of electoral votes? Because, you know, we don’t get the 537 electors show up that on December 14th because, say, seventy five electors aren’t even elected yet. If they don’t show up and they cast their ballots, you know, we’re in we’re in an area where we don’t know what that means.
Peter being someone who is technically, I guess, retired, although here you are joining me today, some kind of maybe pulling you out of that.
So I write some columns a week when I write a column in Dow Jones MarketWatch, another one in The Washington Times.
Are you being someone who is just like many of our listeners who have worked so hard for their money and have gotten to a stage of life right now where you’re watching what’s going on? Are you worried about your money right now with what you’re seeing happening within the political system? Or is this just all part of noise that happens throughout lifetime? And you’re sort of resilient to this when it comes to your money? What are you doing with your money right now? Are you nervous?
I have some apprehension. First of all, I’ve written many columns over the years about what you should do with your money when you’re old and it’s sort of split your money between fixed income and stocks. But essentially, my fixed income is is in the P&L. OK, because they chose to stay liquid. So as interest rates went down, I didn’t you know, my what I got out of that has gone down. It’s not it’s not zero, but it’s more than I was expecting. But I have a considerable stock portfolio and I went into retirement better prepared than most people so that my my retirement is less affluent than I expected. But it’s not like problems that some people do face where they had maybe one hundred and twenty percent of what they need and now they’re down to 80. I understand their concerns. But in terms of stock appreciation, if it’s a Biden administration goes heavy into taxing people and taxing companies and stocks, trying to break up the things and and others, that then that’s going to be bad for American growth. I mean, you know, used to be what’s good for GM is good for America. Well, now it’s what’s good for Amazon is good for America. Not that I’m a fan of Amazon, but the reality is these tech companies are the rails that we ride on. I don’t see the automobile industry in electric cars ever being the driver that it once was. You just can’t get the leverage. In producing a hard good that you can get in producing, you know, apps and software and all the rest. And if you really look at what what Apple does, it sells people phones and then they sell them a lot of services through the phones. And it’s those services that are the money. If you look at what Disney does, it leverages its franchises and is switching to basically doing that online because the theaters are going away and they all have something going for them. That the makers of manufactured products don’t have because of the heavy costs of building out Teszler. You know, going from 500000 units a year to up to 10 million is. You’ve got to build 20 more factories, 20 times as many factories.
Think they have the Caruso effect. The Caruso effect defines modern economies before. Enrico Caruso, every little town in America, every moderate sized town and city had an orchestra or a band. And many had an opera house.
And people, if they wanted to hear opera. And they went west and so forth, went to the Opera House in Denver. Then along came some personalities. Thomas Edison with his phonograph, Marconi. What is Radio and Enrico Caruso? Can all of a sudden people could hear the Metropolitan Opera on Saturday afternoons on Marconi’s radio, which became the Radio Corporation of America, and they could buy his voice and hear it over and over again on a on a on a on a gramophone, if that’s what they call them, invented by Mr. Edison. And what that did was put all those little opera houses gradually out of business, because even as Scratchy is the voice might be, it was so superior to the total local opera singer. So all those local opera singers lost their jobs. But Enrico Caruso became the first real big, you know, superstar media personality. He had his own brand of olive oil. You know that thing? My grandmother used to buy Caruso olive oil. And his face was on the can just same kind of brand extension as Mickey Mouse. You know, Disney was the greatest genius of it all in that generation later.
After all, if he sold the mouse to whom he didn’t have to pay royalties, he didn’t have to. He had a he had a franchise personality. And he could put it in the drawer at night and keep all the money for himself, which he did, and turned into Disneyland. But you need to have enterprises that can do that to really have a thriving economy. And there is a difference between our socialists and socialists abroad. All socialists like AOC think those people are terribly evil. OK, the socialists in Europe only think they’re terribly evil if they’re American and they lost to create some of their own. The Chinese know they have to have their own and they do whatever it takes to create people like Ali Pei or Tick Tock, including shut us out of their markets. The name of the game is deal, making sure that we can compete on the global scale stage with these companies, not busting them up. And that’s what Joe Biden’s Democratic Party doesn’t get this salivating over three things.
