WEBVTT - FinTech Is Game Changer For Small Business Relief: Former SBA Head 0:00:02.680 --> 0:00:05.360 Welcome to the Bloomberg Penl podcast. I'm Paul swing you, 0:00:05.400 --> 0:00:07.720 along with my co host Lisa Brahma wits. Each day 0:00:07.760 --> 0:00:10.280 we bring you the most noteworthy and useful interviews for 0:00:10.320 --> 0:00:12.560 you and your money. Whether at the grocery store or 0:00:12.600 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.560 --> 0:00:18.000 podcast or wherever you listen to podcasts, as well as 0:00:18.000 --> 0:00:21.239 that Bloomberg dot com. At least, it was reported just 0:00:21.320 --> 0:00:24.800 recently that that three billion dollar program to help small 0:00:24.880 --> 0:00:28.080 businesses reeling from the COVID nineteen outbreak that could actually 0:00:28.120 --> 0:00:31.800 be exhausted by Thursday, a top White House advisor said, 0:00:31.800 --> 0:00:35.159 but negotiations in Congress to replenish it remains stalled. They 0:00:35.200 --> 0:00:37.400 get to lay us on what this means for small businesses. 0:00:37.440 --> 0:00:39.760 We welcome our next guest, Karen Mills. She's a senior 0:00:39.760 --> 0:00:42.520 fellow at the Harvard Business School, formerly a small business 0:00:42.520 --> 0:00:45.839 administrator for President Obama from two thousand nine to two 0:00:45.840 --> 0:00:48.360 thousand thirteen. Karen is so good to speak with you 0:00:48.960 --> 0:00:52.040 talk to us about the state of the small business 0:00:52.080 --> 0:00:54.920 owner out there, How tough is it and how quickly 0:00:55.000 --> 0:00:59.280 can AID get to that small business owner? Nice to 0:00:59.360 --> 0:01:01.920 talk to you. Well, you know, this is the worst 0:01:02.160 --> 0:01:05.680 crisis for small businesses that I've ever seen. And as 0:01:05.720 --> 0:01:08.160 you mentioned, I was in the seat two thousand nine 0:01:08.160 --> 0:01:10.880 and we thought that was pretty bad. Um. You know, 0:01:10.920 --> 0:01:14.880 we lost two million small businesses the first quarter. Well, 0:01:14.959 --> 0:01:18.320 when we look at our unemployment numbers, we're seeing six 0:01:18.400 --> 0:01:22.959 million last week. Most of those are small businesses, UH 0:01:23.000 --> 0:01:26.120 and their employees. As you know, this has a critical 0:01:26.160 --> 0:01:29.319 impact on the economy because half the people who work 0:01:29.360 --> 0:01:32.240 in this country own or work for a small business. 0:01:32.319 --> 0:01:36.080 It's actually forty seven percent of the jobs. And these 0:01:36.080 --> 0:01:39.520 small businesses are now three or four weeks into a 0:01:39.600 --> 0:01:43.319 crisis and they only have on average three or four 0:01:43.319 --> 0:01:45.960 weeks worth of cash, so they have had to lay 0:01:45.959 --> 0:01:49.320 off people. And the question is how are they going 0:01:49.320 --> 0:01:52.240 to get the money from the p p P program 0:01:52.440 --> 0:01:56.160 and the other government relief in time for them to 0:01:56.200 --> 0:01:59.800 make a decision to keep operating, Because we know if 0:01:59.800 --> 0:02:04.200 we lose them, it's a very long and slow recovery. 0:02:04.240 --> 0:02:07.240 It's six months at least to get a new business 0:02:07.280 --> 0:02:09.960 to start up if an old one failed. So the 0:02:10.040 --> 0:02:13.240 next two weeks are critical. So these loans, let's talk 0:02:13.240 --> 0:02:15.680 a little bit about them and the logistics of it. 0:02:15.840 --> 0:02:17.960 We have heard that more than half of the three 0:02:18.000 --> 0:02:21.040 hundred and fifty billion dollars so so far allocated to 0:02:21.080 --> 0:02:25.040 the SBA program has been distributed. That program is expected 0:02:25.080 --> 0:02:27.840 to run out of cash in the next couple of days. 0:02:28.480 --> 0:02:31.919 What are the parameters around these loans? Do companies have 0:02:32.000 --> 0:02:35.480 to make sure to keep their employees on staff, they 0:02:35.520 --> 0:02:39.880 have to repay them? What do we know? So it's 0:02:39.919 --> 0:02:44.280 an actually amazing number. Two hundred and sixty three billion 0:02:44.440 --> 0:02:47.480 as of yesterday, which is seventy of the three hundred 0:02:47.880 --> 0:02:51.760 nine billion has been approved. Now only a very small 0:02:51.800 --> 0:02:55.320 percent of that apparently has been funded. So we'll come 0:02:55.320 --> 0:02:57.959 back to that issue, because until you have the money, 0:02:58.600 --> 0:03:01.800 doesn't really do you any good. But one thing that 0:03:02.080 --> 0:03:05.280 is amazing in my tenure, the first year we were 0:03:05.280 --> 0:03:08.480 in office, we did all kinds of UH increases in 0:03:08.520 --> 0:03:11.960 the guarantees and we had a record year of thirty billion, 0:03:12.880 --> 0:03:16.320 a record year. Now in one month we're trying to 0:03:16.360 --> 0:03:21.000 get out ten times that much. So it's it's unbelievable 0:03:21.040 --> 0:03:25.480 that banks have have been um actually able to get 0:03:25.520 --> 0:03:28.560 this done. Now, why aren't we getting money into the 0:03:28.600 --> 0:03:32.840 hands of small business owners from the s B a. 0:03:32.919 --> 0:03:36.600 The banks actually have to fund this money into the 0:03:36.640 --> 0:03:39.680 accounts of the small businesses, and they haven't yet been 0:03:39.720 --> 0:03:44.200 doing that, in part because the Fed and Treasury have 0:03:44.360 --> 0:03:46.920 said they will buy all these loans from the bank's 0:03:46.920 --> 0:03:49.920 balance sheet. There are a hundred percent guaranteed by the government, 0:03:50.360 --> 0:03:53.640 and that program has not gotten up and running. And 0:03:53.720 --> 0:03:57.320 the second thing that hasn't quite gotten up yet is 0:03:57.400 --> 0:04:00.600 that a bunch of the new fin techs like Square 0:04:00.840 --> 0:04:05.680 and PayPal and quick books are only just getting their 0:04:05.720 --> 0:04:10.160 approvals and they are really critical for the smallest small businesses. 0:04:10.720 --> 0:04:13.960 You know, they still proprietorships that have been included here. 0:04:14.600 --> 0:04:18.760 And folks who are looking for a forty dollar loan, 0:04:18.839 --> 0:04:21.760 at ten thousand dollar loan, a six thousand dollar loan, well, 0:04:21.760 --> 0:04:24.920 the banks don't do those small loans. So I am 0:04:24.960 --> 0:04:28.760 hopeful that this week will be a turnaround for them. 0:04:28.800 --> 0:04:31.640 Here's the problem. We're going to run out of money tomorrow, 0:04:32.279 --> 0:04:35.960 so Congress has to get this pipe refilled so the 0:04:36.000 --> 0:04:40.440 rest of the small businesses can get their money. So, Karen, 0:04:40.440 --> 0:04:42.800 give us a sense of kind of what's really the 0:04:42.920 --> 0:04:46.119 issue here for this next round of small business loans 0:04:46.120 --> 0:04:48.440 that we've heard. It's two and fifty billion. Maybe the 0:04:48.440 --> 0:04:50.880 Democrats would like to move it up to five billion, 0:04:51.279 --> 0:04:53.919 include hospital funding and thinking things like that. How do 0:04:53.960 --> 0:04:57.000 you think this is really going to play out? Well, 0:04:57.000 --> 0:04:59.480 I'm talking to a lot of the Senators this afternoon. 0:04:59.560 --> 0:05:02.400 I've been in touched with the House Offices, and you know, 0:05:02.480 --> 0:05:06.039 they're having a fight over um, you know, a whole 0:05:06.080 --> 0:05:10.200 set of things. But what I'm saying is the matter 0:05:10.440 --> 0:05:14.720 is absolutely urgent. We've finally gotten the fire hose attached 0:05:14.760 --> 0:05:17.359 to all the pipes. We have to get this in 0:05:17.400 --> 0:05:19.520 the hands of small business owners. And you asked me 0:05:19.600 --> 0:05:22.960 earlier how do they get it and what's it used for? 0:05:23.640 --> 0:05:26.920 And the answer is the bill is actually pretty smartly 0:05:27.000 --> 0:05:31.960 crafted to encourage small business owners to keep their people 0:05:32.080 --> 0:05:37.360 on the payroll and instead of being alone. The p 0:05:37.560 --> 0:05:41.920 p P program actually is a grant. It's a refundable 0:05:42.000 --> 0:05:45.760 loan that, um, you don't owe if you use the 0:05:45.800 --> 0:05:49.560 money to pay for eight weeks of payroll or other 0:05:49.600 --> 0:05:54.400 permitted expenses. And the other permitted expenses are paying your rent, 0:05:54.600 --> 0:05:56.839 which you know is going to come up May first, 0:05:56.960 --> 0:06:02.120 so that's important, and mortgages and interest on your other loans. 