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Mo’ Money, Mo’ Honey

Tony Nash speaks with the BFM team in Malaysia to explain what’s going on in the US markets and economy after the FOMC announcement. What it means for gold and other assets, if businesses actually spend the excess cash for capital reinvestment, how this adds to wealth inequality in America, and how do tech stocks and traditional stocks compare?

 

BFM Notes

 

In the US, the FOMC left interest rates unchanged, pledging to continue with their quantitative easing till 2022, indicating that America’s markets will continue soaring on the back of this wall of cheap liquidity.

 

Tony Nash, the CEO of Complete Intelligence in Texas, discusses the implications of what commentators are calling the Fed’s ‘yield curve control’ policy.

 

Produced by: Michael Gong

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

 

Listen to this podcast in BFM: The Business Station.

 

Show Notes

 

BFM: Let’s talk about the markets in the U.S. Markets whipsawed as all attention was on the FOMC meeting. The Dow closed down one percent. The S&P 500 closed down 0.5 percent. But the Nasdaq closed up in the green. 0.7 percent. What about Asia? Asia was rather mixed. The Shanghai Composite ended down 0.4 percent. The Hang Seng was marginally down by 0.03 percent. The Nikkei 225, I think they closed up about 0.2 percent. And FBM was up 0.01 percent. Just barely in the green — 0.01 percent. Now for more on global markets, we speak to Tony Nash, CEO of Complete Intelligence. Tony, are you down the line with us?

 

TN: Yes, sir. Morning.

 

BFM: Good morning to you. Now, the FOMC left interest rates unchanged of the meeting, pledging to continue with quantitative easing till 2022. What does this tell you about the state of the economy there?

 

TN: The Fed is really just trying to create stability. We see them, like you said, the next three years, they’ll keep them the same. We think that they’ll just reinforce some of the policies they’ve already put in place. One of the areas we see them focusing on is on yield curve control, although that’s not explicit. We really see that as an area that they’re moving in to encourage capital investment.

 

We’ve really seen capital investment fall here in the States, especially since the COVID time. Oil and gas companies have trimmed billions of dollars of capital investment, for example. So if they can have low-cost borrowing through a yield curve control, it could help that.

 

BFM: What are the implications of doing this? Yield curve control that, for example, on gold?

 

TN: The environment generally with both QE, which is meant to provide liquidity, and yield curve control, which is meant to provide low interest rates, what that does is it really pushes the Dollar down. Although it’s not perfectly inverse, there is generally inverse relationship between the Dollar and gold. So if it’s intended to push the value of the Dollar down, one would expect gold to rise.

 

BFM: Tony, yield curve control can also be called money printing, which has been happening for the last ten, twelve years from an evidence shil standpoint. Have corporations actually spend some of that excess cash on capital reinvestment or have they done it in terms of paying dividends to themselves and their shareholders or even worse, share buybacks?

 

TN: Mostly share buybacks. But share buybacks and dividends, one can argue are similar. It’s just a different form of paying back shareholders. So share buybacks have really been made to be evil over the last, say, five, 10 years or something. But it’s really similar to a dividend that it brings value to the investors themselves. So is it a good thing? I don’t necessarily think so, but it is just one form of getting money back to investors.

 

It’s not necessarily helping capital investment. It hasn’t necessarily helped capital investment. And so, you know, looking at things like yield curve control, what we’ve seen is a lot of QE, but we haven’t seen as much yield curve control. So yield curve control could be one way to provide more incentive for capex.

 

BFM: Well, that hasn’t happened clearly. And to what extent do you think that that policy has exacerbated the wealth inequality in the country, in the United States, which some say has manifested themselves in some of these demonstrations you see all over the country?

 

TN: That’s a very complicated question. And we can spend a lot of time on it. So I think whether a yield curve control has done that, I can’t necessarily argue for or against it. Has QE done that? Oh, surely. I mean, QE has definitely contributed to inequality. It’s definitely contributed more to capital concentration itself than overall inequality. Capital is concentrated with the investment class rather than, say, the working class. Although that sounds very Marxist and it didn’t really mean it to sound that way, but it’s really helped to concentrate capital.

 

BFM: Well, let’s take a look at last night. The U.S. markets were mixed overnight. Is this a reality check that the recovery may not be as soon or as sharp as anticipated by investors?

 

TN: The kind of the relief rally we’ve seen over the past few weeks has really been one of really just excitement that COVID is ending and really hopeful that things will open, as well as recognition of the Fed’s activity and the Treasury’s activity of getting trillions of dollars into the economy. As investors realize how slow those openings are going to be and the impact that it will have on Q2 earnings, but potentially Q3 earnings. I think we’ll see some of this enthusiasm fall away. So markets are trying to find that level. What is that level? And because there is so much uncertainty, we don’t really know that level. This is why we’ve expected volatility through Q2 and into Q3 until there’s more clarity about the pace of opening, how that will affect different industries, and the severity of, say, a second wave. And to be honest, whether people really care about the second wave.

 

BFM: Well, NASDAQ has passed ten thousand and valuation is at the highest in the last 15 years. Where do you think tech stocks will go from here?

 

TN: It really all depends on how companies focus on things like productivity. If we continue to see layoffs and unemployment, companies may decide to invest in technology. We may see some real broad-based investment in productivity like we did twenty five to 20 years ago when companies really started to invest in computing and Internet and all these other productivity shows, it’s quite possible that we see that across large companies.

 

It’s really questionable. Have we expanded valuations as far as we can or is there further expansion there?

 

BFM: Just following up on that. We’ve seen the market recover in the U.S., but there’s definitely a divergence between how the tech stocks have performed and how the larger S&P 500 has performed. Do you think there’s a lot more room for tech stock? Do you think these two indexes will actually going to diverge at this point?

