Invest Like the Best with Patrick O'Shaughnessy Jesse Livermore - Upside Down Markets - Understanding Fiscal and Monetary Policy - [Invest Like the Best, EP.194]
Oct 6, 2020
Jesse Livermore, a research partner at O’Shaughnessy Asset Management, dives into the complexities of today's 'upside down markets.' He unpacks how fiscal policy can create surprising effects on stock performance despite challenging economic conditions. Livermore explains the evolving role of the Federal Reserve and its impact on market dynamics, particularly post-COVID-19. He also discusses the intricate balance between cash, bonds, and equities amid government stimulus, shedding light on the paradox of strong stock markets amidst economic struggles.
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COVID-19 and Fiscal Policy
- COVID-19 disrupted political inertia, enabling aggressive fiscal stimulus.
- The confluence of political incentives, lack of moral hazard, and the extremity of the crisis facilitated a strong fiscal response.
Fiscal Policy's Impact on Profits
- Fiscal policy influences profits by injecting income into the private sector, supporting profit accrual even with behaviors that might undermine them.
- It can offset the negative impact of cost-cutting on revenues by supplementing lost income.
Asset Supply Dynamics
- Government wealth injections increase savings in investor portfolios as cash or bonds, impacting asset allocation.
- This can buoy equity prices, as investors seek higher returns in a low-interest-rate environment.