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Sentiment has soured: How will governments and companies respond? (Part 1)

Sentiment has soured: How will governments and companies respond? (Part 1)

Companies are saying that the Q3 revenues will be down a bit. What’s really happening and how long will this last? Chief Economist for Avalon Advisors, Sam Rines, and a returning guest answers that with our first-time guest Marko Papic, the chief strategist for Clocktower Group.

 

In addition, both the Michigan Consumer Sentiment and the NY Manufacturing survey down as well. Watch what the experts are seeing and what they think might happen early in 2022.

 

Watch Part 2 here. 

 

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This QuickHit episode was recorded on August 19, 2021.

 

The views and opinions expressed in this Sentiment has soured: How will governments and companies respond? (Part 1) QuickHit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest 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: So I guess we’ve started to see some negative news come in with the Michigan Consumer Sentiment with the New York Manufacturing Survey and other things. Most recently, we had some of the housing sentiment information come in. And I’ve heard companies talk about their revenues for Q3 will be down a bit. And so I wanted to talk to you guys to say, are we at a turning point? What’s really happening and how long do you expect it to last? Marko, why don’t you let us know what your observation is, kind of what you’re seeing?

 

MP: Well, I think that, you know, the bull market has been telling us that we were going to have an intra cyclical blip, hiccup, interregnum, however you want to call it since really March. And there’s, like, really three reasons for this. One, the expectations of fiscal policy peaked in March. Since then, the market has been pricing it less and less expansion of fiscal deficits. Two Chinese have been engaged in deleveraging, really, since the end of Q4 last year, and that started showing up in the data also on March, April, May.

 

And then the final issue is that the big topic right now is something we’ve been focused on for a while, too, which is this handover from goods to services, which is really problematic for the economy. We had the surge of spending on goods, and now we all expected a YOLO summer where everybody got to YOLO. It really happened.

 

I mean, it kind of did. Things were okay but, that handoff from good services was always gonna be complicated, anyways. And so I’m going to stop there because then I can tell you where I stand and going forward. But I think that’s what’s happening now and what I would be worried about. And I really want to know what Sam thinks about this is that the bull market been telling you this since March. There’s some assets that were kind of front load. The one asset that hasn’t really is S&P 500, as kind of ignored these issues.

This chart of S&P 500 Stock Market (SPX) is generated from CI Futures, an app forecasting nearly a thousand assets across currencies, commodities, market indices, and economics using artificial intelligence and machine learning technologies. Curious how it can you and your business? Book a time with our expert and get free trial.

 

TN: Right. Sam, what are you seeing and what do you think?

 

SR: Yeah, I’ll jump in on the third point that Marko made, which is that handoff from services or from goods to services. That did not go as smoothly as was planned or as thought by many. And I don’t think it’s going to get a whole lot better here. You have two things kind of smacking you in the face at the moment. That is University of Michigan Consumer Sentiment and the expectations. Neither of those came in fantastically. Today isn’t great. Tomorrow isn’t expected to be great.

 

Part of that is probably the Delta variant, depending on what part of the country you’re in, that is really beginning to become an issue. Not necessarily, I mean, it’s nowhere near as big of an issue as COVID was for death and mortality in call it 2020. But it’s a significant hit to the consumer’s mindset. Right?

 

And I think that’s the part, what really matters is how people are thinking about it. And if people are thinking about it in a fear mode, that is going to constrain their switch from goods to services and the switch from goods to services over time is necessary for the economy to begin growing again at a place that is both sustainable and is somewhat elevated. But at this point, it’s really difficult to see exactly where that catalyst is going to come come from, how it’s going to actually materialize in a way that we can get somewhat excited about and begin to actually become a driver of employment. We do need that hand off to services to drive employment numbers higher.

 

And what we really need is a combination of employment numbers going higher, GDP being sustainably elevated to get bond rates higher. So I think Marko’s point on what the treasury market is telling us should not be discounted in any way whatsoever.

 

The treasury market is telling us we’re not exactly going to a 4% growth rate with elevated inflation.

 

United States GDP Annual Growth Rate
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TN: Right.

 

SR: It’s telling us we’re going to something between Japan and Germany at this point.

 

TN: Yeah. That’s what I’m a bit worried about. And with the consumer sentiment especially, I’m a bit worried about sticky sentiment where we have this Delta variant or other expectations, and they remain on the downside, even if there are good things happening.

 

Do you guys share those worries, or do you think maybe the Michigan survey was a blip?

 

SR: Oh, I’ll just jump in for 1 minute. I don’t think it was a blip at all. I think what people should be very concerned about at this point is what the next reading is. That reading did not include the collapse of Afghanistan. It did not include any sort of significant geopolitical risk that is going to be significant for a number of Americans.

 

Again, it’s kind of like Covid. It might not affect the economy much. It’s going to affect the psyche of America significantly as we move forward. And if consumer sentiment were to pick up in the face of what we’ve seen over the last few days, I would be pretty shocked.

 

TN: It would be remarkable. Marko, what do you think about that?

 

MP: So I’m going to take the other side of this because I have a bet on with Sam, and the bet is, by the end of the year, I’m betting the 10-year is going to be closer to 2%. He’s betting it’s going to be closer to 1%. So he’s been winning for a long time, but we settled the bet January 1, 2022.

CBOT 10-year US Treasury Note
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Here’s why I think I would take the other side of a lot of the things, like when we think about where we’re headed. So first, I think there’s three things I’m looking at. There’s really four things. But the fourth is the Fed. And I’m going to like Sam talk about that because he knows a lot more than I do. The first three things I’m looking at is, as I said, there are reasons that the bond market has rallied. And I think a lot of these reasons were baked in the cake for the past six months, or at least since March.

