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Economies are sputtering, which means trade war will intensify

Here’s another guesting of our founder and CEO Tony Nash in BFM Malaysia, talking about trade war between US and China. Can these two countries actually decouple? Or is the current supply chain too dependent to do that? Can the economy have the V-shaped recovery that everyone is dreaming of, or is it just an illusion? What can the policymakers do to improve the economic outlook for this year? What can his firm Complete Intelligence see happening based on the algorithms and AI?

 

We also discussed regionalization of supply chain as a result of the Trade War in this QuickHitQuickHit episode with Chief Economist Chad Moutray of National Association of Manufacturers.

 

BFM Description:

The trade wars between the US, China and the Eurozone seem to be gaining momentum. Tony Nash, CEO, Complete Intelligence, offers some insights, while also discussing European industrial activity.

 

Produced by: Michael Gong

Presented by: Wong Shou Ning, Khoo Hsu Chuang

 

Listen to the “Economies are sputtering, which means trade war will intensify” podcast in BFM: The Business Station.

 

Show Notes

 

This is a download from BFM eighty nine point nine. So is the station. Good morning. This is BFM eighty nine point nine. I’m considering that I’m with one shotting bringing you all the way through the 10:00 o’clock in the morning and Rano 76. We are talking about markets, but well above 50 bucks sort of because of that with about 15 minutes time, we’re talking to call you. Ling was an independent panel, a political economist at Ciggy and I’m advisers will be discussing palm oil.

 

BFM: So last night in America, the stock market slumped. Investors are cautious, right How did the markets do?

 

Not so well, because there’s been clearly a resurgence in virus cases in multiple states, which puts into question the economic recovery. So, unsurprisingly, the Dow closed down three percent and S&P 500 closed down 2.6 percent, while the Nasdaq closed down 2.2 percent. Meanwhile, in Asia yesterday, only Shanghai was up, which was up 0.3 percent, while the Nikkei 225 closed down marginally by 0.07 per cent. Hang Seng was down 0.5 percent, Singapore down 0.2 percent, and KLCI was down 0.3 percent.

 

So for more clarity into the whys and wherefores of markets, we’ve got it on the line with us Tony Nash, who is the CEO of Complete Intelligence. Now, Tony, thanks for talking to us. Trump’s getting tough on China rhetoric highlights, well, obviously, the American’s concerns about being too reliant on China. And, of course, we can see that being manifested in the list of 20 companies, which is deems suspicious. In your opinion, can the two economies decouple or other interests in supply chains too heavily aligned?

 

TN: Well, I don’t think it’s possible to completely decouple from China. I think the administration are really being hard on each other. And I think the hard line from the US, you know, it’s relatively new. It’s a couple years old. But I don’t think it’s possible, regardless of the hard line for those economies to decouple and for the supply chain to decouple. We had some comments over the weekend out of the U.S. saying that they could decouple if they wanted to. But that’s just the hard line and unaware of the possibilities. We’ve been talking about, for some time, probably two and a half, three years, is regionalization of supply chains. And what we believe is happening is the US-China relations have just accelerated regionalization. It means manufacturing for North America, moving to North America. Not all of it, but some of it. And manufacturing for for Asia is largely centered in Asia. Manufacturing for Europe, some of it moving to Europe. And that’s the progression of the costs in China. And some of the risks are relative risks to supply chains highlighted by COVID} coming to the realization of manufacturers.

 

BFM: U.S. markets corrected sharply last night. So is the market actually now waking up to the reality that COVID 19 is going to be a problem for economic recovery? And this V-shaped that what many investors thought is probably a pipe dream?

