Coronavirus outbreak impact on 2020 election

Michael Crook, UBS' Head of Americas Investment Strategy, joins Yahoo Finance Live to discuss how COVID-19 is affecting the 2020 presidential election and what this means for investors.

Video Transcript

MYLES UDLAND: We're joined now by Michael Crook. He is the head of America's investment strategy at UBS Global Wealth Management. So Michael, I guess, as all conversations for us kind of have started over the last few weeks, I guess I just begin with how you guys are thinking about this current environment, what you're telling clients, and how quickly things have changed from where I think the baseline of many of these conversations would have been just six or seven weeks ago.

MICHAEL CROOK: Yeah, so that's-- I mean, obviously, things have changed very quickly. I think one of the main things that we're focusing on is the uncertainty that we face in this environment, both from coronavirus, but also from the economic standpoint. We know a few things, like this is probably going to be the worst economic contraction that we've had since the Great Depression.

But where do we go from there, and what do we do? That's the real key. We have a framework we use at UBS that we call liquidity, longevity, and legacy. What we really hope this does is that it lets investors make good decisions during this period. We don't want people to abandon their financial plans, to sell out of their investment assets. There's a playbook and we want to follow it.

JEN ROGERS: So you guys are out with a really interesting note, looking at the election and actually kind of going line by line on Biden and then Trump on financial regulation and health care coverage, what's going to happen with taxes and drug pricing. It's really good. It's very detailed.

One thing I think, though, is like, how do we even know right now what, let's just say President Trump, what his actual opinion is or stance on something is when this pandemic seems to be changing everything? I mean, look at what the GOP has voted for in terms of bailouts for companies or in terms of getting cash for people.

Do you think that we might have to throw all this out? I mean, this is great work you've done, but that the Republicans and Democrat lines are really going to change during this crisis?

MICHAEL CROOK: I think we do need to throw at least some of that out in terms of what's going to impact the election. I mean, they still have their views from a policy standpoint. But what we're working with right now is essentially an election that is a crisis election. And to some extent, President Trump and the administration are going to be judged on how they handle that.

It's not obvious yet exactly what the popular opinion will be. It's not even clear to me how the GOP feels about the administration's handling of this so far. But I think that certainly will dominate most of the conversation around the election, although I will say that by the time we get to November, most of us are hopeful that the economy will be opening back up a bit. And we will have a little more normalization than we have right now.

RICK NEWMAN: Michael, it's Rick Newman. Just to follow on that, I mean, normally-- you know this. Normally, the president just does not get re-elected on the heels of a recession and what seems to be most important is where is the economy in the second quarter. And we're going to be in a terrible spot economically in the second quarter. So that measure alone suggests President Trump is doomed. But obviously, other things are going on. So what do you think about that?

MICHAEL CROOK: I wonder if the comparison is more of a natural disaster than a recession. This is an external event that's creating a recession. There are a lot of conversations you have about how well it's been handled in the US. But presidents get a lot of media time and a lot of attention during these types of events. And so that, I think in some ways, is something that we have to overlay the issue around a recession.

Plus, if we're coming out of a recession near the election and starting to see some economic growth, that's a bit of a tailwind. And this certainly could be a shorter period of contraction than what we've seen historically.

ANDY SERWER: Hey, Michael, what do you tell a client that calls you up and says, or asks, should I be buying now, Michael? Do I buy now, or do I wait until the market goes down 15% over the next couple of weeks? Because I know that's going to happen. And I buy that. You've got to tell me the exact day, that kind of stuff.

MICHAEL CROOK: Well, you certainly can't trade your way around a market where the VIX is at 60. That's ridiculous to even try to do that. I said earlier, there's a playbook for this. We know how successful investors handle these types of events. Look at Yale University, David Swensen. Have a liquidity strategy. Know where your spending is going to come from and your dry powder is at so that you can take advantage of it.

Act like Warren Buffett, right? Go find securities that have been unfairly penalized by the sell-off. Purchase those. And then I'd also throw out Nassim Taleb, who's famous during these periods and people generally know him otherwise, but he's famous for his work around black swans. Diversify as well as you can and know what your downside risk is.

Those are all actions that investors can take. They don't need a forecast to do it. And by the time the equity markets recover, people will be better off than they were last time we were at the same levels.

MYLES UDLAND: And then, Michael, very quickly along those same lines, I mean, it seemed like it was forever that people were still pretending or still positioning defensively against the financial crisis. And it was like-- I don't know-- maybe sometime in 2017 that it felt like people were lax and said, you know what? You guys are right. This is a bull market. So now we're kind of back to square one. Is there going to be a huge psychological re-shifting or rejiggering kind of when all this is done?

MICHAEL CROOK: It's a good question. I mean, we certainly-- 30% last year in the market I think helped everyone realize that we were in a bull market for 10 years. I think this is psychologically going to impact people financially. It's the quickest sell-off we've ever had, obviously, down to 35%. So it's a real event over the last 40 years. This is the third worst sell-off that we've had.

But I think there's going to be more psychological scarring than just the financial aspect of this. I mean, this is going to change the way we think about daily life in a lot of ways. So it's going to reshape the economy, and there are a lot of longer term trends that impact us personally, but also impact us from an investment standpoint that will go along with that, some of what you guys have been talking about on the show, in terms of digital working, but also workplace location.

Myles, you mentioned you can't-- you mentioned going back into the office. You can't believe that you went into the office before. I agree with that, and I think that we'll start to see that, at least on the margin, a shift economically away from large office buildings and where we've been before this crisis.

MYLES UDLAND: I'm going to have to diversify my Lululemon jogger portfolio I think on the other side of this and get rid of all the jeans I was wearing. All right, Michael Cook is with UBS Wealth Management. Thanks so much for joining us. We'll talk to you soon.

MICHAEL CROOK: OK, thank you.