START OF RECORDING Attendance List: Craig Young Andy Friedman Title of Meeting: Washington Update Client Call with Andy Friedman Hosted By: Craig Young Coordinator The views and opinions expressed are those of the presenter, subject to
change without notice, and may differ from views expressed by Bank of America Corporation or its affiliates. The speaker, Andrew H. Friedman, is the Founder and Principal on the Washington Update LLC, and the former senior partner in a Washington, DC, law firm. He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance and the retirement products. This is presented for information purposes only, and should not be used or construed as a recommendation of any service, security or sector. They are general in nature, and do not address any person’s specific situation. There is no guarantee as to its security or completeness.
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Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
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available certain investment sponsored, managed, distributed or provided by companies that are affiliates of BofA Corp.
And now I would like to hand over to your host. Craig Young. Please
proceed. Craig Thank you. Hello, everyone, and thank you for joining this prerecorded
session. I’m Craig Young, the National Business Development Executive for Merrill Lynch Wealth Management, and I’ll be moderating todays’ call.
Before we get started, let me say on behalf of everyone here at Merrill, we
hope that you and all of your loved ones are healthy and safe. As a firm, our priority is the safety and wellbeing of our clients, colleagues and communities. And in that spirit, I wanted to share with you some of the ways in which Bank of America has acted to support clients and the local communities where we operate.
First, we’ve provided $100 million in global philanthropic grants. This
includes more than $70 million already delivered to more than 1,100 nonprofits in the United States and around the world, addressing things like food and security, medical response and vulnerable populations.
Second, we’ve committed $250 million in capital, and $10 million in
grants, for community development financial institutions to help support small businesses and not-for-profits in underserved communities. Third, more than 1.2 million payment deferrals were made through the Client Assistance Program, including deferrals for mortgages, credit cards and auto loans. And finally, our B of A Global Research Team has delivered more than 7,000 research reports, and hosted more than 700 client conference calls from March 1st through April 23rd, all in support of you, our clients.
TRANSCRIPT
Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
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These are just some of the ways we’ve given back to our clients and communities to date, and I can assure you that we are committed to doing much more in the future.
And now, I’m excited to transition to today’s call and introduce you to our
guest speaker. You heard a little bit about him at the opening, but I am pleased to have with us here today, Andy Friedman, Principal of the Washington Update, who will provide an overview of the political environment, prospective legislation, and strategies for investment and retirement planning.
I’d like to give a little more background on Andy. According to CNBC,
Andy Friedman is one of Washington’s savviest political observers, is an expert on political affairs, and Andy helps and our clients navigate the ever-changing world of Washington in a really straightforward and bipartisan manner.
As you heard a little earlier, Andy was a senior partner with the law firm
of Covington & Burling in Washington, D.C., where he practices for almost 30 years. He received his bachelor’s degree as valedictorian from Trinity College in Hartford, Connecticut, and his law degree from the Harvard Law School. Andy often appears on CNBC, where they refer to him as their Wall Street Tax Expert, and he’s also quoted extensively in publications that we all know, including The Wall Street Journal and USA Today.
On today’s call, we’re going to spend some time talking about legislation
and his past, and how it affects individuals, small businesses and industries. Andy will also will share his insights around the election and trade and taxes, and we’ll cover some other areas as well. And if we have time, we’ll talk about how things may look in our country once the virus crisis passes.
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Washington Update with Andy Friedman Call,
Moderated by Craig Young
TRANSCRIPT
Washington Update with Andy Friedman Call,
moderated by Craig Young
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With that, Andy, as always, it’s great to have you with us. We have a lot to cover here today, so I’m just going to jump right in. As we all know, congress has passed four pieces of legislation in an effort to help people impacted by the coronavirus, and to restart the economy. The first major piece of this legislation sought to help employees unable to work due to the virus-related consequences.
Can you talk to us a little bit more about those provisions? Andy Sure, and, Craig, thank you for having me on. It’s always a pleasure to do
a call with you. I’m looking forward to covering what we’re going to be covering today.
The major law that congress passed prior to the CARES Act was one to
really cover sick leave and family leave for employees of companies that have fewer than 500 employees. Essentially, the government is going to pay for 2 weeks of sick leave, and for 12 weeks of family and medical leave for employees that are quarantined, show symptoms of coronavirus or caring for an individual, or caring for a child whose school or place of care has been closed. So, really a smaller piece, more focused legislation, about $150 billion to start trying to help people who have been sidelined from their work for smaller employers.
