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CNA’s Asia First: US market pullback, less intense fear of COVID

Tony Nash joins the Asia First team again for another look at the US market pullback. What was the reason for that — is it the Biden’s VP candidate, the stimulus, or others? Also discussed were the market sentiments and what Nash thinks is lacking in the US economy right now. He also shared what Americans feel about COVID right now and what it means for businesses. Lastly, they discussed East Asia versus South Asia.

 

This video is the segment of Tony Nash from the August 12, 2020 full-length video episode, which was originally published by CNA for their Asia First show. You can find the source https://www.channelnewsasia.com/news/video-on-demand/asia-first/wed-12-aug-2020-13015722 

 

Show Notes

 

CNA: Tony Nash joins us now. He’s founder and CEO Complete Intelligence. He’s speaking to us from Houston, Texas, USA. Tony, we’re seeing this pullback in the markets overnight. I don’t know if it comes as a surprise to you. Is this the realization that the stimulus package might not be imminent. Is this who Biden has picked for a running mate or are there other factors at play here that have influenced the market?

 

TN: It’s really more about yields than anything. We’ve seen the impact of yields on precious metals. The impact on silver was most dramatic. But with equities, we saw a little bit of a pullback then. But we don’t necessarily feel like equities are in at a correction point at the moment. It might be some political news on Joe Biden’s VP candidate but I don’t necessarily see that being a disappointment. I don’t think there were huge expectations there.

 

There isn’t big COVID news in the U.S. There’s not necessarily major China news outside of the Alex Azar’s visit to Taiwan and the Hong Kong stuff, but there isn’t huge market impact on that. So really, it’s about yields and it’s about the expectation of stimulus.

 

CNA: Right, how much further downside do you see for the markets then?

 

TN: In the U.S., we think markets are fairly healthy assuming stimulus is coming. Now, U.S. legislators have gone for the rest of the summer. But there’s really nothing keeping Trump from issuing more stimulus like what he did over the weekend. I mean, there are things legally but he’s issued an executive order over the weekend to do that and it was a fair bit of stimulus coming down the pike.

 

What’s missing is stimulus for small and mid-sized businesses, which we had in May, June, but that really dried up at the end of July. So, we’ve seen almost 200,000 small businesses close in the U.S..

 

Really the question is, will there be more stimulus there in terms of cash flow to help the demand issues that small and medium-sized businesses are seeing in the U.S.? One of the key things that we’re finding, over the last week we’ve seen a lot of clarity come around whether American kids will go back to school at the end of August or in September. We’re seeing more and more school districts coming online saying yes they want kids back in school. Many of them in person some of them virtually but that helps American workers get back into the office as needed and where needed and gives them focus. So I would expect productivity to improve quite a lot in Q3 as parents and kids are back in school and many of them are back there physically.

 

CNA: But the case counts in the country. I mean, that certainly is weighing on sentiment is it not? And you know the idea that the country hasn’t quite got a hold on it, there is a possibility that they will have to start, stop the economy and it’s not as straightforward as going ahead with those lockdowns. When you do it a second, third time, that’s just going to have this permanent damage to the U.S. economy?

 

TN: Sure, that’s right. But I think the focus in the U.S. has really gone away from case counts. People are really looking at mortality. They’re really looking at clusters. They’re really looking at transmissibility. And so, I think in the U.S., the sentiment and the desire to close down. Generally, people are kind of over it. The fear of COVID is not as intense as it was two months ago. People realize that it’s a disease, it’s a virus. It comes and goes. The incidence rate and the death rate is actually fairly low.

 

The U.S. has done tens of millions of tests and so people are realizing that the high case counts are very related to the tests and this is going out through a lot of different mechanisms at the state level and the national level in the US. It’s not to say it’s gone. It’s not to say that we have zero cases. But a lot of countries in a lot of locations that say they have zero cases. I’m not necessarily sure that the testing is being done as thoroughly as it could be.

 

CNA: All right we’re also seeing that improvement of economic indicators in the Asian region, industrial output, some export figures look like they are on the uptrend in China for example. How much of this is going to be a divergent play east Asia versus south Asia for example?

 

TN: We really see east Asia lagging, although the Chinese data like the auto data that came in yesterday it looks okay. On year on year basis it looks pretty good. But I’m not necessarily convinced that that’s sustainable, given the demand issues that we saw in the first half of the year. There are ongoing worries that we’ll see issues in China’s economy and political issues in China with Hong Kong and other places.