 

The first and foremost is China. And China is no longer deleveraged. The July 30th Politburo meeting clearly had a policy shift, but I would argue that that been the case since April 30. They’ve been telling us they are going to step off the break. And, quite frankly, I don’t need them to search infrastructure spending a lot. I don’t need them to do a lot of LGFB. I just need them to stop the leverage. And so they’re doing that.

 

And the reason they’re doing that is fundamentally the same reason they crack down on tech. And it has to do with the fact that Xi Jinping has to win an election next year. Yeah. And an election. It’s not a clear cut deal. He’s going to extend his term for another five years. CCP, The Chinese Communist Party is a multi sort of variant entity, and he has to sell his peers in the communist party that the economy is going to be stable.

 

And so we expect there to be a significant policy shift in China. So one of the sort of bond bullish economic bearish variables is shifting. The second is fiscal policy. Remember I mentioned that in March, investors basically started, like the expectations of further deficit increases, basically whittle down. This was also expected.

 

The summer period was also going to be one during which the negotiations over the next fiscal package were going to get very difficult. I would use the analog of 2017. Throughout the summer of 2017, everybody lost faith in tax cuts by the Trump administration. And that’s because fundamentally, investors are very poor at forecasting fiscal policy. And I think it has to do with the fact that we’re overly focused on monetary policy. We’re very comfortable with the way that monetary policy uses forward guidance.

 

I mean, think about it. Central bankers bend over backwards to tell us what you’re going to do in 2023. Fiscal policy is a product of game theory, its product of backstabbing, its product of using the media to increase the cost of collaboration, of cooperation. And so I think that by the end of the year, we will get more physical spending. I think the net deficit contribution will be about $2 trillion, the net contribution to deficit, which is on the high end. If you look at Wall Street, most people think 500 billion to a trillion, I would take double of that.

 

And then the final issue is the Delta. Delta is going to be like any other wave that we’ve had is going to dissipate in a couple of weeks. And also on top of that, the data is very, very robust. If you’re vaccinated, you’re good. Now, I agree with everything Sam has said. Delta has been relevant. It has, you know, made it difficult to transition from goods to services, but it will dissipate. Vaccines work. People with just behavior. So.

 

TN: Let me go back to the first thing you mentioned, Marko, is you mentioned China will have a new policy environment. What does that look like to you?

 

MP: There’s going to be more monetary policy support, for sure. So they’ve already, the PBOC has basically already told us they’re going to do an interest rate cut and another RRR cut by the end of the year. Also, they are going to make it easier for infrastructure spending to happen. Only about 20-30% of all bonds, local government bonds have been issued relative to where we should be in the year. I don’t think we’re going to get to 100%. But they could very well double what they issued thus far in eight months over the next four months.

 

So does this mean that you should necessarily be like long copper? No, I don’t think so. They’re not going to stimulate like crazy. The analogy I’m using is that the Chinese policy makers have been pressing on a break, really, since the recovery of Covid in second half of 2020. They’ve been pressing on the breaks for a number of reasons, political, leverage reasons, blah, blah, blah. They’re not going to ease off of that break. That’s an important condition for global economy to stabilize.

 

Thus far, China has actually been a head wind to global growth. They’ve been benefiting from exports, you know, because we’ve been basically buying too many goods. They know the handoff from goods to services is going to happen. Goods consumption is going to go down. That’s going to hurt their exports. On top of that, they have this political catalyst where Xi Jinping wants to ease into next year with economy stable.

 

Plus, they’ve just cracked down on their tech sector. They’re doing regulatory policy. They have problems in the infrastructure and real estate sectors. And so we expect that they will stimulate the economy. Think about it that way. Much more actively than they have thus far.

 

TN: Great. Okay. That’s good news. It’s very good news. Sam?

 

SR: Yeah. So the only push back that I would give to Marko and it’s not really pushback, given his assessment, because I agree with 99% of what he’s saying. But the one place that I think is being overlooked is, one thing is the fiscal policy with 2 trillion is great, but that’s probably spread over five to ten years, and therefore it’s cool. But it’s not that big of a deal when it comes to the treasury market or to the economic growth rate on a one-year basis. It’s not going to move the needle as much as the middle of COVID.

 

TN: Let me ask. Sorry to interrupt you. But when you say that’s going to take five to ten years, when we think about things like the PPP program isn’t even fully utilized. A lot of this fiscal that’s been approved over the last year isn’t fully utilized. So when these things pass and you say it’s going to take five to ten years, there’s the sentiment of the bill passing. But then there’s the reality of the spend. Right. And so you just take a random infrastructure multiplier of 1.6 and apply it.

 

There’s an expectation that that three and a half trillion or whatever number happens, two trillion, whatever will materialize in the next year. But it’s not. It’s a partial of it over the next, say, at least half a decade. Is that fair to say?

 

SR: Correct? Yeah. Which is great. It’s better than nothing in terms of a catalyst to the economy. The key for me is it’s not being borrowed all at once. It’s not being spent all at once. Right.

 

If it was a $2 trillion infrastructure package to be spent in 2022, I would lose my bet to Marko in a heartbeat. It would be a huge lose for me, and I would just pay up. But I would caution to a certain degree, it’s $200 billion a year isn’t that big of a deal to the US economy, right. That’s a very de minimis. Sounds like a big number, but it’s rather de minimis to the overall scale of what the US economy is.

