Hi. I’m Andrew Sweeney. I’m the Institutional Portfolio Manager at PH&N, the Canadian Institutional arm of RBC Global Asset Management. And welcome to our U.S. post-election perspectives webcast. A few months ago we decided we would do this on a Friday with the view that everything would be resolved by Friday, though things might have been confusing had we done it the morning after. And here we are on Friday and things are not quite resolved. So welcome. Before I introduce our panel, this event is going to be interactive. We’ll do an audience polling question about halfway through. We want to get your views on markets and integrate your views into the discussion we’re going to have later in the webinar. And so today I’m your host. But today I’ve got two terrific panelists. The first is Eric Lascelles, the Chief Economist of RBC Global Asset Management, who will be joining us. And the second is Mark Dowding from BlueBay Asset Management. And so both, Eric and Mark, welcome and thanks for joining us.

Thank you.

Hey. Good morning.

So, Eric, as I said, it looks we’re in the closing stretches of this election and we seem to be getting more clarity. But, you know, here we are on Friday morning and we don’t quite have a resolution. And so maybe, Eric, you can kind of walk us through the steps of the US electoral process and what the next steps might be, before we then dive into the market and economic impact of this.

Sure.

And so let me start by saying, as an economic forecaster I normally have a fair amount of sympathy for fellow forecasters, and so I’m thinking of weather forecasters, epidemiologists, pollsters as well. But I have to say my sympathy has grown awfully thin when it pertains to pollsters because they did get this election badly wrong. And so the expectation going in was that Biden would win the popular vote by something like 8.5 percentage points, and he may squeeze it out by a few percentage points, but shockingly closer and narrower than initially expected. And so this has gone from what might have been a landslide election to ultimately a fairly close one. And I guess as people likely know, the US is not a direct drive election in the sense that it’s not every vote ultimately deciding who the president is. It’s done in a lumpy state-by-state fashion via the electoral college for the most part. And so this is why the focus is now on a handful of states. Places like California have a huge population, but of course they’re essentially preordained. They go Democrat, it’s not particularly close, and every vote, ultimately every bit of clout from California, ultimately goes to the candidate receiving more than half of the votes, and that’s the way it works across almost all of the states. And so we’re left with a handful of quite close states, and so Georgia and Arizona and Nevada and Pennsylvania would be the big ones perhaps. But maybe also, Michigan and Wisconsin. And as it stands right now, it looks as though Biden will probably squeeze out a win. I will say the probability in betting markets have changed their opinion a few times on this. Not so much recently, it’s settled down, and at this point in time Biden is thought to have about a 90% chance of winning. But, gosh, I remember nearly midnight on election night and actually for a brief moment as Trump was outperforming, as he was picking up Florida unexpectedly, those probabilities had shifted temporarily to an 80% chance that Donald Trump would win a second term. Again, we’re back to something like a 90% chance that Biden will, and so that’s not certain, but that is very, very likely. And then whereas the pollsters had predicted that the Senate might tilt in a Democrat direction, it looks like that’s far less certain than initially expected. In fact, those same betting markets are suggesting something like a 75% chance that the Republicans hang onto the Senate. And so a divide in Congress looks likely as well, but of course some messiness yet to come. And happy to talk about the mechanisms and the disputes and so on; maybe that’s a reasonable starting point. Quite, quite likely a Biden presidency, fairly likely a divided Congress.

Yeah. Yeah, and I think the key point there, Eric, is that although we don’t have ultimate clarity, it feels like we’re getting more clarity in that when you look at those states, it really only takes Biden winning one or two of those states, and he would get the 270 electoral college, and it would be over. So the likelihood of having a really contracted, contested election that goes out until December seems quite unlikely at this point, and that’s effectively what markets are discounting, right.

Right. And indeed I’m looking at the betting markets right now by state, and actually the closest of those states that were mentioned is actually Arizona. He’s got an 80% chance of winning that one, and as you say, he doesn’t need to pick them all up. And so it does look quite likely Biden.

Perfect. Okay. So we’ve got some clarity there. So now let’s turn to the kind of the more meatier element. And maybe, Mark, we’ll turn it to you to really give us some perspective, maybe a high-level perspective, and then we’ll drill down in, you know, what’s the impact of this election on both markets and the economy?

Well, in terms of the election outcome, you’ll have seen in markets a relatively benign, pretty favourable sort of risk valley over the course of the past few days. In part, this has got less to do, I would say, with the outcome of the presidential election more than what’s happening in the Senate. In many respects, I think the fact that we don’t have the blue wave that was being predicted maybe this time last week, is one which is suggesting that when it comes down to it, we’re likely to see much less by way of regulation with respect to the financial industry, with respect to health care, with respect to energy. We are unlikely to see a breakup of big tech. And these are all factors that the stock market is fairly relieved by. Also the idea that we’re not going to be seeing bigger tax hikes coming through, again, I think is being seen pretty warmly by stock investors. So in that case, I would actually say it’s the fact that we’re actually ending up it would seem with a split between the House and the Senate, which is really cheering sort of equity investors and fueling a valley in risk assets. Otherwise, when it comes to Biden in the White House, that’s actually something that’s seen as quite constructive by international investors in the context of emerging markets perhaps. But that would be a quick, initial take in terms of the market perspective. The economy is a bit more mixed. I guess ultimately the idea that we don’t get the blue wave that some were speaking to, again very recently, means that we’re unlikely to see the massive fiscal stimulus that in some quarters the Democrats were arguing the case for. At one point, as much as $5 trillion of additional spending was being spoken of. That would have represented 25% of GDP. A huge figure. And the fact that we’re not likely to see anywhere near that amount of fiscal stimulus probably means that the outlook for growth isn’t going to be as strong next year as it would have been in the U.S. But again, there’s an element that if we have a bit less in terms of fiscal stimulus, it probably means that we might end up with a bit more monetary accommodation or certainly the Feds staying easier for longer than otherwise might have been the case. And you can kind of see that in the reaction of treasury yields that have been moving a bit lower with a curve going a bit flatter in the wake of the result coming through.

