Trading the Election (EP.175)

Episode Summary

Executive Summary: The episode argues that election drama matters far less for investors than emotions suggest, with markets likely driven more by volatility, valuations, and stimulus than politics. The hosts also discuss a potential value-stock rebound, continued strength in housing and ESG flows, the limitations of contrarian managers like David Einhorn, and practical listener questions on retirement, illiquidity, and real estate risk-taking.

Main Topics: Election anxiety vs. long-term investing (Priority: 5/5): The hosts argue that election-related market moves are mostly noise for long-term investors. They note many investors feel compelled to ‘do something,’ but caution that short-term volatility and contested outcomes are not reliable portfolio guides. Valuations, rates, and presidential cycles (Priority: 5/5): They compare starting valuations and interest-rate environments across presidencies, concluding that presidents get too much credit or blame for market outcomes. Low rates and high CAPE multiples make the current setup historically unusual. Growth vs. value rotation (Priority: 5/5): A major theme is whether battered cyclicals/value stocks could outperform in 2021 as the economy heals and comps get easier. The hosts suggest growth has run far ahead and may face tougher comparisons after pulling demand forward. COVID shutdowns, stimulus, and housing (Priority: 4/5): They debate renewed UK shutdowns, the possibility of a short recession followed by recovery, and whether housing faces another crisis. The hosts push back on peak-housing arguments, emphasizing demographics and supply shortages. ESG and values-based investing (Priority: 4/5): The discussion covers the rapid inflow into ESG funds and whether that capital can change corporate behavior or cost of capital. They frame ESG as becoming a more mainstream factor set, especially as younger investors gain assets. Media, streaming, and Netflix pricing power (Priority: 3/5): They talk about Netflix price hikes, content spending, and the success of shows like The Queen’s Gambit. The hosts argue Netflix’s brand and low churn give it unusual pricing power, even as its movie slate is weaker than its TV output. Listener questions: retirement, leverage, and real estate (Priority: 3/5): The episode answers practical questions about lockups for compulsive traders, career entry points in asset management, and why borrowing from friends to start a rental business is risky. They stress financial flexibility and relationship risk.

Key Arguments: Election outcomes may create short-term volatility, but long-term portfolio outcomes are more affected by valuations, rates, and macro conditions than by who wins. Investors often want to feel in control during uncertainty, but trading around elections is usually emotional rather than useful. Presidents are often judged unfairly for market performance because they inherit valuation/rate regimes and economic cycles they do not control. A contested election is not automatically bearish; the market could just as easily experience a post-event relief rally if uncertainty clears. The current economic recovery favors value/cyclicals because depressed earnings comps and reopening dynamics may create easier beats in 2021. Growth stocks have likely pulled forward demand, making future comparisons harder and leaving room for a rotation. The housing market still has support from demographics and low supply, so calling a broad peak is premature despite high prices. ESG is becoming too large to ignore and may increasingly influence corporate behavior, capital flows, and factor construction. David Einhorn’s persistence and past success show how hard it is to stay a star manager; even good contrarians can remain early for years. Consumers should be cautious of fintech products promising high yields, since liquidity mismatches and hidden risk can emerge quickly.

Data Points: Investor portfolio changes ahead of election: 63% - UBS survey of 1,000 investors with at least $1 million in investable assets Contested election market expectations: 50% decline / 30% no change / 19% upswing - Survey response on what happens if election results are contested Growth in U.S. home values: $126,000 to $260,000 - Average U.S. home price from 2000 to 2020 per Zillow graphic Increase in average U.S. home value: 106% - Two-decade rise in home prices U.S. GDP vs pre-pandemic peak: 3.5% below Q4 2019 peak - George Parks chart cited in discussion of economic recovery U.S. GDP vs 2% trend: 4.9% below trend - Current level compared with a 2% annualized growth path Amazon revenue cited: $43B, $56B, $70B, $96B - Quarterly revenue progression from 2017 to 2020 used to illustrate growth stock expectations Teladoc year-over-year revenue growth: 109% - Example of strong growth still leading to a stock selloff Amazon stock reaction: Stock down sharply despite revenue growth - Used to argue that even huge beats can disappoint growth investors Netflix content spending in 2020: $18.5 billion - Estimated spending discussed in the context of Netflix’s scale and pricing power Netflix price increase: $1 standard / $2 premium - Announced price hikes referenced in the episode ESG fund inflows in 2020: $30.7 billion - Morningstar data on record equity ESG fund flows Average quarterly ESG inflows: $10 billion per quarter - Approximate pace of sustainable fund inflows in 2020 Interactive Brokers margin rates: 0.75% to 1.59% - Sponsor copy at the start of the episode UK shutdown expectation: FTSE 100 up 1.5% - Market reaction after the UK announced renewed restrictions Retirement timing gap: Age 66 expected vs. 62 actual - Morningstar/Christine Benz survey finding on workers retiring earlier than planned Bitcoin survey source: Grayscale survey of investors - Referenced as evidence of rising mainstream interest in Bitcoin

Pivotal Quotes: "Who cares? Basically, this happens. This is the stock market. Get used to it." — Michael Batnick: On a recent 6% market decline and why short-term election fears should not drive portfolio decisions "Presidents get more blame than they should when things go poorly and more credit when things go well." — Michael Batnick: On long-run market outcomes being shaped more by valuation and rate regimes than politics "The price thing, I don't think that really matters. I think millennials are going to want houses, and this demand is going to be strong for a long time to come." — Ben Carlson: On the housing market and why demographic demand may keep supporting suburban prices

Implications: Listeners should avoid election-driven tinkering and focus on time horizon, risk tolerance, and valuation. The episode suggests value, housing, ESG, and stimulus-linked themes may matter more for 2021 returns than political headlines.