Complete Intelligence


Top UK adviser refuses to quit for lockdown breaches

Our CEO and founder Tony Nash joins the Business Matters for an hour of discussion on Dominic Cumming, recent headlines in the USA, people in restaurants, government stimulus, opportunities in the pandemic, how careers and schools have changed, and what sorts of things are they buying online?


A related QuickHit episode, which you can watch here: We’re not going to normalize.


BBC’s description:

We talk to the BBC’s Politics Correspondent, Rob Watson about what Dominic Cummings’ future may hold. With our special guests Sushma Ramachandran, of the Tribune in Delhi, and Tony Nash, of Complete Intelligence in Houston, Texas, we talk about how India and parts of the United States are easing their lockdowns. We also look at how many people are looking to change careers, whether forced to or not.


Listen to the Business Matters podcast on BBC.


Show Notes


BBC: What do you feel about Dominic Cummings, especially in Texas or the USA?


TN: I don’t think anybody is surprised by this, that politicians have one rule for themselves and another one for everyone else.  Britain is not exceptional. What it shows is that we actually have a vibrant media that will report on this. That is the positive thing coming out of this. Every country has a politician that breaks the rules, but not every media in every country is brave enough to report it.


BBC: What are the headlines in the USA? What’s grabbing people’s attention?


TN: It’s an ongoing news cycle of trying to shame the states that open up. It’s really tiring, quite frankly.


BBC: When you say “shaming,” who do you refer to? I thought they all went up?


TN: They are planning to. But the early states when there’s an outbreak, there’s a very huffy approach to pointing to places like Texas, where I live, and saying that we’ve done it wrong, and saying that places with extended quarantine have done it right. Although, the incident rates in places like Texas are lower than in other places like New York or California. What’s really hitting in the media here is really trying to shame states, which are pretty much the southern states that are opening up first. There’s a stereotype that southerners are just stupid. And so it plays into this coastal narrative that southerners don’t know what they’re doing. Although the incidence in these states is lower than the coastal states.


BBC: What about the businesses that are opening up again? The restaurants, and staffing? Are there people around?


TN: It was a long holiday here, and I just took a short trip. The hotel I went to in, the restaurants I went to, said that they are understaffed. And although you see a number of 25-30 million people unemployed in the U.S., what these business owners have been telling me is that they cannot get the staff to come back because there’s a temporary unemployment kicker. So the longer people stay out of work, the more they get. They get an additional kicker from the U.S. And these are temporary. These will go away over time. In most cases, these are voluntary unemployment because they are making more money on unemployment than they would be going back in there job before.


BBC: Sounds like that it’s a problem that will be sorted out?


TN: It will over time. But there will be a lag. I think when people are accustomed to making more not working, they will question themselves as to whether or not they want to go back to their job, which is not a bad thing questioning their vocation. These are all good questions to ask.


BBC: Do you think the government will try to help green industries and take a leap role in new economies. Like new ones, as a result of this pandemic?


TN: I think we have. We have subsidies for green industries since, I think, 1997. It’s possible that there new ones as a result of this pandemic. I have a very different view around the revitalization of economies. The fact is governments stopped economies around the world. This is not a market failure. So I don’t care if you are a capitalist or a socialist system. Governments closed businesses. So if governments closed businesses, businesses have the responsibility and the accountability to restart those businesses. Because if they don’t, we’ll see civil unrest and political risks in ways that all these governments have not considered before they closed their economies down. I don’t think that this is a capitalist-socialist issue. It’s a fact that the government intervened to halt the economies around the world.


BBC: In what direction will they regenerate the economies or bring economies back to their level before?


TN: People are not really happy with the level of stimulus that they are receiving, because, at the end of the day, people are pointing at the government for stopping this. And if you isolate people for too long, they get really restless. We are facing real political issues and social unrest issues, unless governments, regardless of the economic structure in the economy, we will face real problems.


BBC: For entrepreneurs, is this a good time to start a business?


TN: I think it’s a good time for people to change direction, because any future potential employers, if you say, “I changed direction in the wake of COVID,” no ones going to question your motivation. They are going to understand that this was the time that everyone reassessed. For businesses that I’ve built, I built a business unit for The Economist. And one of them saw our most rapid growth during the last recession in 2009, very rapid growth. I think there are a lot of opportunities if you play it right. But it’s also a good time to start over.


BBC: Where would you put your money on? If you want to change career?


TN: I would put it on me. I run a business. I think we’ll see a lot of food startups. I hear a lot of people talk about food startups. Within 18 months, a lot of those will be out. But they will learn new skills. People are also going very local, which is a good thing.


I think people have been able to slow down. They realize that they wanted to focus on small things. I’m not sure how long this will last but this is good for a lot of people.


BBC: What will be the role of universities now? Will people think it’s a waste of time? Will the role of schools change?


TN: I think the role of universities has traditionally been to teach you how to think, not necessarily how to do. If universities are then focused on how-to-think activities, that’s a much better role for them. I don’t think vocational training is the best use of money for universities. They are moving toward helping people how to think, not how to do.


I run a company. I don’t need somebody with PhD. I just need somebody with very basic skills that they can learn through online courses and some practical evidence of what they do. In a lot of these things that are very vocationally-based, you don’t need a degree. You just need to know how to do it.


