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Webinar: Financial impact of new leadership in Washington, D.C.

A new year and a new administration: A look at what's ahead and how it may affect you.

Tags: Investing, Investments, Planning
Published: January 08, 2021

During this 45-minute webinar, investment and government relations specialists from U.S. Bank discuss what to anticipate for:

  • Legislative and policy agenda
  • Economic recovery
  • The stock market
  • Financial and portfolio strategy considerations


View video transcript

New year, new administration: What's ahead and what to do about it

BILL NORTHEY: Hello, and welcome to the first of our three-part series called Informed Investor, brought to you by U.S. Bank Wealth Management. I'm Bill Northey, Senior Investment Director with U.S. Bank Wealth Management and I'll be facilitating today's discussion.

Like all Americans, we are unsettled by the events that transpired yesterday in our nation's capital. And while I won't be discussing those directly today, we will be talking about the results of the election, the Georgia runoff election that occurred earlier this week, and the impacts to the capital markets and how that might play into your portfolio positioning on a go-forward basis.

Before we get started, we wanted to give you a few housekeeping tips to familiarize yourself with the platform that we're utilizing today. You can drag your mouse on the corner of each of the individual video boxes to expand them or contract them. You can close any of the modules that you wouldn't like to see by clicking on the X in the upper right hand corner. And the buttons at the bottom of the screen that are cascaded across the bottom will also allow you to control some of the features of our platform here today, including restoring anything that you may have closed. There is also a spot at the bottom to initiate questions, should you have any questions throughout the course of our conversation today. And we'll be following up with a response afterward.

Today I'm joined by my colleagues, Eric Freedman, Chief Investment Officer U.S. Bank Wealth Management, and Kevin MacMillan, Senior Vice President, Head of Government Affairs for U.S. Bank. Kevin, Eric, welcome and thank you for joining us today.

ERIC FREEDMAN: Thanks, Bill. Great to be with you. Happy New Year.

KEVIN MACMILLAN: Good to be with everybody.

BILL NORTHEY: Thank you. Today is our goal is discuss what you can anticipate over the next course of the next year. And really it's going to fall into four major categories. It's going to start out with legislative and policy agenda, the economic recovery, the stock market, or the capital markets more broadly, and then financial and portfolio strategies that you may want to consider as a result of those factors.

We'd like to take you back to a framework that we introduced in our November 2020 webinar series that was immediately preceding and following the general election. And we find that working through this lens and this context of a framework really helps us to take it into more digestible components and help you to contextualize the impacts and the factors that are in play in each of these various time frames.

So let's go ahead and dive into that first milestone, which is the post-election event considerations. And I'd like to bring in my friend Kevin here to talk through some of these early level election results. And so Kevin, I'd like to have you talk a little bit about the presidential election and the congressional elections and some of your perspectives around that, sir.

KEVIN MACMILLAN: Great. Thanks, Bill. It's great to be with you. And thanks very much for having me. I just want to reiterate what you said that what we saw yesterday was very troubling. But we certainly did see the Congress reconvene and certify the elections, and Joe Biden is now on the path to becoming the next president of the United States.

So it was quite an election season for sure. We saw dramatic changes in control of both the House and the Senate and the White House. In the House of Representatives, we did we didn't see change of control per se, but we did see a significantly narrowing of the majority by the House Republicans. So Democrats actually lost seats in that election, somewhat surprisingly to many pundits that were following this very closely. And that's going to make a very challenging situation for the speaker and the leadership of the House to move forward with their agenda. They will have to negotiate with moderates and with progressives to ensure that they've got a sufficient number of votes to move legislative products across that chamber.

And that Senate is a very different situation. We saw that the Senate Republicans actually lost seats as a result of the Georgia election just happening on Tuesday. Now the Senate is a 50-50 split. And that's significant in that with Vice President Harris assuming office, she becomes the President of the Senate and casts the tying vote in that chamber for control of that body. The Senate is a different beast than the House of Representatives. An outright majority rule does not necessarily prevail today. And so senators will have to again negotiate with one another to try to move legislation as things stand in the current rules and structure of that chamber.

