Ric Edelman on why Pelosi and Mnuchin are the 'wrong combo' to negotiate stimulus deal
Stimulus talks remain at a standstill just days before the 2020 Presdiential election. Ric Edelman, Founder of Edelman Financial Engines, joins Yahoo Finance’s Zack Guzman to discuss how investors should be prepare their portfolios amid market uncertainty.
Video Transcript
ZACK GUZMAN: But on the coronavirus front, things continue to get worse there. Yesterday, the country recorded at least 90,000 new cases and crossed the threshold of 9 million positive cases since the start of the pandemic. Right now, cases are rising in 42 states here in the US. So I want to break that down in terms of how that’s shaping up market sentiment here ahead of the election.
Here to chat that with us is our first guest today. That would be Ric Edelman, Edelman Financial Engines founder joins us now. And Rick, we were talking about this, you were on the show 10 days ago. When stimulus talks went kaput, you said that things could get ugly real quick and it has gotten ugly rather quickly. How are you assessing the way the market’s reacting to record cases leading up to the election?
RIC EDELMAN: Well, I think that we have lots of negative news and anxieties, Zack, as you mentioned. The election on Tuesday is too close to call. Not only are we concerned that we don’t know who is going to win, we don’t even know how long it’s going to take to have a winner declared. It could take days, even weeks. Nothing would shock us. In the midst of all that, as you noted, the coronavirus infection rate, hospitalization rate, death rate, continues to climb as we move toward the concerns of colder weather and increased flu environment. So there’s anxiety there.
And on top of all that, we’re seeing the major high-flying stocks of the past six, seven months beginning to falter. So investors are wondering, has the disconnect that has been occurring between the economy and the stock market, is that disconnect beginning to narrow. And if so, what does that mean for stocks? Investors are not overly confident right now.
ZACK GUZMAN: The other question, too, obviously, there’s the hope that once we get past the election a lot of the question marks we saw on the stimulus front negotiations there, between Republicans and Democrats. A lot of people are putting hope that once you get past the election everything’s going to be fine. We’re going to have both sides come back together and agree here. What’s your take on that? Because we heard earlier today House Speaker Nancy Pelosi was speaking with MSNBC, talking about her relationship with Treasury Secretary Steve Mnuchin.
Of course, they’ve been leading the negotiations here. She didn’t seem to be too positive in terms of that relationship moving past the election, saying the administration has poisoned the well, in many ways, and the stimulus talks could wait until, who knows– until the start of the new presidency. So what’s your take on what we might expect to see on the stimulus front after?
RIC EDELMAN: Well, I’m not very optimistic. On the one hand, I think that there have been the wrong people negotiating. Mnuchin and Pelosi is the wrong combo. It’s all about McConnell. It’s all about the Senate. If it remains controlled by the Republicans after the election, they don’t seem to have an appetite for massive stimulus and a dramatic increase in federal debt. So until the House and the Senate start negotiating I think the House/White House combination is all misguided.
And ultimately, if we do see massive stimulus it’s going to, in fact, have to be massive. I wouldn’t at all be surprised if it doubles the amount of stimulus that we’ve done so far. With the current state of American business and American households we are going to need massive amounts of injection and I don’t know if Congress, forget about who’s in the White House, I don’t know if Congress is going to have the stomach for all that.
ZACK GUZMAN: Yeah, that does seem to be the big question mark, too. And we’ve had this discussion, too, in terms of right-sizing that next package to come through. Obviously, the longer it takes, you would think, the larger that number grows.
RIC EDELMAN: Right.
ZACK GUZMAN: Just because of the struggles that we’ve seen on the unemployment front, the continued high numbers that we’ve seen– still above 700,000 in terms of unemployment claims on a weekly basis. But when you look at that, does that number become, I guess, the end all, be all, because if you do get a Joe Biden winning the presidency, aside from the things you mentioned about Congress there, it does seem like the expectation for repeated attempts at passing stimulus measures grow with that equation coming true. So what’s your take on how the recovery process is not just hinging on this next stimulus bill, but what could come after it as well?
