Comments
Transcript
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OCCan we get this video captioned please? Also, can we also get future Daily Briefing videos released on Fridays captioned next day as well please? I would prefer to watch these videos roughly the same time everyone else is watching them since they provide timely information. Thank you for all that you do.
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DSAs an aside from grooming advice. The stock markets have been, are and always will be the net of money flows. The money flows are the net investors’ perceptions of greed and fear. The current market reflects trillions of dollars the Fed is pumping in. Buying the Fed has worked in the past; why not now? The market will turn when investors realize that the Fed cannot print enough money to cover the damage to the economy, pension funds, high grade bonds, bailouts of cities, counties, states and the federal government. The Fed is trying to save the economy, but it cannot BE the economy. I do not fault the Fed. I fault investors who think that the Fed is the economy even for a short time. It is possible that the “buy the Fed” will support the market until it is replaced by hyperinflation. Stock will certainly continue to go up in hyperinflation. DLS
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AB“I really enjoyed Jack’s Intro segment today . I hadn’t seen either of those stories, actually, before the show aired. What do you guys think?”
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RDGet Raoul Zoom
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EBAre these being made public? This daily briefing in on Zerohedge: https://www.zerohedge.com/markets/daily-briefing-april-17-2020
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CKbtw i love the brief music bit at the beginning, always.
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FAThanks guys for another daily briefing. Just a suggestion based on personal preference: I am a part of your audience that is and has been wholly convinced of an eventual breakdown in globalization centered on US dollar domination for a while now. While I do learn lots of information that supports that view during these briefings and other Real Vision videos, I feel as though I am falling victim, in many ways, to confirmation bias. I am a person that thirsts to hear opposing opinions because it allows me to further scrutinize my own. So if I had a request, it would be to bring on credible people onto Real Vision who are optimistic of a bounce back economy and have them explain why. For example, can the Fed simply inflate the US dollar out of a debt crisis and we go on as normal? Is a debt jubilee even a slight possibility? Those are the arguments I’d like to see dissected aside from what you all are already doing.
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RNAsh you are paid to speculate, don't always say you don't know.
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HJThanks for the great briefing, Ash and Ed! Ash’s point about the decline of retail shopping reminded me of the same point made by Andrew Yang during his campaign. There are likely many other consumer behaviors and technologies that were already shifting and require the economy and policy to adapt. The coronavirus is only accelerating many of these changes. In that light, the Fed propping up those businesses seem like an even bigger misallocation of capital, but it seems difficult to distinguish the would-have-been-ok business versus the would-have-failed-anyway business in the middle of this “natural disaster”.
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PBThe expansion of the FED's Balance sheet has no theoretical limit...Right up to the point it where it does. You can expand with little to no damage if you have a positive GDP...Without a -VE GDP and no difference in yield across major FX markets, expect a decline in the USD and a balancing dance of other currency's, particularly the Nations with +VE Credit like Japan, China, Germany etc. The US stock Market won't decline much from a Nominal stand point in my World....The rest of the world is no quite as stupid as the USA...Take a look at the USD over the last 50 years or so and tell me its' going to Spike higher....Not a chance..As soon as it does you watch China and others sell off T Bills...Slow decline in the USD and all currency's with the USD taking the lead....The only way out of this mess to to have a weaker Dollar and have inflation at the same time. This is how it's going to play out from here, there simply is no other option unless you want most Country's to declare Insolvency and carve up the Assets...That's WW3 right there!
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EHSeems like the rally is purely on the backs of big tech. Retail (other than amazon), travel/hospitality, service industry, recreation, oil, financials all getting killed by stay at home measures. The only industry that can thrive is tech and some pharma, mostly on speculation, but those have a limit to how high they can go. Once those are overbought and start to sell off that might be the jenga block that starts another big move downwards. Scary that at the moment it seems the national pensions are dependent on FAANG and what implications that could bring.
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MKGreat episode! The interesting geopolitical topics discussed make me hungry for a Peter Zehan interview.