Perfect. Perfect. Eric, any further comments you want to add to that?

Sure. I mean certainly Mark covered off I think many of the key points and so I won’t rehash those at any length. But as he said, of course the divided Congress, that is different than the expectation, and that is quite significant. It limits the more extreme tendencies of either political party in terms of achieving what they might want to do. And so a much more status quo set of expectations perhaps for the next few years. I would still argue at the margin, when I parse my way through a Biden platform versus a Trump platform, and recognizing all of that now gets muted by the divided Congress, I would say that it seems to me that a Biden win is conceivably at least a modest economic positive. And so Mark’s already mentioned the stimulus scaled back certainly relative to maybe the initial $5 trillion expectation, but probably still bigger than it might have been in the same scenario with Donald Trump as president a second time ’round. Maybe a little bit more effort to control the virus, which is a short-term initial cost but maybe pays dividends later, though limited effect at the federal level there. I am assuming—this is now a comment not about the next few months and perhaps about the next several years—I’m assuming that immigration picks up more under a Democratic presidency as opposed to the restrictions that had been in place, setting COVID aside, over the last four years. And assuming the trade environment gets a little bit better, though hardly perfect. And so I think there are a few economic wins perhaps that might play out over a number of years, and one could imagine more engagement of the U.S. in the world, and this sort of thing as well. Hopefully we’ll get a chance to talk at more length about that. Don’t want to pretend it’s a pure positive though. As Mark mentioned, that the tax side probably less attractive certainly to stocks and corporations at a minimum. Though again, now you have limitations on what can happen there. And the regulation side as well, I would say a Democrat win is a net negative there, but again limited, as Mark said, in terms of getting things through the Senate. But of course don’t underestimate the fact that presidents do have some clout that exists outside of a legislative capacity, and executive orders, and the interpretation of laws, and these kinds of things. So there are still ways the regulatory environment gets a little bit less friendly. But the main message is over the next couple of years, setting aside some kind of fiscal package, it seems likely early next year, and maybe a few bipartisan legislative things that get accomplished, it’s not going to be an overly busy two years in the U.S. Those checks and balances, I guess, are going to hold over that period of time.

Right. So you guys have given us a ton of food for thought, and we’re going to drill down into a number of those issues. But maybe the starting point is, both of you have talked about stimulus. And one of the last sort of legislative elements that was working its way through prior to the election was stimulus related to COVID, another round. And really it ended up at a stalemate between, I guess, the House and the White House. And so, what happens now? Do we basically have nothing happening until January and then ultimately that stimulus that comes with the new session is going to be much smaller? So maybe, Eric, do you want to maybe kick that one off?

Right. And so I guess I’d start by saying, had it been a blue wave, had it been a Democrat Senate and a Democrat president—we’re getting half of that probably—that will very much reduce the odds of any kind of package until 2021. Given the permutations right now, it’s not impossible. But I would still say it’s more likely—I should say, barring serious economic need. And so, of course, we are entering a second wave globally, a third wave in a U.S. context. It’s possible the economic numbers don’t look as good, though today’s payrolls seem fine. But it’s possible they don’t look as good and there is some amount of coordination that comes together, but more likely at this point it’s going to have to wait, to my eye, until 2021, and a new president is in, and the efforts begin anew on that front. So I think there will be a package. I’m budgeting it for early 2021, not during this lame-duck session.

Right. Right. And then maybe let’s—Mark, do you want to weigh in on that as well?

Yeah. Absolutely. I concur with everything that Eric has just said. It was interesting, we have just had the payrolls report out this morning, and I was actually speaking to one of the individuals in the administration actually shortly after the figure came out. And being a Republican they were trumping the fact that, look we’re not giving the generous unemployment benefits anymore, and look the jobless total is going down. And it kind of belies the fact that there’s this very sort of different ideology that sits across the divide in terms of the efficacy of delivering sort of handouts and fiscal stimulus. And so there’s a philosophical divide here, and clearly there’s a sense where the Republicans, I don’t think they’re going to want to do anything to really help Biden out. We’ve already seen good old Donald Trump throwing a few tantrums and a few inappropriate tweets. He’s not really the sort of character who looks like he’s going to go quietly, notwithstanding advice coming from Greta Thunberg, giving a repost to the tweet he sent to her last year. It seems that in this sort of mood Trump is unlikely to want to give any help or assistance or a boost to an incoming Democrat administration. So it may be difficult to see very much happen over the course of the next few weeks. But I think the one thing we can be relieved about is it seems as if the economic momentum in the U.S. economy seems to be holding up well enough at the moment that the need for an additional stimulus package isn’t quite as urgent as it might be were the data really sort of developing in a much more difficult direction.

Right. Right. And so digging into the policy issues, both of you have touched on the fact that you got it, you know, we are likely to end up with a divided government, and that makes sort of the domestic policy quite challenging. But where the presidency has much more latitude is with things like foreign policy and things that relate to external U.S. economy. And so, Mark, maybe let’s dig into some of those policies that we think that we’ll see with a Biden presidency, whether it’s things like trade, or China, or foreign policy in general. Why don’t we start there before then pivoting and coming back to talking more of the domestic stuff that I think is on people’s minds?

