Matt Forester, BNY Mellon Pershing Chief Investment Officer, joined Yahoo Finance to discuss the days market action.
ADAM SHAPIRO: Nouriel Roubini at the beginning of the hour talk-- well, I want to say talk us off a cliff, but it felt like we jumped. He was talking about the V-shaped recovery turning into a K or a W. Bottom line was Dr. Doom lived up to his concerns. What do you think? Is this economy-- we got the jobs numbers today, a little better than expected, but nothing great. Are we headed for a double-dip recession?
MATT FORESTER: Well, we're still four times above where we were in the pre-crisis period in terms of just the weekly claims averages. So, I mean, that's a disturbing trend. And we have 20.5 million Americans who are getting some form of unemployment insurance. So we're a long ways from out of the woods.
And, you know, the numbers today were a little mixed. So, you know, we have had some brighter spots. We've had seven months in a row of increased durable goods spending, which is positive. But the labor picture is still incredibly troubled.
And that probably sets the tone for 2021 because we'll have the Fed in a very stimulative state for most of the rest of next year, simply because their primary mandate is to maintain full employment. And we've still got a long way to go on that front.
JULIA LA ROCHE: Hey, Matt, it's Julia La Roche here. And let's pick up on that about the Fed and also just how policy-dependent markets have been and the expectation of that going into 2021. What are you expecting?
MATT FORESTER: Yeah, so we're seeing the last couple weeks. I think markets have expected that a new stimulus package would arrive. And we've seen the market bounce up and down on the near-term focus on the stimulus package and that optimism in the markets when that looks like it was imminent, as it does at the moment.
There's plenty, kind of, details to work out. But this is just a bridge to the vaccine. We still have other elements of market risk, like the January 5 runoff. But I think the bigger question for markets on the stimulus is going to be whether this particular stimulus package is the last one that we're going to see for quite a while until we get to the vaccination program.
So you can sense that markets today are very policy-dependent and that we're seeing some kind of handcuffs around the amount of additional federal spending that we're going to do. We've already spent, in terms of federal debt to GDP, more than we spent on World War I or World War II or the Korean War or the Civil War. So we're on this wartime policy footing.
And when that occurs, we're pushing up against the limits that we normally can see in order to get an additional amount of spending.
ADAM SHAPIRO: Let's break that down, though. Let's assume Congress does nothing and earns the title once again of Do Nothing Congress. You still got Janet Yellen at Treasury and Jerome Powell at the Federal Reserve. Could they prevent a worsening of the slowdown without some kind of responsible fiscal response from Congress?
MATT FORESTER: Oh, I think they're definitely going to try. And I think that's-- we're looking at a kind of a collaboration between the Treasury and the Fed that we may not have seen since the immediate aftermath of World War II. So in 1951, the Fed and Treasury signed an accord to separate out the financing of debt and the monetization of the debt.
So there was a different policy prescription, which really set the stage for the modern Fed. But at this time, we're running such large deficits that we're going to need to have very tight controls over how these large deficits are financed. And I think that's a challenge for markets to digest. And it's going to continue to be markets for adjust.
We've watched the recent Treasury auctions be very well received. There is a demand for high-grade long-term debt and almost insatiable demand, it seems like, from the markets. But I think as time goes on and we continue to flood the market with paper, because the amount of deficits that we're running, we could run into a little bit of challenges, this might be a story for middle next year, maybe even into 2022.
But I think it's something that we're going to have to start thinking about a bit just because of the size of the deficits and the amount of financing required to enact all of the stimulus.