Biden's stimulus plan is designed to bring the American people back to work: Citi Private Bank CIO

Citi Private Bank Chief Investment Officer David Bailin joins Yahoo Finance Live to discuss how markets are faring as Joe Biden prepares to take over the U.S. presidential reins and break down how Biden is moving swiftly to reverse some of Donald Trump’s most controversial policies.

Video Transcript

MYLES UDLAND: Welcome back to Yahoo Finance live. Myles Udland here in New York on this Wednesday morning. Futures pointing to a higher open as we have inauguration day here in the US. Transfer of power coming up in just a couple of hours. Noon Eastern is when we expect Joe Biden to officially be sworn in as the next President of the United States.

But let's stay on the markets and talk a bit about how the plans outlined by the President-elect could change the economy in the year ahead. David Bailin joins us now. He's the Chief Investment Officer over at Citi Private Bank. David, great to speak with you this morning.

So let's begin where you begin in your latest note, which is on stimulus, how much you think might get through, how much of an impact it has on the economy. And I think it's an interesting framework you guys have of, even though we're probably not going to get all 2 trillion, 1.9 trillion through, it's created a safety net, as you call it, for the growth outlook here in the US.

DAVID BAILIN: Yeah. There are very meaningful differences to this package. So first of all, the package that was passed during the lame duck session of Congress was very meaningful and unexpected. This package goes one step further and addresses a couple of different areas.

One is in the area of municipalities, state governments, local governments, hospitals and the like, municipal transportation systems. And by supporting them, of course you support an enormous amount of employment in the United States. We estimate now there's between 10 and 10 and 1/2 million people who are looking for work who don't have work.

And a variety of people in industries like restaurants, lodging, and retail that are not looking for work at all. So these policies and practices are designed to bring them back to work by stimulating the economy, by helping people who are renting, people who've got issues in their own personal finances, and then small business. So this package is very significant in that regard.

But it's so large that it actually will not fully be drawn down if it's successful. And that's what we mean by safety net. And obviously as vaccines are delivered and as the COVID virus goes through its normal seasonality, which we have not yet seen-- it will be over the next 6 to 8 weeks that we will see a normal seasonal decline in the amount of the virus-- the combination of this economic stimulus and the virus being mitigated and vaccines being delivered will be a very potent stimulus for the economy and something that we are-- we think the markets are somewhat under anticipated, frankly.

MYLES UDLAND: David, listen. The markets have had a tremendous run since election day. Do you think it's been a relief rally? I talked to a lot of corporate executives, and you hear it in their tone. They're relieved that today's inauguration day. They are relieved that they can now, perhaps, get back to focusing more on driving earnings upside and not having to worry about commenting and talking about and planning for confusion in government.

Has that change in leadership-- has that been priced into the markets? And if not, how much more upside just from that alone, that component, how much more is left?

DAVID BAILIN: So I hate looking at indices because they really are very misleading, right? There's a portion of the economy that still shut down. Those stocks are between 20% and 35% less than they were prior to this event. The rally has largely taken in technology that, I mean, I think it's priced probably too high. And the center of the economy, which is what you're referring to, is really the area to focus on.

So what stable government can actually do in a clear set of policies and a clear set of administrators is allow businesses to make longer term investments and to do so with the confidence that they understand what policy is going to look like and what the engagement of the US with the rest of the world looks like. And that's actually what's taking place right now. That to me, is where the rally actually begins, not so much about Joe Biden in particular, but by the entire set of what's going to happen policy wise.

So that's one place of a source of confidence. And a second, I think, is an engagement with world trade and engagement with substantive issues, for example our relationship with China or, for example, our relationship with Europe, which actually is going to undergo some changes now as well. That is going to allow policy and investment to follow. These are the things where you can actually make investments and see, you know, profit changes.

And to your other point, if you're an executive at a company today, you're dealing with a post-COVID environment that is not going to be the same as the pre-COVID environment. Yes, the economy will be healthy because of stimulus. But you're going to have to decide where to make your technology bets and your market segmentation bets in a very, very considerably engaged way, an accelerated way.

And so I think we're going to see an incredible increase in competition and in the use of technology to drive profitability. And that's what we're looking at for a lot of the different companies and sectors that we're investing in right now.

- And David, I just want to mention, of course, we just heard the opening bell, Avantor, which is a manufacturer, ringing that bell. And we're now looking, of course, at the area in front of the Capitol which just, two weeks ago, was a swarm with rioters who then invaded the Capitol building. And what a different day it is now, what a different inauguration day, obviously it is, as well with the heightened security there in Washington and a much scaled down in-person inauguration day.

David, what you're describing is really a return to normalcy, right, for the economy, for politics, for the markets as well. And if the last is true, what does that process look like? That-- that implies that we have not yet seen that sort of adjustment, at times, perhaps difficult adjustment that needs to happen in the markets to come back to that area of normalcy.

DAVID BAILIN: I think you're exactly right. Let's use technology an example, right? It's assumed by the markets today that every technology is going to be great. Every software as a service, you know, every-- every company that delivers video, everything is very hyped up right now in technology. And even the prices of companies in the markets and in the private markets reflects this.

I think that this enthusiasm, right, will then turn into discernment and which companies can continue to grow, et cetera. For typical companies, just basic consumer companies, we're going to see a leave your home activity. People are going to go outside, venture outside literally, and go back to what you call normal. And that normal economy is going to reprice almost every single security in one way or another.

And so all of these things have yet to take place. And I think many investors are fascinated by how they can take advantage of the bullish of energy in the markets. We think that this rotation, right, is not from growth to value. But it's actually from stay at home to leave your home. It's actually from companies that under invested in technology to companies who are going to prospectively invest in technology, in robotics, and things like that.

And so this is going to cause, what I describe, an acceleration. And we think we can have 4, 4 and 1/2 percent growth in the United States for several years, which is above-trend growth. And that is not priced into the markets yet. But we don't want our investors or anyone listening to just say, we're going to buy the indices.

We think you have to buy portfolios that reflect all of these trends-- and you can-- and also reflect a reflation of global markets in Mexico, in Brazil, in Southeast Asia. These markets are going to do very, very well under a Biden administration that engages with the world in a holistic way. And they're very, very deeply discounted right now.

MYLES UDLAND: All right. David Bailin, Chief Investment Officer over at Citi Private Bank. David, thank you so much for spending some time with us this morning. I know we'll talk soon.

DAVID BAILIN: Wonderful inauguration day. Thank you for inviting me.