A Political Reporter Argues That Wall Street Doesn't Get DC

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

So Tracy, we are recording this episode, I think, just six days, actually I know, just six days before the election. I think by the time people listen to it, the election will have been passed.

But nonetheless, we're in a period either way in which there is just an extraordinary amount of attention paid to what's going on in Washington, DC.

Tracy Alloway (0:41)

Yeah, less than six days to go. It's time to start making predictions about the outcome of the election. So everyone who listens to this after it actually happens can tell us we were wrong.

Perfect timing.

Joe Weisenthal (0:53)

Yeah, that's the perfect way. Also, if all of our predictions are off, we just want to air the episode. No, I'm just kidding. But I mean, I do feel like A, I'm not going to stick my neck out and make any predictions.

And B, election aside, and of course the election is sucking all the oxygen out of the room in terms of people's attention. Just paying attention to what's going on in DC has been increasing in importance for markets, it seems like for a long time now.

Tracy Alloway (1:21)

Yeah, I think that's right. And I mean, 2020 has basically taken everything to an extreme. All these long-term economic and business trends that have been in play for many years now seem to have accelerated this year. But I think you can argue that there was more of a focus on politics after the financial crisis. You had a lot of attention paid to financial regulation, then you had the Eurozone crisis, you had Brexit, then you had the US-China trade war.

And now in 2020, you have the fiscal stimulus and the response to the coronavirus crisis. So it does feel like we've been in this long-running trend of investors paying more attention to politics and policy. And 2020 has really just shifted that into high gear. And now we have the election on top of it.

Joe Weisenthal (2:15)

Yeah, exactly right. And I think one of the things we've learned, and it's a pretty widely held view now, but something that comes up a lot of times in our discussions is that if the government gives people money, that is a very effective economic policy. It's very powerful, but the government doesn't always just hand out money to people and you need to corral votes to get it done. So here you have this lever, this policy tool that's extremely effective, and there's not really much debate about can it be done sort of from a fiscal standpoint or a monetary standpoint, but about whether there's the political capacity to do it. I think it's an issue now.

It's probably gonna be an issue in 2021, regardless of the makeup of government. And so I feel like there's going to be increasing demand on the part of investors, on the part of economists to understand whether that political capacity continues to exist in DC and what it takes to make it happen.

Tracy Alloway (3:15)

Yeah, absolutely. And I think there's sometimes a tendency on Wall Street, I guess because a lot of investors and analysts tend to be quite rational people. I think there's sometimes a tendency to ascribe rationality to politicians. And you think, well, they're going to do what's good for people, they're going to do what's good for the economy. And maybe in this case, that's fiscal stimulus.

But sometimes they don't always do that. But also, wait, I'm not voicing this.

Joe Weisenthal (3:45)

No, I get it. You're making, your point is spot on.

Tracy Alloway (3:48)

No, what I was going to say, sometimes I think there are also motivations that Wall Street isn't necessarily aware of. So they look at everything from a sort of zero-sum game. Why wouldn't you do this?

But there are things that politicians are thinking about that wouldn't necessarily jump out to your average sell-side analyst.

Joe Weisenthal (4:07)

No, I mean, for one thing, they're all focused on reelection in large part. The number of times I've read an analyst say, oh, maybe we'll get an infrastructure deal. It's just totally embarrassing. Anyway, this is a good setup to our guest because he has asserted quite prominently, several times that Wall Street is just totally clueless or markets are totally clueless or maybe both. We can sort of get into the distinctions about how DC really works. And so if that's true, that's something important for people to internalize given the increasing importance of DC. We're gonna be speaking with Jake Sherman. He's at Politico. He's also the author of the popular playbook newsletter.