 

TN: We may see a little bit of divergence, but I don’t see that much divergence. I think there is a lot of synchronization within those indexes. We may see a bit like we saw today, but I don’t think that will continue in a massive way.

 

BFM: So when you mean synchronicity, you mean that they will track each other in a parallel? But there is a gap between something like the NY Fang index and the S&P in general. Is that due to the S&P just being weighted down by other classes of assets there?

 

TN: Sure, yeah. It’s looking at traditional businesses that have physical assets and a lot of legacy employees and retirement commitments. These sorts of things really weight down old traditional businesses. The Fang’s, for example, they don’t have a huge retirement commitments than, say, a large manufacturer that’s maybe a 100 years old has. As those things play through and this really has to do with the aging of baby boomers, really. Those retirement commitments will age with them and then they’ll phase out eventually.

 

But a lot of this is around again, those companies are not as efficient as they could be. And until they get to a level of efficiency that they need, we’re gonna see a drag on their earnings. So, of course, with guys like the Fang’s, since they have kind of virtual software related businesses, they will have valuations that are much more generous than traditional, say S&P 500 businesses.

 

BFM: All right, Tony. Thank you so much for your time this morning. That was Tony Nash, CEO of Complete Intelligence.

I think just ending that point is how this divergence between traditional industries and tech industries had been even more highlighted by what we’ve seen.

Yeah, I think that’s really quite concerning because the alternative point of view is that of the Fed’s money printing policy, which has really accelerated exponentially the last three months. There really is no indication from Trump, from Jay Powell, that he has an exit strategy in mind or has any exit strategy at all. Because how do you unwind this much? You basically dopamine the markets without having some kind of pain. It’s very clear, I mean, even though he was quite tempered in his response, this inequality has been really exec-abated for the last 10 years.

 

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How long can the bull run?

Now that the bull run has started, Tony Nash CEO and Founder of Complete Intelligence joins BFM 89.9 in another global markets discussion. What’s behind this rally and will it be sustained? They also discuss OPEC, the Brent price and its future, Europe’s fiscal stimulus, the ECB, and the resumption of trade war between the U.S. and China.

 

Listen to the podcast on BFM: The Business Station.

 

BFM Description:

On the back of an emerging bull run in Asia and the U.S., we reach out to Tony Nash, CEO of Complete Intelligence, for his thoughts on whether or not this momentum can be maintained, oil prices, as well as the ECB’s bond purchase programme.

 

Produced by: Michael Gong

 

Presented by: Wong Shou Ning, Lyn Mak

 

 

Show Notes

 

 

BFM: U.S. stocks extended their rally into the eighth straight day as investors clung to optimism for quick recovery from the pandemic. So the Dow Jones closed up 2.1 percent. The S&P 500 closed up 1.8 percent, and NASDAQ was up 0.8 percent. In fact, NASDAQ in the intraday trading did touch an all-time high. It’s as if COVID-19 never happened.

 

Meanwhile, Asia also had a very good run. Nikkei 225 closed at 1.3 percent. Shanghai was barely up, though. It was flat at 0.1 percent. Hang Seng was up 1.4 percent. Singapore was the big surprise here. We talked about it yesterday. The banking stocks were up and this caused the Straits Times Index to go up by 3.4 percent. Meanwhile, on the FBMKLCI, our market was up 2.1 percent. Also on the back of banking stocks, public bank RHP saw almost a pulping double-digit gains.

 

Pandemic? What pandemic? Never happened.

 

So this morning, for more insight into global markets, we have on the line with us Tony Nash, CEO of Complete Intelligence. Thanks very much for joining us this morning, Tony.

 

Now, equities have recently exhibited strong bullish momentum in both Asia and the U.S.. What’s behind this rally? And is it sustainable?

 

TN: I think a lot of it is the monetary policy expectations and the stimulus expectations washing through. It’s a lot of hope around activity in the summer, say, for crude prices, driving and consumption. There’s an expectation that there’s been some pent up consumption because of COVID. Some of this is coming back. It’s key to know that the U.S. markets are still 10 percent below where they were pre-COVID, 10 percent or more. So it’s not completely as if things never happened, but it has come back relatively quickly. The S&P, for example, was at around 2300. So we’ve climbed about 700 points in the S&P 500 since the nadir of COVID.

 

BFM: I always ask our commentators this, and I’m going to ask you also. Why the disconnect between what is happening on Main Street versus what’s happening on Wall Street.

 

TN: There’s an expectation that most publicly traded companies are going to pack as much bad news into Q2 as possible. And so they’re just throwing the kitchen sink into Q2. So that should mean pretty clear sailing for the rest of the year, assuming that it is 2020 and all. So anything can happen. But assuming that there isn’t another major catastrophe, things should be pretty clear for the rest of the year if every- and anything that could go wrong goes into Q2 data.

 

BFM: Brent has also erased some of its recent gains and is back below the $40 a barrel mark with the OPEC meeting now in doubt. What do you think oil prices will be heading?

 

TN: Our view is that things have been pretty range traded. We don’t see things going up to, say, $50 anytime soon. It’s possible. But we’ve expected things to stay pretty range traded until probably August or so.

 

We’re going to see daily rises and we’re going to see falls. But prices have come back a little bit on some drawdowns we’ve seen in storage and expectations around driving. Although, It’s not a perfect substitution for flying. And those volumes will still be down until we start to see people get back on planes. And until we start to see commuters back on their daily drives, we really don’t expect to see things come back above, say, $50 for Brent.

 

BFM: Shifting to Europe. The ECB is expected to expand its bond repurchase program this Thursday. So they’ve got a currency 750 billion euros outlay. Is that enough or do you think they need to increase it?

 

TN: It’s not enough. But I don’t know that Europe really has the financial wherewithal to do much more. They are not a fiscal union. And so they’re really having to contort their mandate to make sure that they can do this. This is really pushing Europe and the ECB and the concept of a quasi-fiscal union under the E.U. is putting real pressure on that.

