Stifel Financial Corp. (SF) Earnings Call Transcript & Summary

Well, greetings, everyone, and welcome to our 2022 outlook webinar. I'm Michael O'Keeffe, Stifel's Chief Investment Officer. Today, I'm joined by Brian Gardner, Stifel's Chief Washington Policy Strategist. Hello, Brian.

Good afternoon, Michael. Happy New Year.

Happy New Year to you, and happy New Year to everyone that's joining today. We're really excited to come to you and talk about our 2022 outlook. We entitled the report this year Balancing Acts. We kind of think of it as all kinds of balancing acts going on all around the country, all around the world, things like the Fed having to figure out where to set policy, given the levels of inflation and other things like that. We think of it as companies having to deal with inflation, where should they set pricing given that costs are moving around on them or, hey, we have the Omicron variant spreading like wildfire really, as it relates to people getting this, thankfully, slightly lighter version of COVID, but spreading very quickly. What does that mean for government? How are they going to balance -- and other authorities, balance sort of slowing down activity or closing some activity or whatever against, obviously, the economic and human cost of that. So balancing acts all around. And for those who have seen it, you know the report is really a series of articles. We're going to walk through some of these topics today. And towards the end of the session, maybe 25, 30 minutes into it, with our outlook for 2022. But I'll also mention the slides for today's session as well as a link to the report itself and another video are available on stifel.com on the individual's page. If you just hit the link inviting you to join the webinar, you'll see an updated invitation that includes links to these slides as well as the report and the associated video as well. So welcome. Let's jump in. We always start our sort of outlook by taking a look back. And so when we look back at 2021, there are a few things I'd mention high level, and then we'll dig into some of these numbers. The first is, we anticipated a lot of volatility in the market. And honestly, by historic measures, we really didn't see it, right? It was a relatively calm year and even though the year ended with a little bit of volatility, long story short, a very strong equity market in 2021. We were sort of evaluating all of us together wrestling with the pandemic, COVID-19, trying to understand what's happening with fiscal and monetary policy and then all of that as an influence on the market. You can see some of the key data here on the first slide, consumers were very active last year. A little bit because of stimulus check support, but a rise in spending above normal levels of spending, above normal levels of savings interestingly. 6 million jobs created in 2021, GDP estimated to come in at 5.6%. And then that looming thing that we've talked about, and there are a variety of measures we track, but core PCE being one of the inflation measures estimated to come in at 4.4%. So I would describe it as a strong year for the economy, a strong year for the markets. We sort of end the year though with some uncertainty, and we're going to get into it but we also end the year with elevated inflation, and that's going to become an important theme as we go along here. Now another article in the report is -- and we typically do a couple of special articles. This one was about how the pandemic has changed our world. And where do we see some of those changes kind of sticking as we look forward. And so here on Page 3, basically, we acknowledge things like an elevated use of e-commerce. I think we're all that much more comfortable sitting on our browsers, sitting on our phones, ordering things for delivery and having things show up very quickly. So the idea that we're just that much more comfortable using e-commerce and other types of services was just sort of magnified and accelerated by the pandemic. Another great example is telehealth, probably like many of you, all the medical appointments I had, wellness appointments I have over the last 1.5 years or so, a number of them were telehealth appointments, super convenient, right? You basically jump on to your doctor, talk about things. If you have to go in for something, great, but a real sort of boost in efficiency and safety and certainly as it relates to the pandemic. And we see that sticking around as well, maybe more selectively but still an important sort of advance and acceleration of a capability. Another thing that we're seeing are the early stages of extended reality. We're hearing the term metaverse and all that. And I think the spirit of that is when the pandemic came around, some industries take entertainment, for example, really had to pivot and try to figure out ways to deliver their services through to us in a more virtual way. Streaming became much more popular; theater, obviously, attendance was way down. And we're