Recession 2020 Is Your Sales Team Prepared And Will Your Business Survive
Welcome to the do to sell more show I'm Dave Lorenzo and today by, popular, demand we, are gonna talk economics that's, right the, subject, you hated in school you love now that you're a business owner or that you're running a large sales team you want to know what's gonna happen in the future with the, economy, and how it's gonna impact your business and we've, got the guy to, share that information, with you today I am, gonna put Jason Schenker's, bio in the, notes for the show because. It is enormous, and it is very. Impressive let me just give you a taste for, who we're talking to today Jason. Is the president of prestige, economics. And he's the chairman of the futurist Institute, he's, been ranked one of the most accurate financial. Forecasters. And futurists. In the world Bloomberg, News has him ranked, as a, top forecaster. In 43. Categories. Including. Number one in the world for, his forecast, accuracy, in an astonishing 25. Categories, so. Without, any, further. Really. Going into, the, fact that this guy is an expert you, can just google his name and look at all the videos and, the 19, books 20, coming out this week that he's produced so, we're gonna talk to him today for about 20 minutes and he's, gonna explain what, the hell is going on with the economy and what you can look forward to and how you can prepare Jason. Welcome to the show thanks for joining us today thank. You very much Dave great to be here today, alright, so Jason, this, as we're recording this, this is the end of August, 20. 1910. Us what, you think is happening with, the economy, right now. Well. The first thing is that the global economy is in a really bad position so, if we look at what's going on with, global purchasing, manager indices, these are surveys. Of purchasing, managers people who work in manufacturing, companies. And they buy stuff why, do they buy stuff they have orders to fill what, happens in the orders get filled that stuff goes into GDP, right so if you work at a car manufacturing, company why would you buy more, hubcaps, well it's probably cuz you're manufacturing, cars when the cars get they go to GDP those are leading, economic. Indicators, people are buying more stuff this. Month than last month it means a more orders to fill to buying less stuff this month last month a few orders to fill the GDP, will go down if, we look at what's going on in China and the eurozone things are quite dire, through. The month of July six. Months, in the eurozone, manufacturing PMI. Consecutively. Contracted. And five in the last eight months in China have contracted, global. Economy, manufacturing is. At the weakest, level really. All the way back since, 2012. When. You had the European, sovereign debt crisis, so, things, aren't great right now on a global basis, so that's kind of the bad, news the.
Good News is is that the US economy is in a much better spot in order to freak out but 70 percent of the US economy is. Consumption. And consumptions, driven by people having jobs and. As you'll notice the unemployment, rate is quite low and wages. Are up quite a bit as long, as people have jobs and they're spending any. Kind of downturn, would likely be quite needed in the United States because, of that. Really. Fortunate situation. That we're an economy, that buys. Stuff, and people. Have jobs right so not. As bad in the US nowhere, near it as bad, as between the eurozone, in China and our, central, bank still has a lot more wiggle, room I'd argue than the European Central Bank the Bank of Japan, after. All just, the past week. Tremendous. With negative, interest rates that. Means, when. You you, know take out a loan. From a German bank technically, they might be paying you, interest and, that actually happened in a Danish bank last. Week is flowing to get a mortgage and have negative, interest rates, so, that's, a really weird thing to think about but, the Fed does, not have negative interest rates you could still cut quite a bit and could expand its balance sheet more, to, where it was just a year and a half ago so we're, not nearly as bad a position, as the rest of the world but, you know if you're in Europe or China you're feeling crunch right now, ok. So you. Said that we're a consumption. Based economy. If we're if we buy things people, need, to make a profit on the things we buy so, they manufacture. Them in places, where it's cheap to manufacture so, I'm thinking right now specifically, of China, we. Buy a lot, of stuff that either the parts of the stuff we buy are manufactured, in China or the actual entire, product, itself is manufactured. In China you said that manufacturing, was slowing down over there how, does that affect, us isn't, that doesn't that portend, that we may be in in. For a little bit of a rough ride down the road actually. I didn't mention the manufacturing, corporate profits, piece at all the reason I mentioned. Manufacturing. Is because, it's a leading global indicator. So manufacturing. In the US and eurozone in China in. The US Europe it's about 10% of, GDP in, China, it's about two and a half times that their capital, intensive, industries, they lead, global, economic, growth in the United States, our economy, is 90, percent services. So the. 70%, of that the economy. Is driven by consumption, 70% of GDP as are the corporate, profits piece, that's, sort of a different, story and now we're going to switching, gears, a bit. You, know I four, companies that manufacture. In China they are going to face some. Challenges the. Reason companies went there is they have really wide profit, margins but what we've seen recently is. That a lot of companies are looking to move their manufacturing, out of China which really I think also culminated. In. Some, presidential. Tweeting, on Friday that indicated. That companies, need to move their stuff and there could be even at some point I think here the hint of a regulatory. Mandate of moving stuff out of China that does add cost I covered corporate profits corporate, profits is not GDP, corporate, profits is not unemployment. Corporate, profits is something that can hurt equity, markets equity. Markets are in a really risky spot right now very different than the economy the, reason they're a risky spot is last year 81 percent of IPOs or, four companies to that negative earnings, there's, also about half as many publicly, traded companies, now as they're worth years, ago furthermore.