0:06:02.240 --> 0:06:06.640 So it's actually a good bill because it understands people 0:06:06.720 --> 0:06:09.080 need money and they don't need a loan, they need 0:06:09.120 --> 0:06:12.240 a grant, and that it's important that they keep their 0:06:13.080 --> 0:06:16.480 folks on the payroll so that they can get healthcare 0:06:16.560 --> 0:06:20.120 and that they can be there when hopefully businesses get 0:06:20.120 --> 0:06:22.960 to reopen their doors whenever it's safe to do so. 0:06:24.160 --> 0:06:28.360 Karen wouldn't just after Ray Dalio spoke. My mindset is 0:06:28.440 --> 0:06:31.920 how will this world look after this scenario? And one 0:06:31.960 --> 0:06:36.160 thing that you pointed to was that fintech lenders, into it, Square, 0:06:36.240 --> 0:06:40.640 et cetera, have been instrumental in this whole effort to 0:06:40.720 --> 0:06:44.840 extend credit to small businesses. How will they emerge from 0:06:45.080 --> 0:06:51.440 this whole event in terms of providing finances going forward? Well, 0:06:51.520 --> 0:06:54.400 Quick Books told me that they have spent the last 0:06:54.440 --> 0:06:56.400 two or three weeks while they were waiting for their 0:06:56.560 --> 0:07:01.000 SBA approval to you know, taking the turbo tax engine 0:07:01.400 --> 0:07:04.640 and making a user friendly front end. I mean, these 0:07:04.640 --> 0:07:07.279 poor small business owners are trying to figure out how 0:07:07.279 --> 0:07:10.120 did they sell out the paperwork and even if it's easy, 0:07:10.200 --> 0:07:14.200 they have to bring different documentation and banks didn't know 0:07:14.480 --> 0:07:19.640 what documentation they needed for a while. Now this new 0:07:19.720 --> 0:07:23.080 app is, you know, automated and it asked you a 0:07:23.160 --> 0:07:25.400 bunch of questions. And if you use quick books that 0:07:25.560 --> 0:07:31.360 uploads your documents, PayPal has a similar user friendly opening 0:07:31.520 --> 0:07:34.800 for these small business owners. So I think this could 0:07:34.800 --> 0:07:38.600 be a game changer for the smaller small businesses who 0:07:38.800 --> 0:07:43.120 have been having trouble getting into their banks and you know, 0:07:43.200 --> 0:07:46.760 getting in the line, because the bigger small businesses are 0:07:47.040 --> 0:07:49.120 more prepared and they're they're getting to the front of 0:07:49.120 --> 0:07:52.440 the line. And if you see if you have a 0:07:52.480 --> 0:07:56.800 small business and suddenly a new fintech becomes a trusted 0:07:56.880 --> 0:08:01.040 provider with a good consumer experience, you could see the 0:08:01.080 --> 0:08:03.520 fin techs doing a lot of good but also ending 0:08:03.600 --> 0:08:06.560 up with a lot of goodwill because all business customers 0:08:06.560 --> 0:08:08.920 are going to remember who was there for them in 0:08:08.960 --> 0:08:11.800 this crisis. Karen Mills, thank you so much for being 0:08:11.840 --> 0:08:15.280 with us. Karen Mills, Senior Fellow at the Harvard Business School, 0:08:15.400 --> 0:08:18.840 former Small Business Administrator for President Obama from two thousand 0:08:18.800 --> 0:08:22.760 and nine two thou thirteen, overseeing the efforts during that 0:08:22.960 --> 0:08:29.800 financial crisis, with some valuable insights into this one. David 0:08:29.880 --> 0:08:33.480 cast joining us now chief Investment Officer of Matrix Asset Advisors, 0:08:34.080 --> 0:08:37.559 joining by phone from New York David. When we look 0:08:37.600 --> 0:08:41.440 at the bank loan loss provisions totaling twenty four billion 0:08:41.520 --> 0:08:45.600 dollars so far from Bank of America, Wells Fargo, JP, Morgan, 0:08:45.800 --> 0:08:49.240 as well as City Group, do you feel like the 0:08:49.320 --> 0:08:52.560 market is inadequately pricing in the carnage that we're expecting 0:08:52.559 --> 0:08:56.960 in this earning