• Brendan Sheehan

How Trump, Biden, and COVID-19 May Affect Your Investment Portfolio

Guest speaker, Stuart J. Sweet, President of Capital Analysts Network, talks about how investors should be navigating these uncertain times during the COVID-19 pandemic, and how the upcoming presidential election may impact your financial portfolio.

Watch the video below, or scroll down to read the transcript.

Topics Discussed:

  • How has COVID-19 impacted people’s portfolios?

  • What information and resources should you be paying attention to?

  • What is the good news and the bad news about the current state of the economy?

  • What is Trump’s chance of re-election?

  • How will the presidential election impact your financial portfolio?

Video Transcript:

Brendan Sheehan: Let's get started here.

So as I mentioned, welcome. Welcome to Waymark's April 2020 webinar. Today's guest is Stuart Sweet. He is the founder and president of Capitol Analysts Network, Inc. He has 42 years of continuous Washington experience, including 16 years as a congressional legislative assistant and legislative director, administration appointee, and a registered lobbyist.

During his service on Capitol Hill, Stu was the senior legislative assistant to a number of members of Congress, including Dan Quail and Jack Kemp. He served in the Regan administration and was vice president in a prominent lobbying firm, where he represented foreign heads of state and Fortune 500 companies. In 1993 he began his consultancy to institutional investors specializing in federal political risk management.

So bottom line is that's pretty much Stu's career is in federal political risk management. And he's going to spend a good chunk of the webinar talking about that, and most specifically how the elections happening in November of this year, November 2020, will actually impact your portfolio.

So welcome, Stu! Thanks for joining us today.

Stuart Sweet: Thank you for having me. Good day everybody.

Brendan Sheehan: Couple housekeeping items. So 1) We expect the presentation to be about 30-45 minutes. After that we'll have some questions and answers. And we hope to finish this up within an hour. If you do have any questions, feel free to click at the bottom of the screen. The bottom of the screen... there should be a section that says Q and A or Questions and Answer or Ask Questions, something like that. I'm not exactly familiar with how it looks on your screen. But if you do have a question on anything that Stu says, please feel free to ask it. We are going to hold the actual answering of the questions until the end so Stu can get through his presentation.

And then one final thing with the presentation is I don't actually have a disclosure slide, but of course when it comes to anything that we say here, it's all general in nature and please make sure that you don't take any actions based on any of Stu's comments, or any of my comments, frankly, just based on the content of this webinar.

So let's get started. And before we jump into Stu's conversation about Washington and the November 2020 election, we're going to talk about the 800-lb. gorilla in the room, which is COVID-19 and how that's dominated the headlines.

February 19th, which seems like it was eons ago, was when the market hit its all-time high. And since February 19th of this year, markets have come down in a crashing fashion, in a historic drop and pretty much bottomed out at the end of March. And since that time from the beginning of April 2020 until today, the markets have staged a pretty nice recovery. But we aren't back to the February 19th level. So with all that said, Stu, any comments on this? I know you and I talked about this last week when we were preparing for this presentation. Any comments on COVID-19 and how that's impacting people's portfolios specifically? I don't want to put you on the spot and make you a prognosticator and say, "We're going to be out of this at this time." But what are some of the things that you're thinking about as it pertains to the virus and how it affects people's portfolios?

Stuart Sweet: There obviously are some very key things we have to do to get out of trouble. What are people watching? What people are watching the rate of new infections daily. What we're finding is that the new infections have plateaued. They have yet to decline. We're running at about 30,000 new infections a day, which unfortunately, is about where we were three weeks ago. So the sad this is that we are not yet where we want to be in terms of seeing a national decline in the infection rate.

Now, I like to quote Mark Twain, inject a little humor here. This is a grim situation. It important to remember what averages mean, and they can be deceiving. Mark Twain once said that "A man who has his left foot in a bucket of ice cubes and his right foot in a bucket of hot coals is on average comfortable." So what's really happening with COVID-19 is there is a raging volcano of infection in New York City, in New Jersey, and some hot spots around the country, including Boston, Miami, Chicago. But elsewhere in the country, there has, in fact, been a very steep decline in the rate of new infections. So it's really a tale of two cities, or two different nations. If you are in a hot spot, right now it's terrifying and you don't understand the conversation about reopening the stores, opening up society again. But if you're in part of the country where COVID-19 never really struck with ferocity and the case level is low and heading lower, you're wondering what the big deal is.

So this is, I guess, kind of the reason why we're getting this very different reaction depending on where you are in the country to "Let's get going," to "No don't you dare, we're all going to die if we don't." So it is a mixed bag out there. But of course to fully turn the page, we do need to get the nat. rate down, not just the parts of the country that are becoming increasingly comfortable and wondering what the deal is. We've got to [inaudible 00:06:33] the New York City problem, the New Jersey problem, the Boston problem, the Miami problem. Because people leave these areas and can reinfect us all.

So watch the national rate of new infections, that's the best indicator of where this is heading in terms of the spread of the virus. Right now it has plateaued, it is not coming down yet. So there is [inaudible 00:06:56] we may be getting ahead of ourselves a little bit.