 

And you incorporate that on top of a Federal Reserve that’s likely to begin pulling back, or at least intimate heavily that they’re going to begin pulling back incremental stimulus or incremental stimulus by the end of 2021 and 2022. And all of a sudden you have a pretty hawkish kind of outlook for the US economy as we enter that 2022 phase. And it’s difficult for me, at least, to see the longer term, short term rates, I think, could move higher, particularly that call it one to three year frame. But the ten to 30-year frame, for me is very difficult to see those rates moving higher. With that type of hawkish policy in coming to fruition, it’s kind of a push and pull to me. So I’m not obviously, I don’t disagree with the view that China is going to stimulate and begin to actually accelerate growth there. I just don’t know how much that’s actually going to push back on America and begin to push rates higher here.

 

I think we’ve had max dovishness. And strictly Max dovishness is when you see max rates and when you begin to have incremental hawkishness on the monetary policy side and fiscal side. And 2 trillion would be slightly hawkish versus 2020 and early 2021. When you begin to have that pivot, that it’s hard for me to see longer term interest rates moving materially higher for longer than call it a month or two.

 

TN: Okay, so a couple of things that you said, it sounds like both you agree that China is going to do more stimulus. I think they’re late. I think they should have started five or six months ago, but better now than never. Right. So it sounds to me like you believe that there will be the beginning of a taper, maybe a small beginning of a taper late this year. Is that fair to say.

Categories
Podcasts

Consumer Sentiment Will Dampen Outlook

Corporate earnings are pretty much in line with expectations — where are stocks heading now? And what about the Congress-approved stimulus package, will that help the market this year? Also, with the rising Covid cases again in the US and China, how will this affect the two countries? Both countries have drastically low consumption. How much effect does one have to another? Lastly, will crude continue on the downtrend?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/consumer-sentiment-will-dampen-outlook on August 17, 2021.

 

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Show Notes

 

WSN: The business station BFM 89 nine good morning is 07:00 Tuesday, the 17 August and you’re listening to the morning run. I’m Wong Shou Ning and joining me in the studio this morning is Philip See. In the meantime, how are markets, Philip? Because I think it’s a bit of a red day.

 

PS: Yes, it was a red day, but actually the down SMP hit record higher up 3% other than the SEC was down 2%. Now if you cross over to Asia pack, it was also, as you said, a red day. Nikkei was down one 6% hunting negative 8%. Although in Shanghai marginally up zero 3%. Singapore was down 6%. Back home, a BNI interesting development went down quite a bit but recovered a bit to basically just be down 2% yeah.

 

WSN: Actually, I would have to say the LCI did better than expectations. The ring it actually initially weakened, but it’s somewhat recovered to the US dollar 4.2370. The currencies are always the first thing that gets hit, but against the pound is 5.8651 and against the sin dollar is 3.1250. Whether there’ll be continued weakness over the next two days is going to be a question Mark. We have to bear in mind that foreign are holding for equities is probably an all time low at 20%. Something will be asking Alexander Chia, regional head of research at RHB at 915 later on this morning.

 

So do tune in. But in the meantime, we’re going to find out where global markets are hidden with Tony Nash, CEO of Complete Intelligence. Good Morning Tony, thanks for speaking to us again. Now, US markets, despite a bit of a wobbly start, they seem to recover. They’re at their peaks and corporate earnings pretty much in line with expectations, although this week I think it’s going to be a heavy week for earnings. Now, which direction do you think stocks are set to trade ahead of the fat minutes that are supposed to be out this week?

 

TN: Well, ahead of the minutes. I think we’ll continue to see more of the same. The Fed is really in charge of markets now. We’ve seen earnings come in really stellar over the last few weeks, and we’ll continue to see that for ’23, ’22 earnings. But we’re expecting three earnings really to come in a little flat. We’ve started to see some people say that their revenues are down and to issue some earning warnings. I wouldn’t say before Wednesday, but I would say over the next few weeks we expect to see more rotations going on. We’ve seen rotations away from tech over the last few weeks and we expect to see some defensive rotation in the next couple of weeks, consumer cyclicals utilities, consumer staples, utilities, health care and so on.

 

PS: Do you think the stimulus packages that were approved by Congress will add a bit of steam going forward?

 

TN: Well, I think the infrastructure package is going to take ten years, really, that’s going to be spent over a decade. They’re going to claim that it’s going to be spent quickly, but it can’t really. And plus, it’s less than half a trillion dollars or something like that. So that money trickled out over ten years or something. I think there’s a rule of thumb for infrastructure is in. It has a 1.6 times economic impact. So let’s say it was 300 or $500 billion. It would be 1.5 times that impact on the economy.

 

So it will have a decent impact. It will just be spent over a protracted period of time. There are the budget cap battles coming up over the next two to three months in the US. So there’s a real expectation that a lot of the stimulus that the Congress has planned may not necessarily be approved because of the budget cap discussions that are coming up.

 

WSN: Meanwhile, Tony, I want to look at the relationship between US and China because we do know that the China themselves are battling the Covid crisis again and the recovery the data seems to be faltering in terms of how strong the economy is. How related are both these countries?

 

TN: Yeah. The worrying part about China right now, of course, COVID and a lot of the issues there. But we’re also seeing ports really start to really slow down. A lot of the throughput factories slow down, and it’s really concerning. So despite the red upgrades we’ve seen over the last several years about the US and China, they are really important trade partners, and their economies are really, really tied. So when we see a dramatic slowdown in China that affects everybody in Asia, it affects the US. When you see a slowdown in the US, it affects China. It affects Europe. So we don’t want to see a slowdown in China, seeing the resurgence of COVID and the impact on the economy. There is not good for anybody. Least of all US.

 

And so we still have a lot of supply chain issues globally, partly owing two COVID slowdown in China, Japan, Korea, elsewhere. Right. So we don’t want to see this. We will see restrictions in the US, not code restrictions, but restrictions to supply chains because of issues coming out of China again. And so this is bad all around. And we want China to succeed. Everyone wants China to succeed. So they’re in a boat together.