season. Uh, we actually don't. We think 0:08:57.000 --> 0:09:00.720 that the banks are the bank prices are far more 0:09:00.800 --> 0:09:03.840 sensitive to the current trends than most other companies will be. 0:09:04.360 --> 0:09:06.400 And the reason behind that is when you're looking at 0:09:06.480 --> 0:09:11.400 industrial companies or corporate general corporations, the real concern is 0:09:11.440 --> 0:09:13.400 not how they did this quarter, but are they going 0:09:13.440 --> 0:09:15.040 to be able to survive it? And where are they 0:09:15.080 --> 0:09:17.240 going to be in six months. When you're looking at 0:09:17.280 --> 0:09:20.600 the banks, there's a concern that they're leveraged, and if 0:09:20.679 --> 0:09:23.080 the loans are this bad now and they get worse later, 0:09:23.080 --> 0:09:24.640 are they going to be able to pay the dividends? 0:09:24.640 --> 0:09:26.600 Are they going to be able to survive? Is it 0:09:26.640 --> 0:09:28.480 going to be two thousand and eight, two thousand nine? 0:09:28.559 --> 0:09:31.680 So number one, we'd make that distinction. We don't expect 0:09:31.720 --> 0:09:34.880 other stocks and other industries and sectors to react like 0:09:34.920 --> 0:09:38.600 the banks that's first number two. We actually think when 0:09:38.640 --> 0:09:41.040 the dust settles, the banks are going to start to 0:09:41.040 --> 0:09:44.520 do much better. We've been on all of these calls 0:09:44.559 --> 0:09:47.040 and and basically what the banks did is they were 0:09:47.040 --> 0:09:50.520 in a pretty draconian way, uh said, these loans. You know, 0:09:50.520 --> 0:09:53.520 there's going to be an enormous uptick in negative loans 0:09:53.600 --> 0:09:56.160 or non paying loans. They took a big hit now 0:09:56.200 --> 0:09:59.079 And because the banks don't want to over promise and 0:09:59.160 --> 0:10:01.720 under deliver, they and said and if things get worse, 0:10:01.800 --> 0:10:03.800 these numbers are going to get a lot worse. So 0:10:04.160 --> 0:10:06.760 everyone is looking at the bank numbers and assuming the worst. 0:10:07.120 --> 0:10:09.600 We think that they've taken a significant reserve. One thing 0:10:09.600 --> 0:10:12.120 that they did say is that they will get through this. 0:10:12.240 --> 0:10:15.000 At their balance sheets are in very good shape. They're 0:10:15.040 --> 0:10:17.360 over reserved. You know. One of the things people are 0:10:17.400 --> 0:10:19.679 trying to get a sense of is is this big 0:10:19.720 --> 0:10:22.240 move up off the bottom. Is it a head fake? 0:10:22.440 --> 0:10:25.640 Is it real? Are we're gonna retest lows because there's 0:10:25.640 --> 0:10:28.600 gonna be a lot of dire data coming out over 0:10:28.600 --> 0:10:31.040 the next several months. Well, we think that the last 0:10:31.600 --> 0:10:34.320 three weeks is a great lesson in teaching people that 0:10:34.360 --> 0:10:37.640 you simply can't time the market on a short term basis, 0:10:37.720 --> 0:10:39.520 and you really shouldn't spend a whole heck of a 0:10:39.559 --> 0:10:42.080 lot of time trying to call a bottom, because the 0:10:42.080 --> 0:10:43.679 people that were trying to call a bottom all of 0:10:43.720 --> 0:10:46.960 a sudden missed the first. So we think the key 0:10:47.000 --> 0:10:50.480 for investors is take a nine to twelve month time horizon, 0:10:50.600 --> 0:10:53.199 look at what's going to be happening. By the end 0:10:53.240 --> 0:10:54.960 of this year. The market is going to be looking 0:10:54.960 --> 0:10:57.960 at two thousand and twenty one earnings, and on that basis, 0:10:58.000 --> 0:11:00.920 we think stocks are pretty cheap and a that's your mindset, 0:11:01.000 --> 0:11:02.920 and you're able to do that. You're able to buy 0:11:02.920 --> 0:11:06.160 some pretty decent companies at very attractive prices that are 0:11:06.200 --> 0:11:08.600 going to get through this period, and we think that's 0:11:08.640 --> 0:11:11.760 the most important question. We expect a lot of volatility. 0:11:12.280 --> 0:11:14.679 We would be buying in days like today, We would 0:11:14.679 --> 0:11:17.000 not be chasing the rallies of the last few weeks. 