Yeah, so, I mean, I think it goes without saying that Trump as president has pursued ruthlessly this agenda of America first, of make America great again maybe at the expense of others. So he hasn’t won too many friends around the world over the course of the past four years. And I would expect to see an incoming sort of Biden president really sort of working to heal some of the wounds and divisions, and repair some of the relationships that have been disrupted, sort of restoring the U.S.’s place in some of the multinational organizations that Trump has been threatening to pull out of. So generally speaking, this is a narrative. It’s a dynamic which, as mentioned earlier, could be favourable towards assets within emerging markets. I would just say though, more specifically in terms of foreign policy, I think there may be this sort of narrative that actually Biden’s going to be much more friendly to China than Trump was, and obviously Biden and Xi have spent time together in the past. I would say that that may be a little bit naïve and shortsighted. When I spend time with those in the Democrat party, in fact on both sides of the aisle within Senate and Congress, what I’m really struck by in visits to D.C. is the narrative in recent years where China increasingly, by the U.S., is seen not really as a trading partner but more as a strategic adversary. And the rise of China is clearly something that creates quite a lot of paranoia across all of the United States. But I think the significant thing is under Biden versus under Trump, I think that if there is sort of more sort of to be done in terms of the China relationship, it won’t be through tariffs, which is the channel that Trump favoured. It’ll probably be more through sort of targeted sanctions to address things like human right abuses and the like. And that’s going to be economically less significant, so it’s not going to have the economic impact that Trump’s policies of tariffs actually had. Elsewhere I would say that look at somewhere like Iran. You might see a normalization of relations there. But watch this space. I think certainly the predominant mood around most capitals is probably going to be one that is happy to see a change in the White House and that hopefully all goes for a better period in terms of international relations.

Right. Right. Eric, any thoughts?

Yeah. I mean I certainly agree with much of what Mark has said. And so let’s recognize for instance, the way I like to think about the U.S.-China relationship is the U.S. has been this hegemonic power for decades and we are now shifting to a multipolar era. So we now have two sheriffs in town and frictions are inevitable. And regardless of who the president is, those are likely to persist for decades to come. I see no scenario in which other country becomes materially less powerful over that kind of time frame. And so we’re going to see these frictions persist. As Mark said, maybe manifesting in different ways, maybe alleviated slightly if Trump is no longer president, but ultimately not radically different. And let’s appreciate that’s not even a purely U.S. declaration. The attitude toward China has evolved right across the developed world. And in Canada and in Europe, feelings are quite different. And when you look at the frictions and the aggravations that have been extended in both directions, let’s recognize China has been an aggressor as well. And so, again, this hasn’t just been the Donald Trump show, this has been things happening in China too. And so certainly agree on that front, though equally I do look forward to a reengagement with multinational institutions and the like from a Biden presidency. I will circle back around to immigration though for a moment. And so recognizing that this is a big part of the international environment as well. And so the U.S. really—and again, setting COVID aside, which clearly has just halted international travel almost completely. We can say that immigration in the U.S. did decline significantly over the last four years. And it was quite broadly based. It was fewer illegal immigrants coming in, it was fewer student visas, fewer H1 visas, the kind of high-skilled immigrant, fewer green cards I believe as well. So I do think there’ll be some normalization there, which certainly helps the U.S. from an economic standpoint and it's probably a good thing for the world as well. And in addition to the normalization of relations maybe with the likes of Iran, you could imagine Cuba perhaps receiving similar treatment, and maybe on the other hand Russia gets a bit of a rougher ride, having had an easier ride over the last four years. And just lastly recognizing the isolationism, the nationalism that we’ve seen in the U.S. in recent years, not done I don’t think. Let’s not pretend that this was a profound vote away from the last four years. This was a close election. Those feelings still very much exist below the surface in the U.S. And they exist in a lot of places. We see on-shoring of supply chains and all these kinds of things. This is not uniquely a U.S. phenomenon.

So I think the consensus here is there’s going to be some changes as we look outside of the U.S. I think inside of the U.S., with the blue wave you would’ve expected a big change in tax and spending policy, but now with a divided government that seems less likely. So, Eric, can you give us some perspective on what changes you’d expect in those more domestically oriented policies.

Right. And so, again, I mean the capacity to legislate is going to be quite limited. You have two parties, each with a claim to power in Congress, and so I’m not expecting bold health care expansions. I’m not expecting radical shifts in policy. So cross off most of the big Democrat party aspirations, or what you have heard about during the primaries, for instance, in terms of a bunch of left-leaning people all aspiring to take the country to the left. It won’t shift that much to the left because of this divided Congress. Mark could probably speak in more detail in terms of more specific fiscal expectations. But I guess instead of the $5 trillion that he and I were talking about, in my own head I’m thinking $1 trillion or $2 trillion might be a more realistic number given divided Congress. There’ll likely be some recognition of things that need to be done and some overlap, but hardly perfect and not nearly as much as before. The higher taxes idea, I know there’s some concern about that, again, hard to get that kind of thing through. Maybe you sneak a little bit through with a fiscal plan but I’m not sure I’d hold my breath there. And so not expecting a whole lot on that front. The COVID policy side of things; Biden certainly seemed to take the virus more seriously than the Trump administration has, but let’s appreciate this is to a disproportionate degree, something that’s really controlled at the state and the local level. And so you could see maybe a more respectful attitude toward the science behind dealing with the virus. You could hear maybe a more coherent or consistent message coming at the federal level. Maybe there’s room for funding and a few things like that, but in the end I don’t think we should suddenly imagine the U.S. is going to lock down the day after Trump [sic] is in place as much as maybe it’ll be a slightly stricter stance toward COVID. And maybe the other thing I’ll mention—I’m there’s much more, Mark; I can’t wait to hear what you have to say—but I will say, don’t forget. So Donald Trump has spent most of the last four years in a position in which he’s been quite limited in terms of the legislation that he can achieve. And so this is a familiar environment and, in fact, we’ve learned a few tricks from Donald Trump. And so for instance, certainly we’ve learned that presidents have the ability to impose and remove tariffs, and so I suppose we’ll be watching that. As much as Democrats traditionally, in fact, have tended to like tariffs, maybe we could see a little bit of that come off, or at least not so many new ones put on. Of course, engaging with multinational institutions. Conducting foreign policy; there’s a fair bit of room as well. Some room for environmental commitments and the like, though I think perhaps limited. And then, of course, presidents can also stop legislation. And so to the extent that things come along or are proposed that are not consistent with Biden’s view of the world, he can halt those. And so not an overly busy agenda, and maybe tilted toward that fiscal stimulus, but there are a few things in place still.

