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The Road to Recovery

Wells Fargo Investment Institute

Transcript: Road to recovery webinar replay

Road to Recovery: Smart money decisions in a post-pandemic landscape

Transcript for client webinar

Thursday, June 3, 2021

Operator:

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to The Road to Recovery: Smart money decisions in a post pandemic landscape virtual event. The opinions expressed in this webinar reflect the judgment of the speakers as of June 3rd, 2021, and are subject to change without notice. Important disclosure information is included at the end of this webinar. Investment and insurance products are not insured by the FDIC or any federal government agency, are not a deposit or other obligation of or guaranteed by the bank or any bank affiliate and are subject to investment risks including possible loss of the principal amount invested. Please be advised that today's conference is being recorded. I would now like to turn the event over to your moderator for today, Ms. Beth Renner. Please go ahead.

Beth Renner:

Thank you for joining us today. I'm Beth Renner, the head of the advice center for Wells Fargo Wealth & Investment Management. I've been looking forward to this call this afternoon and the next 45 minutes that we will spend together. When I was preparing for today's call, a lot of my conversations with my colleagues focused on this idea that we really believe we are at a point of inflection. You will hear today from our leaders across Wells Fargo that we are early in what we expect to be a strengthening economic recovery, yet we realize there are many residual effects of a stressful 2020 that are causing, in some investors, a larger amount than normal of cash on the sidelines. There are fears of rising interest rates, inflation, COVID-19 variants, and other threats that could lead to the next market crisis.

It is our hope that in our time together today you will be provided with information that helps you understand more clearly what are some of the key issues and opportunities you should be aware of, why they are important to you, and ultimately, how you are able to act on the information provided.

I'm thrilled to be joined by several of my colleagues and leaders across Wells Fargo this afternoon. Our first speaker will be Darrell Cronk. He is the president of Wells Fargo Investment Institute, which is focused on delivering investment expertise and advice to help investors manage risk and succeed financially. He also serves as the chief investment officer for Wealth & Investment Management, a division of Wells Fargo and Company comprised of Wells Fargo advisors, Wells Fargo asset management, wealth client solutions, and private wealth management businesses. Mr. Cronk is frequently featured in the media including The Wall Street Journal, Dow Jones MarketWatch, Barons, The Associated Press, Reuters, Yahoo Finance, Bloomberg Television, CNBC, and Fox Business Network. He has authored numerous investment-related articles and regularly speaks at investment industry conferences.

Also joining us today is Julie Caperton. She is the executive vice-president and head of Banking, Lending & Trust for Wells Fargo Wealth & Investment Management. The Banking, Lending & Trust Group is responsible for helping clients with their lending and banking needs, deposit strategy and management, as well as investment and fiduciary services. An 18 year veteran of Wells Fargo, Julie served most recently as the head of corporate development responsible for mergers, acquisitions, divestitures, and strategic investments across the enterprise. Prior to this, she was head of asset-backed finance and corporate trust services. In that role, Julie was able to bring together end-to-end knowledge in serving the structured finance and capital market needs of bondholders, issuers, borrowers, and lenders.

Lastly, Michael Liersch is the head of advice and planning for Wealth & Investment Management, which is responsible for developing and propagating research-based methods to help advisors and clients most productively collaborate around their money decisions. Prior to joining Wells Fargo, Michael worked at JP Morgan Chase where he served as managing director and global head of wealth planning and advice. Prior to his role at JP Morgan, he served as the head of behavioral finance in goals-based consulting at Bank of America Merrill Lynch and as a head of behavioral finance at Barclays Wealth Americas. He was also a faculty member at New York University where he taught management and organizational analysis. Michael earned a bachelor of arts in economics with honors from Harvard University and earned his doctorate in cognitive psychology from the University of California at San Diego. His perspectives have been featured in media outlets including Bloomberg, CNBC, The New York Times, USA Today, and The Wall Street Journal. He has also published academic and industry journals for his research on human behavior. I'm looking forward to our conversation today. 