 

We’re expecting east Asian markets to really not do well this month. We’ve expected kind of more than a one percent decline this month in east asian markets generally between say one and three percent based on the market in south Asia because they’re less China connected. We expect them to be flat to slightly down. So,  this month generally we’re expecting a slight pullback in Asia but south Asia fares a bit better than east Asia, although it’s not that dramatic.

 

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QuickHit Visual (Videos)

QuickHit: China is not going to stop being China

Panama Canal Authority’s Silvia Fernandez de Marucci joins us for this week’s QuickHit, where explains why China is not going to stop being China. She also shares first-hand observation on the global trade trends — is it declining and by how much, what’s happening in cruises and cargo vessels, where do gas and oil shipments are redirecting, why June was worse than May, and what about July? She also shares the “star” in this pandemic and whether there’s a noticeable regionalization changes from Asia to Europe, and when can we see it happening? Also, what does Panama Canal do to be up-to-date with technology and to adapt the new normal?

 

Silvia is the Canal’s manager of market analysis and customer relations. She has 20 years of experience studying all the markets for them and is responsible for their pricing strategy, their forecasting of traffic and customer relations.

 

Panama Canal opened in 1914 with annual traffic of 14,702 vessels in 2008. By 2012, more than 815,000 vessels had passed through the canal. It takes 11.38 hours to pass through it. The American Society of Civil Engineers has ranked the Panama Canal one of the seven wonders of the modern world.

 

***This video was recorded on July 30, 2020 CDT.

 

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: Recently, the CPB of the Netherlands came out and said that world trade was down by double digits for the first five months of the year. Obviously that’s related to COVID. Can you tell us a little bit about what you’ve seen at the Canal and really what you guys have been doing? Everyone’s been in reactionary mode. So what have you seen happening in the market?

 

SM: There are some trends that had been present before COVID like the movement of production from China to Eastern Asia and we think this is going to be accelerated by this pandemia. But I don’t think that China is going to stop being China. It will keep the relevance and the importance in global trade as they have today.

 

We think that probably, yes, we will see more regionalization. We saw the signing of the renewal of the NAFTA trade between Canada, the US, and Mexico. So we think that there may be something happening in that area. However, we don’t see that trade is going to stop. I mean trade is going to continue growing after this pandemic.

 

This is something that I would say very different from anything that we have experienced before because once it is solved, I don’t know if the vaccine appears and people start going back to the new normal, there will be changes probably to the way we do things and the consumer is going to be very careful and probably will change his habits in order to prevent contagion. But I think trade is going to continue.

 

We see some of these trends becoming more and more important or at a faster pace. It is not an economic crisis per se. Once the people are going back to work, the industry will restart their operations, people are going to be rehired. The economy should start recovering faster. We are not sure because there is no certainty with this situation.

 

We first heard about it early in the year with the cases in China. But then, it looked so far away. It was happening to China. It was happening to Italy. We didn’t think about it as something that was so important or so relevant. The first casualty was the passenger vessels. The whole season for cruise ships at the Canal was cut short in March and Panama went to a total lockdown on March 25.

 

It really started for us when we received the news of a cruise ship arriving in Panama with influenza-like disease on board that wanted to cross, which was the Zaandam, and the first one that we had with the COVID patients on board.

 

TN: And how much of your traffic is cruise ships?

 

SM: It’s very small, to be honest. It’s less than two percent of our traffic. But still, we see it as an important segment, not only because of the traffic through the Canal, but also because of what it does to the local economy. We have a lot of visitors, a lot of tourism, and that is a good injection of cash coming to Panama. It was the probably the end of the season but it was shorter than what we would have wanted.

 

TN: When we saw the first wave of COVID go through Asia, did you see a a sharp decline in vessel traffic in say Feb, March? Or was it pretty even? Did we not see that much? Because I’ve spoken to people in air freight and they said it was dramatic, the fall off they saw. I would imagine in sea freight, it’s not as dramatic but did you see a fall off?

 

SM: It started in January, which is the very low season for containers, which is the most important market segments in terms of contribution to tolls. When we saw that there was this COVID happening in Chinese New Year, everything was closed. We were in a slow season. So we didn’t see much of an impact.

 

And for the Canal, there is a lagging effect because we are 23 days away in voyage terms. So whatever happens in China, we feel it probably one month later. We expected January and February to be slow because of the normal seasonality of the trade. But then after March, I would say that April was probably the worst month for us. We were hit April then May was worse than April and then June that was even worse than than May.

 

TN: June was worse than May? Okay.

 

SM: June was worse than May. We‘ve seen four percent, ten percent, fourteen or sixteen percent decline each month. It was like, “Oh wow! This is really thick. This is really getting worse.” We had reviewed our forecast in April. And I think so far, it is behaving as we expected back then. But there’s nothing written about COVID. We are learning as we go.

