Show Transcript
It is increasingly looking like the U.S. may end up with a divided government in 2021. Will a divided House help the tech sector avoid tougher policies and regulations? Kim Parlee speaks with Bill Priest, Executive Chairman and Co-Chief Investment Officer, Epoch Investment Partners.
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- Well, as we've been discussing, the prospects of a decisive election have come and gone. Now we have to wait to see what will happen over the next few days and weeks. But the markets are pricing in more certainty around certain scenarios.
Here to talk about that and what it could mean-- Bill Priest. He is executive chairman and co-chief investment officer with Epoch Investment Partners. Bill, it's always great to see you. Before we get into longer-term theses, what do you see that the market's pricing in right now?
- Well, I think the market is pricing in one of three possible scenarios. The one scenario that was possible was status quo. Trump wins. Nothing changes with regard to control of the House or the Senate.
The second one, which started to be reflected in the market, was the concept of a blue sweep, that the Democrats would control both houses of Congress and the presidency. And you can see that in the behavior of certain groups in the stock market over the last two or three weeks.
The third possibility, which is the one, at the moment, looks most likely is that Biden becomes the president, but the Senate stays where it is. And in that case, you have a government that's a bit gridlocked.
The executive orders will then be used by the new president. So instead of Trump's executive orders, we'll hear about Biden's executive orders. It's going to have some effects.
First of all, you're likely to get a stimulus. But it'll be a lot lower than what you would have had had the Democrats won everything. Best guess is $500 billion.
There won't be any tax increases. Under Biden, he proposed a number of corporate tax increases. You probably will not see that. And there won't be a minimum wage increase either.
Winners are likely to be growth, health care, and tech. They had taken a holiday over the last two or three weeks, as value had made a recovery, even some energy in the financial side. But in that scenario, with a Biden presidency and a GOP Senate, this is what you might expect.
Now, it's very, very tight. And I think one of the things we've learned in this election is truth is stranger than fiction. And the truth are the voters. And fiction are the pollsters.
What needs to happen is Michigan and Wisconsin need to be confirmed as Biden-won states. And Biden also needs to win Nevada. He can lose Pennsylvania, which he may or may not lose. But if he can take Wisconsin, Nevada, and Michigan, he will become the next president of the United States.
- Can you tease out for me a little bit about just what, I guess, a Biden presidency and a Republican Senate could mean to responding to COVID and the pandemic? Because I think that's-- it's almost as if the pandemic kind of got put on the side burner for a bit while we're talking about this. But the numbers are still increasing. And the US economy is still in need of help.
- Well, there are two issues here. We certainly need more stimulus. The benefits of the CARES Act have expired for most people. So you're going to need some stimulus.
The jobs numbers that came out today were disappointing. And it does not look very good for the next two or three months with regard to the job market.
What you're going to have with regard to the virus-- and the virus is complicated. There are going to continue to be a rising number of cases. The death rate, so-called the case death rate, is actually much lower than people expected. It's much lower than anyone thought about even a year or so ago. But the sheer volume is overwhelming the health care services industry. It still remains a big issue.
Will we have a solution to the virus? My guess is you're going to get a number of vaccines approved-- four, five, six different ones. The efficacy rate that people are putting in place to be approved is actually quite low. It's, like, 50%.
If it's 50% effective, it's likely to get approved. That's a very low number for vaccines. You would like to have a higher number than that. And the vaccine, it might work for you, might not work for me, and vice versa. There's a lot to be learned over the next six months.
Eventually-- and eventually to me-- is at least six months you will start to say maybe-- maybe-- this issue is behind us. But it's too early to call victory on solving the virus effects.
The economy is going to linger below its potential. And it's going to harm-- no matter who's the President of the United States-- is going to harm their ability to execute their policies.
- But, Bill, my final question for you-- I know you've got clearly-- you know, we've talked before about your thesis around technology and the importance of technology-- [CLEARS THROAT] excuse me-- during the pandemic move from an atoms to bits world. We're seeing a rally in tech today, partially, I think, because of gridlock and taxation, things that you've already talked about. But what do you see happening there?