Today is a special event in the terms of the combination of the expertise that we are bringing together spanning the full financial spectrum that this panel brings as well as the depth of knowledge they offer, not only within Wells Fargo, but across the industry, spanning from the economy and the markets and investing that Darrell will discuss, the behavioral aspect around investor biases that Michael will talk about, and then we have the banking lending and the balance sheet side that Julie will address.
We're going to focus our discussion on several themes. First, how can you take advantage of the strengthening economic recovery? Second, what behavioral biases or patterns have we seen and why does that matter during this market cycle? Lastly, from a credit and lending aspect, what trends are we seeing and how might you consider leveraging these ideas to focus on what you want your money to do for you?

We have a large audience today, so everything we share may not directly impact you immediately, but you, however, are going to have information that you will be able to walk away with actionable ideas following up from our discussion today.

We also published our 2021 tax planning guide, so that's hot off the press. I had a chance to review it and I will tell you we left no stone unturned in looking at the different topics to cover. It's a fantastic report outlining key tax dates, numbers, and actionable strategies. After this call, you will receive a link to it in the follow-up email after today and you can also find it at theprivatebank.com or wellsfargoadvisors.com.

Let's get started. My first question is for Darrell. Darrell, welcome.

Darrell Cronk:

Thanks, Beth. Great to be here.

Beth Renner:

My first question, Darrell, is, excuse me, after an incredibly stressful 2020 and a strong recovery, can you give us a perspective on the economy and why you believe we're at a critical inflection point in the economic cycle for investors?

Darrell Cronk:

Yeah, absolutely. I think, if you look at this slide that we'll put up here on the screen, it shows the normal course of any economic cycle. This is probably very familiar to our viewers. You have what we call early cycle dynamics, mid-cycle dynamics, late cycle dynamics, and then a recession of any economic recovery. We know that we came off the fastest and shortest recession that the US economy has basically experienced in any kind of recorded timeframe just last year. It was quick, but it was severe as we did a heartbeat stop to the economy.

I think the key is, now that we've moved past that bear market and that recession is we firmly believe we're in the early cycle recovery and those dynamics are playing out. How do we know those dynamics are playing out? I would point you to a couple key indicators that literally if you went down the list you would check the box one at a time and say, "Yep, that matches up with an early cycle dynamic. Yep. Yes. Yes." On down the line.

We've seen probably somewhere in the neighborhood of about 10 to 11 economic cycles over the last 70 years, so this chart is very reliable and you can rely on certain indicators to be positive in how those attribute to basically how you know where you are in the cycle. Why early cycle? Number one, I would say you're seeing a resurgence in GDP and employment. This year, we think the US economy will grow somewhere in the neighborhood of seven percent US GDP growth, followed by about five and a half percent next year. That would be the fastest US growth back-to-back since 1965, '66. We're not used to seeing that strong of GDP growth. That's often a very early cycle recovery dynamic post recession.

Same with employment. We lost 22 million jobs in the US economy during the months of January through April of last year. We clawed back about 14 million of those, but we're still 7 to 8 million short of where we were heading into the pandemic. That employment number is coming back strongly. We'll get a good read of that again tomorrow, which should be pretty robust. Number two, you typically get a rebound in industrial production ahead of the consumers, so check that box. We're seeing that already. Business industrial production is really strong. Number three, you get strong savings and strong consumer spending. Savings rates today on a national average are 14% compared to about 3% on a long-term average, so way above normal. Consumer spending is clicking along at almost a 15% clip, which is almost unheard of, again. Consumers are starting to spend again and that's a healthy early cycle dynamic.

Number four, just quickly monitoring fiscal policy remains extremely easy. In fact, you could argue it's as easy as we've ever seen with the fed basically on a hold for two to three years, or at least until it sees the whites of the eyes of inflation in a stronger labor market, along with we're getting somewhere in the neighborhood of 40% of US GDP stimulus in the form of fiscal spending, which is even unheard of post World War II, post World War I times when you compare it to GDP. Check that box, too.

Two more I would quickly point to, Beth. Often, in early cycle dynamics, you see rapid growth in earnings and profits. We're seeing that this year. S&P earnings are probably going to be somewhere around $200 per share, that compares to around 120, 130 last year. That's a big percentage increase coming off the depths of the recession last year.

The last one, which is a quintessential early cycle dynamic is really strong surge in money going into risk assets. We've seen that occur as money has flown into the equity markets, into the commodity markets, into the real estate markets. That also is quintessentially an early cycle dynamic. When you line up the list, this is actually in a lot of ways very normal for an economic recovery post-recession, post-bear market, and it's often a very good time for investors and where some of the best gains of the economic cycle are made in the investment capital markets.