 

PS: But, yeah, in a double whammy. Right. China consumptions spent sentiment is at an all time low. And also US consumption sentiment is also registering a drastic drop in August. What does this mean for the US dollar and treasuries?

 

TN: No. Right. So with the US, we have inflationary pressure. We have pressure, workforce pressure. It’s been hard to fill spots. And companies we also have the central government stimulus is wearing off. And so with all three of those things happening, it’s a really rough period for consumers. And for companies. So we had what’s called the New York Fed Manufacturing Index come in today and excel from a a month reading is 43. This month’s reading is 18. Anything above zero is grow. So it’s still growing, but it’s slowed down dramatically. Companies, manufacturing companies are seeing things slow down. This is because of things like new orders. Slowing down. Shipments are slowing down. Orders that are on hold are rising. Consumers and manufacturers have started to feel it dramatically in August.

 

WSN: Okay. And the other thing we want to ask you about is oil, which is related to consumer behavior. I have noticed that Brent crude is $69 a barrel. WTI dropped to $67 per barrel. It’s been three days of declines. What are your expectations in terms of all prices? Is this the beginning of a downward trend?

 

TN: We’ve included is kind of range trading for a few months. I think just today, OPEC announced that they’re going to deny Biden’s request to increase their output because of peer pressure and all prices. So we think that Cuba bounce between saying mid 60s and the 70s somewhere in that range for quite some time. If we do see things and trying to get worse, if we do see more coded lockdowns and restrictions, and of course, we see downside there. I’m hoping, although the rate of recovery is slowing down, our hope is that it stays positive.

 

Okay, that way will contingency pressure on cure prices, but it will be in a range because OPEC still have something like 6 million barrels a day sitting on the sidelines, so they can always come in to add additional resources to reduce prices if needed.

 

WSN: All right. Thank you for your time. That was Tony Nash, CEO of Complete Intelligence, BFM 89.9.

 

 

 

Categories
Podcasts

Is The Rally Ending?

Tony Nash joins BFM 89.9 The Business Station for another look at the global markets and to get a sense of whether this is the end of the bull run. Also discussed how September is expected to be a volatile month. Will there be a fiscal stimulus for small businesses? Will banks and other financial institution get the next round of stimulus? And how about the oil prices — where is it going?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/is-the-rally-ending on September 24, 2020.


BFM Description

 

Speculation is rife over whether US lawmakers will be able to come to agreement over a new stimulus package, as deadlines loom. Federal Reserve Chairman Jerome Powell also warned that more stimulus will be needed, and all the uncertainty took its toll on US equities overnight. To get a sense of whether this is the end of the bull run, we speak to Tony Nash, Chief Economist and CEO of Complete Intelligence.

 

Produced by: Mike Gong

 

Presented by: Roshan Kanesan, Lyn Mak, Noelle Lim

 

Show Notes

 

LM: BFM eighty nine point nine. You’re listening to the morning run with Lyn Mak, Roshan Kanesan and Noel Lim, 707 a.m. Thursday, the 24th of September. And in round about 15 minutes, we’re speaking with Paul McManis, chief enterprise business officer at Maxus, to discuss how companies can best adapt to a post covid-19 business environment. But before that, we’re taking a look at the markets.

 

RK: Well, the markets were in the red, actually. The Dow was down two percent. The S&P 500 was down two point four percent, and the Nasdaq was down two point seven percent. How did Asia do?

 

NL: Well, Nikkei index down point zero six percent. The Shanghai Composite was up 22 percent. Hang Seng marginally point one percent of the Cosby eight point zero three percent stay up point seven percent. The FBI. CIA, however, was down one point six percent. And I guess that’s on the back of some very important news at 12:00 p.m. yesterday.

 

RK: Yeah, it’ll be interesting to see how all these markets open today on the back of the US market closing.

 

LM: Absolutely. So for more on international markets this morning, we have Tony Nash’s chief economist and CEO of Complete Intelligence on the line with us this morning. Tony, thank you for joining us. Now, U.S. equities retreated sharply last night as Jerome Powell warned that more stimulus is needed. While it seems more likely that lawmakers will be able to agree to this. Is this the end of the rally and perhaps the reality check that market’s needs?

 

TN: Well, I don’t know if it’s the end of the rally, but I know we had a conversation on August twenty sixth. I think it was when I caution you guys that September would be a really rough month and very volatile. And I think we’re certainly in the middle of that. So how much further will it go? We think it has a little ways to go, but so we don’t necessarily think there’s a huge rally coming. But the caveat to that is stimulus.

 

So if stimulus comes out this week from the U.S. Congress, which there has been a bill going through and there may be some reconciliation in in some of the committees to get some stimulus out, that could help. But I think the Fed I think what what the Fed has said is, you know, they’re out there doing their work. They’re getting loans out to larger companies. But really, fiscal stimulus has to take place for smaller companies until we have that.

 

I think markets are pretty upset.

 

RK: And if we take a look, sorry, OK. And as we take a look at some of the banks like HSBC and others, they’ve taken a bit of a beating from the Vincent report. Will this have a an impact on the rotation of play into the finance sector, do you think?

 

TN: I think it will certainly for those banks that have had issues around laundering money and other things, allegedly. Yeah, I think it’s a big problem because investors don’t want to invest in risk. There’s enough risk in their daily life. But for those banks who aren’t flagged, I think there’s a real opportunity for them. Unfortunately, the sector itself is having difficulties today. But you did see some movement in things like insurance and other things where you do see money moving in and looking at oil prices rising.