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HCI believe if there is a real estate bailout or bail-in will come to first time home buyers. My idea is Congress will do a fiscal package for the Millennial voter so they can reduce their college debts and purchase housing. This has trickle down impacts to increase employment, increase real estate taxes for localities and it will redistribute wealth to a younger spenders. I am a RE developer of the first time home buyer homes in a modest market, the industry is in multi-year inventory lows. Regarding the EM markets - read this article. Zambia is stealing a copper mine from a London based company and going to give it over the China for $6B in debt forgiveness. https://www.wsj.com/articles/as-africa-groans-under-debt-it-casts-wary-eye-at-china-11587115804?mod=searchresults&page=1&pos=2
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OC"...people don't understand banks....". People are well aware of the numerous bailout of banks with our tax money. Banks' CEO should have been put in jail during the 2008 crisis instead of being rewarded by bailouts and huge bonuses. Now we are bailing out airlines and possibly real estate companies while people are getting pennies from the so called stimulus. What happened to all the money they made during the bull market? Now they need bailouts? I am sure I am not the only one PO here.
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JBAsh, please let us know your shirt size and we will pool together some funds and buy you some different colored shirts! : )
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RLThe effects of QE in 2008-2010. The liquidity never got to the real economy. Tons of dry powder. It’s now in full effect. The 2nd best way to lose your job or not raise your next fund? Don’t deploy. First best way? Make bad investments.
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DRGreat intro, Jack is fired up!! Another interesting update, thanks guys.
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DSIt would be a very interesting to hear a presentation considering the possibility of the dissolution of the Euro. How would it happen? I know that this is speculative, but Italy is already issuing Italian government IOUs to pay some vendors. Effectively Euro countries will have to give up their sovereignty to Brussels, dissolve the Euro, or some other option. DLS
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YAIf only you guys would cut the Intellectual jargon bs out, this would be great. Seems to me you’re more interested in impressing each other, than getting the point across to your viewers.
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JOThese updates are great. But, yes, it was "a relatively quiet Friday". Therefore, it would be ideal to make these updates shorter and tighter. At least RV has speed and jump and volume buttons. So much info comes to us on video now from all sources, sometimes I have them playing simultaneously! When someone sends me a briefing(/marketing) with one of those videos that have no progress bar (so no position, speed or volume control or even a way to guess how long it is), they can burn in hell. Doug Casey for example. Is the financial economy (i.e. markets) disconnected from the real economy? You are too polite. The main factor in support of Mike Green's proposition isn't that things can bounce back; it's that we know from the last 10 years that Fed stimulus does nothing for the real economy and all ends up in the stock market.
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MPInteresting gold backwardation correlation... something else to build on the dead cat bounce. Agree, Jack fired up! Thanks guys, good show.
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EKMaybe a future topic but this issue of malls/stores closings is not new albeit greatly accelerated now. Some re-purposing of B malls will occur (and have already occurred) but bigger issue is the large holdings by pension funds. The best malls won't disappear but large changes with social and financial implications real possibility.
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CPThe China-US rivalry is the most important issue. All other economic and market issues flow from it, even if it seems not. China is an export economy, that needs to sell its wares in order to pay for its imports. Those cashflows are used to grow its technological and strategic strength with goal of becoming free of US leverage. USA is an imperial state that has all the food/energy it needs, and takes imperial tribute (trade deficits) from its vassals. Vassals which exist b/c the US controls the SLOCs on which they depend. COVID disrupted Chinese manufacturing and Chinese export market demand - massively. The US game is to cut off China's cashflows enough that it faces internal social unrest (food and energy scarcity) and fractures into multiple states. So, we are in for a very long ride, b/c China has many options and deep strategic depth, and will not cave easily. If they have to kill 500mm people to ensure stability of the state, they will do it. Can the US keep the global economy shut down long enough without setting off massive internal disruptions inside itself? Is Europe able to bring itself back online and stay online? Will Northeast Asia stay online, or will something else bring it down? We are only three months in....and most of the globe is not on the side of the US in this matter. If the USA is unable to break China, the USA will lose the commanding heights of the global value chain, and its Imperial position reduced to its hemisphere. In otherwords, the standard of living Americans enjoy will drastically fall - something that is vastly outside the imagination of most Americans. Do not underestimate the lengths the US will go to in order to avoid this outcome. It is the single greatest existential threat the US has faced in its entire existence.
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WMYou deal with American airlines by taking control of the company for the public purse and penalizing the stock holders....AND firing the executive leadership.
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MCGreat update guys as always. Somebody commented it was to long: I don't agree. The updates get us thinking, and we need that thinking material so we can form our own opinions and make our investment choices. You two make that task so much easier and enjoyable. I'll join you on the wine, cheers! Mel
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PJAsh, I'm glad you see a disconnect, because I am totally bemused. How long can financial levitation go on? Roadrunner goes off a cliff and stays up for so long, but eventually falls. The markets are well of the edge of the cliff IMO, the second fall is surely coming soon. Great updates keep them coming :)
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NPI appreciate these daily briefings. I'm in the Asian time zone, so it's a useful update of what happened overnight.