The second thing what Washington's looking for, is let's assume we have succeeded in turning a corner. And we're going to reopen up the country, how do we avoid having a second wave hit us in the fall? And we're going to need to be able to isolate people quickly, identify them quickly if that happens. And that's all about testing. And so what's going on with the testing ring? Well, if you have to watch one person in all this, watch Scott Gottlieb, who's actually on CNBC every day late in the afternoon, early evening, a former FDA commissioner. He believes that we need to be able to test about 500,000 people, give or take, per day, to guarantee that we can in fact identify new cases quickly and find their contacts quickly, and therefore isolate people quickly so that we can snuff this thing out.

Brendan Sheehan: And where are we right now Stu?

Stuart Sweet: Well, the best guess-

Brendan Sheehan: Just for context.

Stuart Sweet: The best guess we're about 250,000 a day, give or take.

Brendan Sheehan: So we're about halfway there.

Stuart Sweet: Halfway there, that's an improvement. About four weeks ago we were running 150,000. So they're hoping to get up there by the end of May, early June. They hope to actually hit that number. But we've heard a lot of promises and what you want to do is see reality. There are different websites that are fairly easy to find that track daily testing, or cumulative testing. And you can track this yourself. If you're trying to follow this as well, realistically rather than listening to talking heads tell you what's happening, just do your own watching.

Brendan Sheehan: And do you have any of those just for the audience, Stu? Any that you use?

Stuart Sweet: I use the COVID project, covidproject.com. It's probably the single best site that I would recommend. You can also watch the Johns Hopkins USA page, which is widely watched. That will also give you a lot of information.

Brendan Sheehan: That's the one I use.

Stuart Sweet: Yeah. But you might check out the covidproject as well, Brandon, and see what you think.

Finally what we want or need is 100,000 people hired to do contact tracing. So let's assume that we get the number of new infections down to something, nowhere near 30,000 a day. Let's suppose we get down to 1000 a day, which is where you want to be, ideally. Well you want to have enough people calling all their contacts every day to find out who else they knew and saw in the last two weeks. And they want as many as 100,000 people to do that. So I would track that as well.

When we can test 500,000 people a day and we have 100,000 people who do contact tracing and we've got the number of cases down to around 1000, we're done with this virus. We're pretty much home free, we can contain it and we can more or less go about our business as long as we're careful.

Brendan Sheehan: All right, Stu, I'm going to put you on the spot. So what are your thoughts, time table, on all that happening?

Stuart Sweet: It is not possible to say. The surprise has been that we're not coming down as quickly as other nations. We're looking more like Europe. China, it rose like a rocket and it fell like a rocket. And we're all hoping for that.

Brendan Sheehan: I'm going to put air quotes around that, though. Because China's data might not be the most reliable.

Stuart Sweet: No that's true. But it's clear that they were able to reopen their country. They certainly have not been telling the truth in many ways. I agree with that, for sure. But it is a fact that the cases came down sharply, maybe fibbing or outright lying how many they had. Whatever the real number is, it went up and it went down, went down rapidly. And that gave everyone optimism. We're not there yet. Right now we're plateaued. New cases we're running at 30,000 give or take for the last four days. That's not where you need to be.

Brendan Sheehan: Yeah, I will say that... just to jump in real quick on that... that I have jokingly said that with the air quotes. One of the things that you can take to the bank is the American companies that reopened. The Starbucks of the world, the McDonald's of the world. They actually did reopen in China. Pretty consistent with what China was reporting in terms of their rates coming down. A company, especially a capitalistic company like McDonald's or Starbucks would not reopen unless those numbers really were down as sharply as they reported.

Stuart Sweet: Absolutely. So if we can, let's move on to actually what this means for the economy and then let's start talking some politics.

Brendan Sheehan: Got it.

Stuart Sweet: I'm a little more pessimistic than others about how fast we're turning a corner on the virus. But on the economy it's actually the news on the other side. It's better than expected. Yesterday or over the weekend the congressional budget office released their bipartisan forecast of what they're thinking. And I guess you could call this the good news is the bad news could have been worse. But they're predicting on the second quarter of this year that the unemployment rate will average 14%. Normally when you hear that number you would say, "I cannot believe how bad that is. That's a terrible number." And it is, it's the worst unemployment rate since the Great Depression. But people were banding about numbers like 20% as a forecast; 15-20% is what we were expecting and the high teens the average forecast by many economists. And the bipartisan congressional budget office's predicting it's going to be only 14%.

In terms of the downturn on real GDP was also coming in at a lower rate of decline that people were fearful of. We were hearing numbers like 20% decline in GDP. And it looks more like 12%. So it's kind of a little bit of black humor: The good news, the bad news could have been worse. But markets, of course, move on expectations. And I think, this is my opinion, some of what we're seeing in the rally the last couple days, I think is the congressional budget office telling people the economy is not as bad as people were led to believe.

And you see this in other sophisticated numbers like the VIX came down a lot, the so-called Fear Index, went down precipitously yesterday. It's almost as though people are starting to a sigh of relief. They see the light at the end of the tunnel. There's more optimism about the economy and about the markets. While I'm not as optimistic about the speed with which we're going to recover from the virus, the economy is starting from a better situation than people thought. And overall that makes people more optimistic, I would say, about the market.