Craig While this is certainly the first piece of legislation, I think we clearly know
the biggest piece of legislation, of course, was the CARES Act. Can you tell us about how the provisions of that act will affect individuals and investors?
Andy Sure. The CARES Act actually has wide-ranging affect, but a portion of
it, an important portion to address individuals. The part I think we’ve all heard about are the checks, the recovery checks that are going to individuals with income under $75,000, or joint returns of $150,000. They’re receiving a check for $1,200, $2,400 for joint returns. But there
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Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
The Bull Symbol and Merrill are trademarks of Bank of America Corporation.
are other provisions in there that have a lot of effect on people, as well as those who qualify for those checks.
A lot of those provisions deal with access to people’s IRA and 401(k). So,
for instance, the legislation waives the 10% early withdrawal penalty on coronavirus-related distributions from IRAs and 401(k)s, up to $100,000. Who does it apply to? Well, as you expect, individuals diagnosed with the virus, have a spouse diagnosed, or who experienced financial consequences as a result of being furloughed or laid off of work.
Similarly, or further about that, if you take distributions and don’t pay the
10% penalty, the taxes that you would pay on the distributions—because remember, when you take money out of your IRA, you pay tax on that, and you may be subject to a 10% penalty if you’re under the age of 59.5. The penalty is waived, but the taxes that you get on those distributions may be paid over three years, beginning next year, or you can return the money you took out within three years and avoid those taxes.
There are similar rules relaxing of loans from 401(k) plans, and there’s
also a rule that waives the RMD, the required minimum distribution requirement for this year. So, if you are over 70 and you are required to take money out of your IRA, you don’t have to do so this year. You get a year of waiver of that. For those of you who run your own business and have a pension plan, you can delay funding that plan this year.
And finally, there are two more quick things, one under the individuals.
You can now make cash charitable contributions all the way up to your gross income. Used to be 50% limitation on that. And students that have federal loans may suspend their payments through November. So, that’s the major provision that affect individuals.
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Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
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Craig And a lot of support there, and you touched a little bit on the business aspect as well. Why don’t you walk us through that. What are the impacts for businesses?
Andy Sure. There’s a number of them that are really quite generous. For
instance, employers and self-employed individuals can defer the payment of their share of Social Security taxes. Normally, of course, those are due quarterly, but now they’re going to be deferred until next year. So, in fact, you can pay those taxes over two years, half in next year, half in the year after that.
In addition, there’s a refundable tax credit for 50% of the wages paid. So,
not only could you defer your Social Security taxes, but you can take a credit for up to 50% of your wages paid, capped at $5,000 an employee. Now, not everybody can take the credit. The credit is available to companies whose operations were fully or partially suspended as a result of the virus, or who see a 50% drop in their gross receipts from last year. If you meet those requirements, you get to forgive 50% of your Social Security taxes.
And then one more controversial generous provision says that companies
that have net operating losses, not just this year, but in the two prior years, 2018 or 2019, can carry back those losses to offset income five years previous, or carry them forward, as long as they would like to. That’s a major change, which had greater restrictions on NOL. So, keep in mind, it’s not just losses this year, which will affect, of course, a lot of companies, but also losses in the past two years that now become valuable.
Craig A lot to your point of support for individuals, and certainly businesses as
well, the most talked about component of the CARES Act relates specifically to businesses and funds available for small business owners. Can you help clarify that a little bit and give some perspective on where we are there?
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Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
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Andy Sure, and you’re right, this is probably the part of the CARES Act that has
gotten the most attention with the public, and probably the most confusion as well. This is the Paycheck Protection Program, PPP. What PPP does is it provides SBA, Small Business Association, loans to businesses with fewer than 500 employees. Now, it’s not just open to businesses. It is now, after subsequent changes, open to sole-proprietorships, self-employed individuals, independent contractors, all of those people or companies are subject, or able to get PPP loans.
One thing to keep in mind, that the IRS has tightened up significantly by
requiring borrowers to certify that the loan is necessary, taking into account other sources of liquidity that the business might have. So, assuming you can make that certification, you can get a loan. How much is the loan? Well, the loan is capped at $10 million, but it’s computed as 250% of average monthly payroll. So, a business looks at its payroll, multiplies that 250%, that’s the amount of the loan, but it can’t exceed $10 million.