0:11:17.520 --> 0:11:20.720 But today the newsflow feels horrible. Two days ago, you know, 0:11:20.760 --> 0:11:23.160 one day ago the news flow felt great. Don't get 0:11:23.160 --> 0:11:25.240 caught up in the daily news flow because it'll make 0:11:25.280 --> 0:11:28.440 you crazy. But if you can buy a good business 0:11:28.440 --> 0:11:31.040 that's paying a four percent yield that is going to 0:11:31.160 --> 0:11:33.400 live to fight another day, is going to get through 0:11:33.400 --> 0:11:37.120 this with pretty good economics. You do that, uh, and 0:11:37.120 --> 0:11:38.880 and try not to focus as much on the day 0:11:38.880 --> 0:11:41.640 to day volatility. When you say it's a good time 0:11:41.679 --> 0:11:45.120 to buy certain companies that you think that can withstand this. 0:11:45.360 --> 0:11:48.280 Other people seem to think big tech is the place 0:11:48.320 --> 0:11:50.800 to go. We've seen those shares rally with the exceptions, 0:11:50.800 --> 0:11:54.280 say of Alphabet due to the advertising revenue, which is 0:11:54.360 --> 0:11:57.640 like behind which companies are you really focusing on here? 0:11:58.280 --> 0:12:01.600 So we're looking at companies like V or Comcast, or 0:12:01.679 --> 0:12:05.520 CVS or A T and T. All are paying very 0:12:05.679 --> 0:12:09.280 very healthy dividends. They absolutely will get through this. CVS 0:12:09.360 --> 0:12:13.120 is business has been pretty good. Abby has reaffirmed the dividend. 0:12:13.120 --> 0:12:16.200 They'll be growing the dividend. Their earnings are very good. Uh. 0:12:16.360 --> 0:12:18.199 A T and T is paying over a six and 0:12:18.200 --> 0:12:21.040 a half percent yield while you wait, we think they're 0:12:21.040 --> 0:12:22.960 gonna get through this in pretty good form. All of 0:12:22.960 --> 0:12:26.120 those are pretty good businesses. We also if again we 0:12:26.120 --> 0:12:28.920 wouldn't put too much in, but we also think that 0:12:29.040 --> 0:12:31.240 banks are going to come through this in very good form. 0:12:31.280 --> 0:12:34.360 And if you don't mind the additional volatility. Uh, that 0:12:34.440 --> 0:12:36.920 you can buy companies like a Wells Fargo or p 0:12:37.120 --> 0:12:40.040 n C. P n C announced earnings today. Uh, it 0:12:40.200 --> 0:12:42.920 was it was actually a pretty good call. They really 0:12:43.000 --> 0:12:45.720 have their arms around this. They said that one thing 0:12:45.800 --> 0:12:47.320 that's going to come out of this when all said 0:12:47.360 --> 0:12:50.120 and done, is the quality of their loan portfolio, and 0:12:50.480 --> 0:12:53.679 it's paying over almost a five percent dividend. Uh. So 0:12:53.800 --> 0:12:55.839 those are the type of companies you can buy a 0:12:55.960 --> 0:12:57.920 year from now. We think you're gonna be pretty happy 0:12:57.960 --> 0:13:01.000 and feel that you're pretty smart. How concerned are you 0:13:01.080 --> 0:13:03.840 about balance sheets? A couple of companies you mentioned, most 0:13:03.880 --> 0:13:06.800 notably A T and T and Comcast carrying a tremendous 0:13:06.920 --> 0:13:09.120 amount of debt. Now they've got good cash flows, but 0:13:09.600 --> 0:13:13.840 if this thing gets really ugly and for longer, how 0:13:13.880 --> 0:13:17.040 concerned are you about credit and balance sheets? We're very 0:13:17.080 --> 0:13:20.640 concerned about balance sheets. If you're in a leveraged business 0:13:20.720 --> 0:13:23.160 or business is going to be impacted by the coronavirus. 0:13:23.200 --> 0:13:26.000 So what would that include? That would include the automobile companies, 0:13:26.360 --> 0:13:32.720 hotel chains, restaurants, the cruise lines, airlines. Those companies, if 0:13:32.760 --> 0:13:34.840 they've got too much debt, are going to have no revenues. 