 

TN: I think what markets are realizing is that it’s not a straight line. Well, we’ve been saying for a couple months is that end of Q2 or early Q3, we would see a lot of volatility. Then people started to understand how the virus would play out. Until we’ve had some certainty around the path, we will have days like today. And we’ll have a danger with an uptick as optimism comes back, what’s happening is markets are calibrating. People are trying to understand not only the path of COVID, but what those actors mean—the governments, the companies, the individuals—will do to respond, how quickly the markets come back. But what are people going to have to do? What mitigations that we’re going to have to take? What monetary and fiscal policies will governments take as well? We’re not done in that respect. So more of that’s to come, but we don’t know what’s to come there exactly. Markets have moved a lot on new case count. I don’t believe that it’s the case counts itself because a lot of these are are really mild cases. It’s just the uncertainty around how long it will last. The magnitude and the mitigation that people will take around it. There’s more of this volatility to come.

 

BFM: Tony, you might have seen the IMF‘s growth forecast, which was just announced a few hours ago. They’ve now said that global growth will shrink 4.9 percent for 2020. That’s nearly two percent worse than what they originally thought. And I think the U.S. also marked by an expectation of a negative 8 percent, down from negative 6o.1 percent. Do you think this might cause the policymakers to have an even more vigorous policy response and liquidity into the system?

 

TN: It might. I think the U.S. has shown that it’s not really afraid to be pretty aggressive. I think you may see more aggressive policy responses in other places. Obviously, Japan is very active on the monetary policy side. But we need to see more actual spending and more direct support of individuals and companies to make it through this. So, I do think that, obviously, IMF’s forecast concern people and get policymakers attention. I do think that they’re probably a little bit overblown to the downside, though. So I wouldn’t expect 8 percent decline. I wouldn’t expect a global decline as acute as they’ve stated today.

 

BFM: If you look at oil prices declined last night and I think this is on the back of U.S. crude inventories increasing. But is this also a function of COVID-19 fears in terms of how that may impact the economy’s going forward and consumption of oil again?

 

TN: Yeah, that’s interesting. The oil price is our… I think there are a number of things. The storage, of course, as you mentioned. But there’s also how much are people starting to drive again? What do traffic patterns look like? Also, how much are people starting to fly again? We really need to look at like Google Mobility data. We need to be looking at flight data. We need to be looking at looking to really understand where those indicators are headed. So when we compare a $40 a barrel of oil at $39 s barrel for WTI today, compared to where it was a month ago. The folks in oil and gas are really grateful to have that price right now. And it’s a real progress from where we were a month or two months ago. So I think what people are looking at today is the progress and then the expectation. They’re not even necessarily looking at the real market activity today. It’s all relative to a couple of months ago and it’s all expectations about a couple of months from now.

 

BFM: Last question on perhaps the data that your algorithms generated, Complete Intelligence. What kind of signs and indicators does our technology and the AI tell us about the direction the market’s going forward?

 

TN: Yeah, well, this is where we we pulled our assertion of volatility. We we really expected things to be pretty range traded for some time. So, you know, crude oil is a good example. We were saying back in February, March, the crude oil would end the quarter in the low 40s. This is WTI and here we are. So, with volatility, we’re not necessarily trying to capture the high highs and the low lows. We’re just recognizing that the markets are trying to find new prices. So it’s interesting when you look at things like the dollar. The dollar is a relative indicator for, say, emerging market‘s uncertainty and troubles as well. We did expect a dollar rise toward the end of Q1, early Q2, as we saw. But we haven’t expected the dollar to come back to strengthen until, say, September. So there are a number of indicators around trade or on currencies. And what we’re finding generally with our client base, for global manufacturers generally, are the algorithms… We’ve found that our average-based forecasting has an error rate that is about nine percent lower on average than consensus forecasts. So when we had all of the volatility of the last three, four months, consensus forecasts in many cases were 20 to 30 percent off. Ours were about nine percent better than that. Nobody expected the COVID slowdown. If we look at that from a few months ago, the bias that’s in normally of doing things, negotiating, procurement, supply chain, the revenue, that sort of thing. We take that out and this passionate… I would suggest that there is a lot of passion in the analysis from day to day when you look at three percent fall in markets today, but you can’t extrapolate today into forever. And what we can do with AI is taking emotion out of this, take a rational view of things. And really remove, not all of the error, of course, nobody can remove the error. There area a lot of the error from the outlooks in specific assets, currencies, commodities and so on.