- Well, I think the principle behind bits and atoms is the old saying that you can't have your cake and eat it, too. You can have your cake, or you can eat it. But you can't have it and eat it. That's not true when it comes to technology.
And the technology is essentially information. And that information comes to you in the form of so-called bits. And bits have certain characteristics. First of all, the information is largely free. It replicates perfectly. And it's available to you instantly through the internet.
So think of a bit as being free, perfect, and instant. But atoms are not. You can have them or not have them. But you can't have both. You can't have your cake and eat it, too.
So what it means for companies is very often you will be asked, what is your digital strategy? That's the wrong question. The better question is, we are in the digital age. What is your business strategy for the digital age? Without a business strategy for the digital age, that company will perish. And it is a problem for every industry that we deal with.
So the end game, to me, is growth and tech are still going to be good places to be. Valuation has been a problem. But given if it turns out that we have a Biden president, GOP Senate, the backdrop for tech is going to be reasonably good.
The areas to concern yourself with were broadband access, antitrust, data privacy, and something called Section 230 for social media. Biden has promised to extend affordable internet access to every corner of the nation, including schools.
Antitrust-- you're going to likely to have some laws that will basically update the laws in effect now for restraint of trade policies. No matter who's president, that was likely to come.
The data privacy thing is another issue. You're going to want to have people opt in for data collection, not accidentally become part of it. All of that, I think, you're going to see. But most of the companies should continue to do well.
Social media and Section 230 is going to be a big deal. And what Section 230 is, it allows Facebook and Twitter, for example, to avoid liability for nearly all of the user-created content they host.
Now, the Republicans make the argument that Section 230 gives tech blanket immunity to stifle free speech. The Democrats say the law allows companies to skirt responsibility for the misinformation that flourishes on their sites.
All of that we have to get resolved. You'll get something there. But for the moment, the idea of breaking up the tech companies is probably put off to the side for a while.
- Fascinating, Bill. Thanks so much. Take care.
- Thank you.
- Bill Priest, co-chief investment officer and executive chairman of Epoch Investment Partners.
[MUSIC PLAYING]
Here to talk about that and what it could mean-- Bill Priest. He is executive chairman and co-chief investment officer with Epoch Investment Partners. Bill, it's always great to see you. Before we get into longer-term theses, what do you see that the market's pricing in right now?
- Well, I think the market is pricing in one of three possible scenarios. The one scenario that was possible was status quo. Trump wins. Nothing changes with regard to control of the House or the Senate.
The second one, which started to be reflected in the market, was the concept of a blue sweep, that the Democrats would control both houses of Congress and the presidency. And you can see that in the behavior of certain groups in the stock market over the last two or three weeks.
The third possibility, which is the one, at the moment, looks most likely is that Biden becomes the president, but the Senate stays where it is. And in that case, you have a government that's a bit gridlocked.
The executive orders will then be used by the new president. So instead of Trump's executive orders, we'll hear about Biden's executive orders. It's going to have some effects.
First of all, you're likely to get a stimulus. But it'll be a lot lower than what you would have had had the Democrats won everything. Best guess is $500 billion.
There won't be any tax increases. Under Biden, he proposed a number of corporate tax increases. You probably will not see that. And there won't be a minimum wage increase either.
Winners are likely to be growth, health care, and tech. They had taken a holiday over the last two or three weeks, as value had made a recovery, even some energy in the financial side. But in that scenario, with a Biden presidency and a GOP Senate, this is what you might expect.
Now, it's very, very tight. And I think one of the things we've learned in this election is truth is stranger than fiction. And the truth are the voters. And fiction are the pollsters.
What needs to happen is Michigan and Wisconsin need to be confirmed as Biden-won states. And Biden also needs to win Nevada. He can lose Pennsylvania, which he may or may not lose. But if he can take Wisconsin, Nevada, and Michigan, he will become the next president of the United States.