BBC: What have you been buying on a lockdown? We’re not going to shop as much as we used to?


TN: For some reason, we purchased two new skateboards. Like everyone else, we are no different on gardening. All of these have been fantastic to go very local and spend time with neighbors.


Will we go back to the stores? I don’t think we’ll do as much shopping, but I think we need the social interaction of shopping. There’s just something about the social interaction of shopping, which is necessary to our human condition. I go to Walmart here, and there’s just an element that’s necessary.

QuickHit Visual (Videos)

QuickHit: Manufacturers are bouncing back, but…

In this QuickHit episode, we are talking with Chad Moutray of the National Association of Manufacturers (NAM). Chad is the Chief Economist for NAM, and he talks with manufacturers across the U.S. every day, to understand their issues and informs them of the the overall economic landscape. NAM has about 14,000 members that includes state manufacturing associations. Tony Nash discussed with Moutray the state of manufacturing especially in this time of the pandemic. What are they doing, thinking, and what are their plans? 


You can revisit our previous QuickHit episodes here:


We’re not going to normalize
How do we use up all the corn now?
How ready is the military to face COVID-19 and its challenges?


The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

Show Notes


TN: Can you walk us through some of the manufacturing firms that you’ve been interacting with and how do they’ve come to understand the environment? What have they been thinking about? What have their priorities been? Because I think it’s been confusing for everybody. But from a manufacturing perspective, what have you been seeing?


CM: I’ll go through a couple of things here. Number one, just that dearth of data that we had early on, everyone was asking me, “What is the current capacity utilization for manufacturing right now in the State of Pennsylvania?” I don’t know. How would I know, right?


There was a lack of information early on, and the abruptness and the severity of this downturn just caught a lot of people [off guard]. The numbers are so heartbreaking and jaw-dropping. We’re starting to get a sense now of what those numbers really are, and the drastic-ness of these figures in terms of being the worst ever, or the worst since the Great Recession. But there was a lack of information early on that really just caught people by surprise.


Companies don’t know what to do. This is not just a business conversation. It’s also a life and death conversation. Do you keep operating? Do you not keep operating? Are you operating in a state where you’re forced to close? Are you deemed essential? A lot of those things early on really dominated manufacturers’ time in terms of whether to operate, what happens if someone gets sick in your facility? What do you do? Do you close everything down? There was a scramble early on just to figure out operationally “What am I doing?”.


It moved from there to the conversation about PPE, Personal Protective Equipment, masks or ventilators or whatever else.


One thing that really has dominated that manufacturing conversation over the last month has been the National Association of Manufacturers work with the administration [to understand] whether it’s FEMA or DOD or the Vice President’s Office to say, “Okay. What do we need in order for everything to come back to normal? How many masks do we need? How many ventilators do we need?” And then helping to identify manufacturers that can produce that. That really has dominated a lot of time for the NAM over the last month or so–getting a handle on what are those needs.


That has gravitated into the new normal. Everyone is [asking] what does manufacturing look like three months from now, six months from now, a year from now? How do you get back to a sense of normal, whether there’s a vaccine or not a vaccine?


Answering those questions will dominate much of my time from a research perspective. We asked on a survey “Are you re-engineering in your process to have social distancing in mind,” or “Are you going to let people work from home?” That’s not always possible on the shop floor. But in some cases it may be, right? So those types of questions are first and foremost.


We’re talking to a series of tire manufacturers. They have a huge retail operation and retail is just going to change dramatically. They not only look at the manufacturing side, but how retail is going to change, and then how they can react. It shows you just how dynamic this particular moment in time is in terms of dramatically changing the sector.


TN: I know you’re still in the process of doing your research but what’s your feeling now? Do you get the sense that people want to get back to kind of a normal-ish environment quickly? I know “there” is relative. But do you think there’s a desire to get back and get relatively normal business activity back say in Q2 or Q3? Do you get the sense that it’s going to be longer? What’s the drag? How long will this drag effect impact companies and impact manufacturers?


CM: I do think that we’ve passed the worst of it. I do think that in that late March, early April, that’s when things just really hit bottom. You’ve started to see a sense, especially from some of the more recent data, that things, while they’re still bad, are not as bad as they were several weeks ago. I do get a sense that you’re starting to see that bounce back in the marketplace, which is good.


In general, there is what we’ll call “quarantine fatigue” not just for consumers but for businesses as well. There is a sense that activity is going to start resuming.


The difference here is that yes people are going to come back to it but there’s still going to be some hesitance there. We don’t have a vaccine. So coming back to work is not the same as it was before. That’s true at the NAM, that’s true in every workplace in the country. People’s willingness to go out to restaurants and bars and go to Disney World has all changed a little bit.


I do think that we are bouncing back already. But in this new environment, there is still a little bit of hesitance about getting out in crowds and the workplace change. Yes, I can go back to the office maybe, but am I going to? Am I going to continue working from home? How much separation is there for me between me and my co-worker on the shop floor? We’ve already started to see that rebound. But it’s in a different place than it was two months ago.