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IPthank you for these dailies, Ed do you think we are getting closer to a CNY devaluation? I think that in order for China to stimulate their economy and even write off the EM debts as you mentioned, they will pass to a flexible currency and that will mark the new high in the dollar, and the new low in stocks, ending the bear market. I hope you can affront this theme and let us know what you think.
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WMAnother great update! Do the central bankers ultimately have the ability to backstop everything including the stock market for more than a few months? I really doubt it. It's hard to imagine that this bear market won't be at least as long and hard as the last two i.e. over 50% down from the peak vs. a mere 15% right now. And how much upside is left at this point?
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TCGood conversation Ash and Ed. Some good points on commercial real estate.
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JOCan you share the link to the report that Ash mentioned regarding how the 07-08 crisis unfolded?
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BBYou should be ASHAMED - "buybacks par for the course" - maybe you are just to young - buybacks were illegal for these exact reasons! Temptation was not supposed to happen in Greenspan's rose colored world! How the hell do you think we wound up with the 1%?
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UJDeutsche Bank’s 2019 balance sheet gives us an excellent example of how they are accounted for in commercial banks. It conceals derivative exposure under the headings “Trading assets” and “Trading liabilities” on the balance sheet. You have to go into the notes to discover that under Trading assets, derivative financial instruments total €80.848bn, and under Trading liabilities, derivative financial instruments total €81.910bn, a difference of €1.062bn This is relatively trivial for a bank with a balance sheet of €777bn. But wait, there is another table that breaks derivative exposure down even further into categories, and it turns out the earlier figures are consolidated totals. The true total of OTC derivatives and exchange traded derivatives to which the bank is exposed is €37.121 trillion. That is nearly thirty-five thousand times the €1.062bn netted difference in the balance sheet. And when you bear in mind that valuing OTC derivatives is somewhat subjective, or as the cynics say, mark to myth, it invalidates the valuation exercise. Clearly, by taking the mildest of a positive approach to derivatives held as assets, and a slightly more conservative approach to valuing derivatives on the liabilities side, that 35,000:1 leverage at the balance sheet level can make an enormous difference. https://www.goldmoney.com/research/goldmoney-insights/the-looming-derivative-crisis
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UJEd is right about the cold war, and the leaders in countries will choose the country that has treated them with respect and not by blackmailing. Bitcoin surfaced after the 2008 crisis what will come to the surface this time. Reality and the stock market is out of sync my guess is SPX will go to 1600.
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CPHow about some comments about the future effects on the world market from economies like Africa, India and Indonesia to name a few as the Covid crisis gradually moves through these countries.
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DX"that is is that" - An Ed Harrisonism
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WBInteresting Ed mentioned the Kobe earthquake. I was living in Japan during the Fukushima nuclear disaster in 2011. This pandemic reminds me more of that crisis more than GFC or 9-11. It was also a health and economic crisis in addition too mass physical destruction. Much more dire and existential threat to Japan than any country is experiencing now.
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JGHow does "greater digitization" lead to structurally "frightening implications" for savers?
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nsYou guys might want to consider what effect warmer weather might have on the virus numbers also , I don't see any southern hemisphere countries with any numbers even close to Italy , Spain , USA , or UK , in terms of deaths per million inhabitants . If you find one let me know .
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RCAsh & Ed enjoyed it! Yah compressed time frames. +++
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LASales on red wine & liquor going to go thru the roof. This shutdown is going to teach us to be more self reliant & save more for a rainy day. One thing I know is that if u short, close your positions quickly due to volatility & take your profits. U guys are great! Ed. I am looking forward to your new hair do on Monday. Be well my friends!
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MTReal Estate markets are so localized, it's got to be hard to talk about it in a general sense other than the macro/mortgage market.