Beth Renner:

Darrell, a couple comments that you made is that this idea of the length of the economic cycle was compressed this time. It was the fastest and the shortest, and now the data supporting the recovery aspect of it. I know... and now the data is supporting the recovery aspect of it. I know that our audience had submitted questions around concerns around inflation. Anything that you would want to add on as far as concerns, or maybe we'll cover that later? But if you want to talk about that now, and that would be great.

Darrell Cronk:

Sure. I'll just hit it really quick because it is an important concern. We just got done writing our mid-year outlook and I referred to, if there's three bricks in the wall of worry for investors today, it's what I call rates cubed, higher interest rates, higher inflation rates, and higher tax rates. We'll probably talk about all three today.

The inflation side we do think runs above normal. We would expect the consumer price index to run with a three in front of it most of 2021, which is certainly above the 1.7%, 10 year average, but it's a long ways away from 1970s, 1980s hyperinflation. And we, to be clear, don't expect hyperinflation into today's environment, but there is an upward pressure on inflation and it's being driven by the intense fiscal and monetary stimulus, surging commodity prices, supply chain constraints, labor shortages, and a Fed that just has said they're going to change the dynamic and be on hold for a long period of time.

So it's a risk, we have to watch it. And it most certainly will trend higher than what we've seen in the last decade or decade-and-a-half. But we don't view it as a risk that's large enough to tip the capital markets over at this point.

Beth Renner:

Excellent. So thanks for those comments. And so you laid a really good groundwork for us to take the discussion forward into more of the behavioral aspect of things. And you mentioned the word, "Fear," in some of your comments. And so now I'm going to turn to Michael. We have seen and experienced on a personal level for many of us, the fear, the anxiety that we've seen in the volatility in the markets, and in our emotions. And so what behavioral patterns or biases have you seen with people in terms of how they're making money decisions, or how they're investing in taking action or not taking action Michael?

Michael Liersch:

Thank you for the question Beth. And before we even get there, I do want to take a step back, and as we approach this part of the conversation, let all those human beings listening know that it is completely normal to have felt exhausted by the compressed cycle that Darrell just talked about. And we need to be empathetic with ourselves that human beings are essentially, Beth, uncertainty reduction machines.

So we like to decrease uncertainty; that's what we're all about as humans. We're always trying to predict, we're always trying to see what's next. And so when that's not possible, so the pandemic is something new, something unique to many of our lives, that creates a lot of let's call it fear and anxiety, like you just mentioned.

So I just wanted to acknowledge that, Beth, and say it's completely normal. So when we talk about things like behavioral biases, I don't want people to think of it as a criticism, but I want people to think of it as an opportunity to say, "Well, how do I get beyond that particular perspective into a new way of thinking as Darrell has outlined.

Within that framework what I'd like to show is a traditional view of the cycle of market emotions. Darrell showed the economic cycle, but of course there's the psychological cycle here, and I'm sure we're all familiar with it. We have a certain position or a certain portfolio that we've quote unquote, "Purchased," or we've adapted to in terms of its value. When it goes up we feel great; we feel even elated at times. When it goes down, we feel perhaps despondent, or we even capitulate and maybe want to sell those positions or those assets.

And then as things rise again, we get more and more optimistic, and we maybe wait and wait and wait, and then buy. And I just want to highlight this, at a high Beth, rather than opportunistically like Darrell just outlined. So what I'd like to do is just implore everyone listening to really hear what Darrell and Julie have to say from their lens of where we're at in this economic cycle, and think about the following three things.

And this is where I think bringing up the next slide will be helpful. The first is, and this is one of the most common client questions we're getting, and you and Darrell already alluded to this, is do I have the right amount of cash? And what I would relate that to is risk aversion and loss aversion; so both of those ideas. So when it comes to risk aversion, that's the idea of am I willing to put my cash or what I feel is most certain at risk, again, to perhaps go up or go down with certain market exposure. And I again would ask everyone to maybe think about that a little differently. And when you ask the question, do I have enough cash, too much cash? Really what you should do is look at your goals. What are you trying to accomplish with your money?

And I'd encourage everyone to think of the following four elements of a goal to establish that in collaboration with a spouse, a partner, a family member, an advisor. So those four elements of a goal are first, what is the label of that goal? What are you trying to accomplish? Is it retirement? Is it education for a family member? Is it a philanthropic endeavor? Whatever that is, identify that label.

