Introduction

 

Steve Kraske
This is Up To Date on KCUR on 89.3 I’m Steve kreski. How would a contested election impact your finances? We’ve been here before. That was back in 2000, when the race between al gore and George W. Bush went into extra innings. The Smart Money experts are back to discuss whether trying to trade down the event is a good idea. And whether any longer term impacts may result from an uncertain political period. We’ll also highlight some of the other key outcomes that might come from depending on the outcomes of the election, including the potential for federal tax law changes for individuals and corporations, regulation and the extension of social safety net benefits like unemployment benefits with us now I know one time as a client service associate at Mariner Wealth Advisors in Overland Park. Nolan, nice to have you again. Welcome.

Nolan Keim
Yeah. Thanks, Steve. Good to be here.

Steve Kraske
Lucas Bucl is director of investment management for Aspire wealth partners. Lucas, good to have you too. And just the usual quick note here, the information presented by our guests is for informational purposes only and should not be construed as a recommendation or advice related to your personal situation. Please consult with a probe prior to making any financial decisions here. Well Lucas, set the scene for us here in the current situation? What’s going on politically? How are things shaking out right now?

 

Current Situation

 

Lucas Bucl
Well, Joe Biden has a pretty clear lead in the national polling, and more importantly, in some of the battleground states. The race looks a little bit tighter from an electoral college standpoint. But I think there’s definitely some uncertainty about the expected result. People are a little bit gun shy after the 2016 election and the inaccuracy of the polling. And President Trump has also been signaling his concern about the legitimacy of mailing ballots, where there’s expected to be a large amount of those given the coronavirus pandemic.

Steve Kraske
And Nolan, there’s some thought that we may or may not know the result of this election four days or maybe even weeks after election day.

Nolan Keim
Yeah, absolutely. And with that state and the outcomes uncertainty, and the markets as a whole do not like uncertainty as we’ve seen this year with COVID.

Steve Kraske
And, Lucas, tell us about that. Why don’t markets like uncertainty hear that all the time? What’s that about that dynamic?

 

Uncertainty in the Markets

 

Lucas Bucl 
Well, it really comes down to markets, especially stock investors are really trying to project the future earnings of a corporation. So that’s the the inherent value of a company stock is how how much they’re going to make in the future. And anytime you don’t even know the rules of the road from a political landscape, or you just don’t have a really good sense on what the economic environment is going to be in the future. It’s harder for investors to get a good handle on how much companies you’re going to be making.

 

Steve Kraske                                                                                                                                                          So contested election is not a recipe for certainty. In fact, it’s a recipe for uncertainty. And Lucas, you’re saying downward pressure on stocks?

Lucas Bucl
That’s what I would expect, you know, anytime the political landscape does impact how company’s position, or how investors make money. And if we don’t know the results of the election for essentially free then even a month or more after the election, that really would throw things up in the air for people trying to estimate company earnings.

 

Common Concerns

“…Having that calm is important and also really trying hard not to view things through your own political lens, because people have their own views and oftentimes can get emotional, if things go opposite the way they would like.”

Steve Kraske 
Nolan, to what extent are your clients already asking you about what all this might mean, and how it might play out and impact their portfolios?

Nolan Keim
Yeah, I mean, we have clients asking almost on a daily basis. Just what what’s going to happen and we have our inside but no one really knows. And with elections there’s a lot of unpredictable things that can happen. And we just try to advise them just to stay pat and stay calm. And this and just think long term, as we’ll look at here shortly as well.

Steve Kraske
How about you, Lucas, how much are you hearing from your your clients right now?

Lucas Bucl
Yeah, we’re hearing the question, common questions from clients about politics, and in the potential results, and, you know, one of the things we talk quite a bit about is what we saw in 2000, with Bush versus Gore. And, you know, obviously, we were had an unknown result for over 30 days after that election, and stocks were down. But But things once the volatility and the uncertainty clears. You know, that happens pretty quickly, and markets get back to normal. So having that calm is important and also really trying hard not to view things through your own political lens, because people have their own views and oftentimes can get emotional, if things go opposite the way they would like.

Steve Kraske
Are some of the concerns, Nolan, heightened this time, because President Trump has raised so many concerns about the legitimacy of the election and its outcome, particularly if he loses?