What are the terms of the loan? Well, it’s a fixed rate of 1%, two-year
term, no collateral or guarantee, no prepayment penalty, and loan payments are deferred for six months. So, the loan itself is quite favorable. But the reason these loans are so much sought after is the provisions that allow the loan principal to be forgiven. To the extent that the loan principal is used to pay payroll or rent, mortgage interest, leases, utilities, that loan may be forgiven, and you never have to pay it back.
This includes the sole-proprietor that receives payrolls, commissions, and
other earnings from self-employment. Those also count as wages and may be forgiven.
Now, there’s some rules around this as you’d expect. Not more than 25%
of the forgiven amount may be used for non-payroll expenses. So, what
TRANSCRIPT
Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
The Bull Symbol and Merrill are trademarks of Bank of America Corporation.
you have to do is spend 75% of the loan on payroll, and the rest can go to the other items, like mortgage interest and rent and utilities. And also, interestingly and favorably, the forgiven loans are not subject to income tax. Normally, if you take out a loan and the loan is forgiven, that’s taxable income to you. It’s like somebody gave you the cash. But not in this case. In this case, you will not have to repay the loan, and you will not have to pay income tax.
Now, one thing to keep in mind is that the loan is maximized as long as
you keep all your employees at their current compensation level. If you start laying off employees or reducing your total payroll by more than 25%, the forgiveness is reduced proportionately. So, as long as you keep all your employees, you’re going to get pretty much forgiveness of this loan if you follow the simple rules. But if you start laying off employees, well, then the loan forgiveness is going to be reduced by the reduction in pay in employee drop.
So, again, very popular, very popular long terms, and really pretty easy
requirements to get forgiveness of the loan. That’s why it’s not surprising that the SBA quickly ran out of money that had been allocated to it for this program, had to get additional money allocated, and is running rapidly through that as well. This is something that’s very popular, but less available, I think, than congress intended.
Craig Extremely popular, and because of some of those rules, that’s why it’s
most likely the most talked about component of the CARES Act itself. We’ll shift and go a little broadly. We had a discussion about individuals and the impact there, certainly businesses and small businesses. But let’s go a little broader and think about industries that have been impacted and hard hit by the crisis.
How does the CARES Act help support industries at large?
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Washington Update with Andy Friedman Call,
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Washington Update with Andy Friedman Call,
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Andy Yes, the CARES Act also is trying to prop up industries that have been struggling, such as passenger airlines, cargo airlines, air carrier workers, national security industries, and it’s doing that by offering loans, loan guarantee, and equity to industries that have been incurred or expected to incur major losses that put the operation of the business in jeopardy. These loans are going out to many corporations. You’ve heard a lot about loans to airlines, loans to other types of industries that have been hard hit.
Now, there’s some requirements. If you are a business that gets this loan
because changes put your business in jeopardy, you may not undertake any stock buybacks, you can’t pay any dividends, you may not reduce your employment levels by more than 10%, and the treasury secretary has indicated that if there are equity transfers of money without strings attached into the company, that the secretary’s going to have the government take back equity stakes in the company, and that has dissuaded some companies from taking loans.
Craig Sometimes the unintended consequences are positive. That’s what I’m
hearing. A lot of legislation to support, no question, but we also know the Fed has been active, too, during this time.
And so, what are some of the actions the Fed is taking? Give us an update
on that. Andy Sure. I mean, the Fed has been extremely active in trying to keep the
economy going, keep the markets operating efficiently, and they have done a number of things. I want to walk through them. They’re a little complex, but I can think we can simplify them.
First of all, the Fed has reentered a program called quantitative easing.
This is something they did in 2008. And it involves the Fed purchasing treasury bonds on the secondary market. So, people or institutions that
TRANSCRIPT
Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
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The Bull Symbol and Merrill are trademarks of Bank of America Corporation.
hold treasury bonds can resell them, or sell them to the Fed, and receive cash for them. Why is that good? Well, it allows cash, more cash to be injected into the economy, which keeps interest rates low, and allows banks to increase lending because they have more cash on hand. So, that’s a program the Fed has used before and has ramped up again.
But the Fed is going beyond that, something it’s never done before, and
that is it has stepped up facilities to purchase financial instruments on the secondary market—corporate bonds, loans backed by consumer assets like car loans, commercial paper—and it’s doing this because the market for those type of instruments has pretty much frozen. Nobody wants to buy these bonds because they’re worried they won’t be repaid.
