Episode 27- Market Volatility, Corona and Perhaps an Opportunity

Rich talks about the Corona Virus's impact on the market and discusses a huge opportunity governments and municipalities have to leverage the current bond market.

Transcript

Speaker 1: 0:04

[inaudible].

Speaker 2: 0:05

Welcome to the podcast, the common bridge with Richard helpy. Rich is a successful entrepreneur in the technology, health and finance space. He and his wife Leslie are also philanthropists with interest in civic and artistic endeavors, but with a primary focus on medically and educationally underserved children. My name is Brian Kruger, and from time to time I'll be the moderator and host of this podcast. Well hello everyone and welcome to the common bridge. Today we were going to talk a little bit about infrastructure and I and I hope we do because the infrastructure policy of the U S becomes very important. It's been important for awhile and rich has some really interesting takes on it. But today's been kind of an interesting day, uh, on the worldwide markets and really everywhere enrich. Welcome back to the common bridge. Uh, we're going to do this over the phone again, which is great. It seems to work out fine. We've had no complaints, but just start off, uh, been a hell heck of a day. Um, it's your broadcast. I guess we can use whatever language we want, but what's going on out there? Well,

Speaker 3: 1:04

Brian is, you did mention infrastructure was on our topic today. It's, uh, it's important given the age of so many investments in the United States and roads and bridges, in dams, in power supplies, um, and all of those things that make everything else possible. Uh, and indeed those are what are known as public goods. Um, and as an economy and as a nation, we decided that it was a right to have those types of things supplied, uh, through taxation. And then through common use. And you know, as you know, I believe a certain level of, uh, healthcare coverage, it needs to also move into that public good. Um, so infrastructure very, very important and just became even more important in the scheme of where we are as a nation.

Speaker 2: 2:04

Well, yeah, and I think probably got, uh, somebody put a big magnifying glass on it lately and you can probably come up with a better timetable than that, but it seems like it's screaming at us today.