The second one is really what is the dollar amount that you're targeting at a future point in time or future points in time? So is that annual income? Is that a gift at a future point in time? Is that a purchase at a future point of time of a home or, or perhaps something further down the road?

The third thing is what exactly is that time period? So get really explicit about it, not just the dollar amount, but the time period. So the label, the amount, the time period, and then ultimately, Beth, how important is it for you to get there at that dollar amount and at that time period?

So as a really clean example, if you're retired and you have an essential amount of income, that's going to be high priority item. You're going to want to get that to pay the bills, and to make sure that you're solvent in your spending. But maybe there's a discretionary component and maybe you have more flexibility there, and you can expose your money to risk at a different level so that perhaps you can benefit from the returns on the other side of that risk exposure.

So there's a lot of opportunity, Beth, in that risk and that loss aversion, we're getting that question around cash. So I just wanted to reframe that so that it's not necessarily a bias, clearly being a nervous about taking risks and about losing money is normal. And again, that's where I go with empathy, it's human, but we really want to get on the other side of that so we can achieve our goals, we can achieve the jobs we want our money to do for us.

The last thing I'll mention that in that, Beth, before I hand it back to you, is this idea of we're seeing a lot of clients, and Darrell and Julie I know we've talked a lot about this as well, of following the herd. And I'll point that out on the slide too. That that herd mentality is very tempting. So when you're watching the news, and I know in Darrell's and mine, Julie's bio, you mentioned CNBC, and reading The Wall Street Journal, The New York Times, these are great publications, and let's call it sources of information to get thoughts or ideas, or to help frame your thoughts and ideas. However, really following the herd in the sense of listening to those ideas as personalized advice, I'd just be very cautious of that.

Similarly, when you're talking to friends and families, or now that, if you're vaccinated or you feel comfortable interacting with other people, you're at, let's call it group interactions sharing those ideas, I really always go back to, is that about me? Is that about my goals? Or am I hearing these ideas in a different context, in other people's goals and what they want to accomplish?

And so following the herd can in fact, actually put your money more at risk than you might realize. And so always going back to, what am I trying to accomplish that label? The dollar amount, time horizon, priority level is going to be so essential to overcoming these biases, and also reaching the success of that goal attainment. So, Beth, I hope that helps.

Beth Renner:

It does. And thank you. I think that slide is excellent. I've identified with almost every box on that on the screen at some point in my investment cycle itself as well. And I think that your points are very important about really just understanding what your goals are, and being able to just kind of thoroughly articulate what they are and how that maps over into your plan as well.

And so we've covered kind of the economic part of the economy and what's happening with regards to that. We talked now about the human side, our reaction to everything that's going on in the economy. Darrell, I want to go back to you and from a practical standpoint in our portfolios, how should investors consider adapting their investment strategy to the new realities of today?

Darrell Cronk:

Yeah Beth, that's an excellent question. And I think Michael did a great job covering it. I would just add on to Michael's comments, there is a wall of liquidity out there like we've never seen before. Commercial bank deposits are at record levels. Money market funds are at record levels. Cash on balance sheets of companies are at record levels. So that wall of liquidity has to go somewhere and often does in the early cycle dynamics.

I would just quickly point to four things around your portfolio that I think is important. And here's why, and this might be the most important point, why I think it's important. One is if we've established, which we just went through before, that there were six conditions that affirm the early cycle recovery, which we went through, now early cycle recovery and dynamics have very different investment opportunities than late cycle or recessionary dynamics do.

And I fear that most investors don't pay close enough attention to that. When I look at a lot of portfolios, they're still invested like they were for the past decade, not the next decade, which is an important component.

So when I think about what's changed or what are those subtle differences that have changed underneath? I would say a couple of things. One is early psychodynamics favor cyclicality over defensives. And in particular it favors things like transports and industrials. If I would've told you coming into this year that the Dow Jones Industrial Average, the 30 largest stocks, which has kind of been a sleepy index compared to the S&P 500 or other big indices, was the best performing index this year, you probably wouldn't have believed me, but it is. So early cycle, as the economy ramps back up, transports and industrials do very well. That's point number one.