The Companies with negative, earnings last June which by the way 81% is a record which was. Previously, equal. To the previous record, set Becca. I think 99, mm. So. This is a really a really stable position companies. That lose money I'm sure most of the folks who watch this if you work at a company that loses. Money you usually don't exist very long but, in the public markets last year when companies, have IPOs, those. That had their first day of trading if, they had negative. Earnings the. Return on their investment, on the first day of trading how much profit he made was, twice as high if, your company lost money rather. Than if your company had positive, earnings those, kind of dynamics, seem a bit messed up and although markets. To remain irrational, longer, than you can remain solvent these, kinds, of dynamics, aren't going to persist forever. So that means that equity markets are risky, things that threaten corporate profits are risky, we've been expecting, and forecasting. For over a year and a half that, there would be a business, investment recession. This year in, 2019. And potentially. To get in 2020, but business, investment, is only about 15%, of GDP and there was a business, investment recession. In the United States in 2015, and 2016, and, in 2015 GDP. Was 2.6, percent and in 2016, it was 1.6. Percent, notice, GDP, still positive even though corporate profits for big big, hits and catfights, spending went down and corporate profits took a hit so can companies lose money and GDP still be positive yes. But. That's, kind of the question of what's a recession, and what makes the stock market drive the. Duck dive, thousands, of points and by, the way even though right now here we are August 2019, people are freaked out the Dow is still up thousands, of points since the beginning, of the year even though we've seen a recent pullback, so I think there's a big thing here to keep an eye on and keep in mind a headline, / trend line and the trend line, of watches people have jobs people have money that's important, for GDP the. Headline is well there's all this trade stuff that can really hurt corporate, profits there's also, other, weird dynamics, that fundamentally, don't says how is it you have all these IPOs and properties losing, money and the more you lose the more your work doesn't make much sense those. Things that. Could be really really negative for equity markets especially if confidence is lost, like, if we were to look at a recession, coming forward out of any of this something we, don't expect although, we do expect a business recession, and we have been forecasting, a Chinese manufactured, recession which is going on right Allen which also happen through December 2014, in mid-2016.
You, Know if we think about overall, recession. It would probably be something that looks more like 2001. Which by some definitions, wasn't even a recession, and nothing, like a Great Recession because, most, people's largest assets houses, are secured, and that market, has still been widely d levered, which means there's not, a lot of crazy credit out there yes, there is for subprime auto Wells ours are a lot easier to repo in houses and so, consumers, are less likely to lose confidence and they. Okay. So, the. I, want, to make sure I understand, what you're saying as long as people have jobs we don't have to worry about a recession because we're a consumption, economy jobs, equals money in people's pockets money, in people's pockets means, they spend so, companies, can lose money as long as they're not laying people off and as. Long as unemployment. Remains, relatively. Constant, then. We'll be fine, and. To a certain degree that's right and I'd, also, add about the labor market one other thing that obviously if companies is equity they take big big hits take my, clay off right now what's going on is there's not enough people to fill the jobs the, labor markets, are the tightest it's been in 50, years and anyone. I talk to my most people watching this would. Tell you their biggest problem at work isn't some. Weird looming, recession, it's man. We can't find the people we need in our group in order to grow the business because, the labor markets to time can afford the people we can't find them this, is the biggest problem for every company I talk to you right now so again we can have parts of the economy, contract. But people. Are the wages are up the, people, have jobs and companies wish, they could hire more people there, are companies I know that are get a rating for you know maybe a recession to the time they go out hire, all the people they need which means how. About it if companies are now waiting does stupid, people as soon as they would get laid off so that's, something to keep in mind I think really important, that you. Know the US are coming much better place in the global come, ok, so the services, sector is, a, significant. Portion of our. Current economy what. Happens, if we. Experience. Some, type of inflationary. Pressure and the. Fed doesn't, have the tools to react or the Fed is too slow to react, and, inflation.