Nolan Keim
I think so. And I think I think he throw in a bizarre year that we’ve had so far as well, just adding to that pot, with a lot of investors, especially just knowing, you know, the market can go up and down pretty quick. And then throw it in an election year, where, you know, President Trump has stated that, you know, he’s gonna contest if if needed, and that will cause uncertainty like Lucas mentioned, which is not a great thing for the market as a whole.

 

What should investors take away from the election 20 years ago?

“…Making big long term financial decisions on short term events is generally not a good idea.”

Steve Kraske 
So what are the lessons, Lucas of Bush versus Gore in 2000? What should listeners and investors take away from that experience 20 years ago?

Lucas Bucl
I think the first thing is, you know, the more uncertain the result, I think, the more volatility you’ll see. And the longer it goes, I think that the more choppy it’ll be. So, first lesson is buckle up. Because it’s going to be a bumpy ride. And, you know, once we ultimately find election results, I think you can expect volatility to be reduced.

Steve Kraske                                                                                                                                                      What did the markets do? No one back in 2000? What kind of up and down movement did you see?

Nolan Keim
Yeah, so during this time, stock sold off and, and money move mostly into safe safety of high quality bonds. And with that, the s&p was down about just so just over 8%, from the election day through November 30, or just under, you know, 30 days, it was down almost a percent. So we can see those swings again, we’ve already seen those swings this year and 2020. So it’s, you know, nothing’s out of the picture, like Lucas has mentioned.

Steve Kraske
So I guess, you know, people might begin to wonder, Lucas, based on prior experience, should investors make trades or make changes to try to time this uncertainty that we might be walking into here?

Lucas Bucl
Yeah, that’s a common question that we get. And generally, the advice would be to stick to your long term strategy, don’t try to make bets here on the short run, because it’s an unknowable result. Just like in 2016, when the market, the futures markets went crazy on election night, when the unexpected result was coming down, that the Trump was going to win. But then you saw even the next day, markets were up and recovered, and the big prediction of doom didn’t come to pass. And so you know, I think it’s important to understand that, again, this is a short term event. And so, you know, making big long term financial decisions on short term events is generally not a good idea.

Steve Kraske
Some of your clients, Nolan, do they want to try to make a play on this election?

Nolan Keim
Yeah, I mean, we try to advise them against it. I mean, like Lucas said, I mean, it is very unpredictable. And we need to be thinking long term. And I think one thing that we tried to, you know, share with clients is just, you know, take the election out of the picture, you know, look at your portfolio as a whole and say, Okay, what changes need to be made? You know, this year, we’ve seen some decent returns in the stock market. So we can learn from that, you know, what can we change to rebalance your picture, and your portfolio, just going forward, you know, looking more long term and not like Lucas mentioned, not looking at, you know, the next month or two, looking more, you know, down the road.

Steve Kraske
So Lucas, I think you’re saying bottom line here, that emotion and making investment decisions typically aren’t good friends.

Lucas Bucl
That’s exactly right. And, you know, there’s few topics that are more emotional than politics for a lot of folks. And so, you know, that’s why we’re really cautioning people not to let your emotions override, you know, your, your, your judgment here. I think one thing just before we move on from that last topic is one thing that people should think about, as we go in in the next couple of weeks is to check your portfolio and if you’re overweight, to a significant degree, anything from your traditional targets. I do think rebalancing your portfolio before this uncertain period is a good idea. But I wouldn’t, you know, try to sell out of everything or make a big bet on certain stocks just because I think that’s a way to probably make a bad decision.

Steve Kraske
Lucas Talk about rebalancing, what are you talking about this walk us through what that means because that term might be lost on a few people out there.

Lucas Bucl
Sure. So let’s say, with your your overall strategy, you want to have your stock allocation at 70% of stocks. But this year has been pretty wild as Nolan mentioned. And stocks coming back from their march lows have have had really good results, and most people may not appreciate that fully. And so let’s say, from that period, now, your stock allocation is 76%. Right, and your target is 70. It probably is a good time to sell stocks, if you’re that overweight your your long term target. So that requires two things. One is understanding what your target is. And then two, taking a look at your portfolio here in the next week or two and see where you stand today.