 

NL: U.S. oil inventories are keeping oil prices fairly subdued. Where do you see oil prices heading in the short term?

 

TN: We don’t see a lot of movement. You know, we see WTI in the high 30s, low 40s. We see Brent around the mid 40s. The problem is we just haven’t had that consumption rebound that’s needed to drive oil prices higher. There is a lot of discussion about a supply side issue going into the first half of next year that might push prices higher. I’m not entirely sure that that may happen. But even when we look at things like petrol prices, they’re probably 30 percent off of where they were a year ago.

 

And we really don’t expect that to change for six to 12 months.

 

LM: Thank you very much for speaking with us this morning, Tony. That was Tony Nash, chief economist and CEO of Complete Intelligence

Categories
Visual (Videos)

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.

 

Categories
Visual (Videos)

CNA’s Asia First: Restarting the economy takes a disproportionate amount of resources

Tony Nash, CEO and founder of Complete Intelligence, joins Avril Hong and Adam Bakhtiar of Asia First to share his insights on restarting the economy, Texas’s economy on a lockdown, fiscal stimulus and policy, and if he’s bullish on China. Watch Tony’s segment here and in our Youtube channel.

 

This video is part of a 2-hour live news show at Channel News Asia’s Asia First. CNA is part of Mediacorp. Find the original segment here: https://www.channelnewsasia.com/news/video-on-demand/asia-first

Show Notes

 

CNA: Tony, the last time we spoke was a couple of months ago. At the time, Houston hadn’t confirmed any cases of coronavirus. Fast forward to today, we’re seeing the biggest daily surge in confirmed cases. 10,000 in the state. Do you still think that it’s not as big an issue for the lockdown for restarting the economy especially for the Sun Belt state as a whole?

 

TN: We’re seeing the the case counts rise. But we’re seeing the death rates stay low and even decline. In terms of markets, I think that’s a good sign. If we saw the case counts rise and the death rate stay consistent or rise, then I’d be very concerned. But we’re seeing the case counts rise and the death rates fall. We’re seeing plenty of capacity in hospitals as we talk to hospital administrators here. Here in Texas, places like Arizona, Florida, what I’m seeing by talking to people in healthcare is that things are okay. Again, what I’m keeping an eye on really is the death rates. And the the death rates as that incidence rises. This is a virus. That’s going to get out. It’s going to grow. It’s going to hit more people. I don’t necessarily think that incidents itself is an issue. We have to look at the fatality rate and how persistent that fatality rate is.

 

CNA: Right. Then if it’s not that big of an issue, then is there less of a need for stimulus whether from the Fed or the government in that sense because we’re hearing from some of these Fed officials, they’re warning that growth has plateaued. It’s kind of leveling out and they are asking for more stimulus. But if it’s not such a big concern these surge in coronavirus cases and its impact on restarting the economy, is there still a need for further stimulus?

 

TN: The problem with stopping an economy or pulling the plug on an economy, which is what governments around the world did, is that restarting it takes a disproportionate amount of resources. So governments around the world pulled the plug, stopped business, stopped socializing, stopped all these things, stopped flights, and it killed the oil and gas sector. It killed the hospitality sector. It killed travel and so on and so forth. In order to restart the economy, it takes a disproportionate amount because there’s inertia in economic activity and so we really have to push it along pretty far so that it gets back to that rate. It’s pretty easy to criticize companies that aren’t performing. Q2 revenues for example, Q2 earnings are going to come in pretty poor. But these guys are doing the best they can given the impacts of governments globally. And here in the US, we see state level and local governments making decisions for businesses to stop. But they’re not the ones who provide the fiscal support. It’s the federal government or the central government that actually provides that support. So there’s a weird misalignment of incentives in the US where it’s local governments forcing companies to close our state governments. But they’re not actually accountable and they’re not paying the consequences of it.

 

CNA: Yeah, so that therein raises this moral dilemma I guess, because whether you’re looking at fiscal or monetary policy support, we see the Fed dipping its toes into corporate bonds, buying Apple bonds, Microsoft bonds for example. Apple stocks up 25% year to date and then in terms of fiscal policy support, sure that pandemic aid program, it has according to the Trump administration, helped to save more than 50 million jobs. But it’s also helped the wealthy and connected.

 

TN: Sure. It has. When you see the the Fed of the Treasury spending on things like Apple bonds, yes it’s for Apple, but I don’t think it’s really for Apple. It’s the wealth effect of markets and getting US consumers back to the point of feeling like they can spend again is a very difficult place to get consumers and so, especially when you look at baby boomers and the spending power they have, they’re looking at their retirement years. If they’re looking at their portfolio being cut dramatically, then they’re going to cut back on their spending really, really dramatically. So the sentiment around markets is important. It’s easy to make fun of. A lot of people mock it. But the fact is baby boomers have to feel comfortable to go out and spend because they’re the biggest age cohort. Actually, those guys and millennials in the US are around the same size. But it’s important for them to spend and that the sentiment around markets, the sentiment around things like real estate values are really, really critical right now.

 

CNA: Right. Okay. Let’s shift focus a bit and talk about the Asian markets. We’ve been seeing that Chinese rally. It seems to have, you know, showing no sense of stopping. Shanghai Composite still closing up about half a percent. Do you still feel bullish on the mainland markets?

 

TN: No. Look, they’re way ahead of what we thought they would hit by year end. Sure, you may see more momentum. You may see more of a run in Chinese markets but we don’t see it based really in any fundamentals, which very few markets are right now. But we don’t really see a lot of room left there even before the end of the year. So, we may see some volatility there. I was working in Beijing in 2015 when markets crashed there before and sadly, we may see something similar now. It all depends on how the central government will then address it and if people will walk away whole. But I have friends who in 2015 lost 30, 40 percent of their wealth in that collapse and so, will we see another one? I don’t necessarily think we will. I want to think that they’ll be more prudent. But all the games that we expected before the end of the year have already been taken off the table in the Shanghai Composite.