 

So the limits of the monetary, not fiscal union are really pressed. And when you look at things like the insolvencies we saw in Greece and Italy and other places in southern Europe over the last 10 years, places like Germany are just tired of fiscal stimulus of other countries in the EU.

 

BFM: And if you look at the equity markets in Europe, that’s been also the lag out. Do you think there’s any opportunities there or is it a similar situation whereby the corporates there are going to not perform up to par?

 

TN: No, we don’t think they’ll perform up to par. Until we see countries beyond Germany really lift some of these lockdowns in a big way, it’s going to be really slow going. It’s strange how we’ve seen these protests really go against the lockdown. We may actually see some of these countries rip the Band-Aid off, because if you have tens of thousands or hundreds of thousands of protesters out there, it may be a situation where you can just say, “Well, lockdown’s over,” and you may start to see consumption patterns come back to normal. That would be a good thing for markets. That would be a good thing for companies. But European companies, especially European banks, remain troubled. And I think this crisis has really forced those banks to look in the mirror. And if markets are functioning well, then we’ll start to see some consequences, particularly for European banks.

 

BFM: Thank you very much for speaking with us this morning, Tony. And that was Tony Nash, CEO of Complete Intelligence.

 

He made some comments there about Brent crude, which he doesn’t really expect to come above the fifty dollars per barrel mark until perhaps we see planes start flying again. But the Trump administration has just made an announcement to that effect, saying that they are suspending passenger flights to the U.S. by Chinese airlines effective June 16th.

 

So the U.S. government said in a statement that it was responding to the failure of the Chinese government to allow U.S. carriers to fly to and from China. Now, this hasn’t, of course, been good for the tensions that have already been flaring between the two countries over the handling of COVID-19, as well as the treatment of Hong Kong.

 

China recently paused some agriculture imports after Trump threatened to limit the policy exemptions that allow America to treat Hong Kong differently than the mainland.

 

And that was done. The global economy was cheering and it looks like they’ve started fighting again. I think I’m just curious, what else is there to fight over? Because there’s been soybeans, beef, pork imports, corn, and now airlines.

 

U.S. airlines did see a bit of a share surge amidst the broader market rally and signs that travel demand is starting to rebound. Boeing was up 13 percent at one point after a report from IATA indicated that recovery was underway for global airlines.

 

So looks like we’re going to be watching that space as well, quite closely.

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In America, the economy sinks but markets surge. What gives?

 

BFM 89.9: The Business Station speaks with CEO and founder of Complete Intelligence, Tony Nash, to explain why the markets have surged and earnings seem resilient despite the US GDP falling to negative 4.8 percent.

 

Produced by: Michael Gong

Presented by: Noelle Lim, Khoo Hsu Chuang

 

Listen to the podcast, originally published in BFM 89.9.

 

 

Podcast Notes

 

BFM: We are talking to Tony Nash, the chief executive of Complete Intelligence on the American markets. Tony, thank you for talking to us. American GDP shrank by 4.8% overnight, the steepest fall since the last recession. What did you think of these numbers in terms of what you expected prior?

 

TN: It was a bit worse than many people thought. But it wasn’t as bad as it could have been. That was the thought that many people had, and markets tend to be looking forward. So looking at Q2, we now have big states like Texas and Florida and others that have started to open up fairly aggressively. So markets themselves are looking forward. And markets are looking pretty favorably on some of the opening up lines.

 

BFM: Fed Chair Jerome Powell is calling for more action from the government. What are the options and what do you hope to see?

 

TN: Well, there are options for more fiscal stimulus. The federal government could do things like an infrastructure plan. Two years ago, in his State of the Union address, the President talked about a $1.5 trillion infrastructure plan for the U.S. They could do something like that. The individual states, which really imposed a lot of these restrictions, they really haven’t had to pay up much aside from kind of the standard unemployment benefits.

 

So the states could pony up a bit more cash than they have. They’ve really been relying on the federal government to pay for this whole thing. And they haven’t really had any accountability for the decisions that they’ve made. So I think the states really need to pay up a bit in terms of fiscal stimulus.

 

BFM: The Fed has backstopped the corporate bond market in the fixed income market for some time. Obviously, you can see that exemplified in the six and a bit trillion dollars of debt on the balance sheet. Do you think they’ll come a time when the Fed backstops the equity market as well?

 

TN: I don’t know. There’s been talk about that, they’ve certainly done that in Japan and the BOJ owns a lot of the ETFs in Japan. I don’t necessarily see that happening in the U.S. because it’s a door that once you open, it’s very, very difficult to close.

 

It’s the same question with negative interest rates. And so these are activities that once you start, they tend to be very, very hard to stop. And most of the market observers don’t really want that to happen.

 

 

BFM: Q1 GDP came in minus 4.8 percent. But the consensus estimate of economist on Bloomberg reckoned there’s going to be a minus 26 percent drop in Q2. And even more astonishingly, I think a nine percent improvement in Q3. Do those two numbers strike you as a little bit extreme?

 

TN: Q2 seems a little underestimated, meaning I don’t necessarily think it’s going to be that bad. Q3? It’s possible it could be nine percent. I think given how negative it could be in Q2, you could definitely see a rebound like that. But that’s just a base effect in terms of the quarter on quarter growth. It’s not necessarily a dramatic year on year growth. In fact, year on year, that’s actually negative and a negative print. One would hope that if Q1 and Q2 are so bad that you would see a print that’s at least nine percent in Q3.

 

 

BFM: Yet markets charge ahead despite relatively bad macro data. What is this optimism based on?

 

TN: Seeing the states open, seeing some realistic plans being put together to do this, there’s a balance of doing it aggressively and carefully. I know that sounds a little silly, but we’re seeing some real push by Americans to want to open. So the state governments are going to probably do things a little more aggressively than they initially wanted.