Right. Right. And Mark?

Yeah. So. So, I concur with what Eric shared in terms of the magnitude of stimulus. One to two trillion probably sounds like a right sort of number. I do think that there will be an ability to get some things done on a bipartisan basis, but what I’m hearing from Republicans, they’re trying to push the idea that the Biden administration, in terms of the cabinet, is really populated by more centrist politicians, and so, for example, someone like Lael Brainard who could be a very logical pick as a successor to Jay Powell at the Fed. There’s some talk about Ho at Treasury, for example. And so maybe expect to see more centrists and less sort of liberals or progressives that—don’t expect sort of a Liz Warren necessarily to be given the job, because if you end up with a very, sort of, progressive liberal sort of administration, then I think things are really going to be at an impasse at the Senate and nothing will get done. So in terms of the desire to get things done and be pragmatic, I think that that probably pushes things more towards the centre. I think the one other observation that I’ll sort of share at this point as well, though, is with respect to the Republican party. It’s still quite sort of shocking, sort of digesting this result in a way, to bear in mind that Donald Trump is going to record something like 73 million votes is actually four million more votes than Barack Obama did in his—as president. And that was the most votes a U.S. president had ever got. So if you look at the total who have voted for Trump, I think that’s very significant. Obviously, he’s been out-scored by the 78 million that’s gone to Biden in this election given the magnitude of the turnout, but I’m sure that you should expect Republican politics to really sort of recast itself under a different light. I think some of the policies around making America great again and looking after blue-collar workers, some of this has been seen to be popular. And I think that as the Republicans are digesting the result, they will observe that for the money that the Democrats have thrown into a lot of Senate and also races in the House as well, they haven’t really had a lot to show for it. So actually, a lot of the policies that Trump has embodied still seem to resonate and still seem to be popular. I think that we often hear that people who voted Trump, they did so almost holding their nose. They didn’t really like the character, but in many respects, they had sympathy with some of the policy agendas. So I’m not sure that politics in that way is going to change too dramatically over the course of the next couple of years. And Trump probably continues to cast his shadow over Republican politics for some time to come. And so in terms of the battleground over sort of taxation, for example, I think there’ll be a real sort of sense where Republicans in the Senate really sort of fight tooth and nail to avoid giving concessions that will lead to higher taxes.

Perfect. I think we’re in for four interesting years of some policy discussions and some gridlock internally, and some changes as we look at sort of the external world. So I think we’ve done a really good job as kind of unpacking policy issues, and now I want to shift gears and talk about markets. And before we do that, I want to engage the audience. And so we’ve got a polling question that you’ll see in the box just below your viewing screen. On-Screen Text: Market outcomes based on U.S. political party control

And the question is, your views on the stock market. And so the long-term average return on the stock market’s around 7%. And so the question is, is how do you think the stock market—so using the S&P 500 as a proxy, how will it perform annually over the next four years? Above the long-term average? Or so above 7%? Below the long-term average, but positive? So between 0 and 7? Or negative? So really just want to get a sense as to how bullish the audience is. And so while you’re voting and we tabulate the votes, I want to sort of come in and just sort of give you a couple of historical data points. The first here relates to the impact of different permutations of government on treasury yields and the U.S. dollar. And there’s a couple of interesting data points. This fixed income data goes back to about 1972. And maybe the first thing that’s worth highlighting is that over that time, we haven’t actually had a situation where the Democrats have controlled the presidency and the House with the Republicans controlling the Senate, so we don’t really know how these things would necessarily work. But maybe the other data point that’s fascinating, and this really, I think, reflects on some of the comments that Mark and Eric had made about, you know, just how things get done in the U.S., is we have had periods where one party’s controlled all three branches of government. You can see Republicans on the top line, and during that period treasury yields rose. And then if you go third from the bottom you can see that when the Democrats controlled all three branches of the government, that was the only other period that treasury yields rose. In all other periods where have divided government, treasury yields had actually declined over the last 50 years. So that’s the fixed income. And as we’ll now close the voting, I want to show you a similar chart but related to the equity return. So we can go to the next slide. On-Screen Text: U.S. government composition and performance of Dow Jones Industrial Average

And the equity returns—this is, I think, really fascinating data. We’ve used Dow Jones Industrial Average data. And this data goes back to 1900, so we’ve got 120 years’ worth of data. And probably the most interesting thing is even over 120 years we still have never had the structure of government that we’re looking to have with the Democrats controlling the House and the presidency and the Republicans controlling the Senate. In fact, you have to go back to 1888 to find a time period when you had that structure. The only other data point I think that’s fascinating is unlike periods when you had sort of one party in total control, which was not good for bonds, for stocks, actually, you’ve seen that the returns under a full-democrat and a full-republican control have actually had almost identical returns both being just over the 7% long-term average. And so I’m just waiting to see the results of our poll here. And, Mark, while we’re waiting for the results, your thoughts on returns under different forms of government?