But what it does mean is that the establishment of the committees and the chairmanships of the committees across the board in that chamber will be controlled by Democrats and they will be able to set the agenda for those organizations.

In the White House, I think as we saw, former Vice President Biden is now President-elect Biden. He will be sworn in on January 20. We are already seeing emerging names for the cabinet across the board. I would anticipate that we're going to see several cabinet level confirmation hearings convene in the coming weeks, perhaps even before the inauguration does occur. It's very, very possible that we'll see the Treasury secretary, the Defense secretary, the Homeland Security secretary, the Attorney General, sort of the big four, as they like to call them, begin to move in the early parts of the-- even maybe before the inauguration. So we'll keep an eye on that and we will proceed forward to better understand how that's going to play out.

We'll talk a little further about what the agenda looks like and what we expect on the horizon, but that's the lay of the land. It's a different playing surface than perhaps we were looking at four years ago, certainly, and it will present different opportunities to engage across the board with the Congress and with the administration.

BILL NORTHEY: Well, thanks for that, Kevin. And so since the last time that we talked in November, we've also seen a major piece of legislation move forward with the new stimulus bill at the end of December. And wondering if you might be able to address some of the big rock items that were presented in that piece of legislation for our audience here today.

KEVIN MACMILLAN: Sure, Bill. So the stimulus package that passed, really at the end of 2020, was a $900 billion package that had been under negotiations for approximately six months between the House and Senate and the White House. If you're following closely, there was a bit of drama there at the end of whether it would be signed into law or not. And it eventually was. And this bill really has quite a few major components that will flow economic activity into the economy here.

Sort of the biggest piece of it is the $600 stimulus checks traveling to much needed people that are feeling financial hardships across the country. Those are moving now. They are in the cycle and they will obviously take several weeks to complete, but they are on the road. They have extended unemployment benefits. And then really to help the small businesses and get people back to work we've seen hundreds of billions, about $250 billion, put into the Paycheck Protection Program, which is the program that small businesses have been able to tap to support their payrolls and their operations during the pandemic.

There have been some changes to the PPP program that will allow business to take second loans and allow them to get another lifeline to bring them into a hopefully better economic atmosphere going forward. The bill extended the eviction moratorium for rental assistance, and then it also had quite a large chunk for COVID relief. Obviously, that was another major component of this. And so somewhere in the neighborhood of $75 billion were directed to vaccine distribution, vaccine purchasing, testing.

And then finally, school reopenings, transportation funding, and other components of the economy were supported by the stimulus bill. So after all these months of negotiation, this bill was approved, and it has become law and is now the implementation process. I would think that in the early stages of the Biden administration we will see another effort to move additional stimulus. But again, we can talk about that [INAUDIBLE].

BILL NORTHEY: Appreciate that nice summary there, Kevin. And I'd like to invite Eric Freedman in to tell us a little bit about how he's seeing some of the impacts of, in particular, the stimulus package having on the capital markets, both what has occurred and perhaps what will occur in the near term as a result. So Eric.

ERIC FREEDMAN: Thanks a lot, Bill. It certainly is a topical item. And as you heard from Kevin, the negotiations have been taking place for some time before the bill ultimately was signed into law. And there are now questions about, will there be an addendum to that bill, and actually, will there be another potential bill sometime in the late spring, early summer. So these are things that, of course, we'll wait to see what shakes out. And I'm sure Kevin has some comments on that a little bit later on.

But one of the things that investors are thinking about is just how will this capital translate into the economy. Will it actually have a direct impact into consumer spending trends? Or will consumers actually continue to save, which is something you actually don't see a lot? We as an economy generally are not great savers. But during this pandemic, that behavior has actually been more persistent than not. Many people have been saving more than usual.

So one of the things to think about is if we do see consumers anticipating the potential for either an increase to this particular piece of legislation or something to follow a little bit later on down the road, Bill, that could actually lead to some increased consumption from consumers. So again, we'll have to see how things play out. But that has certainly been something that has been a catalyst for the global equity markets to move higher. You've certainly seen some bouts of volatility. But in terms of equity markets, as well as real assets and other considerations, you certainly have seen more of a risk on or a pro stock type of orientation, not just in the US, but obviously, abroad as well.