Point number two is there's a hard rotation that's happening. The worst performing sectors of the past decade have now become in 2021, the best performing sectors. What are those? Those were energy and financials clearly. They struggled from 2010 to 2020, and they are on fire this year. That often happens in early cycle dynamics as oil prices have gone from negative $37 a barrel up to positive $70 dollars. Energy's number one, financials are number two.

What's lagging today? Surprisingly technology, which was the huge driver of the last decade. If you didn't own some of the technology big behemoth names, you had a hard time keeping pace with indices and return structures. And yet tech is kind of a lagging index this year. We still think it will perform well, but understand that dynamic and what's changed. What's coming from last is now first, and what was first is now last.

Third quick point is the commodity complex early in a cycle does extremely well. In fact, we've seen the quickest melt up at one of the fastest paces in history of the commodity complex just in the last 12 months. And that's commodities across energy, across base metals, across precious metals, and across energy across base metals, across precious metals and across base metals. So, it's participating across the board as the US dollar has weakened and demand for things like lumber and oil and copper and steel and everything else is off the charts with those supply chain disruptions. So, that has played well and is playing into that inflation narrative we talked about before, but for the last decade, if you own commodities, you enjoyed a negative 6% annual return. We think in the next decade, commodities are going to be a strong attribution source to portfolio returns. So, make sure you have your commodity exposure in your portfolio.

And then the last point I'd make here, Beth, that I think investors have not necessarily embraced and understood yet, is for the last decade, we've enjoyed wonderful returns in the bond market as interest rates have continued to fall. So, it's been a time, a decade ago, to be aggressive in your bond portfolio, in both your duration and your credit exposure. We think that's changed. It's the opposite now. It's time to play defense in your bond portfolio. It doesn't mean you get out of bonds. Bonds play an important role, but we just think you need to be careful about your duration exposure and careful about your credit risk exposure as interest rates rise and as credit spreads are extremely tight in today's environment. So, there's a bunch of subtle changes that, if you haven't sat down and looked at your portfolio since certainly last year or even early this year, it's time to look at that and reset and make sure you're positioned well for those early cycle dynamics.

Beth Renner:

You made some excellent points in there. And at the beginning of the call, I shared with the audience that there were going to be lots of actionable ideas, and you listed off a number of them, but you summed it up the best in the beginning when you said that, oftentimes, you see client's portfolios that are invested in the past decade, not the next decade. And so, that's a great reminder for us to take a look and revisit that portfolio with all those actionable ideas that you shared with us. So, that's excellent, Darrell, thanks.

Other things that came in from the audience, we had the opportunity to gather questions from the audience, there was a lot of interest in understanding what tax implication and interest rates are. So, I want to ask this question to all of our panelists. So, clearly, taxes and interest rates are top of mind for many clients. And I'd ask all of you to comment here. What are the potential implications of tax policy changes and rate fluctuations for our clients, and what should they be doing now? And Michael, let's go ahead and start with you.

Michael Liersch:

So, what I would say is that a lot of people, when they think of those policy changes, especially from a tax lens, Beth, think that it requires them to take action right now. And I would just implore everyone to say, okay, well, what does taking action mean? And what I think we should consider it meaning is we should lean into our planning conversations. So, what is it that we want to accomplish with our money? And ultimately, what are we trying to optimize? Are we trying to optimize, Beth, the impact of that money on others? Are we trying to optimize the value of our balance sheet? There's a lot in tax policy that we need to consider, and we shouldn't let tax policy drive the impact we want our money to have. It should be the other way around. We should identify that impact and then see within the tax framework what the implications are.

So, Beth, I would say that's where I would drive people toward action, is really outlining that with themselves and with their families and with their key advisors, in order to outline that desired impact, the intent of the money, the wealth, and then see what the tax changes may cause in terms of a decision framework, where they might shift the types of structures and strategies they use to execute that plan. Does that help, Beth, at all?

Beth Renner:

It does. Thank you. Darrell, let's move on. Let's have you answer that question.

Darrell Cronk:

I could spend a whole hour on this question alone, Beth, but I won't. So, let me just say this. In the first 125 days of the new administration, we've seen two of the largest policy proposals we've ever seen in history. Number one is $6 trillion worth of proposed fiscal spending on the form of three bills. One has passed. Two has not. And then we've also seen, at least what's proposed, the largest tax increase since the year 1968, which is sizeable. And so, we have to pay attention to that as that evolves politically to the process. I would tell this audience, just to keep it short and sweet, there are a number of battle lines that will be drawn in the negotiation process. But if you're watching for key signs and indicators, I would keep my eyes on three or four things.