 

I would say that container vessels were also affected these three months of the year. We have LNG vessels that were supposed to deliver natural gas to Japan, Korea, and China. And LNG had been behaving very badly all year. That is kind of a peak season for LNG and LNG has been having a hard time because the market were supplied and the prices were very low, so many shipments that were supposed to end up in Asia, ended up in Europe or other destinations that were more profitable for the owners. But when the price of oil collapsed and went negative, the prices of LNG were affected in the Middle East and became more competitive than the US prices.

 

We saw a harsher decline in LNG shipments. We see, for example, 30 percent less than we expected to see and by COVID in April, it was probably 50 percent below what we were expecting. It was major and Iguess it’s a matter of demand because since the whole Asia was locked down, there was no demand.

 

TN: When industry stops, you don’t need energy. It’s terrible.

SM: Exactly. It’s really terrible. It was terrible. But we had some stars in our trade that supported the situation like LPG, the cooking gas and obviously people were cooking more at home so the demand was high and we saw an increase in trade for LPG. It’s a good market for us, for the neopanamax locks, so in a way we are grateful that our trade has not suffered as much as we have seen in other areas.

 

TN: You said you declined into June. How have things been in in July, so far?

 

SM: July seems promising. We came from a from a very bad June that was closed probably 16 percent below what we expected to have. But July is about maybe seven percent below our expectation. But we are very concerned about a potential W-shape recovery because of the new cases that we have seen in the US.

 

TN: When we saw factories close across Asia in the first quarter and in some cases stay until the second quarter, did you see some of the folks who were shipping through the Canal start to pivot their production to North America?

 

SM: It’s probably too early to say. We will see the effects of COVID probably in terms of near shoring maybe in two years. I don’t think that the companies or the factories are so quick as to move the production especially during this period in which everybody is still trying to cope with the situation.

 

TN: And manage their risks, right?

 

SM: Yes. So I don’t see that happening anytime soon. But it’s probably something that the factories and the companies are going to start speeding up and diversifying their production.

 

TN: And as you said earlier, China’s still going to be there. China’s not going to disappear as an origin, right? What I’ve been saying to people is it’s incremental manufacturing that may move. It’s not the mainstay of Chinese manufacturing that’s going to move or regionalize. They’re still going to do much of the commoditized manufacturing there because the infrastructure is there.The sunk cost is there, and they need to earn out the value of those factories. I like your timeline of two years before you really start to see an impact because we may see some incremental movement and maybe some very high value, high tech stuff or something like that move first but the volume of things probably won’t happen for at least two years. Is that fair to say?

 

SM: I would say so and I would add that we have seen these shifts to Vietnam and Malaysia and other countries in Asia, but we still see containerized cargo shipping from China. The volumes are still not high enough to be shipping directly from those countries. The container may come from Vietnam and or from Malaysia and they come to Shanghai or to another port in China. They consolidate the vessel there and the vessel departs from those ports. So in terms of Canal, for us that is good news. And I would say that probably Korea is trying to attract that tradition as well. So the long voyage will start in China or in Korea or in Japan instead of these other countries that are further away from our area of relevance.

 

TN: That makes a lot of sense. Just one last question. How do you see transit changing over the next five to ten years? What are you seeing from the Canal perspective in the way your operations will change?

 

SM: We are still adjusting to what is happening. We have always been very regulated in the best way. What I mean is that we have always had our protocols and codes for attending every situation. We have our protocol for infectious diseases that was the basis to start working with COVID. We think that at the canal probably, what we will see in the future is more technology to improve the operation. I’m not sure exactly how, but definitely there are machine learning and artificial intelligence that may help us be more accurate in our forecasts and probably organize our traffic in a way that is faster or we make better use of the assets. The canal is 106 years old. We have been adjusting every time to the new ways of the world, and we’ll continue to do so as a trade enabler.

 

TN: That’s right. Silvia, thank you so much for your time. This has been very insightful. I really do hope that we can connect again in some time and and just see how trade recovers and what we look like maybe going into 2021 or something like that. Okay. Thank you so much.

 

SM: Thanks to you.

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QuickHit Visual (Videos)

QuickHit: The “Great Pause” and the rise of agile startups

Vice President for Accelerator Investment Fund for Capital Factory, Bryan Chambers, joins Tony Nash for QuickHit’s 15th episode. In this episode, they discuss the making of agile startups, and how they are amidst an economic recession brought on by the COVID pandemic, energy fallout, and other issues. Chambers also talked about The Great Pause. He sees this as a large contributing factor for the future of startups around the globe.