 

Phone Call – In Question

“…What the stock market does is that shows you the aggregate movement, but not every individual has a different motivation.”

Steve Kraske
Okay, let’s go to some phone calls here. We’re talking with our Smart Money experts the topic, the impact of a contested election, on your personal finances. Rebecca from Kansas City, Kansas. Good morning. Hi.

Rebecca (Call in) from Kansas City, Kansas
My question is, if investment in the stock market and and how you handle it is not an emotional issue. Why are the stock markets affected by these small events such as an election?

Steve Kraske
Nolan, what do you think?

Nolan Keim
Yeah, I mean that is a great question. That’s just it. I mean, it’s everything’s just so unknown. And our world, our world is filled with uncertainty. And with that comes ups and downs in the market. And with that comes, you know, profits being affected from companies, which then in end result, you know, affect stock prices. So, yeah, I mean, I don’t have a great answer for you.

Steve Kraske
Lucas, chime in here.

Lucas Bucl
Yeah. So in the short run, in motion doesn’t impact stock prices. But in the long run, if companies make more money, stock prices will trend upward. So I think that’s the big thing for investors is day to day, it will be an emotional ride. But long term, if companies are making more money in the future, their stock prices will go up.

Steve Kraske
Rebecca, Hope it helps a little bit, you asked the tough one.

Rebecca (Call-in)
Yeah, I was actually thinking more about, you know, the people that actually mess with the stock market. You know, it’s not just investors, with small investors like us, it’s the large ones, large ones that probably have more impact. So what is their uncertainty?

Lucas Bucl
Well, you have to have to remember Rebecca, that the stock market is just a big aggregate of a whole bunch of different market participants. And they all have different reasons to trade and make moves. And so people that have 100 or 1000 different reasons to make trades and participate in the stock market and, and buy and sell. And so really, what the stock market does is that shows you the aggregate movement, but not every individual has a different motivation.

Steve Kraske
Well, that’s the other thing I’m sort of thinking about. And Rebecca has prompted my question, but, you know, this idea that there’s so much uncertainty coming up here, in the possible uncertainty in the aftermath of the election, why not trade on that? I mean, it’s a pretty good bet, there’s gonna be a lot of uncertainty. Stocks don’t like uncertainty, you think they’ll probably die as a result, Nolan, why not trade on that?

Nolan Keim
Yeah. I mean, there could be opportunities, as we’ve seen in 2020, I mean, the stock market was down quite a bit. And that presented opportunities for investors that had maybe high cash where they could say, hey, let’s let’s, you know, throw some money into the stock market and take advantage of this downturn, where you’re looking at the election, we don’t really know what exactly the stock market will will show after, you know, say a Biden victory or a Trump victory. So I think with the unknown of that, putting a large bet, like Lucas mentioned into a certain stock could be a risky play, and it’s just asking, “Are you comfortable with that risk?” If you are, it could be a good opportunity for you. If you’re not then, you know, maybe set Pat and continue to look long term.

 

Would one candidate have a positive impact on the stock market than the other?

 

Steve Kraske
I was gonna say, is there a betting line out there amongst folks like you, Lucas, that would suggest that one candidate over the other would have a sharper, positive impact on the stock market short term compared to the other one?

Lucas Bucl
I’m sure there’s a betting line. I haven’t seen it. But if I had to speculate, I would say that, you know, if Biden wins, I think it gets consistent with where the trend is going right now, with Biden leading in the polls. I think that would be the most likely outcome to have a positive outcome for markets because again, that uncertainty would get drained quickly if by wins in a fairly convincing fashion. And I do think that’s the case of trying to trade on this. And missing is, let’s say we do get a fairly certain election result. And there isn’t really much debate about who wins. Then if you had sold out a whole bunch of your portfolio, and we’re sitting on the sidelines, you may miss the upside. And so that’s the downside of trading this event is you may get a outcome that you don’t expect.

Steve Kraske
Yeah, I was gonna say, you know, with President Trump, I think it’s fair to say, Nolan, that there has been a lot of uncertainty, because he is some of his pronouncements sort of come out of the blue, given that the markets been reacting pretty positively in recent months to President Trump’s presidency. What do you make of that? What should the take away there be?

