Jesse Livermore - Upside Down Markets - Understanding Fiscal and Monetary Policy - [Invest Like the Best, EP.194]

Podcast Notes Key Takeaways Normally, an organically strong economy correlates with a strong stock market. In an upside-down market, this relationship is invertedUnlike monetary response, the fiscal response provides unencumbered spending powerLack of spending sucks income out of the system, fiscal policy undoes that effect by delivering income to the private sectorCOVID will likely normalize future fiscal interventions“If you don’t intervene in boom-bust cycles, things can get ugly. That’s especially true when you have the wrong initial conditions when you have a high level of interconnectedness which we have today” – Jesse LivermoreThe Fed holding interest rates down in the face of inflation fears is bullish for equitiesUnder 0% interest rates and negative real return on cash and bonds, money will flow into equitiesA negative scenario for fiscal stimulus, though unlikely, is president Biden combined with GOP holding the senateIt makes sense to get international exposure in case of potential corporate tax increases

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My guest today is Jesse Livermore. I’ve worked with Jesse as part of our research partners program at O’Shaughnessy Asset Management for years now. Whenever there is a huge, important, and complex issue to be studied, I believe he’s among the best minds in the world to tackle it. He did that recently on the topic of what he calls “upside down markets,” which is the topic of this conversation. We seek to answer the simple question: against a horrible economic backdrop, how can the stock market be near all-time highs? Jesse explains in detail the impact that fiscal policy has had on the market and may have in the future. Please enjoy this master class in upside down markets.

This episode of Invest Like The Best is sponsored by Canalyst. Canalyst is the leading destination for public company data and analysis. 

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Show Notes

(2:29) – (First question) – What is Upside Down Markets

(5:44) – Overview on monetary easing and the fed’s role in the markets

(9:42) – Why fiscal policy is such an important lever and the impact it has on the economy

(15:07) – The impact of stimulus on public companies’ fundamentals

(19:25) – The mix of assets in the market due to stimulus

(22:13) – What made 1929 so different to how we are reacting today

(26:14) – Negative concerns: too much money in the system and the risk of inflation

(32:43) – Will the pendulum swing back to labor and higher wages

(37:23) – How these changes could impact specific companies or sectors differently

(41:34) – How he is applying all of this to his personal investment philosophy

(44:25) – Biggest risks still out there

(49:51) – Most interesting gap in his knowledge putting together this piece

Learn More

For more episodes go to InvestorFieldGuide.com/podcast.

Sign up for the book club and new email newsletter called “Inside the Episode” at InvestorFieldGuide.com/bookclub.

Follow Patrick on Twitter at @patrick_oshag