Yeah. Well, I think it’s very interesting. And great analysis. I think the one thing that I would observe, though, is obviously the amount of returns that you look at. Often you need to think of this relative to what you can earn on the risk-free asset like cash, for example. And the thing that’s really exceptional today compared to all of history, frankly, is that we’re dealing with interest rates which are already at zero. And so if the long-term sort of return on stocks is at 7%, I don’t actually have the number to hand, but I’m guessing that the long-term sort of return on cash is probably around about 4%. Right? So you’re looking at cash plus three as a return. And so as a simplistic observation, if you were sort of repeating what you’d done in the past, you probably wouldn’t be looking at 7% returns, you’d probably be looking at 3% or 4% returns. So I think that we all live in a world where we may need to get a bit more used to the idea that absolute levels of returns in a low-rate environment are likely to be lower than they have been historically. And, of course, the other thing that was interesting in your analysis is where you share that most of the time it looks like bond yields go down rather than go up. But I’d like to think that in the next four years bond yields should go up, not go down. Otherwise, the pandemic that we’re living in has truly gotten completely out of hand. By the time we get to 2024, we’d like to hope that we’re living in a world which is a bit more cheerful by then. And yet this election has obviously happened at a point where we’ve just seen a recession like none that we’ve ever seen and moves in interest rates that we’ve never seen. So I’d give that as a bit of a context. But otherwise, I think that the sense for the time being is, just in the short term I would say, a lot of investors this year have been stressing and worrying about the election. And hopefully, it’s now all over, but the shouting. Or I should say the screaming and the wailing coming from the White House at the moment. It’s kind of now done. And if we can put the election behind us, you kind of look forward as an investor all the time and you’re saying, what’s the next big thing on the horizon? And I would argue the next big thing on the horizon is probably vaccine approval, which we think could be happening only in a few weeks from now. We wouldn’t be surprised to see some news on vaccine at the end of this month or early in December. So that could be a positive catalyst. We also look at a landscape where we think growth is probably going to be pretty decent next year; that should be supportive. And policy, both fiscal and monetary policy, is going to be incredibly supportive. And all the while, you’ve got ultra-low interest rates effectively driving financial repression. It’s kind of like the dash from cash, right. And fixed income has become the asset class where there’s no income left to fix. The risk-free return is now the return-free risk because you’ve got a lot of duration and not a yield to show for it. So you can see how risky assets prospectively can perform pretty well in the here and now. If I had a concern as I look forward, my concern would actually be more what happens when that sort of direction of policy stimulus starts to turn. At the moment, the tide is in and it’s floating all the boats, but we kind of know that it’s when the tide turns, the tide on policy stimulus goes out, that that’s when it’s going to become, frankly, a little bit more difficult. And so make money for the time being, it may be a big difficult, a bit more challenging as or when the economy and policy starts to turn.

Right. Right. I’m going to jump in with the poll results, and I think the poll results are quite consistent with, Mark, your comments. So 30% of investors felt we would do above-average returns, 68% thought we would be between zero and seven. So, Mark, very much consistent with what you’ve said. And only 1% thought we would have negative return. So that’s good that that’s actually the lowest category. But maybe, Eric, shifting to you. Mark’s given a good macro, but let’s maybe dig in and talk about what sectors and industries might benefit or be hurt by this new government, this new Biden presidency?