really in what I would describe as the early innings of a shift where we're going to see virtual reality and sort of a blended real and virtual reality kind of come into play, everything from it influencing shopping to entertainment and dare I say it, eventually business. So just be ready for that. And again, what's super interesting about it is the technology is there, right? And so the computing power and deep learning and all the things that are necessary, really kind of strengthen this idea of virtual reality becoming increasingly usable and real and more intuitive is right there and with us today. Now a different lens in this article that we look through is the idea that some industries have been disruptive. So take, for example, labor markets. Obviously, we had the massive layoffs as a result of the shutdowns from the pandemic. Fortunately, quite a number of those jobs have been recovered. But there are also some other subtle things that have changed. We had a lot of people who maybe were on the bubble as to whether they would work or maybe would stay home with kids or whatever, where especially with enhanced unemployment, et cetera, that got kind of used to not working. So think of that as sort of that those people on the edge of that decision choosing to stay home. Another cohort with basically people right on the verge of retiring who took the event as a motivation to go ahead and pull that trigger. That all results in just a slight shift in the labor market. And essentially, that's important when it comes to trying to evaluate where we are going from an economic perspective. In any event, again, we'll see our forecast is for a strong economy still in 2022, but that labor market is important. Another factor is supply chains. Obviously, as it relates to shutdowns and factories and ports being more controlled, et cetera. There's been this real friction as it relates to supply chain and things getting delivered. And so on one hand, we're trying to work our way through that. But on another hand, you're going to hear the term increasingly of localized supply chains. That means businesses, taking a look at where they get what they get to build their products and services and maybe trying to come more local and certain producers of those inputs, if you will, coming closer to their clients. And so a shift ultimately in how supply chains lay out with a little bit of a leaning more towards local availability. And then finally, semiconductors. Basically, when we talk about computing, we talk about e-commerce, telehealth, everybody's got a phone, everybody is on the computer, the Internet is just sort of coming. Cars that are smarter, et cetera, et cetera. Basically, at the heart of that are semiconductors. And part of the supply chain friction was the fact that it was harder to get semiconductors. And we need -- basically need more produce. That means, again, there are efforts going on, almost government-sponsored, let's say, here in the U.S. or over in China, where they're looking at ways to try to strengthen local semiconductor production, and that's a change. And essentially, we're going to see more locally sourced capabilities. So think of it as a set of themes, topics practices that were changed from the pandemic that are sticking and in many cases, improving the way we live our lives. Now another article that we get into is around geopolitics, geopolitical tension. So recall, a few years ago, we produced what we call our geopolitical dashboard. It's almost this mental exercise of trying to frame out a number of risks or events that either kind of are happening or may happen, a sign -- sort of a likelihood of it happening and then its influence on the market. So here on Page 4, things like D.C. Gridlock. We saw the Democrats ultimately sweep Congress and the presidency, but there's still a little bit of gridlock because within the party, there's sort of that progressive versus moderate tension. Brian will get into that in a second. But you also see things like post-Brexit tension. So even though the EU and the U.K. have separated, they're still working through what that means in terms of living together next to each other. And it's an ongoing sort of discussion debate and set of tensions that they're working through. And then another obvious one is where the pandemic goes from here. Obviously, we're in a bit of a wave as it relates to Omicron. And long story short is, I think people are watching that carefully, but also worried about other forms essentially coming out that might be more severe. And so those are the kinds of risks that we're tracking. In any event, a dimension to this across a few of these different ideas is the idea of the U.S. and our relationships with other countries or regions. So take, for example, China, take, for example, Russia. And long story short, it's an evolving thing, there's tension, sometimes there's cooperation. But notably, Brian, I think, was on one of the news shows this week to talk about that.