And so, with so much demand and so little supply, the Fed is stepping in
and buying those assets, and pushing money into the economy. So, it is basically fostering a market for those securities.
The third thing the Fed is doing, it is offering financing to investment-
grade companies. Large companies can get loans up to four years, and they don’t have to pay interest on those loans for up to six months. So, another way for companies, large companies that are having trouble to get cash.
Last week, the Fed said, we’re not only going to make four-year bridge
financing available to large companies, but we’re now going to also make it available to smaller companies. This is something you may have seen in the paper, it’s called the Main Street Lending Facility. It’s available to companies with less than 15,000 employees, or below $5 billion in revenue. And they can get a loan of up to $500,000, but it can’t be forgiven. So, you have large companies getting this four-year financing, and you have smaller companies getting the bridge financing.
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Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
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And the last thing the Fed is [audio muffled - 21:25], is trying to make sure money market funds operate efficiently. As you know, money market funds keep a $1 value for all of their shares, but the problem has been that a lot of the assets that those money market funds hold in order to pay this amount, or keep it a $1 a share, have been tied up, so that they’re not getting paid back for those assets. Again, the markets have frozen, nobody wants to buy the underlying assets, the money market funds are kind of stuck. And so, the Fed has stepped in and bought the assets that are used by money market funds, and that has allowed the fund to keep the stable price.
So, a lot that the Fed is doing, I think more than they’re going to be doing,
but really most of it involves buying securities on the secondary market, when there’s an insufficient market to buy those securities out there from secondary purchases.
Craig There’s no doubt that the Fed has done a lot, and there’s been a lot done
just overall to support as we go through the crisis here, but it seems likely that congress may have to pass another bill to address the crisis.
Do you have any thoughts on that, and maybe on what provisions may be
included? Andy Yes, that’s a hot topic right now. Congress is starting to negotiate the terms
of the next CARES bill, and everything is really on the table, but the decisions of what’s going to get included and not included are murky. Unlike the first bills where there was quick consensus in congress, there’s already a lot of fighting here about what’s going to get included and what’s not. Both parties don’t agree on what to be included.
I’ll start with kind of the major issues here that each party wants. The
republicans are pushing hard for liability protection to shield employers from coronavirus-related lawsuits. So, if an employer reopens, as the
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Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
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economy reopens, and employees come in, and they ultimately get coronavirus because of that environment, and they would think about suing their employers for that, this bill, according to the republicans, would shield those employers for liability.
Democrats are adamant that this provision not be included. They want to
protect the workers more than the employers, and that’s really right now a huge point of discontinuity between the republicans and the democrats.
The second thing that has come up is additional state funding. The
democrats are adamant about this, the republicans are very skeptical. States are desperate for money due to lost tax revenue, they’re paying higher unemployment benefits, more Medicaid. So, their expenses have gone up radically, and they need more money from congress.
You may have seen that the senate leader, republican of course,
McConnell, said we don’t want to give additional money to help the states because that essentially bails out states who have their financing anyway, this according to McConnell. He says a lot of these states have large pension fund shortages. He kind of happens to note in a footnote that they tend to be democratic states run by democrats, who he asserts have mismanaged their finances, and he doesn’t want to give money to the states that they can use to get themself out of obligations that they’ve had a long time, like refunding their pension plans.
In fact, McConnell went so far to say, why don’t we just have the states
declare bankruptcy, wouldn’t that be a smarter thing to do. Interesting thing for him to say, even putting aside that it’s kind of a [indiscernible - 25:27], is that states can’t declare bankruptcy, only cities and businesses can. So, if a state can’t declare bankruptcy, then it has to figure out how is it going to allocate its assets among all its liabilities. And we haven’t seen a state have to figure that out, but that’s a difficult decision.
TRANSCRIPT
Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
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I don’t think we’re going to come to that. I think we’ll see some sort of compromise, where states get money, but the use of that money is limited to coronavirus-related expenditures. But really that’s hard to do, because when you have money coming in for one purpose, that frees up money for other purposes, which could be used for pension shortfalls. Notwithstanding all this, I think we’re going to see that provision, some of it, some amount of money in the legislation.
What else will be in the legislation? There’s a long laundry list of things,
many of them propping up earlier things in the CARES Act. But let me just mention a couple that may be of particular interest to clients.