RIC EDELMAN: Exactly right. It’s not all about what happens next week. It’s what happens over the next six months because the new president, whether it’s Donald Trump getting re-elected or Joe Biden entering the White House, that doesn’t happen until January 20. Any change in control in the House or Senate doesn’t happen until January 20. So it’s going to take them another 90 days after that to get any serious legislation passed. So it’s going to be months. By that time the winter will be over, we’ll be back into the springtime, and who knows where we’ll be standing in terms of both the coronavirus and the state of the economy. It’s going to be a very difficult winter, I’m afraid, and I think that may spill over to investor anxiety regarding stock prices.
ZACK GUZMAN: Yeah, given your call last time you were on, as I said, 10 days ago, mentioning that who knows what could happen. But the short term volatility didn’t look good. You had said, who knows? We could see a repeat of the 30% drop we saw earlier in the year if things get bad. I mean, we are seeing cases rise here. We were just talking with the mayor of El Paso yesterday.
That situation’s unfolding. It looks like the judge there, after our interview, ordered another shutdown, though it does remain to be challenged there by the Texas Attorney General and we’ll see what plays out. But it does seem like if you do have cases rising at that level it’s inevitable that you’re going to see what’s playing out right now in France and Germany play out here in the US, at least in some communities. So talk to me about how that– talk to me about how that might change what we’re seeing right now in the market because, as you said, 30%. It was a big drop back in March.
RIC EDELMAN: Yeah, state and local officials are going to have no choice but to emphasize safety over economy in the short term. And so, further shutdowns are likely, lockdowns– if not broadly, necessarily, the way it was done in the spring, but selectively, in terms of styles of businesses, bars, for example, more so than others. But it’s likely to occur on a patchwork basis, depending on the hot zones. And this is why, as it gets increasingly dicey in months to come, that investors maintain their long-term focus. Don’t focus on what’s happening today, tomorrow, next week, next month, next quarter. Focus on 10 years from now because by then this will all be ancient history.
So be careful about adjusting your investment strategy too erratically because of what’s happening at the moment. Don’t be a short-term, market timing, day trading speculator. Stay as a long term cautious investor with a diversified portfolio.
ZACK GUZMAN: Yeah, it’s very tricky to try and time all that, obviously. It’s never easy to do. But when you do look at some of those longer term opportunities out there right now, is there anything that stands out to you as attractive, given the way that the economy in this recovery is going to go, regardless to if it’s Trump or Biden that wins the presidency?
RIC EDELMAN: I’m not excited, yet, about any particular market sectors except for perhaps digital assets, which is speculative as it gets. But I think that we need to see more decline, more investor acknowledgment that many sectors are overvalued. For example, we haven’t seen the bottom shoe drop out of the real estate market yet on the commercial sector, on the retail real estate sector. I think that’s the next crisis to come because those assets are not marked to market the way that stocks are.
So it’s a lagging reaction to see what those market values are like. We already know what’s going on in the hotel industry, the commercial real estate industry, the retail mall industry, but we haven’t seen the real impact the way that we saw on stocks last spring. So I’m not excited yet about where to invest money in the short term. But I, again, remain confident in the long term. America will get through this. We’ve gotten through every crisis we faced and we’re going to get through this one, too.
ZACK GUZMAN: Well, we probably won’t be able to speak with you again until after the election, so one last chance to give you the opportunity call it. Which way do you see this thing going, if you want to weigh in on it?
RIC EDELMAN: Well, my prediction is that when you and I talk again, we still won’t know who the winner is.
ZACK GUZMAN: And that the market will really enjoy that. That is something that we have talked about. Ric Edelman, always love having you on. Be well. He’s the Edelman Financial Engines founder. Ric Edelman, thanks again.