0:13:34.920 --> 0:13:37.520 In terms of Comcast, their revenues are going to be 0:13:37.559 --> 0:13:40.200 absolutely solid. They're going to come through this. They've got 0:13:40.280 --> 0:13:43.760 great cash flow. People are not going to be cutting 0:13:43.760 --> 0:13:46.199 off their services. Same with a T and T. We 0:13:46.280 --> 0:13:48.960 think that, um, you know people right now, we're all 0:13:49.000 --> 0:13:51.439 working from home, so they either need their wireless or 0:13:51.520 --> 0:13:54.439 they need Internet connections. Uh So A T T will 0:13:54.480 --> 0:13:57.000 get through this. Uh So in both of those cases, 0:13:57.160 --> 0:13:59.800 you know, we're very, very comfortable that the companies have 0:14:00.080 --> 0:14:02.360 the cash flow to get through this. But your point 0:14:02.440 --> 0:14:05.599 is exactly right. We would avoid companies and industries that 0:14:05.640 --> 0:14:08.839 are going to see a cut in revenues and have 0:14:09.040 --> 0:14:12.280 debt because they can get caught and really hurt. David, 0:14:12.360 --> 0:14:16.679 I'm struggling with the historical reference point to this moment, 0:14:16.960 --> 0:14:19.360 and people talk about the numbers and how you can't 0:14:19.400 --> 0:14:22.000 really look at the numbers. Right now. We're getting, you know, 0:14:22.080 --> 0:14:26.680 horrible retail sales. The Empire Manufacturing Survey dreadful record lows, 0:14:26.760 --> 0:14:30.640 record plunges, record job losses, record this, record that, and 0:14:30.840 --> 0:14:33.520 and how do you sort of create a compass forward. 0:14:33.960 --> 0:14:36.160 It's faith, it's faith that we're going to recover. On 0:14:36.240 --> 0:14:38.920 the other side is there anything that you're clinging to 0:14:39.120 --> 0:14:42.840 that's beyond faith that things will revert to normal in 0:14:43.080 --> 0:14:46.840 terms of data. That underscore your point, which is things 0:14:46.920 --> 0:14:50.240 will essentially eventually go back to the way that they were, 0:14:50.440 --> 0:14:53.200 and you can count on these previous ideas of stable 0:14:53.240 --> 0:14:56.400 balance sheets and companies that seem to have a viable 0:14:56.440 --> 0:15:00.840 business model. That's that's exactly the point. So basically, the 0:15:01.160 --> 0:15:03.880 vast majority of the time, the market looks out at 0:15:03.920 --> 0:15:06.880 earnings twelve to fifteen months out, So if you do that, 0:15:07.040 --> 0:15:09.400 you're really talking about two thousand and twenty one earnings, 0:15:09.680 --> 0:15:12.480 and that's how financial markets work. So the part of 0:15:12.640 --> 0:15:16.520 faith that our analysis relies on is that right now 0:15:16.640 --> 0:15:20.320 the pharmaceutical companies are spending tens of billions of dollars 0:15:20.400 --> 0:15:23.240 to find a solution to the coronavirus. So we think 0:15:23.280 --> 0:15:25.960 at some point, whether it's three months from now or 0:15:26.040 --> 0:15:28.640 six months from now or nine months from now, we're 0:15:28.680 --> 0:15:31.640 going to be in a more normal environment. There will 0:15:31.720 --> 0:15:35.600 be either a treatment for the coronavirus. Uh hopefully Johnson 0:15:35.640 --> 0:15:36.960 and Johnson that said that they're going to have a 0:15:37.040 --> 0:15:41.440 vaccine by next um February or March is successful in 0:15:41.480 --> 0:15:44.000 that endeavor. And if something like that happens, all of 0:15:44.040 --> 0:15:47.320 a sudden, people will start to behave more normally. They'll 0:15:47.360 --> 0:15:49.600 be less scared about getting something and dying, which is 0:15:49.640 --> 0:15:53.640 a perfectly rational fear right now. And then the economy 0:15:53.720 --> 0:15:56.000 starts to open up. And at that point the market 0:15:56.120 --> 0:16:00.720 looks beyond current earnings and current horrific economic ends, and 0:16:00.960 --> 0:16:03.360 the surviving companies are going to be valued on two 0:16:03.440 --> 0:16:06.160 thousand and twenty one earnings, and on that basis you're 0:16:06.160 --> 0:16:08.200 able to get a lot of really good businesses at 0:16:08.240 --> 0:16:11.040 twelve times earnings. And the other part of the equation 0:16:11.280 --> 0:16:14.200 is when the fear factors at and when the world 0:16:14.280 --> 0:16:17.840 returns to normal, interest rates are essentially at zero, the 0:16:17.920 --> 0:16:21.920 federal government will have spent trillions of dollars, whether it's 0:16:21.960 --> 