One is [audio muffled - 26:32] complete cancelation of federal student
loans. Another is creating a 50-year treasury bond to lock in low interest rates. Another is infrastructure spending, a large spending to shore up the nation’s infrastructure, which would certainly help many of the construction industries. And then a series of possible tax cuts. The president is adamant about including a payroll tax cut. This is very controversial. Neither party seems to want this in congress. And the reason is a payroll tax cut benefits working people. They’re the ones that are paying Social Security tax, give them a cut, they get more money. But it doesn’t help people who are not employed, and that seems, in the eyes of many, to be going to the wrong people.
President also is talking about a capital gains tax cut. There’s talk about
allowing businesses to write-off the full cost of capital assets in the year they purchase them, rather than having to take the depreciation deductions over time. There’s talk about eliminating the $10,000 cap on state and local tax deductions, the so-called SALT deductions, and talk of allowing corporations to deduct the full cost of meals and entertainment. I’m not saying all those will be in, but I wouldn’t be surprised to see some favorable tax changes in the next bill that’ll help our clients.
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Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
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When does this happen? It’s going to be a longer process I think than people realize. I assume we won’t have a bill probably until sometime mid-summer. I’d like to see it happen by then, but there’s a lot to be worked out here and the parties are very much at odds about what to get in, and they don’t seem to feel the same sense of urgency that they felt with the other bills.
Craig You’re right. I mean, the parties may be at odds, but I think one thing we
certainly can’t deny is the cost of all of this. With the legislation that is being proposed, there certainly is going to be a tremendous amount of money allocated to that, and then certainly what’s already been put in place.
And so, I’d love to hear your perspective on how you think the growing
federal deficit will have an impact down the road. Andy That’s a good question. I think it’s something right now people are not
focused on, and understandably, because we need to work our way through this crisis. But the deficit is just obviously going into far unprecedented territory. Even before this crisis, we typically, in this country, had deficits under $1 trillion. And, of course, deficits mean the difference between what the federal government spends and what it takes in in tax revenue.
In 2008, the deficit went briefly over a trillion dollars, given the 2008
meltdown, but then it settled back under that figure. This year, before the virus, we were looking at a deficit over $1 trillion, and that was due in large part to the tax bill or Tax Act that passed which reduced federal income, and to additional spending that both parties agreed to in one form or another.
Now we have legislation like CARES that’s going to cost another $2
trillion, so our deficit is up to $3 trillion, and the new act, whenever it comes, the next bill, is presumably going to cost $1 trillion or $2 trillion.
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Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
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That’s what we’re hearing. So, let’s say it’s $1 trillion, that’s $4 trillion of deficit, and that means selling treasury bonds of $4 trillion each year to cover the deficit.
You may have heard of something called modern monetary theory, which
says that deficits don’t matter, because there’s always an insatiable demand [audio muffled - 30:30] paper, and I think, ultimately, this spending is going to be a stress test for MMT. Not now, now there is sufficient demand for treasuries. There’s a flight to safety, the Fed is purchasing a ton of treasuries through quantitative easing. You’re seeing a problem now. But when the economy comes back and people are starting to look to move to equities, which are going [audio drops - 30:57] presumably than bonds as the market’s moving up, treasury’s going to have to find a way to get people to buy all these treasuries that are being issued, and it seems to me that the way they have to do that is to raise interest rates.
So, you end up in a cycle potentially, where interest rates are going up to
buy treasuries, and then as people do buy treasuries, you’re pulling money away from private investment. Now, again, that assumes [audio drops - 31:30] not an insatiable demand of treasuries. That’s what we’re going to find out now because the deficit is so high.
Craig Yes, it is so high. We’ll see how it plays out. I’m going to shift gears on
us a little bit with the next couple questions. We’ll start with this one though. Your thoughts on our relations with China and how that will be affected by the pandemic.
Andy Obviously, relations with China are out a low right now. Don’t forget, a
year ago, they were quite good. We signed a treaty, a trade treaty with China that was well-received. And in that treaty China agreed to import $200 billion of US goods and services over the next couple years. Well, that’s not going to happen. China’s already said they’re going to break the
TRANSCRIPT
Washington Update with Andy Friedman Call,
Moderated by Craig Young
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Washington Update with Andy Friedman Call,
moderated by Craig Young
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The Bull Symbol and Merrill are trademarks of Bank of America Corporation.
treaty, which itself is concerning, because it means that this treaty, although signed, is probably not going to ever be honored.