TN: A lot of questions. Let me shift gears a little bit and ask you about trade. With COVID-19 and initially when this was hitting China hard, we saw a lot of supply chains stall out and slow down. We’ve been talking about the regionalization of supply chains for a few years at Complete Intelligence. Is that something that you’re seeing, and I know you’re not necessarily advocating a position. So I don’t expect you to be doing that. But are you seeing that happen or is that concept not seeing a lot of traction on yet?


CM: We were starting to see people re-evaluating their supply chains as a result of the Trade War. Last year, we were seeing a lot of that. It doesn’t mean all of it’s coming back to the U.S., but it certainly means production might be moving out of China and other places. This exacerbates that even more. There’s been this realization that we can’t depend on one country and one source to get all of our stuff anymore given the extremeness of this disaster economically.


People are going to be re-evaluating the supply chain. From the NAM point of view, we want as much of that to come back to the U.S. as possible so we’ll be advocating policies on on-shoring. Look for that coming from us. But the reality is, companies are going to locate where they locate. There’s a lot of reasons why companies locate wherever they do, and it’s where the customers are, that’s where their other suppliers are, that’s where the intelligence is. And some of it’s going to go to Mexico, or to the rest of Southeast Asia. There is definitely this understanding that we’ve got to re-evaluate that supply chain process in terms of who we’re buying from, making sure there’s duplication, and I think that’s a conversation that every firm is having right now.


TN: Very good. Chad, thank you so much for your time. I’d love to have you back in a few months to revisit some of these questions. As the unknowns dissipate, it’ll be very interesting to to look back and see what people did right, what mistakes people can avoid next time this happens.

QuickHit Visual (Videos)

QuickHit: We’re not going to normalize

In this episode, our expert guest Grant Wilson of Exante Data said that “we’re not going to normalize” and that countries need to make the very difficult decision to risk re-infection or re-outbreak in order to reopen the economy.


Grant Wilson is the Head of Asia Pacific for Exante Data, a macro advisory and data analytics company based in New York, with a broad global client roster. Exante Data was one of the first to identify and analyze the impact of Coronavirus with detailed data.


You can also check out our previous QuickHit episodes: How do we use up all the corn now? and How ready is the military to face COVID-19 and its challenges?


Show Notes


GW: So we saw COVID very early – mid to late January. In fact, I positioned it as a key risk factor for our clients. And as the situation evolved we just stayed with it.


We moved the firm increasingly towards all data through this period because we’re trying to assess how the virus is affecting the economy: [what are the] different scenarios to restart in different countries, different sectors, which is really the most germane question at the moment.


TN: Where do you think we are? I think the initial shock is past. Do you think we’re on a path to normalization or are we still in a hesitation phase before we get on to that normalization path or something different?


GW: I think it’s something different. I don’t think we’re going to normalize. I do think there are going to be industries, which have fundamentally changed coming out of this. People want to put a time frame on it, and I think you just got a run with it.


But to give you some examples, I’m extremely pessimistic about commercial real estate globally. The way people work has changed fundamentally, and it’s not going to change back. Whether the virus comes off a little bit more or whether we do get a second wave. The fundamental changes that are happening in terms of office environment, the digitization of communication. Those things are not going to turn around. So if you’re a large landlord or a sponsor of CMBX, derivative structure, you’ve got some real problems, and it does not matter where the virus is.


Similarly like public infrastructure. People are clearly using less trains, less buses, obviously less planes. Interesting that there could be a shift back to private car usage. We are trying to think through the secular things coming out of this.


And then for the virus itself, one of the most peculiar things is that there’s only probably a couple of countries globally that can truly achieve elimination, like to totally get rid of the virus within a proximate, self-contained environment. New Zealand’s a very good example of that. In Australia, the case counts are extremely low. So the rest of the world will not eliminate this thing. They’re gonna have to pick and make these really, really difficult decisions about how much of a virus risk and re-outbreak that they want to tolerate as against the imperatives of restarting the economy.


TN: A lot of the talk was about flattening the curve, which was about reducing the kind of overwhelming capacity going into hospitals so they could actually treat people. That flattening the curve discussion has changed to something different. And it seems to almost be approaching a zero-tolerance discussion where we have these lockdowns and people can’t go into work and make a living.


In the States, we recently saw Elon Musk threatened to move his company out of California to Texas potentially so that he could get his company to work. And the State of California or the county relented and let them come into work. Are we in a period where there’s selective lockdowns? Does flattening the curve mean anything anymore? What are you seeing in terms of the economy, industries?


GW: The thing is that a lot of companies, retail, hospitality, mass events, you know football games, basketball, things like that, they don’t really work in this model where you have social distancing. And so, you either really just have to go for full eradication. But it’s not possible in many of these places. You’re going to have to tolerate some reinfection risk and get on with it.


I’m very far away from the U.S., but we’re tracking it very closely state-by-state that there is sort of a polarization developing where Republican states are more inclined to try to restart the economy and sort of run this risk. Democratic states are still more tolerant of lockdown. And it seems increasingly politicized, and that’s not a great surprise given you’ve got a big event at the end of the year.


I’ve contrasted to Europe. When you listen to Angela Merkel, not Britain because Britain was very late and very confused in terms of their strategy. She’s a scientist by training and she explained very, very clearly that the first part of the strategy was to make sure that they didn’t blow through their ICU constraint. And now that they’ve achieved that, indeed they have flattened a curve. They’re not gunning for elimination. They know they can’t get there. And so they’re just trying to manage what’s known as the r0 so it doesn’t pop back up above one and you have a real explosive re-acceleration. But they’re having to live with it.