One is what I call the rates. The individual tax rates and the corporate tax rates. The higher individual rates are almost assuredly going higher to some extent, likely back to pre-2017 levels, and corporate tax rates are probably going from 21 to somewhere around 25, 26%. Not terrible, but certainly below 28%, but certainly higher than they've been. I would also watch capital gains and dividends. Those are likely going to reset as well to higher levels. Those matter a lot to investors and everybody on this call. The important point on capital gains and dividends is it's likely that they may reset those to sometime mid year. So, either an April start date of 2021 or a June start date. So, it might not be a 1/1/21 or 1/1/22 dates. So, that's the key to watch there.

The estate tax exemption is a key one to watch and matters a lot to clients. So, keep your eyes on that, and then probably a little less so, but the salt exemptions in the high tax states around caps on mortgage deduction, today that sit at basically $10,000, there's belief that that may move up to as high as 40, $50,000, but that's an important negotiation stance to watch. There's some more stuff on the corporate side, I'll leave that off the table because the audience may not be as interested in that, but on the personal side, it's really individual tax rates, it's cap gains and dividends, it's the state tax, and it's the salt.

Beth Renner:

Excellent. So, good points. So, I know that we focused a lot of time, Michael and Darrell, on your comments. I want to invite Julie now also to answer the question around the tax law changes in interest rates and some of the implications relative to lending or leverage that you're seeing with clients. So, Julie, welcome. And I'd be interested in your perspectives on that question as well.

Julie Caperton:

Thank you, Beth. Thank you for having me. In this low rate environment, we're really seeing a lot of clients who don't traditionally utilize leverage borrowing in order to achieve their goals. This can be in a variety of different contexts. Some are just taking advantage of the natural arbitrage in the market. Some are locking in low rates on long-term stabilized real assets, but really, we're seeing more and more clients who haven't traditionally thought about using leverage, or certainly haven't needed to use leverage, starting to use leverage as a normal part of their planning process and part of their overall management of their personal balance sheet.

Now, as you can see on the slide, we are in an unusual and ever-changing environment. So, in order to use leverage responsibly, it's really important for our clients to educate themselves. We do have historically low rates right now. We are seeing a divergence between short-term and long-term. We're also seeing the discontinuation of LIBOR, which most financial institutions have been managing quite well, but still is something that clients need to understand and need to understand what impacts that can have on their own balance sheet and on their future borrowings.

We've been talking a lot about the tax environment, and I would also say particularly as it relates to rates and on the borrowing side of the equation, we're seeing a divergence geographically in home prices. I focused on home prices here because we're really seeing that in different parts of the country, where we have home prices increasing really dramatically in certain parts and geographies of the country, and then declining in others. And similarly, when you think about investment properties, we're seeing the same thing really in the office space, certainly in retail, and even in multifamily. So, all of these factors are things that need to be considered if a client is considering using leverage, which is why it's more important really than ever to consult with your advisors and your bankers in order to understand how you can best factor that into your overall strategy.

On the tax front, Darrell touched on something that's critically important that we're seeing clients focus on, and that's the potential changes to the state tax. I think high net worth clients in particular need to be laser-focused on those changes. And really, I would just like to bring together Michael's comments and Darrell's comments, because if you can achieve your personal goals, while at the same time understanding and benefiting your portfolio as it relates to potential tax changes, that's something that I think really clients should focus on. So, what we're seeing people doing is looking more at using personal trusts, not just to tax plan, but really to also educate the next generation about their own financial goals, needs, how to plan for their lives, and really how to factor charitable giving in to those younger generations earlier in their own plans. So, it's really accomplishing both of those goals, tax planning, as well as really looking down deep at your own personal goals and how you can facilitate those through the use of planning and personal trust.

Beth Renner:

Julie, thanks for those comments. One of the things that I jotted down is that you use this idea of using leverage as a normal part of the planning process. And I think that that's a great reminder to visit with your advisor and argue taking advantage of all those opportunities in your portfolio as well. So, we talked a lot about the tax law changes that are coming up and some of the uncertainty pieces of it. One of the questions that came in from the audience, specifically, Julie, was around this idea of what are impacts or leverage for business owners. Any comments that you would want to make relative to the business owner pieces of it, investors that are looking for yield?