0:16:24.680 two trillion or five trillion dollars, all that money will 0:16:24.720 --> 0:16:27.480 be at their interest rates will be at zero, bonds 0:16:27.480 --> 0:16:32.320 are not offering any reasonable alternative. Stocks will become pretty attractive. Uh. 0:16:32.520 --> 0:16:35.560 And that again leads to looking at IT earnings, looking 0:16:35.600 --> 0:16:38.800 at its companies, and valuations based on the last one 0:16:39.240 --> 0:16:44.240 years evaluations. David Kat's President and chief investment officer Matrix 0:16:44.800 --> 0:16:47.920 Asset Advisors, David Thanks so much for staying on the 0:16:48.000 --> 0:16:54.880 line with us. Well, the horrendous economic data just keeps 0:16:55.080 --> 0:16:58.040 rolling in this morning. In addition to the Empire manufacturing 0:16:58.160 --> 0:17:01.480 data that fell u gird at Pace, we also saw 0:17:01.600 --> 0:17:05.159 a record decline in retail sales and joining us to 0:17:05.240 --> 0:17:07.800 really put this in their perspective at a time when 0:17:07.880 --> 0:17:10.800 people don't know what numbers to cling to a Smasha, 0:17:11.160 --> 0:17:15.080 director of consumer and Retail Trends at Credit Intel joining 0:17:15.200 --> 0:17:17.880 us on the phone from Long Island, Seema, so glad 0:17:17.960 --> 0:17:21.200 to have you on the phone here. I'm wondering what 0:17:21.320 --> 0:17:23.840 are you looking at in terms of the retail numbers 0:17:23.920 --> 0:17:26.440 to give you some gauge of how bad this is 0:17:26.480 --> 0:17:29.440 going to get. I think the biggest and those obvious 0:17:29.880 --> 0:17:31.840 trend that came out of the numbers, it just sort 0:17:31.840 --> 0:17:35.680 of highlights the shift away from discretionary spending and two essentials. 0:17:35.760 --> 0:17:38.440 You saw grocery stores at a really strong number and 0:17:38.520 --> 0:17:41.480 ends up. But if you look at what happened to clothing, 0:17:42.160 --> 0:17:47.920 furniture department stores, I think that just at that risk 0:17:47.960 --> 0:17:50.440 will continue to grow the longer we're in this shelter 0:17:50.640 --> 0:17:53.800 in place situation. Then it begs the question what happens 0:17:53.840 --> 0:17:56.840 when we come out, how will these discretionary retailers be 0:17:56.880 --> 0:17:58.840 able to perform, Like what do they need to do 0:17:58.960 --> 0:18:01.160 and what does that mean for them? I think that's 0:18:01.520 --> 0:18:04.600 the biggest takeaway I'm seeing right now. Yeah, it's interesting 0:18:04.600 --> 0:18:05.960 to seem I think the you know, one of the 0:18:06.040 --> 0:18:08.639 questions that we we've been one of the areas of 0:18:08.680 --> 0:18:11.640 discussion most we've had today and over the last several days, 0:18:11.720 --> 0:18:14.360 is how do we think the consumer will change, if 0:18:14.520 --> 0:18:16.800 at all. On the other side of this is is 0:18:16.800 --> 0:18:18.600 there any data that you've seen that suggesting that there 0:18:18.640 --> 0:18:21.000 will be a fundamental change, or if any of the 0:18:21.080 --> 0:18:23.760 retailers you've spoken to, if they suggested that they expect 0:18:24.080 --> 0:18:26.880 a fundamental change, or will the consumer on the other 0:18:26.920 --> 0:18:29.200 side of this just kind of go back to kind 0:18:29.280 --> 0:18:33.080 of normal. I think it's more likely you'll see a 0:18:33.160 --> 0:18:35.000 change in the consumer because now we're going to be 0:18:35.119 --> 0:18:39.600 going on almost two months pretty soon of sheltering in place, 0:18:39.720 --> 0:18:43.080 changing your behavior, having six feet between you and anybody 0:18:43.119 --> 0:18:45.280 else when you go to the grocery store. So I 0:18:45.320 --> 0:18:48.200 feel like some of those habits will be hard to change, 0:18:48.240 --> 0:18:51.240 and it might require retailers to change how they are 0:18:51.320 --> 0:18:54.280 running their stores. How restaurants. We know that in Hong 0:18:54.359 --> 0:18:56.560 Kong they've set up table six ft away from each 0:18:56.560 --> 0:18:59.960 other and they're sanitizer everywhere. So I think people be 0:19:00.000 --> 0:19:03.160 