- Can you tease out for me a little bit about just what, I guess, a Biden presidency and a Republican Senate could mean to responding to COVID and the pandemic? Because I think that's-- it's almost as if the pandemic kind of got put on the side burner for a bit while we're talking about this. But the numbers are still increasing. And the US economy is still in need of help.
- Well, there are two issues here. We certainly need more stimulus. The benefits of the CARES Act have expired for most people. So you're going to need some stimulus.
The jobs numbers that came out today were disappointing. And it does not look very good for the next two or three months with regard to the job market.
What you're going to have with regard to the virus-- and the virus is complicated. There are going to continue to be a rising number of cases. The death rate, so-called the case death rate, is actually much lower than people expected. It's much lower than anyone thought about even a year or so ago. But the sheer volume is overwhelming the health care services industry. It still remains a big issue.
Will we have a solution to the virus? My guess is you're going to get a number of vaccines approved-- four, five, six different ones. The efficacy rate that people are putting in place to be approved is actually quite low. It's, like, 50%.
If it's 50% effective, it's likely to get approved. That's a very low number for vaccines. You would like to have a higher number than that. And the vaccine, it might work for you, might not work for me, and vice versa. There's a lot to be learned over the next six months.
Eventually-- and eventually to me-- is at least six months you will start to say maybe-- maybe-- this issue is behind us. But it's too early to call victory on solving the virus effects.
The economy is going to linger below its potential. And it's going to harm-- no matter who's the President of the United States-- is going to harm their ability to execute their policies.
- But, Bill, my final question for you-- I know you've got clearly-- you know, we've talked before about your thesis around technology and the importance of technology-- [CLEARS THROAT] excuse me-- during the pandemic move from an atoms to bits world. We're seeing a rally in tech today, partially, I think, because of gridlock and taxation, things that you've already talked about. But what do you see happening there?
- Well, I think the principle behind bits and atoms is the old saying that you can't have your cake and eat it, too. You can have your cake, or you can eat it. But you can't have it and eat it. That's not true when it comes to technology.
And the technology is essentially information. And that information comes to you in the form of so-called bits. And bits have certain characteristics. First of all, the information is largely free. It replicates perfectly. And it's available to you instantly through the internet.
So think of a bit as being free, perfect, and instant. But atoms are not. You can have them or not have them. But you can't have both. You can't have your cake and eat it, too.
So what it means for companies is very often you will be asked, what is your digital strategy? That's the wrong question. The better question is, we are in the digital age. What is your business strategy for the digital age? Without a business strategy for the digital age, that company will perish. And it is a problem for every industry that we deal with.
So the end game, to me, is growth and tech are still going to be good places to be. Valuation has been a problem. But given if it turns out that we have a Biden president, GOP Senate, the backdrop for tech is going to be reasonably good.
The areas to concern yourself with were broadband access, antitrust, data privacy, and something called Section 230 for social media. Biden has promised to extend affordable internet access to every corner of the nation, including schools.
Antitrust-- you're going to likely to have some laws that will basically update the laws in effect now for restraint of trade policies. No matter who's president, that was likely to come.
The data privacy thing is another issue. You're going to want to have people opt in for data collection, not accidentally become part of it. All of that, I think, you're going to see. But most of the companies should continue to do well.
Social media and Section 230 is going to be a big deal. And what Section 230 is, it allows Facebook and Twitter, for example, to avoid liability for nearly all of the user-created content they host.
Now, the Republicans make the argument that Section 230 gives tech blanket immunity to stifle free speech. The Democrats say the law allows companies to skirt responsibility for the misinformation that flourishes on their sites.
All of that we have to get resolved. You'll get something there. But for the moment, the idea of breaking up the tech companies is probably put off to the side for a while.
- Fascinating, Bill. Thanks so much. Take care.
- Thank you.
- Bill Priest, co-chief investment officer and executive chairman of Epoch Investment Partners.
[MUSIC PLAYING]