So Brian, let's use that as a way to kind of get you into the conversation here. I'd be interested in hearing from you when it comes to Biden administration kind of what they're thinking about in terms of foreign relations and what they're seeing in focus in the coming weeks and months.

Thanks, Michael. So it's interesting because every president comes into office with a domestic agenda. And somewhere along the way, foreign policy intervenes. We've already seen it really this year or in 2021 with the situation in Afghanistan, and it's reasserted -- that principle of foreign policy disrupting the President's agenda is kind of reasserting itself a little bit right now with the situation with Russia and Ukraine. So clearly, the Biden administration is still trying to push its Build Back Better agenda through and has domestic issues trying to get it through then the Russia situation comes along. It's been percolating for a while, didn't just pop up. Actually, in some ways, it presents an opportunity for the administration, any administration, because an administration that can successfully navigate a foreign policy situation tends to see its approval numbers go up. And that can translate into more political muscle to pursue a domestic agenda. It remains to be seen how that all plays out, but that certainly is playing into President Biden's domestic agenda.

Excellent. So before we move on from this slide, what about China? I put you on the spot a little bit, but in terms of the relationship, how -- obviously, President Trump had a more aggressive approach with them, and we still have some of those sort of notions that came from him in place. But what do you think in terms of Biden and how he is or should -- or may be handling China?

So it's -- let's back up a year ago when the new administration was coming in, there was a lot of questions about what would happen with the Trump era tariffs. And my take at the beginning was they're not going to go away, at least not immediately and any changes will be on the edges. And a year later, they're still in place. And there's no real momentum to change them. The business community is certainly looking for carve-outs and exemptions and taking them all together. But for domestic political reasons, the Biden administration is unlikely to do that. The tariffs, even though they come from Republican administration and are pretty popular in Democratic circles. So I think in the coming months, the administration may tweak some of the tariffs. But again, I think they get extended and kept in place in general measure for the foreseeable future.

Got it. Okay. I appreciate that, and we'll keep an eye on that together. I want to turn now to the article that you were kind enough to author in our report, really taking a step back and more broadly to Washington policy. So you talked a bit about this shift from fiscal to more regulatory focus. And maybe you can walk us through what you're thinking. I'm particularly interested in you sharing with our viewers what's up with Build Back Better.

So it seems like we've been talking about Build Back Better for quite some time, and we're probably going to talk about for a few more months. It's kind of a make or break point now. We're in the early month -- the first month of an election year, in a closely divided Congress. So it's kind of now or never. So we ended the year with Senator Manchin basically saying that he was not supporting the iteration of Build Back Better that was on the table that had been passed by the House. And so it begs the question, okay, what do you do next? And his criticism of the bill, the main criticism of the bill was that there was a mismatch between revenues and spending. There's 10 years of revenue increase in the bill that pay for only 2 to 4 years on the program side. So when those programs expire, they're popular, they'll be extended, but there's no new revenue coming in to back them off. That's the Manchin critique. He doesn't -- he didn't explicitly call out the actual revenue proposals. I think he would have gone in a different direction, but that's not his main critique. And so I think investors have to look at this. And you have 2 questions: one, is it going to pass or not; and two, if it passes, what does it look like. Well, I've been growing more skeptical on the will it pass. I had always thought that, to be honest, that Democrats would pass something in the end because it's in their political interest to do so. But those odds are clearly diminishing. But if something does pass, expect the tax side to look pretty much like it does now. There'll be some nibbling around the edges, but I don't think there are going to be wholesale changes. So don't completely dismiss Build Back Better. And if it passes, kind of pay attention to what's in there. Some things still have to be filled out, the SALT deduction is an issue that has bedeviled Democrats for months. They haven't figured it out yet, they want something in there, but it's not there -- they're not in agreement yet.

Got it. Yes. I mean for a number of our clients, both the tax topics and related the SALT topic is in keen focus. In any event, let's switch, one of the things we've talked a lot about more broadly. And we'll get into the Fed policy in a moment. But it is the idea that fiscal policy that we're sort of through the bulk of this historic support that the government has put forward to help with this recovery. What we mean by that is, hey, in 2022, as you pointed out in your article, don't expect a lot more on the fiscal side, especially as it relates to big spending. And instead, the administration will turn to the agencies that it leads really with shifts in regulations that they control to try to influence and implement some of its policy. So maybe you could take us through a few of those examples that you're seeing in 2022.