Sure. Happy to. And certainly equally happy to defer Mark in terms of his views afterwards, since as we get ever more granular, I become ever less knowledgeable. But nevertheless, it’s an important element to this. And so for instance, and it’s very notable as far as I can tell so far this week, that you have the tech sector, the health care sector’s rallying quite enthusiastically. And seemingly less so specifically because Joe Biden has probably won less so because Congress is probably divided. And so that means maybe the anti-trust efforts that have been looming and threatening some of the big tech companies are less likely to get off the ground if they require a high level of cooperation across parties that, frankly, don’t like one another very much. And similarly from a health care perspective, you know, to the extent Joe Biden wins you might think more Obamacare and this kind of thing. But again, a divided Congress limits that, so probably relief for the private health care sector. And so those are some of the sectors that have rallied so far, and quite rightly probably do fare somewhat better. Though interestingly on the basis of inaction as opposed to on the basis of some grand new policy that’s going to help them do significantly better. I suppose—and so one of the nuances here is, are we saying who does well relative to what, you know, politics has looked like over the last two years in terms of the political permutation, or is it versus what was expected going into this election, which is a little bit different, again. And so I’ll just say, as I look forward, the idea that we will get a fair amount of fiscal stimulus in early 2021, that’s a pretty good thing for consumer-oriented sectors. The stimulus money has been, to my eye, disproportionately handed directly to households to the point that we’ve had household incomes higher than normal household savings rates, higher than normal. It’s been quite extraordinary, really. And so I suppose that’s a sector that benefits, though I must say, to the extent maybe there was a hope that it would be a blue sweep, they are set to be helped a little bit less than they might have imagined. And so maybe worse than the expectation, but nevertheless some amount of helping hand coming. So speaking to the nuance of properly interpreting this, I suppose at the margin if you think a Biden presidency is going to take a slightly stricter approach to COVID-19, maybe that’s a negative for the restaurants, and bars, and gyms, and entertainment sectors, though, again, I don’t think a lot of that ultimately comes from the national level, and a divided Congress would further limit those actions, I suppose. And then the other thought I have, and you can see I’m not really a stock market analyst ticking off the standard equity sectors, but I guess it seems to me that multinationals do better. If we end up with a more stable trade environment, maybe one slightly less encumbered by tariffs, by isolationism and that kind of thing. And so there must be some win in there for those big companies. Of course, the big companies do disproportionately represent many of the stock markets that we look at, and so maybe that’s another comment about big businesses versus small businesses and big businesses have materially outperformed the smaller ones through this pandemic. And maybe this political permutation tilts a little bit that direction as well from a trade perspective. But I will say this, and Mark is going to shudder as I say this. And feel free to correct me, or Andrew, you may as well, given your own background, but I have to say, one of the things I found fascinating about the stock market’s reaction to this is I almost feel as though the stock market was going to be happy no matter what election outcame came out because I remember very distinctly we did run econometric models of this in the summer. Over the summer, when Donald Trump’s polls went up, the stock market was reasonably happy. And that was kind of the story of, well, we might get tax cuts, or at least we won’t get more regulation, or something like that. And so for a while, the stock market was very keen on Trump. As of the fall, those models turned, and we started to see that as Biden’s polls went up, the stock market was going up. And so the narrative was fiscal stimulus, maybe it’s a net positive for the economy, maybe the blue sweep itself is the key there and massive fiscal stimulus is—we’re excited about that. It seemed like as that blue sweep was becoming more likely, the stock market was going up. And then kind of hilariously as the election comes out and Biden probably wins, and Congress is probably divided, the stock market is saying great. And it’s saying great for a reasonable reason. It’s saying, you know, a divided Congress limits the excesses of a president, and maybe there’s no tax hikes. And so it all kind of makes sense. And I have to say, historically, a divided Congress, to my eye, is the ideal scenario for big companies that, keep in mind, have thrived in the current regulatory environment and perhaps that don’t want rules to be changed all that much, even reduced all that much because it might help smaller competitors get a foothold. And so in the end, the stock market has been happy. The narrative sort of has been, well, we’ll get a bit of fiscal stimulus, and similarly we won’t get any kind of radical shift in policy. And so it makes sense, but I’m pretty sure I’ve just said that there are three different ways the stock market has felt good about—or I should say, the stock market, in theory, could have felt good about every single outcome, which doesn’t quite make sense. It doesn’t fully make sense, but maybe the conclusion, as Mark had alluded to earlier, is, well, we’re working our way through uncertainty, we’re happy to be past this particular item. The world isn’t ending, seemingly and so I suppose it’s a positive there. But, again, my suspicion is the stock market might have found a way to go up almost regardless of the outcome. And so, Mark, feel free to correct me on that one.

It was great. Although you’re obviously more of an economist than an investor, I think you’re really on to something. But what I would sort of see in what you were describing just there is that one of the things that markets don’t like is uncertainty. And that’s why like last week in the run up to the vote you saw risk appetite have a bit of a wobble. Once the election is out of the way, almost regardless of the result, you kind of know where you stand and you can project forward. And intrinsically, I would observe that it almost felt that in the run up to the election, investors were happy to sit on some cash and sit on the sidelines, and they were almost expressing a narrative where—we’d like to buy the dip. We want to buy the dip. We’ve got to wait for the election and if prices go down we want to buy the dip. But of course if the dip doesn’t happen, you end up in a situation where investors then need to scramble and add risk. And you see a pretty constructive price action. So I do concur in some of the sentiments that you were sort of expressing that the stock market could have been happy with almost anything this week perhaps. But one of the other things that I’d really like to pick up on and develop from some of what Eric was sharing is that I do think that we are operating in a landscape, and part of this is down to what’s happening in politics and geopolitics. And part of it, frankly, is coming back to what’s happening in terms of COVID. But we’re living at a time where we see a lot of heterogeneity of performance within sectors and between sectors. We have winners and losers. We’re seeing profound changes. Look at how COVID has accelerated the adoption of home working or shopping habits away from bricks and mortar to online; or the adoption of digital money relative to paper money; or how it’s interrupting travel and the like. We could see some profound changes, winners and losers, some companies adapting better than others. And so, in a world where—going back to the poll that Andrew was sharing—if the majority is right and we’re sort of seeing sort of stock returns maybe 3, 4, 5% a year over the course of the next few years, I’d almost observe that we’re in a landscape where it’s less to do with the beta; it’s less to do with are markets going up, are markets going down. The more exciting thing to look at it is stock picking; who are the relative winners, who are the relative losers. And in this context, I’m delighted to be working in an industry where we get to pick the winners and try and identify the losers. And so actually, I think it’s a great time to be an active investor in both stock strategies and also credit strategies. In credit, for example, we’ve seen the abundant liquidity that’s being delivered over the course of the past year, really keeping a lid on default rates. In a way, you’re sort of throwing money at everyone and everywhere and that’s sort of limiting the ability for corporates to run into trouble. But I do think we will see some elevated levels of defaults over a number of years. You’ll almost end up with a elongated default cycle. And in this sort of landscape there’s a lot of money to be made, both by picking the winners, but also by picking the losers. And in alternative strategies, taking short positions in the losers, either through synthetics such as CDS and futures, and running alternative strategies. So for me, as a theme, looking forward, looking at the path ahead, maybe it’s got less to do with beta and more to do with alpha; the performance, that is, that we can generate through active management rather than just investing in the market.