Brendan Sheehan: Got it. Let me just jump in real quick on that, just as a couple clarifiers there. One of the things that I've talked to a lot of my clients about is that the economy and the stock market don't necessarily move hand in hand. There's all sorts of different ways of looking at that, but there's an emotional element to it that sometimes the market gets overblown and gets way too negative than really what it should be. And the other piece of it is that the market is always forward thinking. It's predicting what's going to happen in the next six months. Not, "Oh my goodness, the economy just fell on hard times so therefore the stock market's going to go down right there with it."

So there is a decoupling between what the stock market does and what the economy actually does. And I think Stu, what you were just saying a moment ago, is spot on, is that when it comes to the markets and what happened between that February 19th where we hit the high and the end of March where we bottomed out, there was just so much pessimism of doomsday scenarios of what was going to happen. And the market fell as a result of it. And I think what you're pretty much referring to, that the rally between the end of March until today, is that now that the numbers are actually starting to come in, there was an over exaggeration of how bad it could be, and this is now pulling it back to... it's in essence a recalibration of what people's expectations were, and that's why we're seeing a recovery.

Stuart Sweet: Yes, I agree with that. Last time, it was merely the last 48 hours I think could be explained, to a certain degree, by the CBO telling us that it's even better than we thought, or it's less bad than we thought. More of the same idea.

Brendan Sheehan: Okay, with that said, again, just to cover yours and my behinds, Stu, we still expect there to be more volatility in that this is not going to just be a nice beautiful recovery that we're not going to see any hiccups along the way. What I've been telling a lot of clients that I've gotten on the phone with and spoken to about, is that we should expect a W-shaped recovery, where you kind of go down sharply, come back. But there could be another down, there could be another up, could be down before we finally get that full recovery that everyone's been looking for. And I think both Stu and I are going to be very vague in how long we think that W will take to get back to the February 19th highs that we saw, just two short months ago.

Stuart Sweet: I'm not making any forecasts on either, I'm merely pointing to what the congressional budget office is saying. Personally, I don't know if we're going to have a V-shaped recovery or an L-shaped recovery. It could be bad or it could be better than expected. The jury's just out. Who knows? The jury is out. I just think it's interesting the congressional budget office is more optimistic than the consensus, and they're probably the best in the business. So I think that's very interesting that we're staring to [crosstalk 00:18:01] more optimistic than others. Not in my forecast, their forecast. The starting point's better than expected.

Brendan Sheehan: Okay. Sounds good. Any other comments before we shift to your presentation?

Stuart Sweet: No not from me.

Brendan Sheehan: Okay, sounds good. So let's get going. Stu, you're on. This is where Stu really shines. He knows Washington well. Go for it, Stu.

Stuart Sweet: Well, thank you. First of all, just a quick comment. Yes, my background is in Republican politics, but I've been advising institutional money managers and others across the spectrum for 25 years. So I learned a long time ago to leave my personal politics out of my forecasting. It's a good way to... and I'm not... having many clients... using your own biases to make forecasts. So this is not a product-Trump point of view or a anti-Trump talk. It's just what I think's going to happen talk.

So let's just start there. I think Trump's got, maybe, a 55% chance of being reelected, which is actually not very good for incumbent presidents. Two-thirds of incumbent presidents who run for reelection win, so he is not the most popular of incumbents. And this is showing up in contemporaneous polling. Joe Biden is, in fact, beating him in the head-to-head polls 48 to 42 right now. So if we voted today, he would be a former president and Joe Biden would be elected.

Now we've also learned that it's very important to look at state information. As we know, both George W. Bush and Donald Trump did not get the most votes on election day, yet they took the oath of office. So it's important to keep track of electoral college, and specifically the key states that are going to decide this, which are states like Wisconsin and Florida. And when you look at those data, they bag up the national polls. Joe Biden is beating Trump head to head in Wisconsin. There was a poll out today as having him beating him in Florida, which is typically a redder state than Wisconsin. So again, right now Joe Biden is beating Donald Trump.

Of course we're not voting today, and incumbency has a big advantage. So we'll just wait and see. I will put my feather on the side of the scale of Trump making it back, but it's not because I'm a Republican, it's just because usually incumbents somehow figure out a way to win. And Trump has the advantage of not having to need to get the most votes to get back as the presidency. As we learned in 2016, he got 2 million votes fewer than Hillary Clinton. So he doesn't even need the most votes to be reelected, just like he won the first time.

Now what I think Trump is up to in managing the virus and the economy, is he is trying to play the role of optimist. America loves it best when our leaders are optimistic. When the whole mood of the country is grim, horrible, everyone's losing their jobs, we're losing friends to the virus, our wealth is declining in the stock market, we're wondering if our houses are going to lose value, we're shut in, we can't see our kids and our grandkids and we can't see our friends. And it's really difficult. It's good to have the leader of the country exude a positive spirit. And that is what he's trying to do.