Sure. Before I get to the regulatory side, just on the spending side, just let me flesh that out just a little bit. So I mean when we talk about COVID relief, if there's another round, and I don't think there will be. But there's probably -- there's very little chance that there's another round of checks coming. So when we talk about the deceleration of fiscal stimulus, this is what we're talking about. There's no new round of checks. Even whatever Congress would pass in another round of COVID spending is going to be minuscule compared to what we've seen in the past. The numbers that I've seen are definitely under $100 billion. And they're really targeted towards restaurant, leisure, health and fitness, gym owners. So that's what it might look like if it goes forward. But no new checks, no new rounds for state and local governments. There's unspent money out there, don't get me wrong. It's not going to 0, but there's no new round coming through -- big round coming through. On the -- let's pivot over to the regulatory side because the legislative agenda is going to be a little quiet on the debate ongoing about voting rights and the filibuster and all that, but that's not really market moving. And after that, there will be some talk about antitrust legislation. And there is some bipartisan agreement on moving antitrust laws, new laws, that are geared mostly at tech and social media, but still a long way before they can get to the finish line and get something passed. That's probably for the summer right before Labor Day at best. That doesn't mean that the Biden administration doesn't have tools at its disposal. They already have the Department of Justice and the Federal Trade Commission. They have the bank regulatory agencies. They have a whole host of agencies that they are still working on implementing the regulatory agenda. So certainly, on tech and social media, most of that is probably going to be geared in two ways. One is just on general public policy in terms of child protection and child access. The other is antitrust, which affects a broad number of industries that the administration is looking at. In terms of new mergers being approved, the potential breakup, which I think is a low probability, but it's something that I always have my eye on. I mean we've broken up large monopolies before. AT&T is one of them. Could it happen again? I suspect there's -- there is a growing view within the administration. And it's time to use existing antitrust laws and at the same time, update them for the digital age. Cryptocurrency, I think, it's going to be a fascinating area. It always is, but growing on the regulatory side in a myriad of ways. Within the next couple of weeks, the Fed is going to come out with a report on digital currencies, central bank digital currencies. I don't -- Chairman Powell was testifying on the Hill this morning. I don't think it's going to produce a set of recommendations. It's going to be more asking questions in the public about what a central bank digital currency should look like. The SEC, the Securities and Exchange Commission and the CFTC are both looking at the regulation of the exchanges -- stable points as exchanges. And then you have the whole issue of Bitcoin ETFs. ETF futures have been -- Bitcoin ETF futures have been approved. There's nothing for the spot market yet, probably still a little bit away from that. But clearly an area that is growing in interest for the regulators. And I mentioned you have the bullet there that we put in about supply chains, and you mentioned that earlier. I think the talk in Washington is going to be just that; a talk about supply chains. I don't see a lot of action. I just don't see where the regulatory agreement is. And I think Congress' tools are pretty limited on what they can and cannot do on supply chain issues. I think most of the adjustments and supply chains are going to come from the private sector itself.

Yes, yes, yes. It makes sense. I mean I know that it's been in focus, but to your point, it's almost like they have bigger fish to fry and things to focus on in terms of their world. Let's shift to the election. So we got it together on a session like this before this last election. And now here -- it's like blink, and here we are in 2022 staring down midterm. So why don't you give us your take both on the Senate and the House as you see this unfolding?

I'll start with the House because it's a lot easier. The chances of the House flipping to Republicans is very high. They only need 5 seats to flip the House. Based on historical trends on how the party out of power has done in midterm elections, it's really easy to see those 5 seats flipping, President Biden's approval numbers are weak. They're in a territory that usually suggests a large swing to the opposition party. So it's easy to see Republicans win in the House. And clearly, the governor's races in Virginia and New Jersey, even though Democrats kept New Jersey, you can see a large swing using those 2 states as bellwethers for next year. I should also point out, we've just gone through the -- we're about to finish up the redrawing of congressional district. So there are still a couple of questions. And Democrats actually have done probably better in redistricting than a lot of people would have thought 3, 4, 5 months ago. But still, the tailwinds behind Republicans are going to be quite strong. So we're probably going to see a big Republican year in the House. That doesn't translate into big gains in the Senate. Why? Because the Senate terms are staggered. They're 6 years, only 1/3 of the Senate is up at any given time. So it's not a national election like the House is, where you have all 435 running, the Senate is only going to be 34 seats this year. And when you look at the map, where those states are, they're pretty good Biden territory. I'll just throw out one state as an example, Illinois. Illinois is up this year. You're not going to see Illinois flipped. Republicans have to have more seats to defend, too. It's just -- this is the class of 2016 where Republicans had a good year they are up for reelection this year. So Republicans are defending more seats, and that means they have fewer pickup opportunities. So when I look at who's running, where the open seats are, how it all plays out, it's way too early to tell on how the Senate is going to play out. I can narrow it down to Democrats actually picking up 2 seats to Republicans gaining 2 seats. I think it's within that 4 seat range. And I just get -- just to reiterate my point or enhance my point, I just go back what, 3 years ago from now into the 2018 midterm elections, a great year for Democrats, right? They retook the house, big gains. They lost seats in the Senate. So there is historical precedent that the House and the Senate don't always go in lockstep.