What still hasn’t necessarily gotten through to people, is that business models that worked previously don’t work anymore. It’s very hard to see how a lot of small and medium-term enterprises are going to make it out of this. And I think that’s the Chapter 3 or Chapter 4 version of it. But that’s the concern. There’ll be some winners and there’ll be some adaptation of the economy. But the legacy and the tail on this is just immense. It’s immense.


TN: So tell me this. Is there anything good that’s going to come out of this?


GW: There’s probably going to be a very significant re-think about climate change. This is going to be one of the first years where carbon emissions globally are going to fall. Effectively, it’s because we shut things down. It was the way that people actually wanted to get there. That’s probably one interesting data point. If you look at that area very closely, we’ve never been able to run a real-time experiment like this. So it will be very interesting to see how the effects sort of percolate through.


Message to Fed: More sugar please!

Tony joins BFM for another discussion on the US markets, this time, sending a message to Fed on what needs to be done. What he thinks will Powell do next and why is the Fed buying a lot of ETFs. Plus, a side topic on oil as Saudi called for a larger production cut.


Produced by: Michael Gong


Presented by: Roshan Kanesan, Noelle Lim, Khoo Hsu Chuang


This podcast is originally published by BFM 89.9: The Business Station.



Podcast Notes


BFM: The Fed chair, Jerome Powell, painted a rather negative view of the economy unless fiscal and monetary policymakers rise to the challenge. But what’s left in the toolbox, though?


TN: There’s quite a lot left, actually. We’ve seen a few trillion dollars spent. What we need to make sure is that that money actually gets out to businesses. So offering lower rates, nobody is really in a mood to borrow unless it’s forgivable. With the mandatory closing of a lot of small and mid-sized businesses, it’s really putting their revenue models in peril. Actually helping those businesses with cash to substitute for revenue, since this was a government shutdown, is really all they can do. But I think the next path is looking to medium-term spending programs like infrastructure. A number of these things that can go from direct cash payments to earned cash so that we can have a more viable economy again.


BFM: Could you elaborate more on some of the fiscal measures that you’re talking about?


TN: For small and mid-sized businesses, we’ve had things like the PPP, the Paycheck Protection Program. What that does is it gives about two and a half months’ worth of expenses to companies so that they can retain their staff and pay for their rent during the downtime. But what’s happened is not a lot of companies have been approved. Of those who’ve been approved, not all have gotten their money, a number of them are still waiting.


For small companies, they run on cash flow. They don’t have three to six months of cash sitting in the bank normally. So while they wait, they’re going bankrupt. They’re having to fire people. At the same time, we’re starting to see more and more large companies announce layoffs over the past two weeks. And so we’ve seen the devastation of a lot of small and mid-sized companies in the US. We’re starting to see that bleed into large corporate layoffs.


Those large companies want to see the expenses associated with those layoffs put into Q2. As we go through Q2, we’re expected to see more and more corporate layoffs, so that all those companies can pack them into their earnings reports for Q2.


BFM: The correction of the last couple of days, the American share market has been a bit of a test, up 30% since the March lows. A lot of billionaire investors like Stan Druckenmiller and Appaloosa management’s David Tepper say that stocks have been the most overvalued for a number of decades. What does that do for your thinking by way of your portfolio? Are you taking some money off the table? Are you getting more cautious? What are you going to do?


TN: The only thing we can really guarantee right now is volatility. And what is happening is they’re trying to find a new pricing level. Until we’ve found that new pricing level, really anything can happen.


What we’re entering right now is a phase where people are realizing that states may stay closed longer than many expected. I actually think you’re going to get a lot of push back from citizens in the U.S. Los Angeles just announced they are going to stay closed for three more months. You’re going to see a lot of unrest there. People are really pushing back because their hopes and dreams of decades of these small and mid-sized businesses are just being devastated as local officials make these decisions. I feel in the next few weeks, we’re going to see more and more people pushing back on those orders because they need to get back to work. They’ve got to run their companies. They’ve got to make some money.


BFM: That’s right. But this is an ongoing chasm between what’s happening on Wall Street, which is essentially a rally and Main Street, which is dying. People are divided over whether the policy response will be to get into the Fed buying equity market instruments on top of the junk ETFs and all the backstopping of the bond market. What’s your stance and what Jerome Powell is going to do next?


TN: They can do that. It’s certainly within their remit to lend money. The ETFs are kind of an indirect way to lend money. It’s radical, but it’s not beyond their capability. Where it looks like the Fed is going is with yield curve control. That means they’re likely to target a rate for the 10-year Treasury, and then they will spend almost unlimited cash to make sure that the rates stay there.


If the Treasury yield curve rises too much and people stop taking out long-term loans for infrastructure projects or for other things, if that rises too much, the Fed will push that yield curve down, let’s say, to a half percent rate so that people can borrow over long terms for cheaper. That’s the way for the Fed to encourage investing. That’s not a direct government fiscal policy, but it’s a way to get the private sector to spend cash. This is really for the larger, private sector companies. It’s a signal to me that the federal government itself is preparing itself to spend a lot more money in terms of fiscal policy, and also encourage the private sector to spend a lot more money on these long-term projects.