behavior will change, certainly, But I think the bigger question 0:19:03.280 --> 0:19:05.239 is how when their finances will change and what does 0:19:05.280 --> 0:19:08.560 that mean for discretionary retailers When you know over seventeen 0:19:08.600 --> 0:19:12.680 million people are filing for unemployment claims, retailers across the 0:19:12.720 --> 0:19:14.640 board have for a loowed many many, if not all, 0:19:14.720 --> 0:19:17.959 of their employees. Other companies are also struggling, So how 0:19:18.000 --> 0:19:20.720 do these people come back right? And I don't think 0:19:20.800 --> 0:19:22.680 that the stimulus that they're going to get at some 0:19:22.840 --> 0:19:25.960 point one time check is going to be enough for 0:19:26.080 --> 0:19:28.440 them to shift their spending back to the way that 0:19:28.520 --> 0:19:31.840 it was. But is actually what I'm concerned about. Well, 0:19:31.920 --> 0:19:34.280 when people talk about the retail sector, they've talked about 0:19:34.280 --> 0:19:37.040 how Amazon has really consolidated share, and we've seen a 0:19:37.119 --> 0:19:40.920 shift that's just accelerated to online ordering just because nobody 0:19:41.040 --> 0:19:42.960 is allowed to go out and the stores were all closed. 0:19:43.520 --> 0:19:45.800 It was interesting in your notes you said that actually 0:19:46.119 --> 0:19:49.119 there is a potential positive outcome from this, that there 0:19:49.160 --> 0:19:52.239 will be a re emphasis on brick and mortar. Can 0:19:52.280 --> 0:19:55.440 you talk a little bit about that. Yeah. Absolutely. I 0:19:55.520 --> 0:19:57.320 think one of the things that you notice when you 0:19:57.520 --> 0:20:01.040 come away from this is like when people really need something, 0:20:01.119 --> 0:20:03.520 they want something, they want to go and get it themselves. 0:20:04.119 --> 0:20:07.800 And you saw with Amazon having these huge supply chain issues, 0:20:07.840 --> 0:20:10.480 despite having one of the best supply chains out there, 0:20:10.880 --> 0:20:13.560 they just could not bring in the essential product on time. 0:20:14.040 --> 0:20:16.800 They're not even taking new grocery deliveries. You cannot get 0:20:16.840 --> 0:20:20.160 a spot to get Amazon fresh delivery. Even regular goods 0:20:20.200 --> 0:20:22.280 were taking a long time up until recently, and they 0:20:22.320 --> 0:20:26.400 halted essential you know, non essential sales, and I think 0:20:26.480 --> 0:20:28.959 that's a huge risk, and it it was a benefit 0:20:29.040 --> 0:20:31.159 to people like Target and Walmart who are selling some 0:20:31.240 --> 0:20:33.640 of those merchandise, but that you could go and get 0:20:33.720 --> 0:20:36.520 it right away, and I think for them it was 0:20:36.600 --> 0:20:40.800 even better economically because it's cheaper for a client or 0:20:40.840 --> 0:20:43.480 customer to go pick up a product from the store 0:20:43.520 --> 0:20:46.359 than having the retailer ship that product to them. And 0:20:46.440 --> 0:20:50.639 I think that type of that was really highlighted, I 0:20:50.720 --> 0:20:53.840 think in this crisis, and it shows why you need 0:20:53.880 --> 0:20:56.440 to have an omni channel strategy, not an online strategy, 0:20:56.480 --> 0:20:59.399 and not a brick and mortar only strategy seem a 0:21:00.040 --> 0:21:02.960 bit about the balance sheets some of the retailers you 0:21:03.080 --> 0:21:05.160 look at. I mean, you know a lot of retailers 0:21:05.200 --> 0:21:08.520 they operate on you know, very tight margins. I'm not 0:21:08.600 --> 0:21:10.800 sure how much cash they carry. How are you thinking 0:21:10.840 --> 0:21:14.520 about that? Yeah, so credit until we put out a 0:21:14.560 --> 0:21:17.080 couple of reports recently which we keep updating, and one 0:21:17.080 --> 0:21:20.720 of those the retailers at risk. And you know why 0:21:20.760 --> 0:21:22.280 are they at risk? Well, first of all, they have 0:21:22.480 --> 0:21:24.840 most of them with through their guidance. They closed their stores, 0:21:25.000 --> 0:21:28.040 they furloughed their employees, most if not all of them 0:21:28.119 --> 0:21:30.359