BILL NORTHEY: Thanks for those insights, Eric. And we'll talk a little bit more about that as we move on through the progression of our conversation here today. But I'd like to move us at this point to the second time frame or milestone associated with our five-part framework, which at the time we framed as pre-vaccine vexing COVID-19 spread. Fortunately, we're in a scenario now at this point where there are vaccines present.

Eric, I'd like maybe to have you talk us through a little bit of some of your context and perspective and views around what this time frame looks like in the context of our milestones.

ERIC FREEDMAN: Absolutely. Thanks, Bill. And let me just preface my comments by saying-- and I think I've used this phrase every day for the past 9 or 10 months-- that discussing COVID-19 spread in the context of the economy or markets always feels very trite. So please take this in the spirit given, which is we're objective analysts that have to think about the implications of the pandemic and what may happen from here.

Also want to preface my comments by saying that I am not an epidemiologist. And of course, we, as a large institution, have lots of access to great medical minds. But comments that we're making are things that, of course, we've studied and researched. But there is no M.D. After my name. I'm very cognizant of that.

But one of the things that we're paying close attention to is the path forward of COVID-19. To Bill's point, we've seen some really strong outcomes from the vaccine perspective. I'll talk about distribution in just a little bit, which has been more underwhelming. But in terms of actual vaccines, that's again a positive we'll touch on just a little bit.

However, one of the challenges that we're seeing across the globe right now, and also some things very close to home, are the really persistent spread of COVID-19. Some of that is attributed to colder weather. Some of that is also attributed to a more virulent strain that we've seen, again initially in the UK and now in parts of the United States. That's a real challenge for capital markets to think through.

So really, one of the things that we have to think about is just one, what's next. And as you can see on this chart that there have been some parts of the world that have actually been able to really bend that proverbial curve. And if you look at particularly Asia has been very successful in thwarting the spread of COVID-19. Again, it hasn't been a linear type of process. It's had its fits and starts. But as a general statement, we're seeing a lot of the Far East countries being able to really mitigate COVID-19 spread.

Other parts of the world have not been so lucky and they have not been so fortunate. And if you look in particularly in Europe right now, there have been some very acute lockdowns reinstated or even put in place, in some cases for the first time, in countries like Scotland, the broader UK, Germany, even parts of, not a European country per se, but Israel, which has actually seen some success from its vaccine campaign, however, they're still having to produce some lockdown measures just to combat the trend that you can see on this chart. So again, whether it's the US or it's Europe, and also parts of Latin America, we are seeing some concerns about the increased spread of COVID-19 before we actually get more of a vaccination regiment in place across the globe.

Now the thing to keep in mind is that this data changes every day. Again, this data you're looking at as of Monday. We actually get updates of this very frequently. We actually get updates every day. And so things can ebb and flow. But one of the concerning points, of course, is this gap between now, when we're actually not seeing as widespread vaccinations as we'd like, and what may follow a little bit later this year. So I'd say, Bill, that the implications for both businesses and consumers are one, can people get back to work? Will we see more students left home from school? That causes, again, caregivers to remain at home and unable to work.

Only about a third of the jobs in this country can be done perpetually from a remote location. So again, we've had a time period where that's been somewhat of a hall pass, if you will, but we're probably in the outer bands of that hall pass right now. And so a lot of businesses and consumers are strained by their inability to get back to work. But again, you have to balance that with the health implications, which again is a very political consideration. We look at this from a very abject, apolitical, analytical based approach. And again, we think it is going to be a push-pull between now and when that vaccination campaign happens en masse.

So those are some of our thoughts, Bill, as it relates to both consumers as well as businesses and the unfortunate ongoing spread of COVID-19.

BILL NORTHEY: Well, and I think that provides a really nice segue into our next milestone, Eric, which, as we've noted in our writings that are available to our clients and prospects on our website, also distributed periodically for our clients, is that many of these milestones are not mutually exclusive. And as we think about the second milestone, which is vaccine approval, distribution, and to the point you made about efficacy and the uptake, that's really the milestone or the time frame that we're in right now. And maybe have you just talk a little bit about what's happened over the course of the last month.