BFM: That is a theoretical concept, which hasn’t proved right in the last 10 years, because what corporations have done is that instead use that easy money to buy back shares and to return dividends to shareholders, not to invest for the long term. So that’s to be the problem.


TN: Well, either way, shareholders win, right? Either way, cash is spent or they get it in their return. U.S. equity markets are broadly held among most working Americans. So on some level, if that is done through share buybacks, it will help a broad base of shareholders through those equity prices. Share buybacks sound morally questionable, but either way that money is spent, it helps the broad economy.


BFM: So the U.S. Fed is now buying junk bonds, why ETF for the first time. Why these instruments? What’s the significance of it?


TN: They can’t invest directly in equities. Some of this stuff is a signal that they want to do more in debt markets. They’re too big to help out small companies. They’ve put together this main street lending program as a way to lend to, quote, unquote, small companies. But those small companies are actually pretty big. Most of the corporate entities in the U.S. are actually pretty small. The Fed is trying to alleviate the market of certain risk assets. I believe and hope that banks will lend to small and medium-sized companies. They’re trying to take the risk out of the market and off the balance sheets of banks so that those banks will invest more directly in actual operating companies that need the money and not necessarily the risky, junk bond companies.


BFM: A little bit on oil. Saudi Arabia has called for larger production cuts. Will the whole OPEC plus community back them? Should we expect some pushback? And what does this look like for oil prices?


TN: I don’t think you’re going to get a lot of pushback. We have about three months of crude supply overhang right now. Given that economies are locked down, there’s really no way to burn that off. So the only way to get prices back up to a sustainable level is really to cut off supply. Until the largest producers really slow down their production, and we can burn off some of that supply overhang, we’re not going to see prices rise much.


Demand’s not necessarily coming about quickly. It’s going to be gradual. As demand gradually accelerates and supply declines gradually, hopefully, we’ll meet in the middle somewhere and get a price that’s a little bit more livable for oil producers globally.



QuickHit Visual (Videos)

QuickHit: How do we use up all the corn now?

This QuickHit episode, we talked about agriculture commodities with focus on corn ethanol. We are joined by Chris Narayanan with INTL FCStone in their Capital Markets. Chris held several different roles in the commodity space and was formerly a commodities and equity analyst for investment bankers. He explains why we have surplus of corn and other ag commodities and that this problem started way before the global pandemic. What will be the solution, and with crude in trouble, does it mean trouble for corn ethanol as well?


Our previous QuickHit talked about the military and the U.S. defense’s biggest supply chain problem: its dependence on the enemy. Watch it here.


If you want to be notified about new QuickHit releases, be sure to subscribe to our Youtube Channel here. Or sign up to the CI Weekly Newsletter for more insights on the economy, markets, and trends.



The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.



Show Notes


TN: I wanted to talk a little bit about ag commodity markets. With all of the COVID-related issues, we’ve seen demand really fall. We’ve seen things like potatoes stacking up and milk being poured out. It’s deflationary, it’s wasteful. How is that impacting markets in terms of the expected supply coming on, and how long do you expect this demand issue to be there?


CN: First, I think it’s important to take a step back. When you look at the commodity space, especially at agriculture, in a lot of areas, we’ve been flooded for several years. And then when the Trade War hit, that was another hit to the system. And now the Coronavirus is here, it’s another hit to the system. We’re trying to chew through this as quickly as possible.


People are shifting from eating out to eating at home. The buying patterns are changing. The foodstuff needs are changing. You go all the way back through the supply chain, back to the farmer and the rancher, it changes the dynamic.


USDA came out, with their monthly ag supply and demand report and they’re pretty optimistic for the new crop year. Now, that’s going take some time, and obviously these are just projections.


Looking at my screen right now, the market is a little lukewarm to it. As we get to the growing season, we what kind of supply we can expect, and then once the harvest hits, we’ll know, in terms of the global economy, how much we actually need.


TN: We saw some freezes over the weekend as well in the Midwest. Is that hurting things or is that late freeze something that just happens occasionally and markets just work that in?


CN: It depends on where it is and what stage they are. Planning is all over the place in a lot of areas and it depends on what crop you’re talking about. I don’t think you can make a blanket statement on that. But certainly, depending on the damage and the intensity on the area, there could be some damage. That might be supportive to prices at some point. But I think it’s a little early to say.


TN: What about things like corn? When we can move into talking about ethanol or fuels or some of the downstream products? Do you see this freeze hurting the corn crop, so it would tighten up the demand environment a little bit? Or is it all fine and it’s not really going hurt supply?


CN: It depends on where they are in planning. We’re in the middle of May. A lot of people hope to be done by now. If they didn’t get it in the ground, they might delay for a couple of weeks. If they did have it in the ground, they had some early emergence in some of the southern areas. But where the freeze really didn’t hit, it shouldn’t have that big of an impact.


I think the big thing is how do we use up the corn that we have? In the last decade, we’ve seen a huge increase in corn supplies. I look at the amount that’s left over at the end of a crop year divided by how much we used in that particular year. That’s been on the rise, and I think ethanol is a big portion of it. When people talk about ethanol, they say we need an increase in blend or go from E10, E15, or even higher.