 

Capital Factory is the center of gravity for entrepreneurs in Texas. They help founders and startups by introducing them to their next investors, their next customers, their next employees. Since 2013, they’ve been the most active VC in the state of Texas, unlocking billions of dollars of new value for startups.

 

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: How have small, innovative companies been impacted by the various kind of problems we’ve seen over the last four months starting with COVID and then energy fallout? And how are corporates responding to that?

 

BC: The best entrepreneurs I’ve ever had the opportunity to work with generally have two characteristics: they’re incredibly resourceful and they are very emotionally intelligent individuals. Those are the two critical aspects of entrepreneurs that are also going to help them successfully navigate a global pandemic.

 

Everybody’s pretty impacted. The impact is significant. And so much that we’ve applied a formula internally called the COVID Impact Score. We ask everybody: how has COVID impacted this business and where is it going? How is it changing? Few people are positively impacted by it. Most people are negatively impacted by it. A few businesses are just neutrally impacted. But most people fall into that first camp, the negatively impacted.

 

People should be looking in the mirror, thinking very deeply about how do they pivot. How do they capitalize on new opportunities? Regardless of a global pandemic, it’s incredibly hard to build a startup and build a successful organization. This makes it even more difficult, and we’re going to see a lot of companies die faster. But we’ll also see lots of new and exciting innovations be born. We know in the wake of a crisis, major innovation and reform, happen. It’s exciting. But it’s also painful to get there.

 

It’s the Great Pause. The investment community is confused because our minds always say “no” when it comes to making an investment decision or a purchasing decision. It may not the [fault] of the product or service. We don’t know what’s going to happen in our business next month or next quarter and confused minds say “no”.  And I think there’s a lot of “no” right now.

 

TN: That’s what we’re seeing in the commercial environment but I think from the investor side, I yearn for the days of Q3 2019 in terms of investment funding. What a beautiful time it was. And it’s just a 180-degrees from that right now. As an entrepreneur and a startup, it’s an interesting time for us. It’s a matter of reorienting who we are. I know Capital Factory is doing the same thing.  Even big corporates are doing the same thing.

 

That’s what we’re seeing in a lot of the conversations we’re having. Many people aren’t really sure of their short-term priorities, and they just kept moving along. We’re finding opportunities in that, which is great.

 

Figuring out how to respond to that had been a challenge for us. But now that we’ve cracked it, we feel like we’re really moving ahead, and I’m hoping that those entrepreneurs that you guys are working with, that many of them can do that.

 

So part of the next step is what are corporates doing? How are corporates innovating through this? Are they relying on Capital Factory companies or external innovations to figure this out, or are they doing that great pause you’re talking about? Or are they just taking their own inventory in-house? Maybe they are trying to figure out where they’re going?

 

BC: It’s all of the above. Budgets have dried up and confusion still remains. People are scrambling to figure out how to re-prioritize innovation projects. But something so unique is happening in the technology ecosystem, not just in Texas, not just in the nation, but across the world. Innovation cycles are continuously speeding up. They’re getting faster. This only makes Fortune 500 companies more and more susceptible to disruption and more and more uncomfortable.

 

Any major corporation has two strategies: an internal strategy and an external strategy. They must be thinking about both. How do we improve our own processes, our own efficiencies and continue to innovate and iterate better and faster? But we better look outside our four walls, because startups are coming to eat our lunch. They can do it better and faster than they ever have in the history of the world, and it’s happening.

 

New business models and new types of firms will emerge. New firms like Capital Factory and our Innovation Council, the service that we help provide to startups and to our Fortune 500 organizations are going to be more prevalent. It is so fast and furious [at this point in time]. No large corporation can [compete] successfully without help from new types of partners.

 

TN: What we saw initially with COVID, especially, is a wave of fear. Now what we’re starting to see is a wave of humility. We could have done this better. We need to look outside. We need to consider that person inside who had that idea. That initial wave of fear was really two months. People were just reacting and trying to figure out how to survive day-to-day. Now they’re taking stock and looking back so they can figure out what their next step is.

 

How do you see corporates operating with external innovative companies going forward? Do you see more action there? Do you see more interest there? Do you see the return of corporate VC arm in any large company?

 

BC: Corporations need to be great at executing low-cost, low-risk proof-of-concepts in a non-production environment. We’re going to need to do integrations with lots of startups and rapidly test. Then [they will need to] choose the ones that work well and scale with them, if not acquire them, invest in them or support them.