 

There was some concern that Q1 earnings would be worse than they are. Meaning that companies may try to pack all their negative news into Q1 in hopes that Q2 will look slightly better. But sure, they’ve packed some of the negative news in Q1. But some of the Q1 earnings haven’t been as bad as people had feared. So markets are looking forward. And in the U.S., it’s a flight to safety.

 

We’re also seeing on a relative basis, U.S. markets perform fairly well as, say, non-dollar assets or overseas dollar assets come into the US.

 

 

BFM: Microsoft, Facebook, and Tesla all came out last night all the better than expected. Microsoft showing some picture of health in the corporate sector. Tesla, obviously, where car sales are concerned, then Facebook where the ad consumer market is concerned. Can we read this optimism into Q2 and possibly even into Q3?

 

TN: I think certainly Facebook and Microsoft, with people sitting at home, those two will probably do quite well in Q2. Tesla? I wouldn’t expect Tesla to do well in Q2. Auto sales have been way down in Q2. And with oil and gas prices as low as they are, the substitutionality effect of electronics from internal combustion engine cars, the incentive is not as high as it once was. So I don’t necessarily see Tesla’s performance to be better than expected. But then again, Tesla bulls are Tesla bulls. They’ll buy, and they’ll pump up the price regardless of how they perform in real life.

 

BFM: So you don’t expect this to be a broader momentum for the broader market?

 

TN: Anything focused on productivity, anything focused on virtual activity, will do very, very well. But things like car sales, again, they’ve been really difficult. Anything around entertainment or group, physical, in-person, entertainment, obviously, it’s just not possible or hasn’t been possible for those to grow. So those are going to be really, really hard for people to get optimistic about.

 

On the other hand, you’ve seen, energy firms actually performing really well today. The major oil and gas firms and U.S. markets performed really well. Part of that is on the back of gossip that the U.S. Treasury may come to the rescue with some preferential financing for American oil and gas firms. Whether or not that’s going to happen, we don’t really know yet. But that may come to pass, which may help some of these firms.

 

BFM: Talking about the oil industry, are there any structural changes they can make to improve their prospects of survival? Some of these oil majors that you spoke of?

 

TN: Oil and gas firms are incredibly inefficient. There are a lot of productivity changes the oil and gas firms could make, whether they’re NOCs, the national oil companies, or the private sector majors. Oil and gas workers tend to make a lot more than other sectors.

 

They tend to be more bloated, so there are a lot of productivity measures that can be taken. For NOCs, for the national oil companies, there can be more activities taken to make them more accountable than markets. And so I think in Malaysia, you’re lucky. Petronas performs pretty well.

 

But other NOCs don’t perform as well and you can see some major changes in terms of fiscal accountability. Assuming oil prices stay lower, accountability to the central governments and performance rather than the subsidies coming from central governments, as we’ve seen in the past, may come to pass in some countries if they can’t really afford to continue to subsidize these governments. Because, you know, we’re seeing the emerging market and middle-income country currencies come under a lot of pressure versus the U.S. dollar. If you’re seeing energy revenues decline and you’re seeing pressure on the currency, it’s really hard for some of these governments to subsidize their national oil companies.

 

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Why Bank Stocks are Falling?

BFM 89.9 discusses with Tony Nash about why bank stocks are falling — the US markets were dragged down by financial stocks as big banks JP Morgan, Wells Fargo and Citigroup reported their first-quarter earnings.

 

Find this podcast originally published at the BFM: The Business Station.

 

 

Show Notes:

BFM: Right now, taking a look at the wider global markets, we speak to Tony Nash, CEO of Complete intelligence. Tony, thank you for taking the time to speak to us today. The Fed book was released showing that almost all economic data activity has stopped and the question is how difficult will it be to restart it? Do you expect even more contraction?

 

TN: Very difficult. I mean, as we’ve talked about before, this is a government-mandated shut down, so it’s going to take a lot of fiscal stimulus to get things restarted. That’s why you’ve seen governments come out with such large stimulus programs. We don’t believe it’s a situation where central banks can wave a magic wand and use monetary policy to get things started. It’s not that kind of problem. This is a problem that has to be addressed with fiscal stimulus and direct spending from governments.

 

BFM: Is there enough fiscal stimulus so far?

 

TN: No. We’re two weeks into the second quarter, and when we look at all of the country, where the orders to not work are in place, it’s going to be at least two to three to four, maybe six weeks before some countries are up and running. And because a this is government-mandated order, those governments have to find a way to compensate individuals and companies for those close-down orders. Otherwise, we’d have catastrophic economic contraction. Spending is a key component of the GDP calculation. So if you count “don’t spending” as a substitutional factor to consumption and investment, you can still grow your economy or have it not contract as much as it would. Governments are feverishly trying to find find where they can spend, but I think many governments don’t really have the money. They accumulated so much debt over the last 10 or 20 years, they don’t have the money to be able to stimulate the way they need to.

 

BFM: Tony, Mexico’s been downgraded by Fitch to just one or just one level of Junk. Do you think this portends a rash of similar downgrades by other agencies?

 

TN: Oh, sure, absolutely. I think emerging and middle income markets are going to have a tough year. And that’s the case because we have a strong US Dollar and are likely going to have a stronger US Dollar. And on a relative basis, emerging market currencies are going to have a real uphill battle. So those emerging markets that are export-dependent will have a tough time, as well as we see consumption collapse. So I don’t want to sound entirely pessimistic, and it’s actually quite hopeful once we hit, say, July or August. But, Q2 is a very, very difficult situation. And the quicker governments can get their countries moving from an economic perspective, the better off we are.