Julie Caperton:

Yeah, absolutely. So, both Darrell and Michael talked about the amount of liquidity that's waiting on the wings, and we are seeing business values increase. Again, some geographic disparity there, but less so in some of the other real assets that I was mentioning earlier. Across the board, we're seeing strong businesses, particularly on the small to middle market end of the spectrum, really rise in valuations, as you see more and more investors of all kinds coming in and wanting to invest more in alternative investment opportunities, and particularly in businesses that they can see a growth trajectory in. So, again, a really wise time and point in the cycle for business owners who were potentially thinking about diversifying or even retirement to consult with an advisor on whether or not this is the time to really look into bringing in external investors and/or divesting of the business.

Beth Renner:

Excellent, good points. So we're going to have one more question for the entire group. And so I think we may have touched on it a little bit, but I do want to dig a little bit deeper, and so this idea of the past decade. And so what are the risks of assuming the next decade could be similar to the last? And any takeaways that you'd leave with our audience today? And so Darrell, why don't we start with you?

Darrell Cronk:

Well, I think the next decade will be very different than the last for many reasons. I outlined earlier from a risk standpoint, Beth, you've got potential for higher interest rates, higher inflation, higher taxes, all of which are dynamics we didn't have in the past decade. And I also, to just hit on Michael and Julie's point again, when I lay my head down at night and I sleep with one eye open, I'm thinking about the liquidity in the system and liquidity can sometimes cause, if used inappropriately, asset bubbles. So we watch for that. We don't think we're anywhere close to any of those yet today, but in the coming decade with that wall of liquidity in the system, it could certainly create possible bubbles out there that we want to pay attention to. On the opportunity set, I would say three or four things here, things that we have our eyes on to be candid.

So what's a big investment theme in the next decade? Climate change, decarbonizing the economy is a huge theme that investment dollars are chasing and going after, infrastructure, closing the gap around rebuilding roads, bridges, airports, clean energy, green energy. All that stuff is important. The changing demographics, as the baby boomers age and the millennials come of age, then their prime spending years are going to affect the investment landscape and we've written quite a bit about that. And then the last one I would just spend a minute on is technology acceleration, which is not new, but let me give you an analogy. So I get drawn into a lot of conversations these days about what do we think of cryptocurrencies, or digital assets, or all those things that are evolving right in front of our eyes. And you can either love them or hate them.

I'm not going to sit here and opine on the validity of them. We think there can be value to them, but what I would implore you to understand is they change the dynamic like you've never seen. So think back to something as transformational as when the iPhone was created in January of 2007. Without the iPhone, there wouldn't be many industries in things like Uber, or movies and TV, gaming, healthcare, all those things. So as digital assets evolve over the next decade, they will literally spawn new businesses, new sectors, new industries that investors need to be aware of whether you invest in those digital assets or not, that are going to be great investment opportunities that we're excited about for the next decade.

Beth Renner:

Thanks for commenting on the cryptocurrencies, that was a question from the audience again, and so I appreciate you touching on that. So, Michael, thoughts on the question of kind of the next decade.

Michael Liersch:

When it comes to the next decade, I think there's a lot more information flow, which will, what I hope is move us all to a better place when it comes to taking that information in and making the right decisions, Beth. So, I'm going to take your question to a little bit of a different place, so rather than making it market or economically based, I want to make it personal. And so when we think about all that information we're receiving, I would encourage everyone to categorize things differently going forward from today. And the first thing I'd encourage them to do, and we've touched on this over and over again, is cash. Think about how much cash is really helping you productively live your life, and even if you need cash for psychological safety, that's human too, but really be deliberate about that. What is that cash for? The second piece is really to think about your lifestyle.

And there are tools, technologies, Beth, that didn't exist in the past decade that can help you actually analyze, and look at this information, and then look into the future. So you can think of that as planning tools, we have them ourselves. We have Envision, we have a capability called eMoney that can actually help you take your lifestyle and project it forward. What is it going to look like? What are a thousand different possible futures that could be on the horizon? And am I okay with this? So first, cash, then that lifestyle bucket, and project it forward with your advisor. The third piece I would really think about, and Julie, you touched on this, is how much capital are you looking to preserve? Is that gifts for your family? Is that for the community? Does it have philanthropic intent? Be very intentional about that too, because there are enormous tax implications as we're all alluding to.