ERIC FREEDMAN: Absolutely. And so let me just start off by saying this. This is not an easy problem for anyone to solve, whether it's the US or a smaller country, like New Zealand or Israel, or anywhere else. So distributing vaccines on a mass basis that have to be stored at very cold temperatures, and actually, at this point, two doses appear to be required, that's not an easy task. So any comments that I make are not meant to take a shot at anyone who's very deeply involved in this very important work.

I think it is somewhat safe to say, however, that this has been a somewhat underwhelming rollout thus far in certain regions. And the US is certainly not an exception to that rule. And one of the statistics to look at is that the CDC, the Center for Disease Control, puts out a lot of data, including the number of doses that have been distributed across various parts of the country versus the total number of inoculations that have actually taken place.

And so if you look at this slide-- I know that it may be somewhat hard to read, but this is actually available on the CDC website as well-- you actually get a picture of what the progress has been per state and per number of population. So I think the story that you're seeing here is that because-- and again, this is not meant to be a political comment-- but because there has not been more of a federal standard, there hasn't been a federal mandate for how we'll distribute the drug, or the vaccines, that have actually been left more so to states and localities to figure out with very mixed success.

And again, we've all read the stories about places that people form lines, people have received the wrong medicines. But also we've heard great stories about pharmacists and deliverers actually finding excesses that they can attribute to more people. So I think the point that you can see is that we have, for high density states, so California, Texas, New York, those are states that unfortunately have not seen a more rapid rollout. But we have seen some encouraging statistics from places like North and South Dakota, Montana, a state near and dear to Bill's heart, as well as other parts of the country that actually have been very successful in getting some initial vaccinations out.

I also want to point out that there's also some potentially really good news on the horizon. And again, this is not-- this hasn't been released yet. This is not something that has, of course, passed through the regulatory channels that it needs to from a medical perspective, but there are also a lot of discussions about single dose vaccines in very large numbers potentially happening at some points in the latter part of the winter or the early spring. Again, no guarantee that will happen. But if that were to happen, that, of course, would be an additional vaccine regiment that of course would be welcomed by the general public and, of course, investors alike.

And so again, as we say, it's not vaccinations that are holding us back. It's really been the more the distribution of those vaccinations. So I do think that as we consider the path ahead, Bill, and again, we can talk about this a little bit later on in terms of the economic considerations in front of us, one of the real big opportunities is if we do see an improvement in this distribution, and I actually do see even more vaccines coming to market. That, of course, would be welcome news on many fronts but most importantly from a human to human front.

BILL NORTHEY: Great. Thank you, Eric. And we'll go ahead and move now to our third major milestones. We'll take the pigskin from one Steelers fan and pass it to another here and bring Kevin back in to talk a little bit about the inauguration, which is upcoming, and the first 100-day agenda. And you alluded to a couple of things about anticipated agenda items in that first 100 days, the cabinet appointments that we're starting to hear about. So we'd love to have some of your insights here, Kevin. And with that, we'll pass the ball to you.

KEVIN MACMILLAN: Sure. Thanks, Bill. Greatly appreciate it. So we're expecting the inauguration on the 20th, that Joe Biden will be sworn into office, Kamala Harris will be sworn in as Vice President. And all administrations are really measured by their first 100-day agenda. And this will be an interesting one, to say the least. The Biden administration ran on a platform of, first and foremost, combating the coronavirus and providing economic support and relief to the impacted economy.

The second key component of the agenda is to combat climate change, and the third is to support and promote racial equity. We're going to see everything that the administration does run through those lenses, certainly in the first 100 days, and likely, very likely, beyond. So I think we're seeing the cabinet being built.

We saw Janet Yellen, Merrick Garland, and others named as the nominees to the Treasury Department and the Attorney General position, respectively. That's going to take some time to get their nomination process moving forward, but they are critical. And they want to be up and running and establishing the government in those key positions early on. So I think we'll see potentially congressional hearings on those nominations during the week of the 18th, maybe before the inauguration, and then the nomination and vote approval process come after that.

What we're seeing with this unified government here, with Democrats in control of both the House and the Senate, is the likelihood of the nominations moving very quickly, both to the cabinet and then in the future to the judiciary, is very high. And so we'll see a situation where the president, President Biden, will be able to nominate personnel to fill his cabinet and fill the sub cabinet very quickly, and they will get a vote and they will be in position, I would think, by the early spring.