Now he's telling some things that are turning out not to be true. For a whole month I would say the country was optimistic because we thought that hydroxychloroquine was going to save the day. And it took a month for us to learn that's probably not the case, it's probably not going to be a magic bullet. But who wasn't taking solace from thinking, "Oh gee, there is something out there that's going to save us?" Remdesivir was out there and still out there as maybe that's what's going to save us. So he talks up these things. "There is a cure. We are going to solve it." Does he know? I don't think he does. But that's what he's trying to do is just protect being an optimist and be an optimist all the way through the election. And when the virus is in our rear view mirror and we're worrying about the economy, he is going to say, "Man we're going to get back lickety-split. It's all going to be great. Look how many people are getting hired and it's all going to come back together. We're going to be better than every in just a few short months." And he'll be talking up the recovery and doing everything he can to get us all optimistic again.

If he can keep that up he's got a big advantage. If the [inaudible 00:23:07]'s in the ground, support a reasonable amount of optimism, "Yes we're still here, the economy's back," people will forget many of the reasons why they dislike Donald Trump, if you're in the middle. Now people who don't like him are never going to like him and the people who like him now are still going to like him. It's the people in the middle that are going to decide this thing. They're going to remember that. They're going to remember that he guided us through a national nightmare with optimism, and we came out the other side. That's really what his strategy is all about.

Now in terms of getting into more of the nitty gritty, it's going to be a race also between mobilizing two very large constituencies. Maybe the best thing to do is to turn to the next slide, I think. If someone's controlling the slides. So I've broken the electorate into five easy pieces. The biggest one is Whites who didn't graduate from college. That is Trump's base. They were 44% of the electorate last time. If you look over to the side there on the first line you'll see that Trump got 37.9 million votes from this group. Hillary Clinton got 19 million. So he carried this group by a difference of 18.9 million voters. What Trump's going to want to do is get as many Whites who did not graduate from college out to the polls, because they like Donald Trump by a margin of 2 to 1. This is the only group of the five that actually likes him, approves of him.

So if you wonder why Donald Trump talks the way he does and acts the way he does, it's all about maximizing his popularity with this group, which last time was 45% of the electorate. He'd like nothing more than for this to be 50% of the electorate. If he gets anywhere near that number he will be reelected.

Now if you look at the next line you'll see that 30% of the electorate are Whites with college. Now they're fairly closely divided: 43% for him, 50% against him last time. Because they're closely divided, they produced a margin of only 3 million votes for Hillary Clinton. As a group they're actually not that consequential. I'm a member of that group. Half my friends think Trump's good, half of them really dislike him. But there's no point in trying to mobilize them because there's not a lot of advantage in doing that for either side.

Now look at the next group, African Americans. They're only 12% of the electorate, but because they are so united in their views in favor of the Democrats, they voted last time 8% to 88% for Hillary Clinton. They actually supplied 13 million votes for Hillary Clinton. Now look at the difference there. Look at the margins that are supplied by Hispanics. Well, they gave her 4 million. Asians and others 1.6 million. What stands out is mobilizing two groups. Donald Trump would try to mobilize Whites that never graduated from college. And Joe Biden will try to mobilize the African American community. And here, you have to say that Joe Biden's got quite an advantage of doing this, because Barack Obama is going to be out there very aggressively campaigning in the African American community for Joe Biden.

They already like Joe Biden a lot, that's why he's the nominee. On Super Tuesday he ran up the score huge with African Americans, and he put Barack Obama on the road to Milwaukee, he put him in Tallahassee and Orlando and Miami. He put him in Philadelphia, he put him in Detroit, the key states here. And he will energize that community. Michelle Obama will go with him or maybe she'll split up and they'll hit these states simultaneously, there will be an Obama blitz, it will work.

So Trump does have his work cut out for him. It's going to be a fierce struggle, it will not be pretty. It'll remind you of the last race. If it were just a referendum on Donald Trump he would lose. Most people disapprove of Donald Trump as president and that's been the case since the day he took office. Trump wants it to turn into a choice, just as he did with Hillary Clinton, saying it's not me that you have to decide on, it's am I better than the other guy? And that standard, he thinks, is easier to overcome. And he's right. So the Trump campaign will do their best to make Joe Biden look like he's unqualified to be president, that maybe he has a touch of dementia, that he's just not strong enough to hold the reigns of power in dangerous times. They'll try to [inaudible 00:28:03] gaffes. They will try to dirty him up with being a little too touchy-feely with women during his lifetime; they have video of that. They will try to say that he's corrupt with all the business about his son.

I'm not pining whether or not any of this is true, that's not what politics is about. It's about what you can convince other people is true, not what the actual truth is. Perception is reality in politics. Reality is not reality. This is what he's going to try to do. And they're going to dirty up Joe Biden and say, "Which of these two bad choices, you guys in the middle, are you less uncomfortable with?" Just like last time. So it's not going to be pretty. I view it as a toss-up election.

Let's go to the next slide if we can. So if you want to just keep track of where we should be focusing our energy, the states in yellow are the ones that Trump and Joe Biden will be focusing on. These are the pivotal states. The new addition is Minnesota. Interestingly enough, Minnesota, usually thought of a as a very reliable blue state, came within 1.5% or so of giving the victory last time to Trump. And the Republicans actually picked up seats in the blue wave in 2018 in Minnesota in the House. So you have to add Minnesota as a possible target for Republicans and Donald Trump this time.