In my opinion, that’s just kicking the can down the road. You’ll see an uptick for a little while — five, seven years or whatever that number is, and then it’s going to level off again back to where we are. You’ve just reset the base, but you don’t really solve the problem in a more long-term fashion.


I think there are two big things that we’re seeing in this current situation. First, driving fuel efficiency on vehicles has increased over the last 15-20 years. We’re driving more miles per gallon of gasoline. So incrementally, you need less ethanol to blend with the gasoline. The second part of efficiency is we are producing more gallons of ethanol with less bushels of corn. You need less corn than you did before. And now with the Coronavirus, people aren’t driving. We have a lot of stay-at-home orders that are starting to expire in some parts of the country. But again, you’re not driving, so you just don’t need to buy as much gasoline. I mean, my truck tank is half-full, and I think the last time I filled it was about a month-and-a-half or two months ago. 


What we needed to look at is how can we best work ethanol into global trade and where are the export markets. For example, we have the RFS and the RFS2 – biofuels and advanced biofuels. We can bring in Brazilian ethanol made from sugarcane and export corn ethanol to them. It’s just one example of a symbiotic relationship where the blenders here would get credits.


TN: How is that different? Are there differences between sugarcane ethanol and corn ethanol in terms of the end use?


CN: In terms of the end use, no. It’s the same. It’s really the process in which it’s made and how the EPA and other organizations look at the efficiency, the cleanliness, and the process of producing it all. At the end of the day, it blends, and specs will dictate. But theoretically it’s going to be just another substitute of each other.


TN: I’m just curious just to dig into that, why would the U.S. import Brazilian ethanol and export corn ethanol? Are they substitutional? 


CN: To an extent they are substitutes. So that makes it a little bit more practical. Back when we had blending credits, there were different credits that you can get depending on the stage. Corn ethanol was the most basic.

From a completely economic standpoint, if you’re a blender that has to purchase this ethanol to mix in with your gasoline, there was, at the time, an incentive involved for the added cost of doing this. So if we can work through this policy, maybe update the policies, look at our global trade where in any given year, you might have a surplus in one country and the other, why not introduce some kind of a trade scheme where you help each other out, right?


Because if you go to Brazil for example, you can go to a pump and they literally dial in E0 to E100. They can run their engines on most. And they run that mix depending on the economics, I think it was like 70. If the price of ethanol was 70% of gasoline or less then, it was more economic to use ethanol.


Some people say that you see a slight loss in fuel efficiency and so there’s that kind of scale that you can apply and use to your advantage. Look in the fact that you can increase the blend wall and maybe go to E20 or E25. And the tests from the engineers show that that’s not gonna do anything to the vehicle, then that’s great. But again, it’s a temporary fix — temporary meaning in the next ten years versus what I’m looking like 30, 40 years ahead in the future.


TN: So with crude oil prices depressed, how hard will it be to get those refiners to include ethanol? Are those blenders to include ethanol if crude and gasoline are super cheap?


CN: So here’s the thing that nobody talks about. We have the Clean Air Act, which introduced the cafe standards for fuel efficiency. In 30 different partners around the US, you have to introduce some kind of an oxygenate to basically treat the gasoline. MTBE was the preferred substance at the time but it was found to pollute groundwater. 30 some-odd different states banned it, so that effectively made a de facto nationwide ban on it. So to meet the Clean Air Act in those cafe standards, you had to introduce something. Ethanol was what came in. It burned clean. It was renewable. It didn’t pollute groundwater and it helped make that standard.


When I was at a previous job, going back about seven years ago or so, I was working with one of my other commodity analysts and we did a joint paper on corn gasoline and ethanol. If memory serves, it was like E6.2 or something where when you look at the different summer blends versus the winter blend the different metropolitan areas and you distill down to what do we actually need.


Until you find another additive to take the place of ethanol that’s cheaper, safer, or at least
safe, you still have some incremental demand that needs to be put into the gasoline that’s just required by law.


TN: Chris, thanks so much for your time today. I really appreciate it. I’d love to circle back and talk about other ag commodities in a couple of months to see where things are at.

QuickHit Visual (Videos)

QuickHit: How ready is the military to face COVID-19 and its challenges?

In this QuickHit episode, we’re joined by Tate Nurkin to talk about the state of the military in COVID-19 pandemic. Tate is one of the world’s top defense and security experts, who has been in the security field for the past 20-25 years. He works for US defense and intelligence communities, allies, and partners in China and the Indo-Pacific, helping with defense technology to improve the future of military capabilities globally.


In our previous QuickHit episodes we covered the oil & gas industry:


The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.


Show Notes


Tony: One of the key things that I’m curious about is the impact of COVID on militaries and their readiness. We’re not hearing a lot about that. Are you seeing anything there? Do you have any worries? Is that something that will last a few months or years into the future?


Tate: There are definitely some short-term implications for militaries and readiness is at the top of the list.


We saw a fair amount of media coverage of the situation on the USS Theodore Roosevelt, which actually was a pretty big deal. Over a thousand members of that 5,000-person crew were diagnosed with COVID 19. One passed away.


