John Grace, Investor’s Advantage Corp Founder & President, joins Yahoo Finance's Kristin Myers to discuss the stimulus outlook as talks resume in D.C. amid the pandemic.
KRISTIN MYERS: So, John, as I mentioned, we have that first presidential debate tonight. I know a lot of people plan on tuning in this evening at 9:00 PM to watch President Trump and Joe Biden go at it. But you were saying in your note that it's also a source of unease. Correct?
JOHN GRACE: Well, that appears to what we're seeing with the markets. I mean, futures, Asian markets, the bond market, seems to have some discomfort at this particular time. Probably, you know, it's normal, the uncertainties. There's just a number of them, as you know, Kristin. This is a very big one in terms of how it's going to unfold.
But we saw that yields on the treasury and the government bonds, US government bonds, the treasury CHIPS-- treasury inflation protected securities-- saw the break-even rate shrink. So that often means that-- That resulted in a fall in the market expectations for inflation.
KRISTIN MYERS: Now this election is unusual in many, many ways. But chief among them, for the reason that many are expecting a contested election. How much of a risk do you see that weighing on the markets? And I'm curious to know if you see a contested election as a baseline? One JP Morgan strategist said that is the baseline for most analysts. Do you see it the same way?
JOHN GRACE: Well, I mean, it'll be interesting. We don't-- the markets do not like certainty. We all know that. And the longer there is uncertainty about the outcome, that will probably play to the downside as far as the markets are concerned.
And there's no way of knowing how this is going to play out, right? Is it going to be, we have a winner that night, but we know before 9 o'clock after Ohio closes, you know, the election booths take the numbers? Or is not going to be something like we saw before that has to go to the Supreme Court? Somebody might like that.
We'll see how that plays out. It took-- what-- 30 days or so with Gore and Bush the last time? Hopefully, it won't be something that just kind of drags on. That uncertainty would not play well in the market.
KRISTIN MYERS: I had asked Bob Dole about this a little bit earlier in the show. And now I want to ask you about this. Because we had some headlines out from the Philadelphia Fed, the president of the Philadelphia Fed, Patrick Harker, saying that the recovery would continue. But that's an if the virus doesn't become a runaway train again. We are seeing positivity rates rise, hospitalization cases rise. Do you see the economic recovery being threatened by this virus going forward?
JOHN GRACE: Oh, absolutely. This coronavirus is, you know, an event of epic proportions. And no one knows how deep or how long this is going to play on our minds, on our bodies, on our souls, on our day-to-day outlook. And I mean, even those, you know, when people say, well, look. The death rate isn't as high as it was.
Well, that might be well and good. But look at the problems that people-- well people-- have, of all ages, after they survived the virus. And we don't know how long the lung problems might last. Or the heart actually expands.
I mean, this is something that is going-- this is life unlike anything we've ever seen. For instance, taking a bomb and it exploding it up, and it's gone. Not with this one. And it's certainly seems determined to prevail.
So we'll see how it plays out. But I really suspect that we all need to keep ourselves as safe as we possibly can. And unfortunately, in this country, we're not doing a good job on that note.
KRISTIN MYERS: Harker also mentioned the need for Congress to renew federal aid, a new stimulus package. We already know that those talks have stalled. But we do have this new proposal from the Democrats, $2.2 trillion. How much do you think investors right now are anticipating that they're going to get a stimulus deal by the election? And do you think markets would take that news and run if so?
JOHN GRACE: For the short term, I think that would be very positive. I think those with the traders are looking for. And of course, we all like the green shoots of good news. We all want to be optimistic.
But it also make sense to look at it how it plays out. Because when we look at it in detail, we can see that it gives us a nice boost, if you will, a bounce, if you will. It is not sustainable. And it seems to wear thin pretty quickly. At least, that's what we saw about six weeks ago, you know, looking at how this has played out.
And it's not based on fundamentals. So it's another manipulation, if you will-- that's the way I see it-- to cause prices, stock prices, real estate prices, to stay at these lofty levels. But it's not built on a strong foundation.
KRISTIN MYERS: I want to take the flip side of that question, forgetting the stimulus, if we don't get a stimulus, which is also very likely considering that Congress has been unable to make a deal over the last couple of weeks and months. Now the Fed also said that low-income Americans could be facing a financial crisis without a stimulus. And that, of course, is a part of the story that we've been talking about and seeing a lot.
In this recovery, there's been almost a tale of two cities. While some folks continued on economically just as they had before, perhaps even doing really, really well, we are seeing other households getting knocked further and further back financially. So without this stimulus, what do you see happening to that economic recovery? And how do you think the markets are going to react if we don't get economic relief in the next couple of months?
JOHN GRACE: We need it certainly for the folks who are on the front line. And they're the ones who are being hit hardest. And that tends to be women and minorities. And yes, it is the case. I would agree with you, Kristin, that we see some people who are enjoying the high seas on their yachts, and other people who are on driftwood, hanging on dearly. And in fact, I just saw something yesterday suggesting that 2/3 of those who get the virus find that they are in financial jeopardy, I mean, in about 30 days or so.
But let's understand, our country has been built on spend, baby, spend. Credit, cash-- doesn't matter. Just spend your eye teeth out and make sure the economy stays as strong as possible. But what we haven't done is explain and help people understand, you have to take care of your household first. And your job is to make sure you set aside money so that you can make work optional sometime in the future, as opposed to spend your way expecting I don't know what to kick in at the time that you are going to stop working.
And in many cases, it's a medical situation to the worker or to someone in the family that causes so many people to suspend working when they intended to work longer. And of course, now we're spending. And when we don't have three months of savings set aside, we don't have any 401K. So it's wonderful to say, look at your stock market value.
But I don't think 50% of us own any stock. So that's a complete disconnect. And we're seeing an overall disconnect between Wall Street and Main Street.