Democrats, like their chances in Arizona and North Carolina, and even see an opportunity to punch through in Georgia. So if you basically focus on these eight states, keep track, you will know how the election's going. Do not pay attention to national polls. We know that's not who picks the presidents. It's going to be these eight states. Try to keep track of the polls in these eight states.

Okay let's move on to the next slide if we can. All right, now of course, November we're not going to be picking just the president, we're going to be picking our Senate and we're going to be picking the House. Now this cycle, many more Republican seats are being defended than Democratic ones. And so there's a lopsided opportunity for Democrats to gain seats in the Senate. And I'm reflecting that here with this map.

There really are six Senate seats where Democrats have a good shot at taking the seat, some of them better than the others. I'm showing that on my slides here. Cory Gardner's view is already defeated in Colorado. Martha McSally in Arizona's in terrible trouble. And Susan Collins, interestingly enough, in Maine is in a lot of trouble. When you put it all together, who's going to decide this? It's probably going to be Tom Tillis' race in North Carolina and Steve Daines' race in Montana. Republicans start with at 53%/47% majority. So Democrats need... to gain absolute certainty that they're going to have control, they're going to need to net four seat. And they're going to lose Alabama.

So you can do the math on how far down this list they have to go. The seats control the Senate. But again, the Republic has only a 60% chance of holding onto the Senate because what has been happening in American politics is very interesting with swing voters. Increasingly, swing voters are not ticket-splitting. If this year they decide they're going to vote for the Democrats for president, then they're going to vote for Democrats for the Senate, and they're going to vote for the Democrats for the House.

If they're going to vote for Republicans for the president, then this year they're going to vote for the Republicans for the Senate, and Republicans for the House. It lines up almost 80% correlation now. It used to be 55%. With each cycle, the swing voters are increasingly not splitting their tickets. They're voting a unitary ticket and just switching which direction they go. And so this is winner-take-all politics in the House and the Senate, and creating increased volatility in the election.

So despite the fact that Republicans voted 53%/47% majority, there's a 40% chance that Democrats win the presidency, take the Senate, and keep the House. Which means come January of next year, you would have a liberal government taking over Washington D.C. And you can predict certain things from that. Maybe it's good for the country, maybe it's bad for the country, that's up to you to decide. But one thing seems quite likely we would see is a corporate tax increase. Because Joe Biden would want us to take away the corporate tax cut that the Republicans gave, raise the tax rate from 21% to 28%.

If you think that the stock market reflects after-tax cash flows, which I do, that probably means there's a 10% risk to the markets of Joe Biden, if he wins, and the Republicans lose the Senate, and the markets figure it out, the market's going to have a new obstacle before it goes back to those February highs, which is having to absorb the expected corporate tax increase you could assume would happen in 2021. They will have the votes to do it.

All right if we can let's move on to the next slide. Now let's suppose the opposite. Let's suppose that Donald Trump is successful and framing the election as successful Commander in Chief who guided us through terrible times, a once-in a-century pandemic, the worst recession since the Great Depression, and those swing voters reward him for his optimism and his, what they perceive, to be steady leadership of got us through all this.

But there's enough firepower for Republicans to actually take back the House. And they will need 18 seats to do that. To put some context on that: Democrats in the last election won 40 seats. So Trump only needs to gain back half the seats that Republicans lost in just the last election. And all these 40 seats, they're obviously freshmen new to their territories, they're not well-entrenched incumbents. So if Trump gets, what I believe, is something like 49% of the two-way, two-party popular vote... I don't think he even needs a majority of the popular vote... I think Republicans would probably take the House back.

And one of the reasons for that is that the maps that were so favorable to Republicans as a result of the 2010 census, are still in effect one last time. The Republicans were successful in gerrymandering all of Pennsylvania, all of Ohio, all of Michigan, all of Wisconsin, all of Florida, Texas. And so 2016, Republicans held the House of Representatives comfortably. They didn't get the most votes for the House of Representatives. More people voted for Democrats for the House than they voted for Republicans. But when you went race by race, the Republicans kept their majority with something like 230 seats. So if Trump runs around 49% in the two-way race, 49%/51%, he might, just like last time, come back be president.

Republicans might take the House even though they didn't get the most votes just because of these maps. And one more, last time, they've got the gerrymandering maps. What does that mean? Well then you're going to have all conservative government. Because if Republicans capture the House, if the swing voters... and then on that last slide they tipped the balance with all those Republicans and now are they in trouble? A lot of them make it back. They keep the Senate, maybe they lose one seat. Certainly not three, four. And you've got conservative government. And now Donald Trump thinks he's got a mandate. He's got unified government. And you've got all conservative government. And he's going to pursue a pro-business point of view: more corporate tax cutting, probably, more incentives, bring back manufacturing from China. You can already hear the drumbeat. And there's probably going to be upward movement in the stock market. I'm not saying this is good or bad for the country. That's for you and me to decide in the voting booth. But the markets will probably assume it's helpful.