 

BFM: So Tony, let’s move back to the US for a bit. The banks, the big banks, have started releasing the Q1 results with JP Morgan, Wells Fargo, Goldman Sachs, Bank of America and Citi or reporting significantly lower profits and more particularly huge provisions there, some as five times more than usual. What does this tell you about the broader economy? What are they expecting at least?

 

TN: Well, we’ve been trying to tackle all the bad news now. That’s for Q2. They can say, we accounted for that before and they can report better numbers in Q3. And this is all relative. A lot of companies are going to report horrific numbers for Q2. But, you know, the government is coming in and encourage loan repayment to be delayed and backed up the number of loans as well.

 

So should these provisions be larger than they are or as large as they are? Maybe that’s a prudent thing to do. But it looks really like there, you know, these provisions should have been in Q2, not necessarily in Q1. So I think they’re being conservative and I think that’s fine. But I think to some extent it’s really you just tacking all the bad news or what they expect to be the bad news into Q1 so that they can look better later in the year.

 

BFM: Yeah, that’s always what this was about to ask you, actually, Tony. Do you think they’re trying to pack as much bad news in this quarter as possible? Yes. But I think on on the call yesterday with Bank of America’s chief financial officer, he also seemed a bit, well, at sea in terms of really putting a finger on exactly what kind of quantums provisions might lead to the next quarter. Do you think they really know what’s happening around the corner, do you think?

 

TN: I don’t think they know. And I know that, the US banks are really, say take serious problems with like with PPP, these are small business loans. They’re just overwhelmed with the number of applications for these small business loans. That loan processing is truly inefficient and it’s not all the banks’ fault because it was, the US department pretty pretty quickly. So they’re kind of doing the best they can, but those are not their most efficient operations and we’re having to just adjust to where the attention is.

So I think they don’t know how bad it is. Until we know when some of these stay at home orders will be lifted, nobody really knows. And it’s the same thing in Asia as it is here. You’d see all these kids schooled, and it’s a problem, and so until it’s lifted, we really don’t know the full extent of the economic damage.

 

BFM: Well, speaking about Asia, even after better than expected March trade figures, People’s Bank of China cut medium term lending rates by 20 basis points. What do you read from what they just did?

 

TN: Honestly, guys, a 20 basis points isn’t going to do anything. I mean, nobody is going to take a loan out because it’s 20 basis points cheaper. What China needs is a very large fiscal stimulus package to make sure that their factory workers and other certain workers are given, maybe not a full wage, but enough of a wage to continue to get by. Our major worry for China this year is a very sharp contraction of industrial production, meaning manufacturing. We’re looking for contraction in exports starting in February, going through March and April, May, simply because the consumption markets are not there.

 

There is a global demand problem. So there is a demand problem domestically in China, but there’s also a demand problem in the rest of the world. So how can China, which is an assembly point and a maker of finished goods, how can China have kind of relatively normal export data when the rest of the world isn’t buying. It’s just not possible. So, you know, what we’re worried about is the industrial production contraction in China and we’re worried about deflation in China.

 

We think deflation will be worse in China than in any other parts of the world because of the dependence on manufacturing. So it’s manufacturing insures on making stuff, their workers aren’t working, and so they don’t have the money to buy stuff. And so that creates a huge gap in demand, which is likely deflationary, which is a big, big worry for us.

 

BFM: I’m wondering, though, I mean, if it’s not likely to move the needle by too much, why would it cut interest rates?

 

TN: I think a lot of central banks right now are going through the motions, hoping to kind of ride on the coattails of the big moves at the ECB, BOJ and Fed are doing, right? PBOC is is taking some big moves. So I’m not saying that they’re not doing their part. They’re definitely playing a part. But little moves like this, I think with what we’ve seen is generally a big action is taken. We saw this with the first Fed action and so does in the central bank with the OPEC move over the weekend, right? A big action is taking, and the markets really just going on, they don’t care that a big action has been taken. But what happens is a series of smaller actions are then taken, and markets take notice. So if anything, I think there’s 20 basis point cut is in one action among many that the PBOC is planning so that they can gradually feed that market expectation.

 

But again, the markets are really bored and not satisfied by a single big move. They’re looking for a series of moves, can be satisfied and to gradually kind of re-course positive expectations into markets. But 20 basis points is not going to do it, especially when you’re looking at a fall in manufacturing or fall in wages, a fall in consumption, and potential deflation. Nobody is going to take out a market rate loan when they have all these other worries to tick down the list.

 

BFM: All right. Thank you so much for spending some time with us this morning. That was Tony Nash, CEO of Complete Intelligence.

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Worse GDPs, Market Expectations, Chinese Manufacturing, and the Rising US Dollar

BFM speaks to Tony about corporate earnings as worse GDPs, market expectations, and the Dow and S&P 500 extended losses after their worst quarter since 2008 as Trump warned of a “painful two weeks ahead”. They also get into Tony’s expectations for markets in April, the shortage of US Dollars globally and Chinese Manufacturing data.

 

Produced by: Michael Gong

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

 

Listen to the podcast at BFM: The Business Station

 

 

Podcast Notes

 

BFM: But right now. Let’s take a look at global markets, a deeper look at global markets and to do that, we speak to Tony Nash, CEO of complete intelligence. Tony, thank you for joining us on the line this morning. Now the Dow and the S&P 500 extended loss after their worse quarter since 2008, as Trump warned of a painful two weeks. I think, for the Dow, this was the worst quarter since 1987, if I’m not incorrect there. Now, how badly is this going to hit US corporate earnings across the board?

 

TN: It does really depend on the energy sector, but generally it’s hitting things pretty bad. I guess the good news is it’s only part of Q1. So the last few weeks of Q1, but I guess the big question mark and the reason markets are really saying negative is nobody is sure how long we need to endure?