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RAWhat a great one today you guys. The intro with nuggets was just ala the stuff Jim Grant Comes up with—tidbits that are food for thought and are either overlooked or not as yet picked up upon by other Media outlets. Nice to see Commercial RE getting a bit more attention and who better than Chris Whalen to give us some insight. I do think there is going to be a big impact from the loss of wealth of the Equity investors as well as the Credit extenders—there is a whole netherworld of “Country Club” General Partner Syndicators and their investors that derive much of their income from small to medium RE syndications (think 55-70 year old Doctors, Dentists, Lawyers and other successful small businessmen that have a significant portion of their portfolios and retirements tied up in these plain vanilla off the radar Apartment buildings, Strip malls, warehouses and small industrial buildings). Ed via Gabrielle’s China EM debtor response was REALLY interesting....One Belt One Road could kind of be that old RE lender canard “loan to own”! China, playing the long game, might be in a great position to gain control of many desired assets via having extended more credit to some strategic debtors than they could handle. This won’t be the last we hear about China’s “Hub and Spoke” 😏
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JSMassive tail risk in commercial real estate. Not even close to price discovery. By definition it lags and moves slowly.
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BLNice discussion, would be interesting fleshing out more on China response to EM debt and implications to defaults and land/ asset grabs by China and how US and other major powers respond. Thanks
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JHUgg. If China starts a collateral repossession land grab when some are already viewing them as the source of COVID-19, that could turn into a shitshow in short order. "Bad optics" doesn't quite go far enough.
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MRGet a shave Jack. :)
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CLGreat discussion. You guys are fantastic and I always appreciate hearing your thoughts and analysis.
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JSReally, really good. Thanks guys.
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MRI am about to go for the FMJ haircut like Ash.
JACK FARLEY: Welcome to the Real Vision Daily Briefing. It's Friday, April 17. Yet another crazy day in markets. We have our managing editor, Ed Harrison, standing by with Real Vision's own Ash Bennington, and they're ready to give their macro analysis of everything that's going on. But before we go to them, let's quickly go over the latest news in markets, starting out with some price action.
It was another strong day for US equities, with all three major indices rallying. The big winners of the day were Boeing, up 14.7%, and Exxon Mobil, up 10.4%. So the markets were fully in risk-on mode. Apple was down 1.3%, as Goldman Sachs predicted a major decline in their iPhone sales.
And while we're on the subject of interesting charts, I want to draw attention to a stock that's been exhibiting some truly extreme price action. The name of the company is Liberty TripAdvisor Holdings. It's a holding company that owns 23% of TripAdvisor and 58% of the voting share. On Wednesday, the class B shares skyrocketed 2,200%. What a wild swing.
This on the same day that class A shares went up a mere 21%. That's a change barely visible if you view both securities on the same chart, despite class B shares having 10 times greater voting power. It's my understanding that both issues have the same economic rights, making the spread between the class A and class B shares all the more confounding. Nobody really knows why this is happening.
Liberty TripAdvisor is professing that it is as baffled as we are, insisting in a press release issued today that it, quote, "is not aware of the reasons for the recent volatility in its stock price." No mainstream press outlet has reported about this. It is a small cap stock, but man, what a crazy price dislocation, class A and class B shares normally trading in lockstep. It really is remarkable.
And on the subject of price asymmetry we're seeing some peculiarities in the gold market where prices have declined for the past three days, ending the epic rally that we've seen since mid-March. But more interesting are the price dislocations between the different gold markets. I'm talking specifically futures and spot prices.
Now, if you look at this chart, you'll see the dark blue lines are physical spot prices for gold, whereas the thin and red and orange lines are future prices. You can see there's a compression between futures and spot prices. That means the market is exiting the contango phase, and it's just beginning to enter backwardation. And this is interesting because if you look back over the last couple of months you can see that there's a strong correlation between backwardation in gold and S&P selloffs.
Whenever those futures become cheaper than the spot price, that's a time when the S&P is likely to sell off. You can see several of those pockets that I've circled there. So it will be interesting to see what this means going forward.
So wow, a lot going on with markets. Thanks for sticking with Real Vision during his wild times. And thank you for your comments on yesterday's video. We really do read your comments, and we really appreciate your feedback. Man, such a crazy time. The dominoes really are lining up. To make sense of it all, right now, we have Ed Harrison and Ash Bennington with their market analysis.
ASH BENNINGTON: Welcome to Real Vision Daily Briefing. I'm Ash Bennington. It is Friday, April 17. I'm here in New York City, joined by Ed Harrison, our managing editor in the DC bureau. Welcome, Ed.
ED HARRISON: Good to talk to you, Ash. And let me just say before we start, I'm feeling a bit punchy today. So if I seem like I'm a bit off, that's why. And also, I will say that, looking at you, I'm thinking "Full Metal Jacket" with your haircut, because I'm thinking that on Monday, that's the cut I'm going to be showing. That's what I want.