So this makes this election one of the riskiest for investors, in my lifetime. Not only do we have to navigate a once-in-a-century pandemic... and we have to figure out are we going to have a V-shaped recovery or an L-shaped recovery? We have to figure out is this country turning leftward or rightward? And this decision's going to be made by the country in just a few short months. And there could be tremendous volatility here depending on what happens in something like a national debate. We'll all watch it in real time, because Donald Trump might say something so offensive that it costs him the election. Does Joe Biden stumble when he talks and convinces people, yes there's something there there and he's not up to the job. We'll see it in real time.

It's remarkable how much risk there is from politics. In the 40 years I've been doing this, I've not seen a level of this risk my entire time in Washington.

Okay maybe we can go to the next slide?

Brendan Sheehan: Give me one second here.

Stuart Sweet: Okay.

Brendan Sheehan: There we go.

Stuart Sweet: Okay. So what does this mean?

Well, how would I personally invest bonds? What am I suggesting people to do? Well, I tend to pick themes. I try not to get into the weeds and pick individual companies; I leave that to the experts like you. But what's happening in Washington? We know the 5G theme is going to be a strong one, coming from Washington. This is a global contest between the United States and China, or more broadly, the West versus China, whose technology is going to be used to build out 5G globally? And all the spin-off applications of 5G.

Brendan Sheehan: So for those of us who don't know what 5G is, that's pretty much a cellular phone Internet band that's supposed to promise extremely high speeds, and therefore result in all sorts of new technological innovation.

Stuart Sweet: Yes, there's some hyperbole here. But it's probably not off by much, to say that the speeds of our Internet will go up by a factor of 40, 4-0. Mind-bogglingly fast Internet. And it's going to make possible things that we couldn't do before. It's going to start with driver-less cars, it's going to make driver-less cars possible. Maybe it will take us 15 years to be well on our way to having that fully phased in. But driver-less cars are possible when cars can talk to each other at blindingly-fast speed computer-to-computer without human intervention, and make accidents a thing of the past. The Obama regulatory team predicted that the accident rate would fall by 94% when we had driver-less cars as a reality. It's probably going to fall by more because they didn't know about 5G when they made that forecast.

Virtual reality is going to be a big deal under 5G. If you always promised your significant other you were going to take him or her to Venice, you'll be able to sit in your living room and put on a realistic set and press the Venice button and you will be walking down the streets of Venice and looking at all the beautiful things there. You want to go to Mt. Kilimanjaro before you die, you can't make it there... anyway, virtual reality will be something else we'll be hearing about courtesy of 5G.

Remote surgery. You have a child who needs surgery in Saskatchewan, Canada and they don't have the cutters there who can skillfully stitch this child back together. If they can get him to the operating table somewhere in Saskatchewan, it maybe a surgeon at Mass. General who stitches him up remotely. That will be a realistic thing to do using 5G. We will all come to think of this as quite natural just the way many of us think of hailing an Uber now is quite natural. That was not possible until we had 4G.

There are going to be all sorts of spin-offs. So 5G is a theme that's going to be with us for a good long while. There's security aspects of this, the Chines control it, they'll be able to snoop on people globally. Big security risk. Democrats and Republicans are united on this here in the United States. Nancy Pelosi was actually in Europe lobbying the Europeans not to adopt the Chinese standard. As you must gather, the Chinese star globally is dimming because of how they handle this crisis. So this is making their lobbying efforts even more successful with European publics.

I think this is the place to be regardless of probably who wins the election, but certainly if Trump wins it. My theme on utilities is basically, under Donald Trump you can assume that the green energy idea is dead. He's the most pro-fossil fuels president I can think of. Everyone remembers his t-shirt that says "Trump digs coal." He wants to get the country moving again. Utilities are a pretty safe place to be if we have an L-shaped recovery. People will be looking for dividends, safe place to be in my opinion. The regulatory environment's going to be friendly to utilities. So that's the ideas there.

On infrastructure, this is going to be happening under either president. But we've got low interest rates down around 1% or 2% on the 30-year bonds. My goodness! Well we have a multi-trillion deficit of needs in rebuilding our roads and bridges. It makes absolute complete sense to finance this as cheaply as possible with 20- or 30-year debt when they're basically giving you the money for next to nothing. To finance 20- and 30- and 50-year assets that actually do improve the productivity of our country. This isn't giveaways to the constituency you don't like. These are things that you and I... roads we take every day. We see these potholes, we see this congestion on our major highways. We lose a lot of time on the roads. Our system would be much more efficient if we could do this.

Both parties agree. They've agreed for sometime. The problem has been figuring out how to pay for it. In this environment, fortunately in some ways, it's not an obstacle. We're just going to put it on the credit card. And it makes some sense if you're thinking about cyclical needs of getting... the unemployment rate is 12% or 10%. We still need to get that unemployment rate down. It may take a year or two to get an infrastructure program up and running. We know there are not a lot of "shovel-ready projects", but what we could do is start the ball rolling here, maybe even this year, and have some of those projects up and running by the middle of next year.

And so this is going to be a theme you can count on. We're going to have an infrastructure bill regardless of who's going to be president. Timing to be decided later. Just watch this space.