The other issues, I think, that are very, perhaps could happen even on day one, we'll see the repeal of several of the Trump administration executive orders around immigration, health care, and otherwise. And we'll see President Biden, the Biden administration will rejoin several international organizations, like the Paris Climate Accord, the WHO. I think we'll see restarting of an Iran nuclear deal. We'll see broad re-engagement around the world, I would expect, by this administration. And so that's really day one, two, and three.

And then when we look at the agenda and we look at what the legislative plan is going to be for the administration, I think climate change comes to the top. We're going to see political reform, health care reform, and then perhaps infrastructure. And infrastructure spending is another item that I think is high on the list for this administration going forward.

What's going to be interesting, when you wrap it all together in a package here, the question is, how do you pay for it. And I think the President-elect has been clear that he's going to address taxes. He's going to look to adjust the tax code in order to pay for these spending priorities. And in the past, over the years tax reform has been challenging to undertake. But what occurs when you have this unified government, which we saw in the early stages of the Trump administration, is the ability to use some arcane legislative procedures, one called Budget Reconciliation, to move the legislation through both chambers without the need for supermajority votes, with just up and down votes. Removes a lot of the procedural hurdles to move legislation related to taxes and related to spending.

And so I would expect by the end of 2021 we will see a very large, very comprehensive policy document, policy legislation, coupled with significant changes in the tax code, packaged together and moved through both chambers of Congress and signed-- let's put a date on it-- somewhere in the neighborhood of November or December of 2021 to be effective in 2022. So that's what I'm anticipating. I'll give you 100 days, or give me almost 365 days here. And that's really the outlook. And the results in the Georgia election changed the dynamics significantly for President-elect Biden and really making the ability for him to accomplish his goals much, much easier.

BILL NORTHEY: Well, that's certainly a laundry list of items that you talked about there. And it's going to be an action-packed first 100 days. And I think this is a good opportunity to maybe bring Eric back in to talk about, in particular, some of the things, cabinet appointments. We saw the market react to Janet Yellen, former Fed Chair, being the presumptive nominee for Treasury. And we've seen implications in the bond market with respect to taxation and spending policies.

And so Eric, maybe have you give some of your reflections based on the items that Kevin put forward there in terms of what might be market moving in the near term.

ERIC FREEDMAN: Yeah, Bill, I think that the emphasis that we have on policy research, we're so blessed to have Kevin here. It just helps inform us in terms of our investment decisions. And I think in the mosaic of things we look at, politics and future policy will be a significant one, particularly in the next 18 to 24 months. So a couple reflections.

Number one, we think the bias is going to be for this administration, as well as for the Federal Reserve, to maintain a pro stimulus bias. And that is essentially going to be manifested in the ways that Kevin mentioned, but also through really low interest rates. And one of the key tests that we think, Bill, that could emerge later this year will be what happens in the second and third quarter.

If you think about where we were in the first and second quarter of 2020, of course, it was a very challenging time. The economy, globally speaking, had really just ground to a halt because of COVID-19. And we're actually going to get into a comparison period in the first and second quarters of 2021 that really show us juxtaposed, if you will, against a very easy time period, for example, inflation. So one of the things that central banks will be really tested by is, number one, this really low interest rates and pro stimulus approach has been a persistent one and one that has pervaded many countries and many regions. And we're also going to, number two, get into an environment where we're going to potentially see some more inflation and inflationary pressures.

And so what I think that means for investors is that for the here and now, we think that bias towards low interest rates is likely to be persistent with the potential for a test in the second and third quarter of this year. Again, one of the things we'll talk about a little bit later on is our preference for equities over fixed income, or stocks over bonds. And part of that we think is going to be played out in that volatility that we're likely to see in the bond market a little bit later this year.

So again, I think that any divergences from that pro stimulus type of mentality would not be met well by the market, as well as if we do see a pivot from, for example, the European Central Bank or, of course, the US Federal Reserve away from a pro stimulus approach and an easy money or a low interest rate environment, that is not in the market psyche right now and that would not be met with favoritism.