Yeah. And, Mark, maybe I want to build on that point. And I’m glad that you’ve brought the fixed income into the discussion because I think that, you know, we talk about where stock markets are in sectors, but in fixed income rates are really low. And I guess we’ve got the experience in Europe of rates being low for a long time. And so what kinds of strategies—you’ve alluded to them at a higher level—but what are the asset classes within fixed income that investors might look at or be considering in an environment where rates are low, and maybe they’re rising but they’re probably not falling much further than where they are today?

Yeah. I mean, it’s striking, right. So we run money in funds where investors are giving us money to buy assets where we’re pretty much guaranteeing they’ll lose money by buying assets with negative yields in the eurozone, and maybe we lose less money than the next guy. But it doesn’t really sound like a wonderful proposition, does it. That’s not how fixed income is meant to be. But what we’re really observing is increasingly investors are scratching their heads about their fixed income allocation and what they’re doing in order to earn returns that aren’t correlated to the equity portfolios, and how can they generate income. And so we have seen a lot of interest in multi-asset credit portfolios; we’ve seen interest in alternative strategies, in the ability to go long and short. The idea that using a risk budget so that you’re taking less market directional beta risk and you’re actually increasing the amount of risk that you’re taking in active management. So I’m hoping I’m not losing the folks in jargon here, but more alpha risk and less beta risk has been an intelligent way to look at this. But there’s no doubt that we’re all sort of contending with a challenging [indiscernible] landscape. And certainly, I’ve been looking at Japan for a long time; they’ve been there for the last 20 years. So, I think there’s almost a sense in which we need to stop looking at history at start looking forward. Because in a fixed income benchmark, part of the beauty is you can’t outperform the yield that’s in that benchmark, given the duration you’ve got. If yields don’t go down, that’s the return you’re going to get. So think about what you’re going to earn in the strategies that you’re investing in.

Right. Right. So I want to shift gears. And we talked a lot about the U.S. And so, Eric, I mean, this has an impact on Canada, both the Canadian economy and the Canadian stock market. And I think our audience is very curious as to what are those implications for those of us on the northern side of the border.

Right. No, it’s a fair question. And so of course, secondary to the implications directly to the U.S. but not insubstantial in the end. And so, I would start by saying, economically, what is good for the U.S. is generally good for Canada. One of the most powerful prediction tools for the Canadian economy is to recognize that shocks that hit the U.S. tend to hit Canada almost on a one-to-one basis. It’s very similar economic trajectories for the two countries over the past several decades. And other than an oil shock here or some idiosyncratic issue there, the profile looks quite similar. And so if you buy my stance, which is a Biden presidency might be modestly economically positive versus the alternative, despite some negatives. In theory, that’s equally true for Canada, so it might help Canada move a little bit more. I think more generally and abstracting for a moment away from the economy, it’s just good to have better relations. And so Canada has had somewhat frosty relations with the U.S. in recent years, and so presumably some amount of normalization happens there. I think that’s a positive thing. If the U.S. were to raise taxes—and I should say I’m not actually really expecting that but I guess the risk is higher now than it was under a Trump presidency—that might actually be a good thing for Canada. Keep in mind, Canada’s raised some taxes, lost some competitiveness along the way. There could be a bit of a normalization of that, or maybe on the regulatory side there could be some small way in which Canada benefits in a relative sense by the U.S. maybe losing a step or two in a relative sense. And then it seems to me, realistically, probably fewer tariff pressures. To the extent the Democrats keep tariffs in place, perhaps it’s more likely to be, to my eye, in a China direction. It’s less likely to be softwood lumber and aluminum in a Canadian context or in a dairy context, so perhaps some easing there as well. If the U.S. ends up dealing with COVID-19 a little bit better and grappling with it and controlling it a bit sooner—and those are highly speculative and really only at the slightest of margins would I generate that expectation—could result in the reopening of the U.S./Canada border sooner. Even if just the profile of the virus looks more similar on both sides of the border, that could allow a reopening, which is a good thing, I think in general. You could debate, I suspect, the energy side. And so to the extent the energy sector in the U.S. has maybe a slightly rougher go, you might say, oh, well, relatively, that’s good for Canada, then. But equally, of course, the U.S. has considerable say in how Canada’s oil gets to market and gets refined and pipelines and these sorts of things. And so maybe I would stop short of saying it’s helpful. There are certainly some negative as well. But it’s in play; there are some implications on both sides there as well. And then maybe the other thought I can think of, at least off the top of my head, is to the extent the U.S. perhaps reengages with immigration somewhat more, that maybe hurts Canada a little bit at the margin. Canada has generally attracted high-quality immigrants. I suspect Canada will continue to. But you could argue Canada was briefly attracting especially high-quality immigrants, people who would have been happily gobbled up by U.S. tech companies. Instead, they’ve been gobbled up by Canadian tech companies. And in fact, we’ve seen significant job growth in the Canadian tech sector, maybe in part because of a more difficult immigration and visa environment in the U.S. And so you see stats like Toronto took on more new tech workers over the last five years than Silicon Valley, and things like this. And so it might be a little bit harder to continue down that path if the U.S. seems to be open for business from that perspective as well. And then the one other thought is, if you think—and I think this is a fair assertion—that the U.S. dollar goes down over time, and perhaps even a bit more under a Biden presidency than a Trump one, well, a weaker U.S. dollar has any number of swirling ramifications. But you’ll keep in mind, one of them is that maybe the Canadian dollar ends up being a little bit stronger than it would have been, and so that’s a bit of a competitiveness challenge to Canada. So, I mean, there’s a real swirl of things and maybe I’ve buried the lead here. I think the lead is, if the U.S. economy does a bit better, it’s good for Canada. If the two countries have better relations, I think that’s good for Canada. So I think it’s more good than bad, but there are some interesting other elements to consider that will be relevant for certain sectors and certain people.