National defense, well obviously Republicans, if they certainly control all the Congress, we know where they are on defense, which is that they think that we need to be increasingly worried of the Chinese. We have to worry about the Russians. We have to worry about North Korea. We have to worry about Iran. We continue to need to rebuild our military and take care of business here. It's a sustained theme with regards to who the Republican president is.

With a Republican Congress, Trump will get his way. Pelosi's been saying, "Yes, but," "Yes, but," "We'll give you some of what you want, but you have to give us what we want." And there's been haggling, and reflect the domestic needs the Democrats want. So for good or for bad, if you had an all-Republican government, that obstacle would be removed and Trump would get his way on defense.

Brendan Sheehan: Hey, Stu.

Stuart Sweet: Yes sir.

Brendan Sheehan: Just in terms of time-wise right now, we're at about 48 minutes. And I just know that... I'm looking at my list of participants and I know that they're some of my more actively-interested-in-politics-type clients. So I'm sure there are some questions. So why don't we do this: I think there's one slide after this. But in the meantime, if people can start using that question and answer button at the bottom of the screen, start putting some questions up and I'll start compiling them while Stu finishes up the presentation.

Stuart Sweet: Okay.

Brendan Sheehan: Keep going, Stu.

Stuart Sweet: Thank you, Brandon. Well, basically I'll pick up the pace here. Obviously you can imagine what Trump's going to be thinking of China... when we turn the corner we don't need China's help to get through the infection. Something like 75% of the country now has a negative opinion of China. There's quite a consensus on this. So he will be able to take an even tougher line on the Chinese import situation. So anyone who's exposed to that through supply chains needs to think that through carefully what that means, because one way or another those supply chains are going to be attacked. And be careful there.

Google and Facebook, these are perennial targets of Republicans. They think that they are liberal platforms. When we are no longer talking about the virus we're going to go back to talking about the things we were talking about before the virus. Attempts to regulate Google and Facebook are going to accelerate once again. So be careful about owning these. If you don't have a view on this there might be reasons to still own Google and Facebook, but be wary of the regulatory risk involved.

Okay let's move to the... let's call it the Biden slide. Obviously different priorities. We have a Democratic Congress, Democratic president. We can certainly make money with Democrats in power. Conservatives who foolishly sat out the Obama years learned to regret that. So as I said, I am ecumenical on this. This is where I would be putting bets if you see Joe Biden win. Biden wins he's probably going to have the Senate and he'll certainly have the House.

Green energy is going to be a thing. They will be finding ways to end the fossil fuel era faster than perhaps it would otherwise happen. Wind energy, solar energy, efficiency, smart grid, all the themes of sustainability would be in vogue and they would have the votes to push them through.

Cannabis, the country is now in favor of recreational legalization of cannabis. The speed with which this change has happened is startling, but it's a fact. One would imagine that President Biden would finally act on this. At a minimum repeal the major federal impediment to this, which is rules against banks, financing, growers and retailers of cannabis. This is why we don't have a domestic legal cannabis industry, it's largely because banks are afraid of being seized if they finance this activity. That could change and that would be sufficient to stand up a domestic cannabis industry here in the United States. You should watch that.

The consumer staples theme, very briefly that's again, if we were in a slow recovery, and we're talking about a corporate tax increase, maybe consumer staples make some sense.

U.S. bonds. If the recovery's going to be a little slower than otherwise expected because of that tax increase, U.S. bonds may be a good place to hide until we can gather momentum and gain power.

Infrastructure we talked about already.

Over on the bear side, we know what Democrats are thinking about healthcare. They want to make progress towards single payer. Biden's an incrementalist. When he sat down with Bernie Sanders, they agreed to push for Medicare for 55 and over. That's going to be the Biden position in this election. That's clearly not good for things like health insurers. They're going to lose customers.

Big tech... it's interesting. They too are not big fans of Google and Facebook. They've got an agenda to reign them in.

Larger banks. One of the surprises from 2008, 2009 is that the four largest banks in the country have a larger share of domestic deposits now than they did then. So too big to fail was a problem then. It's an even bigger problem now. And Democratic regulators led by Joe Biden will do what they can to make that and make it smaller. So I'm not a fan of wanting large banks assuming a democratic win here.

The other three industries at the bottom are small niche things. Many investors don't play these areas, but I put them there for completeness.

Okay so because I took more time than I expected talking about the virus and the economy, I think I should stop there and thank people for attending and listening. I wait for your questions.

Brendan Sheehan: Great! Okay. So again, as I mentioned, anyone who has a question feel free to ask it whether using the chat feature, there's a chat feature at the bottom. There's also the... I see it as Q and A at the bottom of my screen. But I do have a couple questions for you, Stu. You ready?

Stuart Sweet: Sure.

Brendan Sheehan: All right, first question: How much does Biden's running mate affect his chances of winning? And a little bit more specifically, what if he chooses a woman?

Stuart Sweet: Well this is a popular question, and my answer displeases almost everybody. It doesn't matter. It matters very little. At least in terms of winning the election. If you actually study this, it's difficult to find an example in all American history, certainly modern American history. Picking the vice president has resulted in any state switching towards that party, away from that party. People vote for president. They don't vote for vice president.