Yes, yes. It makes sense. I want to come back to your views for 2022 in just a couple of minutes. I want to move into a couple of the topical articles that we had in the report, just to sort of frame it out for our viewers, and then we'll get into the 2022 outlook. The first sort of topical piece was "how we invest" just to kind of remind everyone the work that we do on behalf of our financial advisers and ultimately, you, our clients, is a body work really around macroeconomic analysis what's going on with the environment, what's going on with markets, how it's influencing them. And yet we take both a long and a medium and short-term view. So a long-term view in the sense of developing what in the industry are called capital market assumptions. Think of it as very long-term forecast for the markets, both risk and return, and that will sort of be used in our financial planning, our asset allocation guidance, et cetera. And then we do a lot of work really bottom up. It's a combination of sometimes investing directly in security. So we -- profile, for example, our approach to stock analysis and stock selection in the article, but also managed products. So I think mutual funds, ETFs are separately managed accounts. So a great team that basically does a bunch of manager research to help us find what we believe to be the best at that, and that informs some of our recommendations and some of our discretionary management. I mentioned a little bit ago, we have, as we do all this work, we develop these major investment themes. So we've listed here at the bottom of Page 7, those that we have in focus right now, managing through economic recoveries, what we've been dealing with since the pandemic. I mentioned shifting demographics to the idea of a virtual world. That's part of what's called the Fourth Industrial Revolution. So just think of it as sort of framing out how we think about what's going on in the world, try to translate it to market and sometimes individual company and security behavior as we do the work that we do. Now another topical piece really relates to behavioral finance, an article around sort of the most common biases that investors face. So the spirit of it is to say, we're all sort of subject to things that may otherwise in the theoretical sense, be irrational. You take, for example, loss of version, a simple concept that people enjoy gains, but the symmetrical level of losses, they dislike a lot more than they like the gains. Or another would be herd mentality. Once you see somebody doing something, it's common to want to go ahead and do that right alongside and sometimes that results in sort of irrational demand for a particular investment or practice. In any event, we have a capability called the Financial ID. It is a questionnaire that you can take that will help you understand your own behavioral preferences and that is a step one can take to kind of avoid being subject to some of these biases. So a quick article on that. Now let's get into the outlook. I actually want to jump ahead and then I'm going to come back to Page 9. So on Page 10, let me just lay out what we're seeing for 2022. And we laid it out next to what has happened in 2021. So first, when it comes to the anchor of the economy, right, GDP, real GDP, resulting estimated to be up 5.6% in 2021. We see above-trend growth in 2022, but lower. So 3.5% to 4% is the forecast that we've put out for the year. And we also are of the view that while inflation may stay elevated for the first part of the year, we see it tempering some in the second half. So think of it as landing somewhere between 2% to 3%. Now that's above the Fed's 2% target. The Fed has said that they're going to act here to raise rates. And we think that ultimately, inflation will come down a little bit in standard control. Now the Fed has signaled 3 rate hikes in 2022. We think that that's probably about right. There's some speculation there could be 4. But I had a conversation with the colleagues earlier today. It's an interesting thing. Because long story short, if they hike too quickly, then that slows everything down, which sort of mitigates the need to hike. So again, right now, our forecast is for 3 Fed rate hikes, 0.25 point each through the year. In any event, turning to the markets. Now I'm going to spend just a minute on the S&P 500. So we tend to think in total return terms, right? The market was up 28.7% defined by the S&P 500 Index last year. We're basically forecasting a total return of 7% which is actually that long-term capital market assumption that I mentioned. We think it's going to be about typical a year in terms of performance, which is pretty good, right? In terms of the index level, that translates to closing just above 5,000 at the end of the year. But importantly, we see in 2022, increased volatility this year. I think -- imagine the possibility of sort of a peak to trough during the year down 5% or even 10%, which is what would be called a correction. And there really are a couple of reasons for that. One