 

BFM: All right, Tony, thanks so much for your time. And that was Tony Nash, chief executive for Complete Intelligence talking from Texas, USA. Interesting that this kind of stuff that he does at his business, tries to remove the emotional, the emotive side of the markets and give something a predictor over the future. But I think that sometimes you can’t discount too much of human emotion because it’s all driven by essentially two emotions, right? Greed and of fear.

 

But you know, basically his nugget is it’s going to be volatile. Right. Hang onto your seats. Right. Because we really don’t know. There’s too much uncertainty out there at the moment. This is a scene where it’s for oil prices or even for equity markets.

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QuickHit Visual (Videos)

QuickHit: “LUV in the Time of COVID”

Avalon Advisor’s chief economist and author of “After Normal: Making Sense of the Global Economy”, Sam Rines joins Tony Nash for the 14th episode of QuickHit, where we discussed the L, U, and V recoveries in different states and industries. He also shares some interesting data on traffic congestion, CPIs, car sales, and food prices — and what these data mean for investors, businesses, and people. And what trend is he seeing to pop back up in travel and leisure?

 

Don’t miss out some of our relevant QuickHit episodes:

Proactive companies use data to COVID-proof their supply chains

Manufacturers are bouncing back, but…

We’re not going to normalize

How do we use up all the corn now?

 

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

 

Show Notes

TN: I’m trying to figure out when and how do we come out of this? We have our models, we have our views on things. But I read your stuff every day and what are you thinking? Where are we right now? Are we early, mid, late? Where are we now and where do you think will go in the next few weeks or months?

 

SR: So I think the answer is all three. We call it LUV in the Time of COVID. There will be an L-shaped recovery, a U-shaped recovery, and a V-shaped recovery depending on whether you look at Texas or Florida or Kentucky. Whether its manufacturing or services. Everything has its own shape. So we’re early on some, middle on some, and late on others.

 

On the overall employment side, we’re probably past peak pain. At this point, you’re mostly having unemployment benefits a hindrance to bringing people back to work, not help people keep afloat. That’s not true everywhere. Certainly, there are places that are still shut down and those people still need those unemployment benefits. But places like Texas that are reopening to a certain degree like Florida and Georgia. It’s difficult to bring people back to jobs that pay less than the enhanced unemployment benefits.

 

One interesting piece of the puzzle though is the continuing unemployment claims and you’ve begun to see the states that open actually begin to roll those down. So people are coming off those unemployment slowly. It’s not happening quickly. Florida is one of the exceptions that Florida came off extremely fast. I think that’s going to be one of the stories that’ll pick up pace over the next three to four weeks. There’s a decent chance that if we’ll continue to have these types of numbers for continuing claims. There’s a decent chance that the May unemployment number will be the worst number we see this year. You begin to improve pretty quickly. The June number, we don’t take that survey for another few weeks. That’s more than likely going to be better than May in terms of unemployment beginning to come down. So we think it’s a mixed bag. But employments probably going to improve from here.

TN: That’s good news, I hope. There are a lot of service jobs and blue-collar jobs that were laid off in the first waves. Is that right?

SR: Yeah most of them. The interesting thing is it’s fairly easy to social distance within most manufacturing facilities. So manufacturing, theoretically, can snap back a little bit faster than the services side of the economy. The services industry is going to be the laggard here. But the service industry is also the majority employer, far more important on the employment side of manufacturing.

TN: You keep an eye on things like traffic patterns and restaurant usage. What are you seeing as the rate at coming back and then what does that say about things like food prices or gasoline consumption?

 

SR: It’s snapping back very quickly on the driving side of things. That’s snapping back much faster than public transit, airlines, etc. You have the U for airlines and mass transit. But you have what appears to be a pretty sharp V in driving. Congestion is almost back to normal levels in places like Houston during rush hour. Texas generally is back towards its baseline according to most of the metrics.