 

The global pandemic has brought that confusion which has brought a temporary pause. But we’re going to see it continue to accelerate, and we’re going to see it accelerate in all areas. Organizations will be be forced to start engaging earlier with startups. We’re going to see more corporate venture capital dollars begin to flow.

 

Big corporations, now for the first time, are turning around thinking, “Oh my gosh, that startup can really compete with us and we´re Microsoft.” That statement is more true now than it ever has been. It’s only that level of innovation that will continue to benefit the agile, resourceful startups.

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Podcasts

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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QuickHit Visual (Videos)

QuickHit: Proactive companies use data to COVID-proof their supply chains

Supply chain expert and SAP SCM/IBP Architect Odell Smith of My Supply Chain Group joins this week’s QuickHit to talk about how proactive companies will survive, how data helps them decide quickly on supply chain solutions, and what we can do to be better prepared next time. After a quick 5-year stint in engineering, Odell has been doing supply chain technologies for over 30 years. His company does mostly SAP products and advisory services and implementing technologies for the supply chain.

 

Don’t forget to subscribe to our Youtube channel and hit the bell icon to be notified when a new QuickHit goes live. If you missed some of our episodes, here are some of the lastest ones you’ll enjoy watching:

 

Manufacturers are bouncing back, but…

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?

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

 

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: How are your clients looking at their supply chains? How do they use their data to better understand and plan their supply chains even with all the craziness and volatility? Can you give us an example?

 

OS: Our clients have had a variety of different issues. There are companies that even inside the same company, they’ve had one business unit with a huge spike in demand and another business unit will just drop off. One of our clients is one of the largest beer producers in the world. Their keg business that supports restaurants just evaporated all of a sudden. But their bottled beer just went through the roof.

 

So these companies are trying to see these demand patterns as they come in, but also be able to quickly respond to those. Everybody’s used to the monthly demand patterns. But being able to see such a rapid volatile change in these demand patterns and being able to see that with data in the systems, then being able to simulate how you’re going to respond and make intelligent decisions based on that data, has been a real game-changer. If this had happened 20 years ago, it would have been a much more difficult scenario to recover from.

 

TN: What kind of data are people using to make these decisions? Because we really don’t know what’s coming from the outside. All the governments say macroeconomic data. This hasn’t come in obviously. So how are people taking data in to understand how to adjust their manufacturing patterns?

 

OS: The operation’s focus is about trying to estimate what that demand pattern is going to look like and then be able to adjust from that, if you have a constant supply. But if you have an irregular supply, it’s also a problem.

 

Another huge issue here is we’ve off-shored so much stuff in the last 15 to 20 years. An example is one of our customers that is a large paper supplier. They bring in pulp from other suppliers. Everybody’s familiar with the toilet paper issues that we’ve had. These guys had all kinds of issues come up. They bring in product and then they manufacture that product. As they do that, their supply chains were disrupted by not being able to get their suppliers’ product through the ports. Their port activity was blocked. They knew that was going to be the case, and so they had to redirect some of that stuff that was coming in to run their manufacturing.

 

They also worked proactively with the ports. They knew that the port was going to be closed and they had to redirect that. We put in some cost optimization for them to be able to evaluate simulations to estimate where it looked like the best place to bring this raw material. And then of course, their manufacturing process itself had to change, because there’s a lot more demand now for toilet paper than there was for paper towels.

 

Nobody expected that demand shift. Everybody was unprepared for that. But being able to use data to make smart, intelligent, short-term decisions about how to correct for that new demand was something that they were able to put in place fairly quickly. For scenario planning, we were using SAP IBP to be able to make those right decisions.

 

TN: I started my career in a freight forwarder, customs broker, and all the physical logistics around it. And it was always interesting to me early in my career to see when people had cost-sensitive, time-sensitive, quality-based decisions, and you’re balancing all three. The types of decisions they made sounded like they didn’t really have any history to go by. They were just looking at expectations, and you’re just playing it day-by-day or week-by-week.

 

OS: If you have the tools and you have the data, then you can do that. Now, a lot of this data was manufactured data themselves because it was based on estimates. What are my options here? I’ve got three other ports to use, and there’s different costs of transportation going through those ports, plus there’s a risk. Will I be able to get the stuff processed through and time to be able to make it? And if I don’t, then what’s the downstream impact to me in my subsequent manufacturing process?

 

TN: All to get a roll of toilet paper to your corner store. What would you say manufacturing companies need to be thinking about? How can people be better prepared the next time this happens?