Speaker 3: 2:14

Yeah. Well, think about what we've talked about with some of our guest experts over the past weeks. We've talked about trading policies, we've talked about the specifically policy China, we've talked about, um, things that affect, uh, North America. I mean bill Michael's depth of understanding where products come from and what the trade offs are. Um, all writing on what policies come out of Washington. And what is unmistakable is that we are in a time period now of greatly intertwined, uh, economies. Uh, it took a long time to get here or these are investments and it's very difficult to change abruptly. Yeah. And we're, we're seeing the pops up when, you know, China or Italy or Korea, uh, uh, or Seattle has an issue relative to responding to the, uh, Corona virus or CLV I 19, I guess. Um, and then on top of that, we have the Saudis say we're going to cut the price of oil 20%. Yeah. We, we have more than started today. Right. As Saudi of the Russia oil war. Is that based on Russia's interest to get into the U S fracking, um, world? I mean, do they see us as a threat on that? I mean, what, what do you think prompted all that? What prompted the war? Well, Saudis have one weapon in their economy and that weapon is oil. And if you remember the oil shocks of the 1970s and since then the Saudi said, look, we're going to raise the price of oil and that reverberated all through the economy. Um, by the way, side note, and I think we'll get to this at some point. Um, much of what is in the notion of a renewable energy economy, um, is actually very good policy for independence in, in that if we're powering through, uh, renewables, uh, and potentially nuclear, uh, we get off the not only climate effects of fossil fuels, uh, but we get away from the, uh, international pressure that places that are oil rich, um, can bring. But that's so that's becoming an integral part of the world economy. Now, if it was just a war between those two and we didn't need the oil anymore, shouldn't that be more in a more isolated, uh, economic accountable? Why? Why is it really reverberating outside of coronavirus? It's really reverberating on the markets today. I mean it's dropped as of now, like$90 a barrel or something. Right. And part of that is that there's a price point where all weather is abundant oil and natural gas produced in the United States. Um, I don't know the number today, but some years ago, a friend of mine who is a, uh, exploration geologist, um, and he was like, the guidance says, okay, we're going to drill here in this manner because you know, that's what the geological formation said. And also here's all the economics. And, and he said, once we got to$47 a barrel, so there's so much oil in this country that we can get out. Well now when the price of oil falls, it starts to work that economic where it becomes less expensive to bring oil in from the middle East, and then it does to have that domestic oil economy. And those are, you know, well paying jobs, uh, that support communities, uh, uh, support, uh, a lot of workers. Um, and it would take a while to replace that. Um, we've yet to hear from Washington, um, as of this early day about their policy response. Although I find it not believable that they wouldn't have had some indication of this, whether it be hours or days, weeks or months. Um, and then again, why, uh, do they look at it as versus Russia? Um, of course the Russian economy is a fossil fuel export, uh, economy. Uh, that is how they get their hard currency. That is how they, uh, fuel their nation. So, yeah, the Saudis, uh, reducing the price of the oil, it has massive implications around the world and you can see what the markets are doing. They're reacting to it. Um, interestingly, uh, I've been following Delta airlines, which because of the Corona virus, um, has gone down to a five-year low, but it's still, it's stabilized and airlines buy a lot of fuel. Yeah. And so we're waiting to see how all of that sorts out. Um, and you know, the markets are still going to do what they do based on, um, supply and demand. Um, I was actually in 1997 the last time that the circuit breakers were, um, activated during the trading day. Uh, I was actually in Boston and New York when that happened. Um, we were in the middle of a secondary offering and woke up on a Monday to find out that Korea had fundamentally blown up economically. Um, and there was a company called Oxford that was also in a healthcare business that announced that there was$125 million of revenue they had reported that they really hadn't made. Oh man. Um, yeah. So, um, uh, you know, we, our, our, uh, our offering was delayed pricing only one day and, uh, not at exactly the price point we had, but we still came out of it. And I use this as a illustration that over the long haul markets are going to, uh, correct. Okay. That over the longterm we're going to be fine. Um, although I do suspect that we are looking today, um, at a, uh, inevitability of a recession, possibly a deep recession. Um, and, and now I couch that with, uh, the old joke about, you know, the economists at the university of Michigan have forecasted, um, 15 of the last two recessions. Um, there's, the resiliency of the economy is really, really difficult to, uh, uh, to, to, to forecast my own experience. Having been in business for a long time. Say you speak from a lot of experience over the years of ups and downs. So how do you see that? Well, every recession that I've experienced, uh, we've talked ourselves into it. Um, because if people believe there's going to be a recession, they start acting as if there's going to be a recession, which means they defer purchases. We're not going to buy that car. We're not going to buy that new mattress. Um, we're going to put off our vacation a little bit. We're going to hunker down. Well, every one of those purchases that are deferred, that's revenue into another company. Sure. So look what the Corona virus has done. If someone doesn't take that vacation trip, then the say that we're going to fly that. Well, now the airlines not getting money. The destination lodging isn't going to get money. The car rentals not going to get money. Um, I mean, look what's happened to Disney stocks when they've had to close their amusement parks. And so now people get laid off because there's not enough business as they're laid off. Uh, they start spending less. Sure. And you, you, you get into this cascading recession. Now the things that are really interesting to me is that today, the number of baby boomers we have, I'm wondering how that's going to affect the situation because traditionally retirees have lived on more interest bearing investments, which I'll, I'm going to talk about right at the end. Um, but if they're living off savings, you know, they kind of planned for this day and it's, gosh, things are going to be a little bit less. Maybe I'll accelerate what I'm going to buy before the economy catches up again. Yeah. And, and also in recessions, look, I could set every time I've seen it, we've talked ourselves into it as an economy. And similarly, we've exited everyone by doing exactly the opposite. We've decided we're not going to have a recession anymore. It started acting differently and started making those purchases, which stimulated the, uh, the commerce, which led to hiring, which led to more payroll's going through the economy. And, and we pulled out of it, if you recall the term green shoots as we came out of the great recession. Now we're in, in, so I'm going to come all the way back around to, um, uh, infrastructure. And, and why I think that is so vital about pulling us out. You mentioned to me that you thought that there's real serious, uh, opportunities here and I can't wait to have you tell me and the rest of the group, uh, our listeners what that would be. Right. And I want to preface this by saying that there is no magic bullet. Um, if you go back to the, uh, uh, 1929, uh, economic collapse, uh, you'll see that president Hoover at that time took a lot of the actions that president Obama took to deal with a similar, although not exact situation, that both of them said, we're going to stimulate demand by, uh, bringing in heads of industry and seeing if they will move forward with their spending and their projects. And we're going to go to every, um, state government and see if they can move some of their projects forward. And we're going to look at various ways to have the federal government begin some spending to get some, some, uh, economic activity. So with those lessons of history there, and given there are so many unknowns in the economy, I will give you an optimistic look about how infrastructure can pull us out. And it goes like this. The interest rates now as part of the two major events, the coronavirus and now the, uh, negative price pressure on oil is driving money out of equities into bonds, which is lowering the interest rates on bonds. So that means that the federal government can now borrow money at very, very low rates. And there is an opportunity today to lock in some of those low rates, perhaps as long as 50 or 100 year bonds with that money going specifically to infrastructure. So if we need to redo dams, power systems, roads, bridges, and that would be domestic spending. It can be legislated to favor domestic sourcing of materials and subcomponents and certainly all of that would put people back to work in the United States. And that, so infrastructure is not only desperately needed. It is now potentially our way out of what could be a very serious economic situation and make no mistake as greatly as well. It would kill two birds with one stone as it were. Yes it would. And so, um, I know that we need to come back around infrastructure and, um, I think it's so obvious to so many people and you wonder why it's not done. Um, and again, I think the villain in this, the culprit, it is our partisan party politics. Um, it's still, people want to argue over the results of the last election. Um, we're not gonna solve it. Going to the polar extremes. Um, we can all agree if a highway is a public good, that the pot hole on the affluent persons luxury vehicle is as big a problem as it might be on a more modest car from a person at a different point. That economic scale that shows where we're United about let's fix the potholes. If we need reliable power sources. All right? Everybody wants to be able to turn on their hairdryers, charge their cell phones and light up their computer. We all need that supply. So we're all in this together. Uh, the only people that are the outliers are those that have honed their skills being partisans and being, you know, fueled by a media that still wants to play us off against each other. And again, as part of the common bridge, Brian, I just want to end it by saying we need to continue to send the message to our elected representatives that it's about policy. It's not about partisanship and we need to demand that the news media report the news and give us the facts and quit trying to do the hysteria mongering and, uh, alarmism that we've seen so often and with Corona coronavirus does the coroner virus. I don't, it does not discriminate. Um, it's something, it's a public issue. We got to take care of this. We've got to take care of infrastructure. Um, and you know, I don't know that anybody has a lot of confidence in our partisan Washington to get it fixed. And I don't know that anybody has a lot of confidence in the veracity of the news media, that report.