 

The RV sales are through the roof. People still want to go on vacation. And if you can’t and don’t want to get on a plane and go to Cabo, you get in an RV and go to the Grand Canyon. It’s just another way to get out of the house. I got to a little bit of trouble for saying it. But I’ll say it again, if you keep boomers off of cruise ships, they’ll find a way to still go places and still have fun in retirement. They’re not just gonna stay up. They’re not just going to stay cooped up in their house. And the interesting thing about that is an RV is not a small investment for most people. So I think that travel might have more legs than people are really giving credit for. Camping might actually make a come back here versus your more crowded areas, particularly within that boomer crowd.

 

TN: Back to the 70s for camping. We hear about food shortages with meat and we also hear about storage for crude oil. With more activity, are you seeing faster drawdown with crude oil? Are you seeing anything happening there in terms of food?

 

SR: So with crude, we’re beginning to see drawdowns and I’m not sure that it’s faster than we anticipated. But gasoline particularly has picked up much faster than people anticipated. That drawdown will be much faster, much stronger and have longer legs than was anticipated. On the overall demand side for oil, it’s a harder picture to paint. Aviation fuel is a significant driver on the margin of usage within the US. A lack of that is offsetting any bullishness on the gasoline side. Those will probably balance each other out for the most part as we move forward and you have a drawdown that’s relatively in line with what we were anticipating a few months ago.

 

On the food side, you’ve seen a snapback in restaurants for Texas in particular. We are back to, give or take 55 percent usage for restaurants. We have 50% occupancy allowed in Texas. That appears to be pretty close to maxed out. At least restaurants, we get reservations. We’ve seen some interesting things on the eat-at-home food side. We dug through the CPI, the inflation data pretty carefully and found that the food at home was getting increasingly expensive in a way that we hadn’t seen in a long time. Eggs were getting expensive. Meat was getting expensive. Fresh fruits and vegetables are getting expensive and they were accelerating at a pretty rapid pace.

 

It does look like we’re going to have some pretty good crops. It doesn’t look like we’re going to have trouble on that front. So we shouldn’t have the pricing pressure emanating from that side, which is good.

 

The critical aspect is going to be how do we get the beef demand back up to the point where you actually have cattle ranchers wanting to not cull their herds and therefore drive state prices higher. I think that’s going to take more states opening restaurants like New York, California, and other big steak consuming areas of the country reopening and really beginning to drive that incremental demand.

 

Another fun note is I grew up in New Hampshire. Lobster is an important part of eating there. And lobster prices plummeted to the point where lobstermen decided they probably shouldn’t even go out and they were selling for two to four dollars a pound on the side of the road.

 

TN: Let’s just take a minute and we’re sitting in October 1st. We’ve gone through Q2. It was carnage. We’ve gone through Q3 and we’re looking back on Q3 versus Q2. What are you thinking at that point, October 1st of this year? Help me understand a little bit of that based on your perspective today.

 

SR: Based on my perspective today, I’ll probably be sitting in Boston, hopefully having a client meeting at a lobster that’s more expensive than three bucks, looking back and wondering how we missed the pickup that was happening in June and July and how the pockets of things that were doing much better than anticipated.

 

It’s worth noting according to one of the data sources I used, auto sales are actually picking back up rapidly from down, north of 60% for new cars and used cars. New autos only down, I’d call it the high 20% range from a year ago. Used cars down single digits from a year ago, on a volume basis. That kind of snapback in different pockets of the economy is going to be what I’m looking back and wondering how I missed whatever it might be whether it was people wanting to get back on cruises. I don’t think they’re going to want to give back on cruises. I don’t think people are gonna jump back on planes very quickly.

 

I think we have a 911 type of recovery. Three years, give or take there. I think that’s the mindset to use. But there will be something that just completely catches me off guard in terms of the speed and rapidity that it comes back, or with the L-shaped, it’s just never coming back. One thing I think we’ll catch a lot of people off-guard is the pivot on the margin from hotels to homes. Renting at home instead of renting a hotel. Being spaced away from people, having the pool to yourself. I think there will be trends like that that have become pretty clear whether or not they have legs by October and I think that’s probably one of them.

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