 

OS: One thing that came out of this is that this data is changing so rapidly. [Companies that can] access that data can see what worked, and what didn’t work from the last situation. There are going to be some things when you’re making these snap decisions, and you’re just trying to keep your business afloat. There are going to be some things that you learn in hindsight that were not the best thing to do. As long as you plan for that, and you know that that’s going to be the case, and you review that after the fact, and are prepared for that risk, know where that risk is, then it always helps you be able to respond better next time. If you don’t learn from those things, shame on you.

 

TN: Do most major manufacturing firms today have a good base of data and well-organized data to make some of those decisions? Or is it still kind of iffy?

 

OS: It depends. There are some that have really good data. But it has to be a decision by the company. The company has to decide to put the resources in place and to have that vision, that strategy of knowing that that data is important and that the data needs to be reviewed, audited, and cleansed.

 

Some companies are very proactive. Some companies are completely reactive. And when you get in a situation like this with this craziness, these [reactive] companies won’t make it. Proactive companies will make it. So it’s really a business mindset and putting a value on that data that makes it helpful.

 

TN: These major manufacturers that you work with, I think there’s a perception out there that a manufacturing firm has one ERP system. Do you work with any firms that have kind of one ERP system or are they dealing with half a dozen or more typically?

 

OS: There are companies that have been able to maintain that single ERP situation. But more than not, you wind up with mergers and acquisitions. And these M&A activity is just brutal on IT organizations because very seldom do you acquire somebody who has the very same ERP system and they are on the same version that you’re on. And then, there’s a product rationalization and a customer rationalization that has to take place. Those are all very difficult things to get past.

 

TN: Pointing out, so just people understand. It’s not as if you’re just taking data out, putting it in a big machine and then putting it out the other end to help make a decision. You’re taking data in from a lot of different sources. And you’re making sure that it’s somewhat normalized or understandable in the output. And then those managers within those companies are also seeing data in a number of different formats to make those decisions. So this isn’t linear. This looks more like a bunch of weeds over here and a bunch of mangled tree roots over there and you’re trying to make it as linear as possible. The complexity of these decisions, the complexity of these data, say logistics activities, are just fascinating.

 

So last question here Odell. You’ve seen these companies through the first phase or two phases of this. Do you see these companies back on a path to normalization now? Are there manufacturing and supply chain processes normalizing now?

 

OS: There are some that are beginning to get back on the horse and there are some that are just still severely impacted. Some of our customers are in the pharma industry. They’re just going nuts and they’re going to continue to go nuts for a while. It’s really a mixed bag of things. A lot of our customers manufacture products that are related to home. Everybody has been doing a lot more of that lately. Demands for those have still been really strong even though supply may have been impacted by some of the situations.

 

One of our clients is a company that has multiple legacy systems. One of the great things about these new cloud solutions is the ability to do that normalization, to be able to take data from multiple different ERPs, disparate ERPs, and bring it in for a total view for the executive team to make these quick decisions. A lot of our customers are doing really well, and so it’s great to see them coming out of this. It’s been a slow couple of months for people just to wrap their arms around the thing, and try to just fight fires. And then now we’re coming out of some of that and into recovery mode that looks good and strong.

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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.

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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.

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News Articles

COVID-19: Towards the end of everything “made in China” for electronics manufacturers?

This post on Made in China first appeared in https://www.usine-digitale.fr/article/covid-19-vers-la-fin-du-tout-made-in-china-pour-les-fabricants-d-electronique.N950286. The copy posted below is originally in French and was Google-translated to English.

 

It is an old factory with a decrepit facade, on which climb some wild grasses. At the edge of this canal in the south of Taipei, only a watchman watches the ear. The plot has just been bought by the Taiwanese electronics manufacturer Pegatron to increase its production capacity in Taiwan. Reported by the financial media Bloomberg, the initiative is the latest in a series of investment projects outside of China announced by Taiwanese subcontractors.

 

From Apple to Samsung, these shadow firms manufacture, assemble and sometimes design products on behalf of major electronics brands. Most of these companies have their headquarters and a handful of factories in Taiwan. But the final assembly is mainly carried out on the other side of the strait. The Taiwanese giant Foxconn, the main assembler of the iPhone, thus employs more than a million workers in China, distributed in twelve giant factories.

 

“FACTORY CITIES” CHALLENGED BY THE PANDEMIC

 

This model, based on economies of scale, was severely tested by the COVID-19 crisis. Travel bans imposed by Chinese authorities have led to production delays, as evidenced by the shortage of Nintendo Switch, assembled by Foxconn. The firm also anticipates a 15% decrease in revenue for the first quarter of 2020.