But, of course, it goes much further than that. There is really blame on
both sides of the aisle, on China, for covering up the extent of the outbreak, for refusing to allow doctors to speak out, for not sharing viral samples to try to come up with some sort of antidote, some sort of vaccine. So, anti-China sentiments really are extremely high.
What does that mean? Well, I think you’re going to see legislation, at some
point, that starts to move away from US dependence on Chinese supply chains, especially pharmaceuticals. They’re going to try to move the production of those items back to the United States.
Now, the interesting part of that is for the first time there’s an appetite in
congress to subsidize, pay federal subsidies to companies that do move their production back to the US. We’ve really never done that in a serious way before. So, essentially, incentive to move companies back and break the Chinese supply chain. That’s going to be another source of federal spending, but there seems to be a very much appetite to do that.
Just to show you how much many people want this to be done, legislation
to break the Chinese supply chain is being co-sponsored by Senator Rubio and Senator Elizabeth Warren. I don’t know if you could ever more strange bedfellows than them, but it shows you how significant it is people feel to move production out of China.
Craig To your point, it’s a fascinating time. It’s bringing people together that
may never have. Speaking of the time we’re in, it’s certainly going to have an impact on the presidential election. How do you see this, the pandemic playing out in the presidential election?
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Washington Update with Andy Friedman Call,
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Washington Update with Andy Friedman Call,
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Andy I think there’s a lot of issues here, people go to the question of, is the president going to get credit or blame for what has happened, for what’s going to happen; if we have more deaths, does that blame fall on President Trump, does it fall on the governors of the states; if we have an economy that comes back and booms, who gets the credit, Trump or the governors. So, there’s already this tension between credit and blame between the president and the governors. Obviously, people feel strongly both ways on that, how the president and the governors have performed here.
But I think the primary reason right now is the economy, and what that
means for the president’s reelection. There’s a significant portion of the electorate, you can argue about what it is, but let’s say about 45%, that very much likes President Trump and likes his performance in office, they’re very happy with that. However, there’s an additional percent that aren’t that crazy about Trump as a person or a president, but love what he has done with the economy up until what we’re seeing now. It’s about 6% or 7% of the electorate. I know people don’t trust polls, but this is a relative amount that seems to be consistent no matter what the polls are, no matter what the president’s approval rating is, it’s about 6% or 7% more people that like the economy. And they would vote for him because of that.
So, the question is, how are those people going to vote if the economy is
not strong going into November. Now, nobody’s going to blame the president for the reason that the economy has had trouble. That’s not fair. We all realize that. But if you’re somebody that supports the president, not because he is President Trump, but because of what he’s done for the economy, you say, well, you know, the economy is not that great, maybe I don’t support him now anymore because I don’t have the good economy. Or do you say, you know what, the only person who can bring us out of this bad economy is Trump because he did it once before?
I think that’s the key to the election right now. If we assume the economy
has not bounced back, or shown signs of bouncing back by the fall, do the
TRANSCRIPT
Washington Update with Andy Friedman Call,
Moderated by Craig Young
TRANSCRIPT
Washington Update with Andy Friedman Call,
moderated by Craig Young
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
The Bull Symbol and Merrill are trademarks of Bank of America Corporation.
people that like Trump for his economic acumen say, you know, doesn’t matter anymore, I’m not going to vote for him, or do they say, no, I still think he’s the guy? I don’t know how that’s going to go, but as we look at this, that to me seems like the most important question.
Craig Certainly is a fascinating with election season coming around. And to that
end, scientists tell us that the virus outbreak could extend beyond the fall. If so, do you see states changing voting procedures to accommodate social distancing and stay-at-home restrictions?
Andy Well, Craig, they’re sure thinking about it. I think that’s a great question.
There’s going to have to be some adjustment of voting procedure to take into account the coronavirus risk and the epidemic. I don’t think anybody is thinking this thing will be entirely gone by November. That would be quite a shock. So, states are trying to figure out what do they do. They have the choice of in-person voting, like we’ve always done, or they could push much more to mail-in voting issues. They both have problems. If you have a turnout, they you’re going to have, what do you do with last minute changes to the changing nature of the outbreak, how do you get people to staff the voting centers, are they going to be worried about that?