One is raising taxes on wealthy people who basically made their money through those industries.
I mean, they’re really wealthy people and made their money that way or financing them on Wall Street, spending more money on social programs so they can nail down the votes they need forever, you know, and busting up the very companies that are, you know, irrational, they basically want to get eggs from the goose and cook it, too. It doesn’t work that way. And so my feeling is, is that the threat to American prosperity, Donald Trump is running a very disorganized administration.
And by default, it’s basically, you know, when I was doing a lot of TV, you know, and personnel in a personality went away, we would do a generic NBC reports at eight o’clock until they got a new personality. And, you know, and basically they’d doing a GOP reports administration, they’re falling back on stock, GOP answers, and they’re not coming up with any good or interesting innovations, for example. Where is the health care package? We were supposed to get this administration never proposed one. It was generated by the folks on the Hill and they couldn’t get it passed on the Hill. Where’s the infrastructure plan? We never got one. But whenever the opportunity comes up. They’ll talk about tax cuts, Mr. Trump’s. Reelection platform is only about two or three pages of bullet points, whereas Mr Biden’s. Looks like Hillary Clinton sits volumes of papers.
Here’s what’s interesting. I want to leave it with this because you brought up something that someone who is near retirement and retirement should have a diversified portfolio of some of fixed income and some of equities. And I had a conversation with my team this morning about the market volatility after the news hit that the president tested positive for COVID 19.
And I said, hey, hey, listen, everyone, you have to remember the majority of the people that we help and we guide with their life and wealth own as much, if not more, in the fixed income bonds space than the equity space. But it seems the conversation is always 80, 20. It’s 80 or 90 percent about what stocks are doing and almost never about what the fixed income market’s doing. And if somebody would have moved away from what the stock market was doing, because that’s all the media wanted to sensationalizes. Look how much stocks are dropping. The president tested positive for COVID. You had a major rally in bonds. So for the bond side of the portfolio, as the market was down three, 400 points at the beginning of the news cycle of COVID 19 showing up in the diagnosis of the president, you almost had whatever loss in equities you might have had in your portfolio wiped out by gains in the bond side of your portfolio. If you were a 50 50 stock bond investor saying 200 humans, when it gets on just the stock market, when they might end up owning more bonds or fixed income in stocks.
Well, you know, the thing is, is that now the potential for an upside is done on bonds because the interest rates are so low. And what we know is going to happen to bonds for the next couple of years seems to be a certainty because the Fed has painted itself into a corner. And stocks go up and down every day. So it’s fun to cover. We’re you know, you know, so I mean, it’s kind of like. Which, you know, I’m. What’s more fun to cover soccer or football? Football because you have all these big plays. You know, you can score, you know, twenty one points in the last two minutes and pull a game out from nothing. You know. So soccer maybe more elegant and it may be, you know, just as rewarding, but it’s you know, football’s made for TV. The stock market’s made for TV.
Peter Morici, expert on economic policy and international economics professor emeritus at the University of Maryland. Thank you so much for joining us. It’s been a pleasure. Really appreciate your time. Take care. Thank you for listening to the Your Life Your Wealth podcast with me, Steve Cordasco. I would love to hear from you can reach out to me at [email protected] That’s [email protected] And as you can see, any topic that you would like us to discuss. Bring it on. Send it to me. Be more than happy to take it up for consideration and find good people to talk to, like Peter Morici, who is just our guests. You see him on Fox. You see him on ABC, CNBC.
He’s been very vocal, very good at giving guidance and analysis when it comes to the economy. The markets, politics and what it all means to you and your wallet. Thanks so much for being part of today’s Your Life Your Wealth podcast with Steve Cordasco. Have a great week.
If you’re interested in learning more about applying the principles we discussed to your personal financial circumstances, please visit Cordasco Financial Network at cfnplan.com.