Bahnsen: GDP Looks Backward; Stock Market Looks Forward

Your Real Vision Daily Briefing for August 6, 2020

Ash Bennington speaks to David Bahnsen about the economics of re-opening and the state of the U.S. equity markets.

  • Reopening white collar offices is crucial to the recovery because of the ancillary impact they have on the economy.
  • Of the policy prescriptions we’ve seen, the PPP is exemplary because it got straight to the heart of productivity and those whose productivity got cut off.
  • The disconnect between the S&P and GDP needs to be better understood if long-term investors want to avoid making the same mistake over and over again.


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White collar office buildings in large cities make up an ecosystem, and there’s an economic ecosystem that happens around them as a result, David Bahnsen, founder and managing partner of The Bahnsen Group, told Ash Bennington during today’s Real Vision Daily Briefing.

Bahnsen argued that the biggest struggle when white collar workers disappear from offices happens downstream; it affects ancillary businesses like delis, coffee shops, and bars and causes a disproportionate impact on the lower economic tiers of society.

Because of this, Bahnsen believes there is a moral imperative to safely reopen offices for the good of the businesses that are dependent on the economic vitality they create.

Bahnsen also discussed the effectiveness of the Paycheck Protection Program during the interview, saying that of all the different policy prescriptions we’ve seen so far, it has been one of the best because it got straight to the heart of productivity and those whose productivity got cut off. He thinks job numbers would be much worse without the program.

Now that another round of stimulus is being negotiated, he thinks a PPP-like program for the hospitality industry would be a positive thing because those businesses clearly have the most gaping need for intervention.

Next, Bahnsen and Harrison turned their attention to the U.S. equity markets. They called out the cap-weighted distortions in the S&P that are masking the stasis happening in other names on the index. Bahnsen said the NASDAQ is more diversified and he thinks its price impacts reflect the cross-pollination of sectors in the American economy better. And when you look at the Dow, which is still near 10% off of its all-time highs, that seems more realistic to the experience most investors are having versus what the S&P cap-weighted story is telling, he said.

Bahnsen believes the disconnect between the stock market and GDP needs to be better understood – particularly for long-term investors who want to avoid making the same mistake over and over again.

“It is true there is a distortion because of big tech cap-weighted realities and market multiples being boosted by monetary stimulus,” he said. “However, it is an eternal principle that GDP looks backward and the stock market looks forward. That simplicity is being exacerbated by the dynamics of big tech and the Fed.”