 

CNA: Thank you for sharing your time and your thoughts with us. That was Tony Nash, Founder and CEO of Complete Intelligence.

Categories
Podcasts

Message to Fed: More sugar please!

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

 

Produced by: Michael Gong

 

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

 

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

 

 

Podcast Notes

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

Categories
Visual (Videos)

World economy, industries changing amid COVID-19

 

The world faces an unprecedented economic crisis as shops and businesses, factories and entire communities have been put under lockdown due to the coronavirus pandemic. Governments are doing their best to cushion the blow and keep their economies intact, but many people say things won’t be going back to normal… even when this pandemic is over. According to them we are in a “new normal.” To see how economies and industries across the world are already shifting to this new reality, we connect with Dr. Larry Samuelson, Professor of Economics at Yale University, Tony NASH, CEO and Founder of Complete Intelligence, and Dr. Graham Ong-Webb who joins us from Singapore’s Nanyang University.

 

Interview Notes

 

AN: My first question to Dr. Samuelson, which industries do you think will struggle to recover after this pandemic and even despite the huge sums of money being poured into them right now to try and keep them afloat?

 

LS: The huge sums of money are designed to get the industries through this initial period when much of the world is locked down and firms’ whole industries have no obvious or no steady source of revenue. Once we are past that, hopefully we see some opening of economies soon, we still have a recession on our hands. And at that point I would say that consumer confidence is the key thing to monitor it’s difficult to recover that under an ordinary recession. Now we’re gonna have to recover that in the midst of still dealing with the coronavirus.

 

We won’t have the virus behind us until we have a vaccine, which looks like it’s perhaps a year off and so we’re gonna have to try to reopen our economies where people are still worrying about the virus. So now we can ask about industries the ones that will fare best are those that people can reasonably, safely interact with. We expect retail some education to fare better than say mass sporting events and confine travel in that respect.

 

Can also look at which industries represent activities, purchase is that people ordinarily do that they have deferred and which are discretionary. The deferred ones we might expect to come back fairly quickly. As a frivolous example think of all the haircuts people are going to need when they come out of lockdown. Things like automobile purchases durables home maintenance might be in the same category. More discretionary items like travel are going to take a longer time to come back.

 

 

AN: So what you’re saying is that recovery will really depend on consumer sentiment and it looks like the sort of high-touch industries where you know and where it involves travel or social contacts those are going to be a bit slower to recover? Well Dr. Webb the, European Union they’ve agreed on a 500 billion dollar stimulus plan to protect workers businesses and their Nations in light of this pandemic but they haven’t been able to agree on issuing debt to raise long-term financing for the region what do you
make of this still is it really enough for the region?

 

OW: Well it appears to be clearly insufficient for for the requirements of what stands to be a 19 trillion dollar economy. We think about the European Union. 27 countries as a collective this is second largest economy you know in PPP terms after China. And so you know the amount of – a billion dollars pales in comparison to what other national economies are injecting in terms of stimulus packages to stave off the risk of a severe economic crippling, mass layoffs and so forth.

 

So I think the ECB was right to to campaign for about 1.5 trillion dollars and clearly we’ve ended up with 500 billion dollars and that’s not going to be near enough to what the region needs. But nevertheless, yes, there is this big issue in the backdrop of who’s gonna finance or finance all of this. And this is clearly a follow-on discussion from the one we had last week about the global debt crisis right. So no basic were looking at trade-offs here, which trade-off are we willing to live with, the one where we deal with or crisis now in terms of mass unemployment, crippling economies, whether we deal with a lengthy debt crisis down the road, you know, sort of alleviating the pain today.

 

So I think this is an ongoing discussion but clearly the $500 package is a compromise, a severe one. Southern European states have compromised themselves. They’d rather get something rather than nothing. But clearly it’s insufficient in terms of what’s already percolating in terms of small and medium enterprises folding up as we speak, people losing their jobs because of the slump in demand are all around for range of services and inability for those services to to actually meet consumer needs because of the of the lockdown.

 

 

AN: So it looks like there may be more coming out of the EU as this pandemic progresses and the economies continue to be hurt. Well Dr. Nash, here in East Asia China has actually restarted its economy factories are back online and lockdowns on cities even Wuhan they’ve been east. But with the rest of the world they closed for business. Many say that China is actually in for a second supply shock. What’s your your take on this?

 

TN: Sure. Our biggest worry about China, well, we have a number of them but we’re actually worried about the fall in manufacturing. The industrial production collapse in China that we see coming starting in, say, April and then going into third quarter should be unfortunately pretty damaging to China’s economy. We expect to see deflation starting in April, May in China. It’s not like 10 or 20 percent. It’s kind of half a percent, but still once you start to dip your toe into deflation, it can be pretty dangerous, so starting and then stopping.

 

The thing that we have to remember with all of these economies is that these are government-mandated shutdowns of the economies. These are not market failures. And so the EU issues 500 billion dollars and euros for a fiscal plan. It’s not the small companies, even the large companies’ fault that this is happening. So the governments have and will continue to push money into the economy because they know that this is their fault. It’s their responsibility. The companies aren’t failing. It’s the government that’s failed the companies by not having a plan and not having the resources in place to manage this.