Those incidences are happening, not just with the Theodore Roosevelt. It’s happened on another US Navy ship and it’s happened on a French aircraft carrier. Just like cruise ships, these ships are places where you’re very contained and in close contact with other people who may be carrying the disease. It’s easy for the disease to spread.


We’ve also seen it with the Taiwanese Navy. Taiwan did a fantastic job containing the crisis, but they have friendship fleet missions that go to the South Pacific. The most recent one came back from Palau. A bunch of sailors who came off that mission were diagnosed after they had gone out into Taiwan and mingled around.


These are big issues. These ships, predominantly ship forces deployed throughout the world, must strike a balance between keeping people safe during peacetime, and also making sure that there’s operational readiness. It’s something that not just the US military has struggled with today.



Tony: Do you see that we’re going to be contending with this for years? Or do you think we’ll get over this in a matter of months or say a year or so?



Tate: I would put the time frame for the readiness challenge to be slightly shorter, 18 months maybe. It depends on how long, how many waves there are of outbreaks.


I certainly anticipate a second wave globally at least. I think that’s a shorter-term challenge and one that’s a little bit more manageable if you can come up with the right processes and procedures for what precautions to take. But it’s not just with deployed troops, but also with sheriffs working inside the Pentagon or civilians that are also supporting the defense enterprise.


There are longer-term challenges though. Some of what we’ve seen are militaries thinking about the new missions that they have to undertake. In the short term, this is supporting COVID-19 response and the longer term, refugee monitoring, border security, etc.. They’re outside of the direct defense sector and more in the security sector. But there are some new missions that the militaries will have to grapple with and a new, different sense of preparedness that will have to be dealt with.



Tony: In terms of things to grapple with, I’m just wondering about things like social unrest. We’ve seen a lot of economic fallout from this as people have to sit on the sidelines for months, as the industries have stopped, as things like deflation have set in with wages… There are not just the social aspects of being isolated, but the economic impacts also. What I wonder about is social unrest. Is that something that we really don’t need to worry about? Or is that something that you take seriously?



Tate: I tend to try and navigate the spectrum between alarmism and dismissiveness. In this case, some finding somewhere in between, but maybe on the side closer to the alarmism. This is a big deal. There will be spatial and economic repercussions and some states won’t be particularly well equipped to handle those. Whether it’s overturning of regimes or just extraordinary societal and political pressure on regimes.


Asia is a good place to start. Some will be more resilient than others. But this is a big challenge for defense and security communities and for political establishments for sure. Reshoring supply chains, including the defense supply chain, will just amplify some of those pressures.



Tony: Amplify the pressures in the manufacturing countries today, so the Asian countries?



Tate: Some of the Asian countries. Japan, for example, has $2.2 billion that were built into it. Most recent supplemental budget for reshoring supply chains out of China. Some of the others will get to Southeast Asia, some will go back to Japan. But the reshuffling of supply chains and the defense supply chain is not immune to that at all. This is something to keep an eye on for both defense readiness and for political stability issues.



Tony: In terms of that separation of supply chains, it almost sounds like it’s the opposite of the EU spirit. The EU came together with the Coal and Steel Union, then integrated manufacturing. The theory was, as they became integrated, there was less likelihood of conflict in Europe. Am I exaggerating? Is it the opposite of the EU theory and maybe something that you see dangerous over a 5, 10, 15, 20-year horizon? Is it near-term or longer-term? Where do you see conflict happening?



Tate: Returning to that defense supply chain as somewhat of an analog for the broader challenge. A couple of years ago, the administration commissioned a report on weakness in the US Defense supply chain. And one of the big findings was that the US Defense supply chain was over-relying on the competitor, which is China. Some chemicals that go in some ammunition and other materials are largely sourced out of China.


The answer here is to re-shore some critical supply chains. We’ve learned that with the medical supplies most recently. Part of the solution is to find your trusted partners and also to stick with them. And some of that can be regional.


One of the challenges coming out of COVID 19 is a geopolitical one, and it’s meeting the challenge of China on a lot of levels. And for the US, retreating back towards autarky might not be the right answer. We need to find the things that we absolutely have to have. Find the partners that we can trust, and try to engage them so that you have some partners to deal with, this is much broader challenge.

QuickHit Visual (Videos)

QuickHit: Oil companies will either shut-in or cut back, layoffs not done yet

We continue discussing oil companies this week with Tracy Shuchart, who is a portfolio manager and considered as one of the leading experts on crude trading. Tony Nash asked who is trading oil these days, why the oil went negative, and when can we see a bit of recovery for the industry? Most importantly, will layoffs continue, and at what pace?


The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.


Show Notes


TN: Hi everyone. This is Tony with Complete Intelligence. We’re here doing a QuickHit, which is one of our quick discussions. Today, we are talking with Tracy Shuchart, who is a portfolio manager with a private equity fund and she is one of the foremost experts on crude trading. We’ve had a number of conversations with her already, and we’re really lucky to get a little bit of her time today.


Tracy, just a few days ago, I was talking with Vandana Hari, who was formerly a Research Scholar at Platts and knows everything about energy. She was telling me that there are three to four months of crude oil supply, and that’s the imbalance that we have in markets right now. That’s why we see WTI at less than 20 and these really difficult price hurdles for people to get over. Can you tell us who’s trading crude oil right now? Is it mom and pops? Is it professionals? What does that look like? And also, what will have to happen for those prices to rise, generally?