Nolan Keim
I mean, it’s a very volatile market right now. And we have seen those ups and downs, and it can, it can change just by, you know, one tweet or one announcement, whatever it is, by President Trump. So, you know, with that, I mean, again, it just goes back to you know, it’s hard to time the markets. I mean, it’s a very, very difficult game to get into. And, you know, trying to stay away from that, it might be a good idea. And think, going back to that long term view is there are ups and downs, but over a long term investment period, you should have some solid returns, if you stay patient, and stay calm.

 

Outcomes of each Presidential Candidate

 

Steve Kraske 
Okay, let’s turn to what a Biden victory would mean, and what a Trump victory would mean, Lucas, walk us through a Biden victory and what some of the results of that might be.

Lucas Bucl
But I think, assuming we don’t get some sort of additional Coronavirus relief package done here, in the next couple of days, I saw that it looks like we’ve got a two day window or so at least according to Speaker Pelosi. She’s going to shell things before the election. So I think if you get a Biden victory, I think there’s a pretty high likelihood that you’ll get some sort of a relief package done maybe even before inauguration. And so I think that would look like you know, potentially an extension of unemployment benefits at the state and local governments, direct payments to individuals, I think both parties are on board with that at some level. And then also, you know, some some rent and mortgage relief and childcare assistance, things to kind of help things along as we continue to work through this pandemic.

 

Potential for higher taxes

 

Steve Kraske                                                                                                                                                        How about the potential for higher taxes? Because you hear some of that talk to Lucas?

Lucas Bucl                                                                                                                                                          Yeah, I think that’s the probably the biggest area that that people are focused on. And I think rightly so. Biden has been clear that his plan is to reverse some of the Trump tax cuts that we saw in 2017. So that would mean higher corporate taxes, likely going from 21% to 28%. On that, at that level, I think that’d be bad for stocks in the short run. Again, if stocks drive their value off of corporate profits, that puts a dent in corporate top profits, by definition. And then individual taxes, I think would go up. That $400,000 a year of income is the mark that the Biden campaign is really focused on. So people that have earnings above that on an annual basis, I think would be likely to expect higher taxes, both on earned income and also investment income.

Steve Kraske
Just to underscore that point. So Biden’s talking about higher taxes for wealthier Americans, but not rank and file Americans, it doesn’t sound like.

Lucas Bucl
That’s correct. He’s been very clear. And the campaign literature is very clear. $400,000 of income and above is really the focus for him. But, you know, I think if you start taxing investment income, even for you know, the wealthy slice of Americans, I think that’d be a mild negative for stocks, again, in the short run over the long term. The stock market kind of figures it out and corporations figure out how to work around the tax code. So I think again, that’s a short term thing. Long term, I’m not that concerned.

 

Trade with China & Stimulus Package

 

Steve Kraske
But Nolan, what about better trade relations with China? What would you expect there?

Nolan Keim
Yeah, and yes, with the relations that President Trump has, you know, instilled in the last couple years, I mean, it’s kind of at a standstill right now, especially with the Coronavirus heating that up, especially with China. And I think, you know, if Biden were to win, he would open up those doors a little bit more and figure out okay, you know, what can be done and restart those discussions where, currently where we sit is it’s at a standstill, and as a whole, the market doesn’t again, doesn’t like that.

Steve Kraske
The impact, Nolan, of increased federal spending in a stimulus package, what would that be?

Nolan Keim
Yeah, I mean, it’d likely be good for the economy as a whole for individuals as well, and businesses like Lucas mentioned. You know, that’s where he wants to put that to the benefit, too. And selected areas of the economy, like clean energy would be a huge one as well, that we’ll see an uptick where, if Trump were to retain his seat, traditional energy might be where it’s at. So there is some distinct differences between the two plans and just goes back to what will happen and the market should settle down once we have a decision and the result is clear.

Steve Kraske
Let’s turn Lucas to a Trump victory and what that might mean, lay it out for us.

Lucas Bucl
Well, I think with the Trump victory, I think there’s also again, a good chance that you get a coronavirus relief package. It may look differently, though. So you’re probably more focused on direct payments, probably some sort of tax cuts payroll taxes seems to be the area that the Trump administration and Trump allies seem to be focused on. You’re definitely small business and airline further health and stimulus there. And Republicans have really focused on liability protections for businesses related to Coronavirus. So I would expect more along those lines in any sort of relief package coming down the pipe.