And really keeping your eye on that, I love that Darrell, sleeping with one eye open. Sleeping with one eye open around that context is so critical. And then the fourth one, Beth, I would really encourage everyone to think about is this idea of capital growth. What do they want that growth trajectory for their money to look like and why? And so we always have to ask ourselves, "Why do we want to make money from our money? What is the ultimate intent?" And perhaps it's for one of those buckets, to have that psychological safety, or use that money for a short-term purpose for cash, maybe it's for our lifestyle, and maybe it's for preservation. And perhaps it is for growth's sake, and that's fine too, but let's really just be explicit, honest about it. We have tools and technologies, Beth, here at Wells Fargo. They can help clients think through that that we didn't have in the past decade. And so that's what I would say is going to really change about the future and that we can keep that up to date on a regular basis.

Beth Renner:

Excellent. Great points, Michael, and thank you for that. Lots of information that we're sharing with you today. So, Julie, bring us home on this idea. What's the next decade look like from your perspective and thoughts that you'd share with the group?

Julie Caperton:

Well, I have to say that I find myself, again wanting to bring together Darrell's comments and Michael's comments, which I guess is the benefit of going last after my esteemed colleagues, but to Darrell's point, if one thing that the last decade, and certainly the last year, has taught us is that while you can keep your eye on asset bubbles, you can't predict what is going to happen. And so we didn't predict the impact that the iPhone would have on the macro-economy and new entire industries that have bubbled up. Similarly, we certainly didn't predict the pandemic having the impact that it did on the economy. So tying that with what Michael was saying, which is focus on your own goals, you can't always focus on predicting the future, because we can't predict the future, and trying to just maintain your own perspective, and your own goals, and staying true to them and investing in accordance with that, as opposed to trying to time the next big thing is really the best advice that we can give or receive, because we're all human too.

Beth Renner:

Excellent comments. So I just want to thank our speakers today. We have covered so much information. And at the beginning of the call, I shared with you we want to make sure that we bring awareness to issues that we feel that are important that you should be aware of, why they're important to you, and then obviously how can you act on this information. And I feel confident that we gave you a lot of actionable ideas today, and we caused you to maybe think a little bit differently, whether it's about your portfolio or about how you're reacting to the uncertainty and the environment today.

So I want to close it out by not only thanking our speakers, but I want to thank all of you for being clients of ours and considering investing with Wells Fargo. And so I just appreciate your time today. I want you to look forward to our next webinar. That's going to be Thursday, June 17th. And then the title of that is going to be 2021, The Mid-Year Outlook: A Fuel for Growth. And so that conversation is going to be led by Darrell Cronk, and so you'll see his familiar face again. And so I would encourage you to reach out to your relationship managers if you have questions of things that maybe we covered or did not cover. We're here to help you navigate this journey. So thank you for your time today and have a good rest of your afternoon.

Operator:

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Insights and financial strategies in a post-pandemic landscape

Watch an informative webinar featuring Wells Fargo Wealth & Investment Management thought leaders who will share their timely perspectives, potential approaches, and possible tactics to help you chart your course coming out of the pandemic. Topics include:

  • Our market outlook as we move into a strengthening economic recovery
  • Behavioral patterns and biases that may hold investors back, and practical planning strategies for managing through uncertainty
  • Key trends to consider for leveraging full balance sheet opportunities

Featured Speakers

Beth Renner, Moderator
Head of Advice Center, Advice and Planning
Wealth & Investment Management
Wells Fargo & Company

Darrell Cronk
Chief Investment Officer
Wealth & Investment Management
Wells Fargo & Company

Julie Caperton
Head of Banking, Lending, & Trust
Wealth & Investment Management
Wells Fargo & Company

Michael Liersch
Head of Advice and Planning
Wealth & Investment Management
Wells Fargo & Company


This webinar is being provided for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any planning, trading or distribution strategies. Wells Fargo & Company and its affiliates do not provide legal or tax advice. Please consult your financial, tax and legal advisors before taking any action that may have tax or legal consequences and to determine how the general information presented at this event may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.