But mail-in voting has its own problems. It’s complicated, cause voter
confusion. The rules all vary state to state. Some states begin voting six weeks earlier, some states require a government ID. Now, if you are, say, elderly and living alone, you may have trouble uploading an ID. They have some states require witness signatures. Again, if you’re living alone, you’re not going to want somebody to come in the house and witness your signing.
So, there’s a bunch of problems that come up here. One last one I’ll
mention, and then we’ll kind of give a summation [audio muffled - 39:00], is whether states allow no excuse, what we call no-excuse absentee mail voting, which just says anybody can choose to mail in absentee ballot.
TRANSCRIPT
Washington Update with Andy Friedman Call,
Moderated by Craig Young
TRANSCRIPT
Washington Update with Andy Friedman Call,
moderated by Craig Young
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
The Bull Symbol and Merrill are trademarks of Bank of America Corporation.
Many states have only situations where you have to provide an excuse as to why you’re voting. I think, ultimately, they’ll say coronavirus, of course, is an excuse, but many of these states have split gums, split legislators, so half republican, and the governor might be democrat, it’s hard for them to make changes to the law.
So, it’s kind of a mess. Here’s where I think we come out. I think that
states will probably do both. I think you’re going to see more mail-in ballots than we’ve ever seen before, but it will still probably not be much more than half of the voting. It’s still going to be substantial.
And that means we’re going to see a slowdown of the counting, and the
speed at which the election results are reported. There’s a really good possibility of technical or legal issues, and when the election closes, we may not know the winner for several days. Or we may even see follow-on litigation about what mail-in ballots are okay, what mail-in ballots are not, not unlike what we saw in Florida in 2000, and it may take a lot longer to have a declaration of the winner of this election.
I think it’s going to be a confusing time as we rely more on mail-in
balloting, and I think that’s going to have, could have, could have repercussions about how quickly we are determining who is the winner of this election in a highly partisan, partisan manner.
Craig Listen, Andy, as always, thank you for the tremendous insight. We’ve
covered legislation, how it’s impacting individuals, businesses, industries and the like, the election. Certainly had a discussion on China as well. But I want to give you one last opportunity, is there anything you’d like to say in closing before we close out here?
Andy Yes. I think this is just repeating something that I’ve said, that I think as
when you look at Washington, things are not going to flow as smoothly as they have up until now. Up until now, there’s been a huge sense of
TRANSCRIPT
Washington Update with Andy Friedman Call,
Moderated by Craig Young
TRANSCRIPT
Washington Update with Andy Friedman Call,
moderated by Craig Young
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
The Bull Symbol and Merrill are trademarks of Bank of America Corporation.
urgency, the parties came together, we got major, the CARES Act is huge, huge legislation, with consequences well beyond what I had time to talk about. But now we’re really back to business as usual, and there’s going to be highly partisan negotiations. There’s going to be blame thrown around between the two parties. It’s already starting. You see it in the president’s news conferences, you see it with the democrats, who’s to blame here. That’s going to make more legislation very, very hard. I think people are underestimating the difficulty of getting legislation passed.
I will say one last point, which is that the PPP program, the loans,
forgivable loans for small businesses, is going to run out of money soon. And some people say that might be an impetus to another large bill. I think it’s more likely we see what we saw last time, which is a small piece of legislation propping up PPP. But I guess my view to listeners is, you’re going to have to be patient. I think that we’re not going to see anything major happen for longer than we really would hope it would happen.
Craig Andy, thank you. Every one of your comments spurs another question. I
could keep going on for hours, but I’ll pause it there. Thank you for your time, my friend. [Overlapping voices - 42:46]. Absolutely.
I also want to extend a special thank you to everyone joining us for this
timely discussion. We hope the call helped provide additional clarity, and answered some questions, and helps you understand some things about the political environment along the way. Please contact your advisor if you have any questions and to discuss the remarks made by Andy today, or to review your portfolio holdings.
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daily market insights on ml.com. As a firm, we’re working remotely, but regardless of where we are physically located, rest assured we continue to be dedicated to providing you with the highest level of service. We’re
TRANSCRIPT
Washington Update with Andy Friedman Call,
Moderated by Craig Young
TRANSCRIPT
Washington Update with Andy Friedman Call,
moderated by Craig Young
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
The Bull Symbol and Merrill are trademarks of Bank of America Corporation.