 

“The ‘gigantic’ model takes a hell of a slap, straightforward analysis Pascal Viaud, managing director of UBIK, a company specializing in partnerships and industrial cooperation based in Taiwan. The sectors are aware of their dependence on China and the logistical risks that this implies. Some companies, especially the smaller ones, did not necessarily know this because it concerns their second or third level of subcontracting. ”

 

According to recent announcements from Taiwanese subcontractors, the COVID-19 epidemic would push major brands to rethink their production line. Wistron, another supplier to Apple, recently unveiled a budget of $ 1 billion for projects of new factories in India, Vietnam and Mexico. “Many signals from our customers let us think that’s what we need to do “, Wistron chief strategy officer Simon Lin said in a conference call reported by the Singaporean daily Straits Times. According to Bloomberg, Foxconn, for its part, planned an envelope of $ 17 billion for projects in India and Vietnam.

 


Foxconn’s headquarters in Taiwan

 

LOOKING FOR ALTERNATIVES TO CHINA

 

“China is becoming riskier for these companies, which may have felt that authorities withheld information during the epidemic, said Tony Nash, chief executive of Complete Intelligence, a business planning platform. costs and revenues of companies running on artificial intelligence. These companies are increasingly looking for alternatives to China. This is a classic risk reduction strategy already at work, but one that will seriously accelerate the next three years. ”

 

Kuan-lin (the first name has been changed) can testify to this. This salesperson works for a Taiwanese manufacturer whose client is a famous American brand of computers. For the past three weeks, the employee has been under constant pressure from his hierarchy and rarely leaves his office before 10 p.m. “Because of the epidemic, our client is asking us to speed up a project to build a factory in Mexico,” he explains, with dark circles and a pale complexion.

 

 

TRADE WAR WEIGHS ON SUBCONTRACTORS

 

The trend is not new. The trade war between China and the United States had already pushed part of the electronic production out of China. The manufacturers hoped to escape the sanctions of the Trump administration, applied to “Made in China” products. Depending on its Chinese factories, Foxconn had paid the price: according to calculations by the specialized media Bloomberg, the profits of the subcontractor fell by 24% for the period from October to December 2019.

 

“Competitors who did not have production lines in Taiwan have been disadvantaged by the trade war, confirms a manager of a Taiwanese electronics company which has a production tool on site. Thanks to our Taiwanese factory, we were able to reserve our products made in Taiwan for the American market. ”

 

With a skilled workforce and cutting-edge infrastructure, Taiwan is well placed to stand out. The Taiwanese government has elsewhere launched a vast plan to facilitate the return of factories to its soil. But the archipelago lacks space and has a limited comparative advantage. “Taiwan is suitable for high-end products, which can be sold more expensive, points out the same frame. For other products, manufacturing in Taiwan has an impact on profitability.”

 

 

TOWARDS REGIONALIZATION OF PRODUCTION

 

The most likely scenario seems to be that of a regionalization of production, which would jointly benefit several countries. “This is not going to be a massive departure from China, anticipates Tony Nash. For Asia, there will simply be more additional parts manufactured in Taiwan or Vietnam. For the American market, it could be Mexico.”

 

As a note from Deloitte suggests, this shift could also be accompanied by increased digitization of the production chain. Joined by L’Usine Digitale, Eddie Chang, head of finance at ASE Group, one of the Taiwanese behemoths for the assembly and testing of electronic circuits, confirms this future direction: “We are going to develop technologies enabling virtual teamwork and industrial automation. We also plan to increase the automation of our logistics to reduce human interactions”.

 

 

CHINA HAS NOT SAID ITS LAST WORD

 

However, the recent development of the epidemic calls for caution. In China, the main factories have returned to their pre-crisis operating level. Foxconn was able to restore production of the new iPhone SE with massive hires and inflated work premiums. “During the crisis in China, our factories were at 60% of their capacity, today we are not far from 100%”, confirms a sector executive whose factories are in Shenzhen.

 

At the same time, the countries presented as alternatives to China are in turn impacted by the epidemic. In India, where Apple produces its iPhones for the local market, Foxconn and Wistron have announced that they have suspended production until mid-April. The US state of Wisconsin, where a Foxconn factory is soon to come out of the ground, has seen in recent days a dizzying increase in the number of cases of contamination.

 

“The new turn that the COVID-19 crisis has taken is a game-changer,” says Aymeric Mariette, research officer at the France China Committee. The attitude [of electronics companies located in China] is now much more wait-and-see for relocations “. Apple CEO Tim Cook also defended himself at the end of February from any major movement, preferring to speak of “adjustment adjustments” linked to the crisis.