 

It is another couple of weeks, is it another few months? And that’s why we’re seeing markets in the red because nobody really knows. And so I live in Houston, in Texas. So it’s the energy capital of the world. Malaysia’s feeling a similar pressure with the oil and gas and a lot of my neighbors, thousands of my neighbors have been laid off from their jobs. So it’s not just the stores being shut and things that are not happening. It’s actual incomes not coming in as well.

 

So that consumption part of the GDP calculation will be decimated for at least a single week. And this is why you’ve seen the big government intervention come in with the 2-terms plan, which allows government spending. That ‘G’ part of the GDP calculation, it allows that to replace some of the consumer spendings and that’s one component that’s been displaced over the last few weeks and will be displaced for the part of Q2. So, our view is it the last fiscal plan in the U.S.?

 

We expect at least one more, if not two, five to six trillion dollars of fiscal spending from the U.S. government. The real question is whether other governments can afford to match a similar proportion of their GDP. I’m skeptical that none of them can. So what matters right now to consumers is fiscal health, fiscal spending. For central banks do not matter as much. What matters is getting hands into the consumers.

 

BFM: U.S. right now has over 200 thousand COVID-19 cases and the situation does not look like it’s improving, and we might see even more lockdowns in the U.S. So do you expect markets will perform even more badly in April? And how might markets land in April?

 

TN: No, I think what’s affecting markets really is the uncertainty not necessarily the case count because, you know, not all tests are created equally. And what really matters in the case count is the denominator.

 

What we found is, yes US test is actually pretty accurate, unlike a number of other tests out there. And so the number of false positives and false negatives are a lot lower that’s my understanding of the US test. And the portion of population that’s been tested in the US is growing pretty rapidly. So although we see those cases counts growing, we see it as a fairly good example of the real picture in the US. Now, what we have seen on the ground here in the U.S. So the governor of Texas came out a few days ago and said that 99 percent of the bed space allocated for covered patients is empty. So we’re not seeing people in hospitals here. We are seeing things in other parts of the country. And of course, there are cases here. But what we’re doing again and again and again is that people will come in with other ailments that will be diagnosed as COVID. So COVID is a secondary or tertiary infection to something that is really, really ailing them.

 

So and that’s the question that people need to start peeling back is, “Is COVID the primary cause of that fatality or is was there already a number of other ailments in place and COVID was somewhat incidental?” Until we start asking these questions, you really won’t understand how deeply dire the problem is.

 

BFM: Tony, there’s a shortage of US dollars in the world today obviously as a safe haven. The Fed has introduced a new repo facility for foreign central banks to draw down on what you know about this facility and how effective has it been?

 

TN: Well, it’s been pretty effective. I mean, we see the trade weighted dollar down 99 with a 99 handle on it now it was up 103 or something, which makes it very difficult for people outside of the U.S. needing dollars. There’s a lot of U.S. dollars denominated debt. There’s a lot of trade conducted in U.S. dollars. So if the US dollar is expensive and if governments are having to buy medical equipment and other things in U.S. dollars, it makes it even harder for them to address some of these quality concerns. So the US government has been working very hard to help other countries by pushing the value of the U.S. dollar down. So these facilities and it’s easy for countries to put up pretty low quality assets in exchange for U.S. dollars. So that the U.S. can churn more U.S. dollars out into the global economy to grain that supply up and, of course, bring the value down. So I’m not really optimistic that they’ll be able to keep it down for long. I think the flight to kind of safe haven currencies is going to persist. So I think the dollar value is going to rise, continue to rise. But I think it’s really important for the Fed to focus on this and to take these efforts in the short term to help countries get the equipment they need and transact in dollars at a lower rate.

 

BFM: There’s a report forecasting a severe contraction for China this year, however, the latest PMI data beat market expectations. What is your current outlook on China’s economy?

 

TN: You know what’s interesting forecast, because the world’s economies can’t have a very downbeat China forecast without China’s permission. So, somebody is trying to get bad news out there, okay? So I think what we may be seeing, because we saw the PMIs came out a couple days ago that weren’t that bad. But we’ve also seen a lot of government spending to try to offset the lack of business and consumer activity. So there’s no doubt there’s going to be a bad reading in China this year. And I think the World Bank report is a way for the Chinese government to allow us to get out into the market first so they’re not seen as disappointing on their deliverable of 6 percent. So we’ve, you know, Complete Intelligence had believed that China’s been growing at 4 to 5 percent for the past couple of years. So with this, I believe it’s a 2.7 percent rate been said for continuous something, I can’t remember. But it allows China to deliver under 6 percent to deliver over whatever the World Bank forecast was so that they can start to notch down those expectations. So I think the World Bank report is probably credible. I don’t know that it’s necessarily that dire, but it might be, that I think it gives NBS and China an excuse to clock significantly under 6 layer.

 

BFM: Tony, how about your comments changed as the context of a couple of reports overnight suggesting a) that China has been doctoring the data on coronavirus the last couple of months and b) that a county in China, other reports suggesting that parts of the country is not under a new lockdown because of a further outbreak.

 

TN: Well, first, I don’t think it’s crazy that anybody that China’s been doctoring the data, but I don’t think China is unique. I think there are many, many countries out there that are doctoring the data. I think political leaders are afraid that corona would be seen as a political failure. And so I think many, many numbers. And China, usually have been singled out in this kind of data doctoring, which they’re guilty, but they’re not the only ones. So, you know, is there a resurgence of this? I don’t know if there’s a resurgence as much as maybe it didn’t pale off in the way the Chinese authorities said it did. So whether it’s a statistical resurgence, you know, maybe that’s the case. But these were you know, these were always there and they didn’t see the decline that was expected several weeks ago. I think that’s likelier than the fact that there’s just some crazy resurgence in COVID in China. But, you know, I don’t think anybody should be shocked. I don’t think China is angry or guilty than anybody else. They’re known for this. A lot of statistics ministries are known for its reporting and health agencies on this reporting. So it’s just the nature of reporting national level data that can be seen as politically sensitive.