ASH BENNINGTON: Yours is looking a little long here, Ed.
ED HARRISON: Yeah, exactly. It needs-- I mean, we've got the coronavirus cuts coming, and mine's coming on Monday.
ASH BENNINGTON: Yeah, I wonder if we're going to have a new fashion thing that everybody's going to be sporting crew cuts because they're just the easiest thing in the world to do.
ED HARRISON: Exactly, they really are. That's how I'm going to play it.
ASH BENNINGTON: So one other technical note. Raoul was supposed to be joining us today, but he's having some slight technical problems. One of the challenges of living in paradise is sometimes we have some minor connectivity glitches. But we'll get him back next week.
ED HARRISON: Yes, exactly. I'm doing the Raoul position. You're in the me position now. So we've swapped roles a little bit.
ASH BENNINGTON: Yes. So Ed, here we are, close of the week. Obviously a tremendous amount of news flow this week. Relatively quiet Friday in terms of game-changer things. What are you looking at, and what's your outlook?
ED HARRISON: Yeah, so I have a number of different things I'm looking at. Let me tell you, because I have my other screen two or three stories that Gabrielle, who works in content, has sent to me. One's about China and how they're handling EM debtors in this virus crisis. Another is about the US states being threaten-- their budgets-- by coronavirus. A third I thought was very interesting that she sent over is about the Bank of Russia dropping rates. I want to talk a little bit about that in the context of EM, and also what the ruble looks like.
And then, finally, just as a preview of a conversation I'm having next week, Chris Whalen-- he had an article out talking about banks. He was talking about commercial real estate. I think that that's going to be very interesting, what's happening both in terms of commercial as well as residential in terms of write-downs for banks, and what it could mean for Fannie and Freddie as well.
ASH BENNINGTON: Yeah, Chris Whalen one of the sharpest guys looking at bank stocks, looking at bank operations, and also looking at Fannie and Freddie. Of the stories that you mentioned, the one that I thought was the potentially most ominous was the state government budgetary shortfall. I mean, basically, the lede of the story is that there's the potential to have a $500 billion hole in state tax revenues caused by the ferocity of the shutdowns. And it's-- again, we get tired of saying this phrase, but there's some suspicion based on the preliminary modeling that it looks worse than what we saw a decade ago with the great recession.
As of this point, we've got $150 billion that has been approved by Congress on this. Obviously, we're about a third of the way there. And the article also goes on to say that new legislation is going to be focusing on replenishing that $350 billion from the shortfall for the Small Business Association. Ed, when you look at those gaps, what do you think?
ED HARRISON: So, I mean, the first thing that's on my mind, honestly, is the retirement crisis. I don't know if you remember, we ran a series a little while ago on retirements. And one of the things that stuck out to me was about pension funds for US states. If you compared Canadian pension plans to US state pension plans, you saw that there was a huge gaping hole in US pension plans.
So when we think of 2008, 2009, you can think about Meredith Whitney as an example of someone who people thought she was out to lunch, and that her call on municipal bonds was incorrect in the great financial crisis. But my feeling at the time was that what she was talking about was if we continued down in a very negative trajectory in the economy, then those things would come to the fore.
Now, here we are a decade later, and we're in the middle of a huge downturn. I think those same issues are going to come up. So I'm not as concerned, per se, about the budgets themselves, because I think that the federal government can make whole on the budget. The real concern for me is any sort of impact it would have on the retirement, on the pension plans in those states.
ASH BENNINGTON: Right. When Whitney came out with that report, people in muni land were a little bit dismissive of her, and said, stay in your lane. We do this every day, and we know better. But, as you suggest, that call may have been prescient, though early.
ED HARRISON: Yeah, exactly. And so, I mean, the only thing that is positive in terms of thinking about it from that perspective is that the market is doing as well as it is. I think we ended at 2,874 today on the S&P. And I think I was looking at the 62% retracement. It's 2,920. So we're still a bit a ways from that level yet.
And to the degree that we stay in that range, we don't have another precipitous drop, that's positive for those pension plans. But if the financial economy follows the real economy down, then I think you're going to be in trouble in terms of state and local pensions.
ASH BENNINGTON: Well, that's really it, Ed. You've just hit on the key point there. This question of whether the relative resiliency of the market is, in fact, a blessing or a curse. Obviously, it helps to support pension plans to have those levels in US equity markets be where they are. But again, and this is the conversation that we've talked about so many times on this show, which is, is the financial economy out of step with the real economy?