 

 

AN: So that’s no need for such huge pessimism, I suppose. So you think that as long as the government’s take the right actions and the full might I mean that the second supply shock or another sort of sort of impact might not be as big. Well Dr. Samuelson some say that China could employ what some call it a trap diplomacy either by seizing other country’s assets or forgiving that to boost its soft power if it does employ this kind of tactic then could we see the world order actually change?

 

LS: We have to remember that the question of debt-trap diplomacy was here well before the pandemic. Critics of China have been concerned about this for some time. I don’t have a good idea. It’s very hard to say whether the pandemic is going to exacerbate. The concerns people have about debt-trap diplomacy, it might if it puts other countries that China is dealing with in a particularly adverse position. But it might not. It’s having an effect on China. That may make things more difficult for them.

 

I think more important is to remember that when we talk about debt trap diplomacy, we tend to think of international trade of economic relations between countries as a competitive or an antagonistic activity, where the most important thing to keep in mind is that international trade is at its heart a cooperative activity. We engage in it because countries on both sides gain from international trade.

 

As China invests in other countries, as it deals in other countries, it acquires some influence in those countries and some people are worried about that. That’s where the term debt trap diplomacy comes from. But it also becomes linked to those countries and has an interest in those countries and that creates a force going the other way. I think on balance it’s important to remember that there are some real gains to our world economy.

 

Some risk, some supply chain risks, that we have seen. Some political risks that some people worry about. But on that I think there are real gains from having the International economy linked together. We see these gains in terms of our economic well-being. I think we see these gains in terms of our political well-being as well. Countries, as they trade, as they deal with one another, tend to have common interests that in the long run are good for all of us.

 

 

AN: Well, so we really need to see more cooperation and continuous trade between nations especially in times of economic crises. Well Dr. Ron Webb, how do you expect this tug of war between the US and China to play out during this pandemic, especially as their bilateral relations worsen because of the COVID-19 pandemic?

 

OW: Well, you know the future is contingent clearly. But I think in terms of the current trajectory, it looks like this tug of war, this ongoing bilateral trade war between these two economic juggernauts, will continue unabated I mean from the recent news reports of President Trump’s speeches and his articulations on the issue, it’s quite clear that the US administration is doubling down on its protectionist measures against not only China but also even the European Union and also Mexico.

 

So I think the COVID-19 challenge which is having an impact of across various domains including economics and technology and so forth will continue without much foreseeable change. I think this effects you know the global economy. It has been even pre COVID, but I think it’s not helping the situation whatsoever in the current climate.

 

 

AN: Right. So, we expect these technological sort of competition and the sort of trade disputes that we’ve seen in the past, they’re not just going to stop short because of this pandemic that’s going on. They’re going to continue. Nevertheless, well just before we go,  Mr. Nash, some say that there could be a rebound in the latter half of the year. When do you think the worst of this pandemic
will be over on the economy?

 

TN: Yeah, I think it really depends. I think it depends on a country’s ability to issue a fiscal stimulus. I think it depends on the concentration of manufacturing of those economies, and I think it depends on let’s say workforce flexibility. So, with those, I think China is not in a great position. I think China is going to have a very rough year ahead. The official data may not report it, but we envision a very rough year ahead for China.

 

We think Europe will have a rough third and fourth quarter. Of course, late in the fourth quarter, we see Europe starting to come out of this. But both of those are constrained because they don’t have a U.S. dollar basis to issue fiscal stimulus. Their companies have U.S. dollar debt and their countries are having to borrow US dollars into their Treasuries in order to keep trade and other things going. So they have real problems.

 

The US has already issued 2.2 trillion fiscal stimuli plus a lot more from the Fed. And so, the US has had the ability to stimulate the economy. It hasn’t really had traction yet. But of the three kinds of general regions, what we’re seeing is the US, although they’re all very difficult situations on a relative basis, we see the US doing much, much better because of the US’s ability to issue fiscal stimulus and to play monetary policy with the US dollar. So the US dollar is a huge asset for the US.

 

The large millennial bracket is a huge asset for the US. It’s a workforce that’s actually contributing to the overall dependency ratio and then the ability for US companies to pull their manufacturing back to North America, this is not absolute it doesn’t mean a hundred percent, but some manufacturing will certainly be diverted to Mexico for a number of reasons, and we see that taking catching pace in, say, q3 and q4. And that allows the US to do more value-added activities through the course of recovery.

 

AN: Right. Well, each region is going to have its own challenges and an unprecedented pandemic really does bring unprecedented complexities when it comes to recovery. Well I’m afraid that’s all we have time for today it’s been a very great discussion.

Categories
QuickHit Visual (Videos)

QuickHit: How healthy are banks in this COVID-19 era?

 

This week’s QuickHit episode, Tony Nash talked with Dave Mayo, CEO and Founder of FedFis, and an expert on banking, finance, and Fintech. This episode looks at US financial institutions like banks and how they are faring during the Coronavirus pandemic. Will new financial technologies help streamline the process of providing services like loans to medium and small businesses?

 

Watch the previous QuickHit episode on the Status of Global Supply Chain in Time of Coronavirus with the president of Secure Global Logistics, George Booth.

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

Show Notes

 

TN: Hi, everybody. This is Tony Nash. I’m the founder and CEO of Complete Intelligence. This is our Quick Hit where we talk to industry experts about issues in markets and in industries.

 

Today we’re with Dave Mayo. Dave is the founder and CEO of FedFis based in Texas. Dave, thanks for joining us, I really appreciate it.

 

Can you tell us a little bit about FedFis? And then I’d really love to jump into how you’re helping out the financial services sector.