 

Especially since China will not let these companies slip through its fingers so easily. The strategic challenges are significant: the ecosystem of electronic suppliers has enabled Chinese brands, such as Huawei, to follow in the footsteps of American giants. “The Chinese authorities are carrying out charming offensives towards foreign investors in China, for example with the promise of equal treatment in access to financial aid, facilitation of investments or even the announcement of new reforms, analyzes Aymeric Mariette: China knows that it is now ahead of the other major world economies and intends to profit from it. ”

 

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Visual (Videos)

COVID-19 effects on the US Economy

As the COVID-19 effects hit in the US, more than 3 million Americans lost their jobs last week. Reports also show a sluggish growth on personal consumption. The Fed Chairman says the US may already be in recession. We are joined by Tony Nash, CEO and Founder of Complete Intelligence, from Houston, Texas.

 

CNA: We’ve got this incredible amount of stimulus in the system, and the market seems loving it. The fundamentals of COVID-19 are getting worse, but the markets seem to be moving another direction. Is there a disconnect?

 

TN: I don’t think there is. I think there are two things. First, people want better information. With the testing and other things. Not all tests are created equally. We are not told the denominator of the tests. I’m not an expert, but there are some issues around that not all countries’ numbers are created equally. But the 2 trillion dollar stimulus, it’s not possible that that’s the extent of the stimulus that the US government is going to issue.

 

This is a government-induced recession, globally. A recession is typically an economic failure, a financial failure. What has happened is that governments have effectively turned down the economy like putting their economies in a coma. So there’s nothing that companies can do to avoid this. This is the responsibility of every government that puts strict measures in place and it’s their responsibility to make sure that their economies are back up.

 

CNA: Are you concerned about the cost to cushion the fall of COVID-19 effects? Remember the 2008 financial crises and how much money it took back then—hundreds and billions? We are now talking about trillions here. When will we able to see the kind of recovery that we saw in the past 10 years once we’re over COVID-19?

 

TN: I do believe we’ll see that recovery. I believe this is sufficiently different. It was not the market’s fault. This was the investor market, investor banks back in 2008, 2009. This is the government today. So it’s the government’s responsibility to fix what they did. I understand they’re responding to COVID-19 and its effects, but they’re the ones to put the measures in place. They’re the ones to handcuff managers, CEOs, and executive teams. So it’s the government’s responsibility to help companies start back up.

 

CNA: On that note, Donald Trump wants the American workforce to get back to their jobs as everybody wants to work. I don’t doubt that. Do you agree with that? Is that the solution, the elixir to the problem here?

 

TN: I do believe that. I’m actually more worried about the social issues associated with jobless dislocation than really the COVID-19 effects. Not that I don’t care. I want everyone to take measures. But the social dislocation of people in their prime working age. Being laid off. We have 3 million of them as reported today. These are people in their prime. They’re earning and they’re losing their jobs. We’re gonna see a lot of problems. And so, depression, suicide, all sorts of things.

 

My fear is that those things start to manifest in the next few weeks. So the US has to get back to work. Americans have to get back to work. Otherwise, people will be short on their bills and they’ll feel incredibly stressed.

 

CNA: How bad do you think the economic data is going to get? Now that we got the 3.3 million jobless claims out of the United States? Is this just going to continue to get worse and worse down the pipeline here?

 

TN: Oh yeah. I think it will get worse until probably the third week of April or maybe the 4th week of April. We’ll continue to see this over the next month until the hump. Once we get over the hump, we’ll see, once the fiscal stimulus starts to take place, which is the big difference this time.

 

We’re seeing a lot of fiscal stimulus. That’s the difference. It’s not just the Fed printing dollars, of course, that’s happening. But we’re seeing fiscal stimulus going straight to end consumers. That’s very important.

 

CNA: What can we learn from China’s response in this situation? It seems things are returning back to normal in China with Hubei province opening up, Wuhan in 2 weeks, traffic jams in Beijing. Can the US look forward to that extrapolation? What’s happening in China, coz I mean the capital markets in China have made a decent recovery as well.

 

TN: I think the US is going to come back pretty aggressively in say the last week of April or early May. I don’t see that the way the US is handling it is similar to China, given the civil liberties that Americans have, there’s absolutely no way that that would work in America.

 

We have a thing called the 4th Amendment in the US that allows people to assemble and leave their houses. So welding people in their apartments wouldn’t work here, and so the US had to take other measures. And I actually think it’s being fairly effective. The case count in the US looks like it’s high, but I’m not convinced that we’re seeing full reporting from any other countries.

 

CNA: Thanks so much, great to chat with you. Stay safe there in Houston, Texas.

 

 

Watch the interview on Channel News Asia’s Asia First.