Yeah. And then I think the thread of that, potentially a weaker U.S. dollar, is an important one, Mark, as we turn to things, like we go from Canada very close to the U.S., but things like emerging markets, which really haven’t done particularly well over the last number of years. And so your thoughts the impact this has both on emerging market equity markets as well as debt markets?

Yeah. So I think that’s why, obviously, a Biden administration, a more internationalist sort of hue, a more of a focus on the multinational mechanisms, all of which should speak pretty well for emerging markets. We tend to also think a somewhat weaker dollar, again, could well see local currencies in emerging markets perform much stronger. EMFX has been an area where we’ve seen really disappointing performance over the course of a number of years, and we may well see some catch-up taking place, acknowledging that there are a lot of emerging market countries where you can earn very attractive yields, sort of 6, 7, 8% yields, which in a zero-yield environment seem to be very interesting. At the same time, I wouldn’t say it’s necessarily going to be good news for every emerging market. We are going through a big global recession. And so I don’t think you can be indiscriminate about buying every asset there is to be bought across all of emerging markets. And you will see this sort of divergent performance between assets and countries, on the back of what policymakers in those jurisdictions are doing. So, again, we think it’s going to be an environment where focusing on investing actively and picking your spots is going to be incredibly important. But generally speaking, we would expect to see EM as an asset class outperform over the course of the next few years. And it’s certainly been the case that this week, that EM has been on the front and generating strong returns as it sort of eyes up the prospect of a Biden presidency for the next four years to come.

Perfect. And so, I think we had a pretty thorough discussion here, but maybe before we wrap up some quick final thoughts or key takeaways from each of you. And so, Eric, any quick final thoughts for our audience?

Sure. Yeah. I mean, I guess I would say, it seems like it’s on track to not be a bad outcome. The stock market is fairly happy. My assessment is the economy does pretty well or decently well in this environment. A divided Congress limits the extreme tendencies of either party; that’s generally a good thing, though maybe you miss out on a bit of helpful fiscal stimulus as a result. But in general, I think it’s a fine outcome. Let’s recognize—and so now here’s me now stepping back one step—and so let’s recognize there is still clearly though a huge partisan divide in the U.S. It hasn’t shrunk at all. There were some expectations maybe it would to the extent Biden might win handily and he didn’t, and so there is a very large partisan divide that is going to remain an issue. And, I mean, U.S. politics are very complicated and contentious for the foreseeable future. So that hasn’t gone away. This is not a clear rebuke of Trump or a clear endorsement of Biden; it’s a pretty close race in the end. And then lastly, let me say—and this is one further big step backwards—long term, in the end, it doesn’t matter that much. And so we have a president now; we’ll have a president for four or eight years, and you’ll have more presidents. And over a long period of time, for those with long-term investing inclinations, we’re going to see a whole bunch of presidents over that period of time and a whole bunch of different Congress permutations as well. And my general view on politics is a pendulum swings back and forth. And if you see it going quite far to the right, it’ll probably go back to the left at some point. And it’s not to say you can predict the next election on that basis, though midterms do like to rebuke the person who won the presidency two years before, so we could yet see that. But in the end, you end up with policies and an economic environment and a political environment that’s consistent with the underlying will of the people. And so I suspect we’re not going to see the US shifting radically in one direction or the other over the long run. And so this matters, but in the end, for long-term investors, it maybe matters less than you might think.

Right. Mark, last word to you.

I mean, the only other thing that I’d say is, obviously, sleepy Joe is no spring chicken, right. He’s not a young lad. He’s 77 years of age. He’ll be 81 by the time he leaves office. So this is likely to be a one-term mission for him. I wouldn’t expect him to be a particularly inspiring sort of president or president that gets lots done. But in a way, after four years where we’ve seen a constant whirlwind of tweets and all sorts coming out of the White House, actually a few quieter years may actually do everyone a bit of good. And the idea that we can actually see a bit more calm and a more statesmanlike approach to international affairs, hopefully, after a period where it almost seemed as if there’s ever more divergence in politics and we’re going towards more extremes, maybe we can have a quieter moment of healing and reconciliation in quarters and years to come perhaps. Certainly, that’s what I’d hope anyway. But I would always say that we get very fixated on who’s in the White House, but ultimately, the U.S. has got a load of great sort of politicians. D.C. is a great city full of sort of very talented people. So I think those of us who are overseas don’t always understand that actually regardless of what goes on on Pennsylvania Avenue that the U.S. is going to keep turning and the economy’s going to keep growing. And in that respect, it’s interesting to watch and interesting to talk about, but it’s not necessarily always what’s going to drive the price of all the assets in all of our portfolios.

Right. You know what? And I think that’s a perfect way to finish the discussion on an upbeat note. I want to thank both Eric and Mark for joining us today and for really helping shed some light on what has been a really, really interesting week. And I can’t wait to actually hang up and see what’s happened in some of these close races. We’ve probably seen some votes in the last hour or so. And finally, I want to thank our audience for joining us and giving us an hour of your time this morning. And so, with that, thank you very much. Have a great day and enjoy the weekend.