The other thing that I'd mention, Bill, briefly is the broad consideration on taxes. And Kevin hit it very well. And so when we think about, for example, earnings estimates, one of the things that we look at as analysts are what we hear from the public market community about earnings. We're going to hear a lot more over the next two or three weeks when earnings season really starts to pick up. And again, we have a very talented team internally at U.S. Bank that really goes through these quarterly earnings with great detail.

And so one of the things we want to think about is what are those companies considering with their own tax plans. In other words, are they anticipating higher tax rates, and therefore will they be slowing down capital expenditures? Will they be slowing down the pace of buying back their own stocks? Those are variables that are very, very important for us to think about, particularly as equity markets are close to, or if not at, all-time highs. And so one of the things we'll be looking for is just at the margin, changes to plans, changes to what companies may be doing with their capital in the event that they have to pay higher taxes.

So those are a couple of things that the market is very focused on. Number one is inflation and how that can play out for the bond market. Then number two would be any changes to taxes, what might that mean for corporate spending plans as we think about 2022 and 2023.

BILL NORTHEY: All right. Well, thank you, Eric. And with that, let's go ahead and turn it to our fifth and final milestone, which we've called the steady state that follows. And Kevin teased this a little bit as he looked beyond the first 100 days to the first 365. But it's really and beyond.

So Kevin, as you think about some of longer term things-- and you teased this a little bit in your early comments-- that the administration will be focusing on and what can be accomplished in the context of the current Congress, would be interested in your thoughts in really extending that timeline out a bit.

KEVIN MACMILLAN: Sure. So I think it's really going to be interesting to follow. So after we see a fairly large package of policy and taxation stages, the question we'll have to ask ourselves, and what the Congress will have to ask themselves, I guess, is how is a 50-50 majority working in the United States Senate? Are they working well together? Or are they actually going to have to make some rule changes, that certainly majority whip Schumer will be under pressure to do, to eliminate roadblocks in moving legislation through that chamber.

If that's the case, if they do eliminate what's called the filibuster rule and they make the Senate a 50-50 option, only requiring a majority vote to move anything through that chamber, I think you're going to see a lot of policy changes in and around climate. I think we'll see another bite of the apple around stimulus. We saw, again, at the end of the year this year, an effort to increase that stimulus payment from $600 to $2,000. I think we can see that certainly carry forward into the next Congress.

We're going to see action around infrastructure, as I mentioned. If it doesn't happen in 2021, I think 2022 is a major year for potential infrastructure change. And why would that be? If you think about 2022, it's also an election year. Congress is going to be back up for a vote by the citizens. The Senate will hang in the balance again, right, 50-50. Republicans will look to reclaim the majority and Senate Democrats will look to solidify their majority. And there's going to be a lot in play there. So they'll want to do an infrastructure package. They'll want to do those types of bills that looks like they're doing things, looks like they're being productive.

It'll be a very, very interesting political dynamic with moderates on both sides being in play, certainly in the Senate. There are rumors and last time we saw a 50-50 Senate. We saw actual people switch parties and move from Republican to Democrat to be in the majority. That's possible in both directions. So it'll be quite a dynamic time in Washington, certainly in that chamber. And you've got a president and a vice president who were both members of the Senate. So that's really where the action is going to be and that's where we're going to be following all of the dynamics around politics and policy as they emerge.

I think you could see some more approaches towards taxation after the first bite at the apple and then, again, teeing up the atmosphere and the mindset for election season 2022. So that's what I see going forward. I think it's going to be, again, a very dynamic time and one in which a lot of change is on the horizon.

BILL NORTHEY: It's hard to imagine that we're talking about the next election cycle already when this one has just concluded, still a little bit warm on the burner.

But one of the things that I failed to talk about in terms of a steady state that follows, we really think about this as the post COVID-19 period of time and what does the world look like. And so I'd like to invite Eric Freedman back in to talk a little bit about the steady state that follows as it relates to the capital markets and how we're thinking about positioning portfolios in that period of time. So Eric.

ERIC FREEDMAN: Bill, thank you. It's one of those things that when you look across the horizon and consider what life will look like post COVID-19-- and again, it can't happen soon enough-- one of the things that we as investors have to think about is, again, what's going to happen with government, what's going to happen with businesses, and what's going to happen with consumers, and how will that mosaic tie in together.