Speaker 2: 18:08

Yeah. You know? Right. And it doesn't really help too. I'm, I'm on the CDC website here right in front of me that updates every day and it stops updating it for, but it's real time. And now the total number of cases in the U S are 423 and the total deaths are 19. And not to be glib, but, um, you could fit all those people into the right field bleachers of, uh, Oesterreich stadium at Eastern Michigan university, their baseball field. And that's, that's what we are, uh, emptying shelves about right now with everything from toilet paper to whatever, screaming at one and over over the fence that somebody is not handling this right. And there's some people that are just running around freaked out about this. And it's a shame that, um, if something really happened, I mean, if a meteor hits somewhere, I mean, if we had real trouble, I shutter to think how we would deal with that just because right now it's, let's keep all the eyes on the television shows that people can watch. So we can charge a lot of ad revenue. I'm not belittling the seriousness of, of covert 19. There's going to be a lot of cases, there's so many more not reported, but I'm just amazed that they haven't put this in the right perspective. It staggers me and it staggers me to watch the, um, the dominoes fall because of these kinds of numbers.

Speaker 3: 19:21

Well, it's not only the one extreme of hysteria, there's the other extreme of, Oh, this is nothing, and we don't know what it is. And what is certain is there will be more reported cases, lots simply because there's going to be more testing. And as the knowledge of this virus, um, it'd be better known. We're, we're going to test more people. Someone might go out, I didn't realize I had that. I thought it was just a cold. That's where the danger is. Um, but again, until we understand enough about it, I think an appropriate level of caution, um, and not overreacting in a hysterical way. And, and I think it's yet to be determined where that balance point is. Um, people make preparations is not necessarily a bad thing. It's a little late when it all ready happens. Um, but you know, a lesson that we learned during the oil shocks, um, you know, in the seventies and eighties was we always keep a full tank of gas. And I think most people of our age do that because we remember. Yeah. Um, my, my, my father, um, who passed away three years ago, actually three years ago today, I just, three of us, or yesterday I just realized that, um, he remembers a period of being hungry. He always kept a cellar full of canned goods and it was kind of extreme. I mean, but he always liked to look at that pantry because of that lesson.

Speaker 2: 21:19

Folks from that era did that, just that. Yeah. That's interesting. Yeah.

Speaker 3: 21:23

So we, you know, we may see, you know, 20, 30 years into the future, uh, a then 50, 60 year old person, you know, their kid might be asking them, you know, dad, how come there's, there's Tylenol and Lysol and, uh, toilet paper here in abundance and they're really not going to be able to explain it, but it will make them feel better. So we've got those lessons there. Um, we, we will get through this process. Um, we will absorb whatever the Saudis are going to do. Um, and it's, there's going to be some dislocations. We've already seen it. Um, the depth, the breadth, the duration, we don't know. Uh, but again, I am a believer that the investments that we can make in infrastructure are even more timely today. Uh, if we're smart about how we do it, and I hope that everybody can join joining in at least agreeing to that.

Speaker 2: 22:26

Yeah, Richard. Um, you know, one thing that, uh, and, and did, look, I'm not patting you on the back end here, but I am, I'm just the host of your show. But, um, you always have such measured responses to this stuff that I th I find it inspiring anyway. Um, we'll probably get back to infrastructure again at some other time, but what you had to say today is just so important that it's, um, look, we can borrow money to really cheap, right? The government can do it right now. It can put people to work and it could take care of some of the problems we have. But, um, we'll wrap this up now and, and, and thanks a whole bunch. Um, and uh, we'll see you next week. Actually, maybe later this week I might buggy again to get some quick takes from you, but, uh, we'll see you next week on Richard help these common bridge. Thanks rich.

Speaker 3: 23:07

Thanks Brian. Always a pleasure.

Speaker 2: 23:10

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