Steve Kraske
And trade relations, Nolan, with China, what’s the likely outcome there?

Nolan Keim
It’s going to be continued hardline. And Trump has been very clear on what he is expecting with trade relations, and I don’t think he’s going to budge on that. We shouldn’t expect him to at this point. So, it’s going to be just that up in the air status between especially China going forward.

Steve Kraske
And Nolan, corporate mergers and acquisitions, the Trump’s attitude, the Trump administration’s attitude toward that is what?

Nolan Keim
Yeah, it’s it’s more dovish, you know, antitrust regulators, as well as going on a little different topic, but as Lucas mentioned, the potential for higher taxes in terms of the Biden victory, I mean, with the tax plan of Trump, I mean, he could extend that 2017 tax cuts, job act that he instilled, or make it permanent, which could have an impact as well, keeping the corporate tax rate from, you know, going up at 28%, keeping at %21, as well as keeping individual taxes where they’re at.

 

Inflation

 

Steve Kraske
Lucas, we haven’t talked about the impact of the federal budget deficit of the national debt yet. What kind of impact has that been having? Because it was just a few years ago, that folks would have said that a national debt, the size of ours, would have had a really profound impact on the markets, has there been an impact?

Lucas Bucl
No, the short answer is no, inflation is very tame. So you’ve got really low inflation right now. And we haven’t had any sort of artificial or real limitations on federal spending coming through this pandemic, being able to do a big relief package. And so the cost of the US government to issue debt right now is very low. And so there hasn’t been any significant impact of that large budget deficit. I think some observers think that that will eventually slow our growth. I think there’s a raging debate that nobody really knows the answer to, in the financial community about that. But inflation being the biggest major there, clearly, it hasn’t had an impact yet.

Steve Kraske
Inflation is the big enemy of America. Right, Lucas, that’s the one thing the markets almost cannot tolerate

Lucas Bucl
That’s correct. Because, you know, effectively, it’s driving costs of goods higher, it reduces your real returns, so returns after inflation. And so inflation is kind of that Boogeyman.

Steve Kraske
And it pulls money out of the markets, because people realize they can get a good return elsewhere, then, because then the bank deposit interest rates go up.

Lucas Bucl
Exactly. And when that happens, the cost to borrow for the US government goes up, right, because they’re issuing debt at higher interest rates. And so that’s that negative spiral that people are so concerned about. But again, right now, you’ve got super low interest rates. And so that is super low inflation. So that that really hasn’t come to bear yet.

Steve Kraske
How confident are you that America has figured out how to tame inflation, maybe for good?

Lucas Bucl
But the Federal Reserve has done a great job through this period.

Steve Kraske
They seem to understand how to do it. Now, we’ve talked about that on the show any number of times.

Lucas Bucl
They have and they do I do get a little bit nervous about saying for good just because there’s certain circumstances in the future that we just don’t know. And it’s complex. And so we don’t know what the future holds, but right now, I think the Fed has done a good job and inflation is very tame at the moment.

Steve Kraske
Just quickly, Nolan, if you would run through which market sectors would be viewed positively, if Joe Biden wins and if Donald Trump wins.

 

Positive Market Sectors if Biden wins vs if Trump wins

 

Nolan Keim
Yeah, we hit on a little bit already but Biden, clean energy, renewable energy is a big push for him in his campaign. That’s one that could see ahead where Trump if you look at more traditional energy space. With Trump as well, defense and weapons makers. Biden, semiconductors, Biden, you know, ag companies, adding increased trade relations, again, with China, especially, that could have an impact there. Biden’s also focusing on pharmaceuticals, putting money in that space, where Trump might see finances build back from what they’ve seen this year.

Steve Kraske
We’re gonna have to leave it there with our Smart Money team. That was the voice of Nolan Keim. He’s a Client Service Associate at Mariner Wealth Advisors in Overland Park. We’re also joined by Lucas Bucl. He’s an Investment Director of Investment Management for Aspyre Wealth Partners. Thank you both very much.

Transcribed by https://otter.ai

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