And one of the things that I think is important to consider, just as we're thinking about investing dollars, is what will that steady state look like. And I think that we're going to head into that steady state with, again, very, very low interest rates. And that is a challenge to savers. And that's something that, again, we've been very consistent in our conversations with clients and prospects that it's very difficult when you have interest rates-- yesterday, the US 10-year Treasury yield approached 1% for the first time in a long time. That's a very low amount of money to lend to Uncle Sam for over the course of 10 years.

So even other examples of the nation of Peru, which is obviously not as large a country nor have a strong military as the US or other Western countries, just issued a 100-year bond at just above 3%. So that, and if you also, one last statistic, if you look at the total bond market around the globe, about $18 trillion, with a T, sport a negative yield. Meaning if Bill's a lender and I'm a borrower, I say to Bill, Bill, I'm going to lend you $100 but I just want my $98 back. That typically is math that doesn't hold up very well and something that, again, is probably not going to be durable over time.

So again, I think we have to think about where we start from, in addition to where we're going. Now one of the things you can see on the slide is just our overall viewpoints on portfolio. So number one, we are believers in equities. We do think the glass is more than half full with respect to the opportunities for a diversified portfolio that really emphasizes stocks over bonds. Now I say that recognizing that stocks are at or close to all-time highs. And the way that we think about that is one, how do stocks look relative to their future prospects? But then number two, how they look relative to other asset classes.

And so, again, relative to fixed income-- not that we're saying you should abandon the bond portion of your portfolio at all-- but we really favor equities and really lean a little bit more on the equity side of the portfolio than on the fixed income side. Within equities, we're long term, we're big fans-- and we'll touch on this in just a little bit-- but we're long-term big fans of a couple sectors. But in the here and now, we think that favoring US stocks is still the right way to be positioned. We actually have increased our favoritism or our viewpoints in a more favorable light towards European and Japanese stocks. We've had a very consistent view about emerging market stocks being a place where clients can make money. So those are three areas that we like.

Even more specifically, we're actually fairly fond of the mid-cap part of the market. So again, capitalizations or companies that tend to be right in between large cap, blue chip companies and more small cap or newfangled or less diversified business models. We think that mid caps find that sweet spot between established multi-revenue generating business lines, but also some nice growth attached to them. So those are things that we really like.

In terms of the bond market, we still think that clients should own bonds as part of their portfolio. But we also think the client should really think about managing their interest rate risk, meaning not owning bonds that mature a long time for now, because you're just not getting compensated for them. We also think that clients are going to be better off if they invest in or diversify parts of the bond market than just owning Treasury bonds.

So again, every situation is different and every client has a different risk tolerance, and we're pleased to serve all. But one of the things we think about is just the challenges of making money in the bond market, especially net, of inflation, net of taxes, and net of fees. So again, we still think that when equities zig, the bonds have the opportunity to zag, which you want in a portfolio. But we want to make sure that we have clients that have a very diversified set of options within their bond portfolio

Finally, on the real asset side, so think of these of things, if you dropped them on your foot, they'd hurt. So things like real estate, things like precious metals, things like physical commodities, we think these do have a place in client portfolios. As mentioned earlier, we think there is a risk that in the second and third quarter of next year, inflation may pick up a little bit. Now whether it picks up a lot will actually be a function of COVID-19 spread and vaccinations and those important considerations, but also on central bank policy and some of the things that Kevin mentioned in his fine comments.

So again, if we have the confluence of an improving economy, improvement on the vaccination front, as well as still very easy money, there is, of course, the risk that inflation may pick up, and you want to own real assets to help offset some of that inflationary risk in your portfolio.

So again, I think that what you're hearing, Bill, is, maybe it's generic to say, but having multiple assets in your portfolio is always a good option. And we think that right now is especially the case. So that's the way we think about the broad portfolio context right now.

BILL NORTHEY: And you had mentioned, Eric, a little bit about some of the favorite sectors that we had been talking about in the context of our equity portfolios. Maybe just have you make a few brief comments around those sectors as well. Thank you.