is the unknowns of the pandemic. We're facing Omicron. It's a big wave that we're all wrestling with. We know some self-selected, some mandated. There has been a decrease a little bit in activity. But it's also expected that this wave is going to be pretty quick, right? And we'll be through it pretty quick. But there's going to be uncertainty about that. That's going to lead to volatility in the first part of the year, and we've already experienced that candidly. But then as we head towards the midterm, when you look at history, it's well proven that especially midterm elections and the months leading into and through the midterms end up being more volatile than the typical year. And the reason really relates to sort of a recognition of the unknown of what might unfold based on who wins and how that affects policy and activity in Washington. So just as a historic pattern, we see volatility higher in midterm years, especially in the second half of the year. In any event, moving on to the other factors here, 10-year treasury rate is a benchmark interest rate. We saw that going up 0.25% to 0.5%. Interestingly, over the first few days, 10 days or so of 2022, we're at 1.75%, basically. We blew above that over the last few trading days. And so again, that's sort of a muted rise in rates. And in our view, it's related a little bit to the idea that even as we came to the end of the year, some expectation of that Fed increase was baked into the market rates. So again, a forecast of interest rates is a little bit higher, but not dramatically so. I mentioned volatility being up. One way to gauge that is to watch how often we publish the MarketPulse publication. We do that any day the S&P 500 is up or down 2% or more. And we did 8 of those in 2021, we think we'll probably add 50% to that, 12 of them in 2022. So we'll see how that unfolds. And then the final thing is we track what are called spreads, both the investment-grade bond market and high-yield market. And by sort of risk levels, spreads have been what are called tight, meaning low, which means that the market hasn't been too nervous and that incremental sort of pay that an investor gets or earning that you get to invest in something that isn't a treasury bond, something more risky than that has been on the lower end of history. We see those spreads widening out just a touch. Now to turn back then to Page 9. We evaluate -- I mentioned those capital market assumptions and develop long-term asset allocation guidance. Think of it as here's how we think a certain kind of client can invest, you kind of stick to it, rebalance to it. But we have a number of clients that say, I don't want just long-term thinking, I want medium- and short-term thinking. And we call that dynamic asset allocation. So given the environment, let me walk you through the leanings that we have to start the year. The first is when we look at the U.S. and non-U.S., we are underweight the U.S. and overweight non-U.S. with the idea that the non-U.S. market is going to catch up a little bit relative to the strong performance here in the U.S. in 2021. Again, that's related to kind of the strength of the reopening going more global as we get further through the pandemic. Within the U.S., we are overweight value stocks, again, as a play towards recovery. And then within the large versus small space, we're overweight small cap, underweight large, overweight small, but with a subtlety of saying we think that's best implemented as it relates to active management, meaning it's a fertile ground for a talented manager to find good value in the small-cap space. And then on the fixed income side, we used to be overweight inflation protection securities in anticipation of higher inflation. We've gone back to neutral on that exposure, and believing that inflation is going to come down a little bit. And then within fixed income more purely, we're underweight investment-grade incrementally, overweight high yield, again, for those investors that choose to implement that with active management, same idea. In this kind of environment, a pretty fertile environment for high-yield experts to go and find value in terms of managing money. Now one of the things that I always talk about in our outlook is the idea that we know there's a reasonable chance we're going to be wrong. I always get a kick out of people making one point estimate. Because as a statistician, you kind of know chances are not going to be quite right. And the way we frame that out is in 2 alternative scenarios, a bear scenario and a bull scenario. And this year, we kind of frame that really across 3 topics that we think are going to influence the outcome. So listed here, first, the coronavirus pandemic, kind of an obvious one, right? The idea that we're learning how to live with the virus. Honestly, I think we'll get through this fast-paced Omicron spread pretty quickly. But -- and if that happens even more quickly than we think, that could be a bullish kind of event. On the bear side, it could be -- well, maybe