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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Upside-Down Markets
- In upside-down markets, a weak economy might benefit from fiscal stimulus, leading to a stronger stock market.
- A savings glut, usually negative, can be positive in this context, triggering stimulus and boosting market performance.
Monetary vs. Fiscal Policy
- The Fed's monetary easing role involves controlling interest rates and acting as a lender of last resort.
- Fiscal policy, unlike monetary policy, injects new financial wealth into the economy, directly increasing private sector spending power.
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.