ERIC FREEDMAN: Absolutely. I think if you look at the long-term challenges of the global economy and the US economy, in particular, again not that we have just the US view, we have a very global perspective on what we look at. But there are two consistent challenges across economies. Number one is productivity. Even though we have all sorts of gadgets and we have smartphones and cars with cameras and things that do make us incrementally more efficient, a lot of that low hanging fruit, Bill, has been picked already, meaning while we're seeing innovation that's actually helping us, it's just not helping us as quickly as the economy would want.

And I think that what that means is that CFOs continuously look to enhance their workforce as well as their operations and their machinery, where applicable, by investing in information technology. So we are long-term bullish on information technology. Of course, it's had a significant run, but it's also a very big play. So there are lots of subcomponents of that information technology that we think still have a lot of upside attached to them.

The other thing that we are still big believers in is health care. And one of the great things about this episode, of course, is that we've seen the ongoing ingenuity of health care and health science. It's just been such a great thing to watch. And one of the things that we believe in long term is as the demographics of the global economy change, meaning people get older and they live longer, thanks to, hopefully, improvements in diet but also improvements in medical technology, that actually creates opportunities for investments to really benefit from some of those changes.

And again, these things aren't always dependent on interest rates. How many people have expanded families or smaller families or have kids earlier or later, that really isn't always a function of interest rates or growth or inflation. So some of those things that we think are very durable in terms of ways that clients are going to make money will be in both information technology, as well as the ongoing ingenuity within health care. So those are two places that we're very bullish on over time.

BILL NORTHEY: Great. Thank you, Eric. And to our audience, it's always important to remember that your situations and goals are unique and you should always evaluate this in the context of your own financial plan or, if you're an institution, in the context of an investment policy statement.

If you're one of those folks attending our webinar today who doesn't have a financial planner, isn't working with a wealth management team, I'd invite you to click on the Resources tab and find an advisor or banker near you to connect with one of our U.S. Bank Wealth Management teams to help you along your own journey.

So it does look as though we're getting to the end of our 45 minutes here today. And I want to thank both Eric and Kevin for all of their great insights. It's always nice to be able to get this group together and to talk about how we're perceiving the current environment. And we have a really talented team here at U.S. Bank, and these are two of our very most talented.

So if our audience is interested in a recap of this conversation today, we will be putting out a replay of this soon. And you can go to that same Resources tab that I alluded to at the bottom of your screen, which I'm looking at myself, and you can find a link for U.S. Bank's latest market news and analysis. You can also find that same-- some of our additional insights at usbank.com/marketnews. And it's published there for everyone to access.

So at the outset of our conversation today, I mentioned that we're going to be launching a three-part series, one each month in the first quarter of 2021. And you'll see on your screen here the two next Informed Investor webinar series. Next one will be February 18 of 2021, regarding tax policy. And I'll have to have a tax expert joining me for our next event. And then in March, which we will have a date that will be published and made available to all of you, we'll be looking at retirement planning considerations. So please be on the lookout for those. We'd love to have you come back and join us for those topics as well.

So in the meantime, if you're one of our existing clients, please don't hesitate to reach out to your Wealth Management team. Our view around this is really to help our clients to grow and protect their wealth through time and to have that wealth create a meaningful impact as we move through these very uncertain times. And we offer an integrated approach with our financial planning process to really help people digest the information that was shared today, apply it to their own unique situations in a way that is very meaningful for them as well.

So also want to thank you for, if you're not a client of U.S. Bank, I'd like to thank you for attending the webinar today, but we'd also like to invite you for an initial consultation, which, of course, is free with one of our experienced Wealth Management team members. And there are several ways, as you can see on the screen here, to contact our team and to help you work through your own financial goals and establish your own financial plan so that you can have the best possible outcome for yourself. You can go to usbank.com/wealthmanagement. You can look at that Resources tab on the bottom of our webinar. You can also look at the phone number on the screen, 844-233-5386, or by clicking on the Find an Advisor or Banker at the bottom of your screen.

So we'd be happy to have someone reach out to you if you contact us in that manner. And I want to thank you very much for your time, your attention today. We hope to see you again in February. Happy new year to everyone and have a wonderful day. 


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