 

DM: Sure. We’re a unique company. We sit as a layer above banking, we call FI fintech, and then fintech. From the banking side obviously, we are a data company and provider and intelligence. From the FI fintech side, those would be the vendors to the institutions like their core mobile offering. And then FinTech, that’s the new stuff, right? That’s the sexy stuff, like the Chime and the SoFis and those types of companies that used to be alt banking and now they’re joined back to banking again. So we help all of those different layers in one way or another through a data set that we have and intelligence.

 

TN: With everything going on in the wake of Coronavirus, there’s been a lot of talk about fiscal stimulus coming out of D.C. and stimulus through the Fed and other things. What is the health of the banking sector from your perspective? Because back in 2008 the banking sector was the worry, right? Is that the worry now? Is that something we should be worried about?

 

DM: I think our banking industry is based on a level of faith. It always has been, right? Now that said, this is a completely different situation. Banks are very well-capitalized. Banks are not the cause of the problem. We don’t have a systemic banking problem or issue. We’re very, very healthy right now. When you talk about a stimulus being put into the economy, the more money flows in and out, the more people spend and buy and purchase, the better things are. That’s just the way the banking industry is built.

 

TN: How do you see banking and FinTech really helping? Obviously we know how they help big companies with big placements and debt and these sorts of things. But how do you see them helping small and mid-sized companies with this economic gulf that we have right now, where the economy’s effectively been turned off for a period of time, which is a bit weird? How do you see, what you’re doing, and banks generally, really helping out there on the smaller and midsize level?

 

DM: I think there’s a big gap in education in our country when it comes to banking. People are like, “I don’t like banks” or “I like banks.” When there are the big banks, the big four: the B of A, Wells Fargo, Chase, Citi. And then we have community banks.

 

Community bankers all across the country, they’re the life of our banking system. They’re the heartbeat. It’s actually a lower touch point for consumers and FinTech with the dramatic decline in a number of community institutions that has really opened up this opportunity for a FinTech. And the reason being is it’s a direct touch point.

 

So if you were to say “I want to use my mobile device” or “I want to use my online to do banking without having to actually drive to an institution and deal with all their policies and all of the things that go with it,” it’s a faster connection point. And I think we’re probably going to see a lot of that in these business loans the PPP loans through the stimulus plan.

 

TN: How do we actually execute that from the Treasury to the small business owner or to the individual that needs help? So, do you think that some of these FinTechs are kind of non-banks? I mean, would you consider them kind of non-banks within this system? Do you think they’ll be able to do this stuff faster? And I don’t mean this as a negative to banks. Banks are highly regulated. Do you think some of these FinTechs will be able to do some of this stuff faster?

 

DM: It depends on which way you look at it. Because here’s the deal: so when we talk about banking and then we talked about FI FinTech and then FinTech. So a bank is a chartered institution and FI FinTech is a technology arm of that like online banking, mobile banking. A FinTech is something that looks like a bank, talks like a bank, but it doesn’t have a charter. It’s not really a bank. So they have to partner with an existing bank to charter. So there’s a bank behind every FinTech company. So when you think of Chime and companies like that, there’s an actual bank behind that company that’s doing the regulatory side of this to protect consumers.

 

TN: You guys track a lot of data around banking and real estate and consumer stuff and industry stuff. Are you seeing any data that’s really talking about or raising your worries about the velocity of money about how quickly people are spending? Are you seeing that data? If it’s worrying you, when does that worry end for you? Do you see us going back in to say a quasi-normal situation within the next two months or something?

 

DM: Predicting the future I’ve never really been a big proponent of. That’s your business. But for us, what we look at are key components.

 

One way to measure things right now is to look at a mortgage note on a 15 or a 30. What is the spread between, what we would call in the old days, prime and what is the asking rate on that loan So you’re generally looking at above 3 percent. And as long as you’re looking at that, that’s a strong indication that there’s a lot of refis going on right now. And so the spread is there. That’s an adequate spread for banks to make money. There’s a huge volume of it going on. And as long as we see that volume and people continue to go to the bank, cash their checks, direct deposit always helps.

 

When we use our debit cards, when we go out and do the things that we do. Changing our mechanism of spending money whether it’s through Amazon as opposed to going through the mall doesn’t change the fact that you’re still spending money. Those are all positive things.

 

But I think the one thing we want to keep an eye on is the volume of lending. Everyone in a situation like this is going to have a tendency to kind of climb up a little bit. And, as long as that continues to flow, and one of the primary things that I’d be looking at is refis and other lending types of loan, etc.

 

TN: Are there any specific indicators you’re looking at on the commercial side to see if people are climbing up?

 

DM: I don’t really see anything from that perspective. I don’t think people are running out there right now at a time like this. It’s fairly obvious. You wouldn’t want to run out and start a new construction project or something like that. Those are gonna have an impact. There’s no way around it, but there again that’s what stimulus is there to offset.

 

Right now, I would say we’ve got a very healthy banking system. We’re coming out of a very healthy economy and so what’s our time frame of a bounce-back is it going to be a v-bottom or is it going to be spread out? I think it’ll be a little more spread out than a V-bottom and I think they’ll probably be multiple cycles of this that go on to some degree.

 

But starting from a really healthy position in our banking system and in our economy, this will pass. And when it does, here’s the thing I think is so interesting, unprecedented levels of stimulus and, the old saying you don’t fight the Fed, right? So does the market go up and we have a stimulated economy? Of course it does. And with this level of pent-up demand and stimulus, will there be a bounce back? Yeah, there’ll be a bounce back. The question is how huge will it be and how fast?

 

TN: That’s great Dave. It’s a huge source of optimism. Thank you so much for that and I really appreciate that you’ve taken the time to join us today. So really appreciate your time and and thanks very much for, for all that you’ve shared with us today. I really appreciate it.

Categories
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. 

Categories
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