Editor鈥檚 note: More than 500 Carroll School alumni and others turned out virtually for the 2021 Carroll School Webinars, collectively titled 鈥�Post-Pandemic Trajectories: Politics, the Economy, and Global Markets.鈥� The live webinars began on May 3 with a talk by well-known political scientist and prognosticator Larry J. Sabato of the University of Virginia, who predicted that the Democrats would lose their congressional majority in 2022. 鈥淗e鈥檚 got two years,鈥� Sabato said of President Biden and his legislative agenda. Closely watched by news media was a May 5 presentation by Eric Rosengren, president of the Federal Reserve Bank of Boston, who sought to tamp down fears of runaway inflation. Articles about the talk appeared in the , , and other major outlets. The final webinar on May 7 brought together a panel of experts who addressed questions of particular interest to both retail and professional investors, as reported in the following article.
Investors looking for a hint of how the pandemic has affected the outlook for global markets received a message of somewhat restrained encouragement during the Carroll School of Management鈥檚 2021 webinars. Despite the occasional blip in statistics like April鈥檚 anemic monthly employment gain, the participants were bullish, if not ecstatic, on the durability of the economy鈥檚 trending recovery and approving of the 鈥渄emocratization鈥� of investing enabled by new technology.聽
Moderator Kate Rooney 鈥�13
Panelists Richard Bernstein and Tony Pasquariello, both veteran finance professionals and experts on macro trends, gave their only slightly differing opinions in a rapid-fire hour of well-aimed questions from moderator Kate Rooney 鈥�13, CN糖心vlog直播平台鈥檚 San Francisco-based finance and technology reporter. The topics ranged from geopolitical influences on markets to bitcoin and GameStop, with capital gains and inflation prognostications thrown in for good measure. The bottom line: Both experts agreed that, as Bernstein put it, 鈥淲e鈥檙e on a clear recovery path鈥攏ot expansion, but clear recovery.鈥�
Bernstein is founder and CEO/CIO of Richard Bernstein Advisors. Pasquariello is global head of hedge fund coverage at Goldman Sachs. They spoke at a live webinar on post-pandemic investing, introduced by Dan Holland 鈥�79, managing director at Goldman Sachs and co-chair of the weeklong series of webinars held earlier this month.
Panelist Tony Pasquariello
Retail investors鈥攖hat is, nonprofessionals鈥攃an find plenty to take heart from in the current trends. Yes, there will be inflation, likely more than is forecast because of the trade deficit, import inflation, and extra-fast money growth鈥攂ut not as extreme as in the 1970s. And, yes, many stocks are 鈥渙vervalued,鈥� Pasquariello said, with prices in the 95th percentile historically. However, in answer to a question from the audience about the risks related to market domination by behemoths Facebook, Amazon, Apple, Netflix, Google (Alphabet), and Microsoft, Pasquariello affirmed his faith in the S&P 500 and its 鈥渨orld-beating鈥� balance and steadiness: 鈥淵ou need to be mindful of the concentration, but it isn鈥檛 a reason to run for the hills.鈥澛�
Bernstein concurred, pointing out that there鈥檚 huge opportunity outside the market giants, in small cap and value stocks, even the 鈥渦gly polluters, if I can say that without starting a fight.鈥� He added it seems 鈥渘utty鈥� that Tesla clocks in currently as the company with the seventh biggest market cap in the world, and added that as an investor he鈥檇 rather ask, 鈥淲ho鈥檚 fiftieth, and what are their growth prospects?鈥澛�
Panelist Richard Bernstein
Calling American investors too 鈥渕yopic鈥� when it comes to reliable investment income, Bernstein suggested they look outside the U.S. High-yield debt instruments in emerging markets, for example, often boast a default rate lower than U.S. equivalents, which is one reason his firm considers them a buy. He asked, 鈥淚f you believe the U.S. dollar is going to be stable, why wouldn鈥檛 you look outside鈥� for fixed income opportunities as well as equities?
The most likely capital gains tax hike is 鈥渘ot a sincere threat to stock prices,鈥� Pasquariello said.
Worries about geopolitical trends might be misplaced over the near term. For the professional community, 鈥淓conomics typically trumps the noise of geopolitical headlines,鈥� Pasquariello said, alluding to international issues such as the tension between the U.S. and China over Taiwan, which could become a 鈥渇lashpoint鈥� in the next decade.
Regarding domestic policy, how the Biden administration鈥檚 proposed tax rates settle out is an imponderable that鈥檚 causing some hesitation in the market. While Bernstein acknowledged that the government budget deficit demands that more revenue be raised, he said that if the capital gains and income tax rates were too similar (which could happen if capital gains taxes are raised), it would dissuade investors from taking longer-term risk. 鈥淭hat鈥檚 the last thing we want,鈥� Bernstein said. For his part, however, Pasquariello said he believed final tax rates would be 39.6 percent for the highest-earning households, as the Biden administration has proposed, but would top out at around 25 percent for corporations and capital gains at 28 percent鈥斺�渘ot a sincere threat to stock prices鈥� after a brief initial impact.
The technology making it easier and less costly for nonprofessionals to get into the market has been a boon for capital formation, the experts said. 鈥淚t isn鈥檛 healthy that 90 percent of the stock market is owned by the top 10 percent of American households,鈥� Pasquariello noted, 鈥渘ot an admirable statistic.鈥� What he termed a 鈥渇erocious鈥� wave of retail investment kicked off last year as the pandemic quarantines kept people at home, government relief checks went out, baby boomers continued unloading their holdings, and younger generations took advantage of low-cost fintech newcomers like robinhood.com.聽
Despite resulting in welcome capital formation, the new mobile apps for investing may also lead to an unfortunate consequence: impulsive, short-term trading. 鈥淪tatistics show day trading for free is very close to flipping a coin,鈥� Bernstein asserted, 鈥渕ore like betting on a horse than the longer-term process of buying a horse and training it, whereas wealth and capital are only built with long-term horizons.鈥澛�
Earlier this year, the runup to 鈥渆ye-popping鈥� highs of GameStop stock, driven by social media, raised an alarm about the dangers of so-called gamification of investing and 鈥渞un-and-gun鈥� investors. The panelists concurred that professional investors have reacted by exercising more caution, but whether or when regulators would step in is unclear.聽
Another new technology investors are buzzing about is crypto (digital) currency, which operates without the need for a central banking authority because it relies on decentralized blockchain. Although China has created a pilot program for a digital version of the yuan, most governments still haven鈥檛 decided how to approach cryptocurrency. While cryptocurrencies are likely here to stay, Bernstein argued, 鈥淭hat doesn鈥檛 mean that Bitcoin at $50,000 or $60,000 is a good investment today.鈥�
Pasquariello noted that Goldman is beginning to take cautious steps to work with certain clients who are looking to get into the digital currency market. The tokens 鈥渕ay not be rat poison, but they might be fuel for speculation,鈥� he said.
Marilyn Harris is a reporter, writer, and editor with expertise in translating complex or technical material for online, print, and television audiences.聽