TS: Right. Right now, the USO had to get on the prep-month contracts.  


TN: Sorry, just to clarify for people who aren’t trading ETF’s. USO is a broadly traded energy ETF, and they’ve had a lot of problems with the structure of the futures that they trade. So they’ve had to push back the futures that they trade from the front month, which is the nearest month that’s traded to further back in a channel in hopes that the value of crude oil in the further of months trades higher than the current one. So they’ve done a lot of reconfiguration over the last few weeks. So sorry. I just wanted to explain that.



TS: That’s okay. They’re out of the front month. Bank of China just had a big problem when oil prices went negative. They had a lot of money in the front months. They’re out.


Most retail brokers are not allowing regular retail to be traded in the front couple months actually. All that you have trading front months are the big funds, anybody who’s been hedging and then maybe a bank or two. But it’s definitely not retail that’s in there, and there are a lot of big players now that are not in there.


When we get towards expiration, the problem is that most of the funds are pretty short and most of the hedgers are pretty short, and the banks are on the opposite side of that trade. But when we come to expiration, what I’m worried

about again is we’re going to have a no-bid scenario. We’re going to have that vacuum once again. You’re not going to have any natural buyers there.



TN: Okay. So the WTI traded in the US goes negative, but the WTI traded in London on the ICE doesn’t go negative.



TS: They just decided not to let that contract go negative. The difference between the contracts is the CME Group contract is physically deliverable, right? And ICE contract is a cash-settled contract. So they’re not going negative, but CME allowed this contract to go negative.


And they actually put out a notice about five days before that they were going to start letting some contracts go negative. This wasn’t a total surprise, as soon as I saw that, I thought it was going to go negative.



TN: Both you and I have told stories about how we had friends who wanted to trade. Like I had a couple of friends who wanted to triple long Crude ETF a week and a half before it went negative, and I said, “please, please don’t do that.” So grateful that neither of them did that because it could have been terrible.


So how do we clear this? We’ve got three-four months of oil just sitting around?



TS: If you talk to most of the big trading houses in Switzerland like Vitol, Trafigura, etc., basically their base case scenario, and they’re physical traders, their BEST scenario is it’ll be September before we get some sort of hints of a balance left.


So what is going to happen? There are either two things. We’re going to fill up storage, and then producers literally won’t have to shut it. There’s nowhere to put it, so they literally have to do what I call forced shut-ins. If you don’t want to shut-in, the market is going to force you to do that. That scenario is going to happen. Or we’re going to get a scenario where people decide to voluntarily cut back. Just look at the backend like CLR, Continental Resources just did that. They shut in about 30 percent of their production on the back end, and I think there’s about thirty-five to forty percent now that’s shut-in. And there are some other basins where that’s happening as well, in the Permian, etc.



TN: So that’s mostly people in the field they’ll probably let go. Will we see people at headquarters? Those CEOs or only those workers in the field?



TS: I think you’re going to see a broad range of layoffs. It’s already happening. You’ve already seen companies lay off a bunch of people… Halliburton’s laid off. Everybody’s laying off people. And they’re not just laying off field workers as they’re shutting rigs down, they’re cutting back on their office help, too.


And with the shutdown, it’s even more worrisome because maybe they figure out that, “we definitely don’t need this many people,” and all these people working remotely.


I don’t think that the layoffs are done yet. We’ve only had a couple of months of low oil prices. If this continues for another 3-4 months, we’re definitely in trouble.



TN: So is this time different? I mean if we were to stop today, and let’s say things come back to 30 bucks tomorrow, which they won’t. But if it stopped today, would the oil and gas industry look at this go, “Thank God we dodged that bullet, again?” Do they just go back to normal like nothing happened? Or if it were to stop today, would they say “Gosh, we really need to kind of reform who we are. Focus on productivity and become a modern business?” How long does it take for them to really make those realizations?



TS: I think what’s going to have to happen, which may not happen, is the money runs out, right?


So first, you had to ride the shale boom. All these banks throwing money on it. After 2016, things were easing up. So private equity guys got in there, and they threw a bunch of money at it. Basically, these guys are going to keep doing what they’re doing as long as they have a source of equity and a source of capital thrown at them all the time. As soon as that dries up, then they’ll be forced to delete and go out of business. We’re already seeing that happen. We’ve had over 200 bankruptcies just in the last four years alone, and this year we’re starting high. So they’re either going to go out of business — Chapter 7s, not 11s. And the thing is that with the big guys, like Chevron and Exxon that just entered into the Permian, they’re just waiting to chomp on some stranded assets.


So again, what it’s going to take is the money’s got to dry up or they go out of business. That’s the only way I really see them changing.



TN: Yeah and we’re just at the beginning, which is really hard to take because it’s tough. So Tracy I’d love to talk for a long, long time, you know that. But we’ve got to keep these short, so thanks so much for your time. I really appreciate your insights. We’ll come back to you again in another couple of weeks just to see where things are. I’m hoping things change. But I’m not certain that they will. So, we’ll be back in a couple of weeks and just see how things are.


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