The best example that people can find maybe, and just maybe it made a difference... and people will debate this until the cows come home... is maybe JFK picking LBJ in 1960 swung Texas. Nobody knows for sure. But the question is not, "Does it matter?" Of course it matters in different ways. But in terms of actually determining the outcome of the presidency, I don't think it does.

It matters, however, in the event that we have the unfortunate circumstance, of course, that Joe Biden were to pass away, that's going to be a thought in people's minds. It should be about Donald Trump as well. We've got men in their late 70s running against each other. We would like to believe that the person that Joe Biden picks is going to be capable of governing in the unfortunate circumstance that he could not carry on. And in that context, that's important, certainly.

And I guess, another way it's important is more in the following sense: You've taken the measure of a man, or a woman, whoever the nominee is, of their decision-making capability by who they pick as their running mate. This is one decision where it's you alone as a candidate get to decide. No one else can interfere with you. You can three months to... in Joe Biden's case he's got three months to decide who he wants to pick. He will hire the vetters. He will interview the candidate. And does he pick a choice that stands up well under scrutiny? Or did he pick a bad choice? It took some of the wind out of the sails from papa Bush when he picked Dan Quail, remember that.

Now in the very beginning, the first 72 hours, John McCain picked Sarah Palin, that put wind in his sails.

Brendan Sheehan: That's the one I was thinking about.

Stuart Sweet: Yeah, and so you can get some buzz. And if you're behind you may have to throw the long ball and try to change the subject. But in the end, it really doesn't matter. It's something that the talking heads will-

Brendan Sheehan: Okay. I actually did get a follow-up question on this one. And the question is: In this election where there is some question about Biden's faculties and whether or not he'll, four years into it, turn into a Ronald Regan, year 7, 8, is that choice of running mate that much more important?

Stuart Sweet: It... not much... 80% of the electorate, let's just start [inaudible 00:54:58] partisan, they would vote their party no matter who the nominee is. So what we're really talking about is the 20% in the middle, what do they think about all this? And if I had one thing to share with people, that's the takeaway is stop debating your ideological opponents; you're never going to change them and they're never going to change you. Love them for who they are, if they're your friends, your family. Stop talking politics, because all it's going to do is divide you.

But anyway, and we who are stuck in our ways, D or R, I love you both. We're not the ones who decide. It's about 20% of the voters who decide. And what do they think about all this? Are they terrified of Joe Biden being incapacitated? Well maybe, just maybe, this time it does matter. We will probably hear some polling on that and see if it matters. Historically its not mattered. The vice presidency is not who people vote for.

Brendan Sheehan: Got it. Okay. Let's do one more question. We have about a minute left. So anyone else have any questions? I do have one more question, but I just want to... and it's more me personally than anything else. But anyone else have any questions before we jump into that final question?

All right, since I don't see anything, and if someone does jump on then I'll change. One of the things that I was always schooled on and told to remind myself about is when it comes to things like this, Trump's key states and what races to actually pay attention to, there are a lot of polls that are going to be flying around. And really it's for clicks and eyeballs and things like that. Bu the most important ones to think about are likely voters who are actually going to be part of these things.

So if they just say number of people who are going to vote for Trump or going to vote for Biden. You almost want to throw that one out the window. But if it says likely voters who are actually going to... because again, this graphic here was really eye-opening to me. That of the voting public, 74% are White. And I thought it would be a whole lot more. So that actually kind of opened my eyes. So the real important thing is likely voters, not necessarily the public at large.

Stuart Sweet: Oh that's definitely true. The absolute worst poll is a poll of all adults, because only 60% of people vote, who are eligible to vote. So 40% of your sample are people who never vote. It doesn't matter. An all-adult poll will include resident aliens who are not yet qualified to vote, maybe illegal aliens that better not vote, and it includes registered voters who actually don't intend to vote. So the absolute worst poll of all was an all-adult poll.

The next poll that is somewhat better is a registered voter poll, which is... these are typically what we see right now.

And then the best is the gold standard, our likely voter polls. And this is where the secret sauce of the pollsters matters because there's a lot of skill in discerning whether or not the person you talk to actually is going to show up and vote. And a [crosstalk 00:58:40] voter model will certainly start with the basics, which is did you vote the last three elections? If you did we're going to score you as a likely voter. How do we score somebody who's voted two of the last three elections and who say they're going to vote? So there's a lot of artistry that goes into even that. So different pollsters might say, "This guy's a likely voter and this one's not a likely voter." So there's, even there there's some skill.

And finally just to underline it, you want a likely voter poll not of the whole country, but of Wisconsin, a likely voter poll of Florida, likely voter poll of Pennsylvania, Michigan. You boil it down to the absolute essence, that's what you want to watch.

Brendan Sheehan: Got it. Okay. Well, we're at the one hour mark, a little bit over. So Stu, again, thank you very much for taking time out of your day to join with us and share your wisdom. And with that said I'm going to bid everyone goodbye and hope everyone's staying safe.

Stuart Sweet: Thank you, Brandon.

Brendan Sheehan: Thanks again.

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