another variant comes along that's more troublesome. And it's a lot about how we react to it, how governments and authorities react to it. I got the question in the system here as we are talking, but what about innovation, let's say, with boosters. So the idea, for example, that Pfizer will have an Omicron-targeted booster, we do think the market responds to that, meaning every time we have an innovation, whether it's a vaccine or therapeutic becomes more readily available. It has the effect, obviously, on one hand, of improving things from a health perspective, but there's also a psyche effect, right? People just incrementally becoming more confident in what ultimately will be the future of being back well towards normal. And it will be rough getting there, but every innovation in our view, has an impact. And so it's within that scenario analysis that we'll be evaluating things like innovation with vaccines and therapeutics. Anyway, the second sort of anchor for our view in terms of scenarios is inflation. Now -- and it does relate to policy, which I'll get to in a second. But the bottom line is there's been sort of 2 camps. Inflation jumped up a lot, attributed to frictions of supply chain, maybe a lot more money in people's hands and a bit up of demand. And the bottom line is, the Fed is going to have to be very careful on how it manages things. And our base case is that we'll see heightened inflation for a little bit longer than it will calm down. The bear case unfolds if it doesn't come down, especially even given Fed action, the bull case in turn, is it calms down more quickly than we think, right? So inflation is in focus. It's influencing people's behavior and emotion and that's a key anchor. The third then is policy. And what we always want to be careful about is policy misstep on the fiscal and monetary side. So imagine that Congress getting coordinated and they actually pushed through a massive spending bill, long story short, that's probably an inflationary effect and that could have an influence or more -- another way we look at it is both sides, monetary and fiscal are pulling back, the support is kind of being pulled back, we're all needing to learn to stand on our own as businesses and individuals, et cetera. And the bottom line is, are we really ready for that? And so that's another lens that we're looking through. But you can also see just to end on a positive here, a bull case where everybody gets it just right. And a scenario unfolds where it wasn't too much, and we work our way through the support that's been provided and the markets and the economy just kind of keep humming. So Brian, I want to turn back to you for one final question, and then we'll finish it up here. The -- obviously, the end of the calendar year, it's always the time to take a fresh look forward. You mentioned the midterms and the likelihood for example, that the House will go Democratic. Obviously, one of the influences of that is kind of the administration wrestling with trying to get Build Back Better done and some friction within the party. And so the question to you is when we look forward into 2022, will there be -- I assume the answer is yes. There will be a focused effort by the administration to try to put some stakes in the ground and anchors to showing some progress. And is there a chance that the administration will materially improve its approval rating, for example, before the midterms and will that -- if they do have an influence on the election.

I think it goes to trying to energize the base. In terms of trying to improve their prospects for at least holding down losses or winning as many seats as possible, we want to -- they probably want to energize the base. And so that does lead them to the strategy of trying to get Build Back Better passed. They may have to break it up into smaller bills in order to do that. It may not pass. It's not going to pass in its current form, but certainly some effort to get through. At this point, I think the odds are kind of against them, but certainly there is an eye on energizing the progressive Democratic base that is increasingly unhappy with what it sees as inaction by the Biden administration. I think their view is, it's kind of misplaced, shortsighted but the -- that part of the party, which is going to be critical to drive them to the polls and help democrats. Certainly, there's going to be some kind of effort to convince them to stay on board, and that kind of leads to a one more effort at least on Build Back Better.

Got it. All right. Well, Brian, let me say thank you very much for joining us today. Really appreciate it.

Thank you, Michael. I appreciate the invitation. It's good to be with all of you.

Yes. And to our viewers, thanks so much for joining, know that the team is hard at work on your behalf. And again, if you check out stifel.com, the individual's page and go to the webinar link, there are links to our report, our video, this deck and soon enough a replay of this webinar. Thanks so much for joining.