 

BFM: Thank you so much for joining us on the line this morning. That was Tony Nash, CEO of Complete Intelligence.

 

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Podcasts

Could COVID-19 Finally Kill the EU?

The fallout from COVID-19 might result in the disintegration of the European Union while the flight to safe havens like the USD is yet another headache for the financial markets to stomach, according to Tony Nash, CEO of Complete Intelligence.

Produced by: Michael Gong

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

 

Listen to the podcast in BFM: The Business Station

 

Show Notes:

 

BFM: So for more on global markets right now, we speak to Tony Nash, CEO of Complete Intelligence. Welcome to the show, Tony. Now U.S. markets closed down sharply again last night, erasing all gains from the time President Trump was elected. So what’s your outlook for markets? Is it still too early to buy?

 

TN: Gosh I don’t know. Actually, we don’t really know if it’s a really good time to buy. At this point, it’s really hard to catch that kind of falling knife. But what we don’t see is a V-shaped recovery. We think we’re in the zone where the fall may start slowing down. But we believe the equity markets will trade in a pretty low range for the next couple of months. And that’s because we’re not really sure of the economic impact of the slowdown in the West.

 

This COVID-19 is a government-driven recession that countries have lawfully gone into. So a lot of the recovery has been how quickly the fiscal stimulus is put into the hands of consumers and companies, and how quickly those individuals will get back to work.

 

 

BFM: Well, oil continues to fall last night to record lows with the Brent at $26 per barrel. What’s your view on oil? I know you are seeing the stock market. We do not know where the bottom is. But for oil, are we hitting the bottom yet?

 

TN: We may not be, but we’re pretty close. Our view is that crude will bounce once the Saudi-Russia price standoff is resolved. So we actually see crude moving back into the 40s in April.

 

But after that, we expect a gradual fall back into the low 40s to the high 30s in May. So, you know, we’ll see the next several months’ prices will be depressed. And we think it’s going to be quite a while before we see oil at 50 bucks again.

 

 

BFM: Yeah, Tony, you would have seen the stock futures point in green, obviously quite buoyed by the ECB’s whatever-it-takes policy. In Asia this week, four central banks are meeting. I’d like to go off a piece of possible talk about Australia, Thailand, Philippines, Indonesia. Our central banks are expected to meet this week. What do you expect them to do in terms of responding to the market turmoil?

 

TN: So it can’t just be central banks. I think central banks will do whatever it takes. But you really have to get finance ministries involved because, again, this is a government-induced recession.

 

Governments have demanded that people stay at home due to COVID-19. They’ve demanded that places of business close. And so until finance ministries and treasury departments get involved to get money in the hands of consumers and companies, we’re in a pretty rough place and there’s a lot of uncertainty.

 

So I think the central bank activity is fine. But I think getting a fiscal stimulus out there right now and not waiting is what they need to do. The US is talking about doing something in mid-April, that is just not good enough.

 

We have to get fiscal stimulus out right now because the governments have brought this on. The markets did not bring this on. The governments brought this recession on.

 

 

BFM: Yeah, Tony, obviously the helicopter money is going beyond the conceptual stage right now. But from a fiscal standpoint, how many central banks in Asia can afford, you know, the financial headroom to pay these helicopter money solutions?

 

TN: Well, whether they can afford it and whether they need to afford it are two different questions. And so I think we have real issues with a very expensive U.S. dollar right now.

 

Dollar strength continues to pound emerging market currencies. And emerging markets and middle-income markets may have to print money in order to get funds in the hands of consumers and companies.

 

So I think you have a dollar where appreciation continues to force the dollar strength. And you also have middle income and emerging market countries who may have to turn on printing presses to get money into the hands of consumers. So I think for middle income and emerging markets, it’s a really tough situation right now. The dollar, I think, is both a blessing and a curse for the U.S. But the U.S. Treasury and the Fed have to work very hard to produce the strength of the dollar.

 

There is a global shortage of dollars, partly because it’s a safety currency, partly because of the debt that’s been accumulated in U.S. dollars outside of the U.S.. And if those two things could be alleviated, it would weaken the dollar a bit. But the Treasury and the Fed are going to have to take some drastic measures to weaken the dollar.

 

 

BFM: Well, how much higher do you think the green buck can go?

 

TN: It can be pretty high. I mean, look, it depends on how panicked people get. And it depends on how drastic, I’d say, money supply creation is in other markets.

 

I think there are real questions in my mind about an environment like this and around the viability of the euro. The EU is in a very difficult place. I’m not convinced that they can control the outbreak. I think they have a very difficult demographic position. And I don’t think Europe within the EU, have the fiscal ability to stimulate like it is needed. The ECB cannot with monetary policy, wave a magic wand and stimulate Europe.

 

There has to be fiscal policy, and the individual finance ministries in every single EU country cannot coordinate to the point needed to get money into the hands of companies and individuals. So I think Europe and Japan, actually, have the most difficult times, but Europe has, the toughest hole to get out of economically.

 

 

BFM: It really sounds like Europe has its work cut out for it at this point. What do you think? What could we see coming out of Europe in terms of any fiscal policy? Or will this pressure the EU, put more pressure on the EU?

 

TN: ECB doesn’t really have the mandate for fiscal policy, so they would have to be granted special powers to develop fiscal policy solutions. It has to be national finance ministries in Europe that develops that.

 

So the ECB can backup as many dump trucks as it wants, but it just doesn’t have the power for fiscal policy. So, again, our view is that there is a possibility that the Euro and the EU actually break up in the wake of COVID-19.

 

This is not getting enough attention. But the institutional weakness in Europe and the weakness of the banking sector in Europe is a massive problem and nobody is really paying attention to it.

 

 

BFM: Do you think this has been a long time coming?

 

TN: Oh, yeah. I mean, look, we’re paying for the sins of the last 20 years right now. And for Asia, you know, Asian countries and Asian consumers and companies have taken on a huge amount of debt over the past 20 years to fund the quote unquote, “Asian Century.” And I think a lot of Asian governments and countries will be paying the price over the next six months. The same is true in Europe. But the institutions there are very, very weak.

 

The U.S., of course, has similar problems, not because the U.S. dollar is so dominant, the U.S. can paper over some of those sins, although those problems are coming from the U.S. as well.

 

So, again, what we need to think about is this: The people who are the most affected by COVID-19 are older people. Those people are no longer in the workforce generally, and they’re no longer large consumers, generally.

 

OK. So all of the workforce is being sidelined or has been sidelined in Asia, is being sidelined in the West now, and consumption is being delayed for a portion of the population that is no longer consuming and is no longer working.

 

And so getting the fiscal stimulus out is important because those people who are contributing to the economy can’t do anything, right?

 

So and this isn’t to say we’re not caring about the older populations. Of course, we all are. But it’s a little bit awkward that the beneficiaries of this economic displacement are largely people who are not contributing to economies anymore.

 

 

BFM: All right. Tony, thank you so much for joining us on the line this morning. That was Tony Nash, CEO of Complete Intelligence.

 

Listen to the podcast on COVID-19 in BFM: The Business Station

 

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Podcasts

Policy Action Kicks In As Bull Market Officially Ends

Various central banks are implementing emergency rate cuts to respond to the coronavirus and as the bull market ends. Meanwhile, it remains to be seen whether peak infections in China and South Korea are a light at the end of the tunnel.

 

Presented by: Wong Shou Ning, Lyn Mak, Julian Ng

 

 

The UK has launched a stimulus plan. Do you think the ECB will be pressured to do the same?

 

I’m sure they will. I don’t think they have that much power into interest rate cutting area – the rates are already right around zero. What they’ll most likely do: buy more government bonds, ease up on the reserve ratio, loan incentives, etc.

 

Europe is in a pretty bad position partly because COVID really attacks older people more aggressively than younger people, and the demographic profile of Europe is pretty terrible. So the ECB has to do something to help the economy. What they’re trying to do is to make sure the consumers don’t totally close their wallets and the banks don’t totally close lending. They’re really trying to stimulate banks to keep money moving.

 

 

In China and South Korea, there are indications that the infections have peaked. Pres. Xi visited Wuhan. Is this the light at the end of the tunnel?

 

I think it’s a natural progression and it’s quite possible that things are dissipating in China and things are improving. We see road traffic congestion gradually building back. That’s good for everybody. 2/3 recovered. We’re getting there. There may still be quite a lot of bounce back in March. Hopefully, in Q2, we’re back to an almost normal level.

 

 

Japan’s economy seems to be bordering on the recession. Do you think even the Bank of Japan has assisted on the current downward cycle? Have they got any more policy options left?

 

Central banks can do for the ending bull market. The BOJ really has been focused since 2012 on Abenomics to try to raise the inflation rate to 2%. They never achieved that. But they have helped some other things to stimulate the economy.

 

Japan’s in a very tough place because it’s tied to the Northeast Asian supply chain and it has the same demographic problem that Europe has. They really need to start circulating money. They can use these tools on reserve rates and loans, but how much further can they push it?

 

 

The fall in crude prices has also negatively affected shale oil producers. What’s your near and long-term outlook for the industry?

 

Shale for the US is energy security. Americans are tired of the political issues that they face in the Middle East to secure their energy supply chain. The current administration help the shale producers to survive including backing up their loans, working with banks to extend the payback period, etc. Shale is seen as a national asset by the current administration as they work very hard to make sure that those companies continue to be competitive and have the resources.

 

 

Listen to this podcast on the bull market at BFM: The Business Station.

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Podcasts

Virus? What Virus? [Brexit’s impact, equities, coronavirus, etc.]

Brexit’s impact on the Sterling and tech stocks at nosebleed-highs are the subject of the day’s market discussion with Tony Nash, Founder and CEO of Complete Intelligence.

 

You forecasted that any loss in trade to be modest at best. Why do you say that?

 

“The nation tariff rate for non-EU member is something like 2.3%–2% on the price of anything is not going make a major difference. The trickier issue is the non-tariff barriers that Europe has. The UK has to navigate around those non-tariff barriers,” said Nash.

 

“In terms of country partners, the US is actually the largest trade partner of the UK. It’s around $67-68 billion a year. The second largest export partner in Germany at about $45 billion dollars. The EU as an aggregate partner is, of course, larger than the US. But the EU as a trade partner is stagnant. It’s not growing from the UK. It hasn’t grown noticeably since 2015/16. Meanwhile, the US is growing at a billion dollars per year.”

 

Where do you see the Pound this year?

 

“We’re seeing the Pound continuing to strengthen until about April. And once April hits, we see some of its strength tail off just a bit,” said Nash.

 

Listen to the Brexit’s impact podcast at BFM: The Business Station.

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News Articles

6% The Best China Can Do

As markets overnight were bolstered by concerns over a virus spreading from China, we speak to Tony Nash, CEO of Complete Intelligence, for his insight into the downgrade of China’s GDP forecast, the upside to US equities, and a fall in oil prices as a result of China’s coronavirus.

 

Presented by: Roshan Kanesan, Wong Shou Ning, Lyn Mak

 

Listen to the podcast from BFM: The Business Station. 

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Podcasts

On rate cuts: follow the leader

8 August 2019

We speak to Tony Nash, Chief Economist and CEO of Complete Intelligence, on the decisions of central banks of New Zealand, India and Thailand to cut interest rates, the PBOC’s motivation to set its reference rate for the yuan, and whether investors will be holding on to the greenback as a safe haven currency.

Listen to the podcast at BFM 89.9: The Business Station