Escalates. How, does that impact what, will happen, with the. Overall GDP, and, ultimately. With the economy, the broader economy well. I think if you look at the trend the feds really struggled, to and gender, any kind of level of inflation I mean most central, banks are struggling to. Have inflation. I mean Bank of Japan, they're. One of the biggest holders, right now of ETFs, on the Nikkei the baggage, Japan owns equities, in large volumes. They, can't create inflation, right the the European Central Bank is a much larger. Balance. Sheet than we do in terms of how much quantitative. Easing they've done how much corporate debt they've, also been buying they, can't get inflation we have struggled to be around. 2% inflation, on, a consistent basis. So you. Know it's a really tough gig so where, would all this this mythical, magical inflation. Come from if we have global deflationary, pressures, you, know I think if we had a little more inflation it might not necessarily be, a bad thing obviously. For people who are to say that molders is that she's probably a. Little more inflation but, you, know the biggest thing is the Fed wants to see stable inflation on 2% part of the reason is a Fed reseated a rate cut is because we're below that and we're nowhere near that what, their target really is so a. Little more inflation would not necessarily be a terrible, thing and look the Fed was able to expend its balance, sheet by. More. Than three and a half trillion, dollars, and we struggled to have 2% inflation 3, and of trillion dollars that came out of the ether by the way that's not like that, was a government debt money and that wasn't enough. The Fed just said hey we have another 3 and 1/2 trillion we're gonna spend right. They just made that money up and we, didn't get any inflation, and by the way the National that levels. The government is spending, noodles and money and we also don't have any inflation so I don't know if getting, lots of inflation, is very, easy in, this environment, and I would argue part, of the reason we've seen interest rates for mean low in the u.s. part of the reason I think the u.s. Jonker recently, inverted so that's the the the graphical, depiction, of future government, interest rates normally. The yield curve goes opposite, normally occur because when, you borrow, money for 30 years you should get more than when you borrow for 10 and when, you are, you. Know when you give, me money to government for 10 years you should have no higher interest rate for two years is it just longer-term risk that's normal with the interest rate to be higher when, the yogur inverts that means if the interest rates that are, closer. In time. Are. Actually. Going. To be higher than some, of the ones that owed a little bit further out so you, end up with this inversion where you, actually get more money up front and a lower. Interest rate further out and that's that yogurt, Ruth 10-year you get a lower interest rate for giving them government, money for 10 years and you do for 2 years which seems really weird unless.
You Consider the fact that the global economy is on the verge of recession, Europe's, in a manufacturing especially China's any of your intimated that recession, and German, bonds are negative, interest rates how much do you want to buy US bonds which have positive interest rates when the dollars already strong right. Which means if you're in Europe and you buy it if the, dollar ever weakens you not only get a better interest rate on US Treasuries, that you do in Europe where you have to pay to borrow, that. This, is crazy. Then. Then the. Other option is of course that dollars really strong and it goes down then you'd also make money in the carry trade which, means that in the future of the dollars weaker and you're a European, investor. And you bought bonds with higher yields in, the u.s. you're. Making a better interest rate and when you turn it back into euros the dollar might be lower and I should give more euros to why, wouldn't, the US yield curve invert in that situation, right, so that's, some of what's going on in the background and the u.s. just has some of the best interest, rates and we still have very low inflation. Okay. So give, us your forecast, what do you see for the rest of this year the, remaining, few months in this year and for 2020. What, do you see happening in the future with the economy yeah I think it's gonna be dicey, for business investment I think it's gonna be dicey for capex, for 2019. Our, GDP forecast is consistently, been around two to two and a half percent not. A great year not a bad year it's pretty good it's okay so. GDP, like you'd be modestly positive, could, the line items, for fixed investment be, negative, yeah, we saw that in q2 there, was a contraction. Business investment, already in, the second quote for 2019, could that happen again in coming quarters yeah, has that happened when we didn't have a recession very much don't have it in 2015 2016, we could see it again a forest, now, that's that's sort of the first beast the, the second piece is what would we see through the labor market could we see the unemployment. Yeah. We could see that but I wouldn't expect anything to ematic not. Where we are at now based on that consumption, piece for the overall US economy, now next year u.s. GDP could be even a bit slower so this is a basic fact of how growth eats through two years and you're on your fence and all thing but, GDP, between one and one and a half percent would be a very weak here to be the weakest year since a recession, but notice still a positive year so, you. Know that's you. Know not terrible, either it's just slowing by the way we, had one sort of generation, tax cuts come through at the end of 2017, which really gave 2018, a boost right, 2018, was feast well you don't have feast and then feast, some more and if these sorts usually feast and then a little bit of famine right so you, know this is a year where we're coming off record ice record. Really. You, know activity, in many different ways for 2018 so, 2018, just gonna be a little bit weaker 2020, lengthy leave week as well, there's. Also concerns, about how the political, situation feed-through, and concerns, about what might happen with tax rates going into the 2020, election but I believe by 2021, I think things have improved monetary. Policies, with the more accommodative, and the, global economies, have proved so you, know look at these next 18, months is kind of a choppy, patch, it's gonna be very, choppy for equity, markets a lot, of risk a lot around trade, that's going to remain I think, elevated, trade risks I think those go away a lot of uncertainty, of policy, so, that's gonna make people really scared, but that affects equity, markets it might not actually affect, your job it might not affect GDP, as much so those are just things to keep in mind and making that distinction between what's, the economy, and what our equity markets okay. Give us your, thoughts on, there's. Two sectors that I'm concerned about and I'm sure our viewers are concerned about in particular the. First is. Large. Purchases, like autos, for example, that the consumer, may go out and purchase where, do you see for, example the auto market heading. Manufacturing. Pressure that sort of thing will there be some inflation in the auto market is it going to be harder to get financing. For cars or easier what do you see there so. The first thing is we did expect, that autos would slow significantly, this year as a result of the fact that the Fed raised interest rates on her basis points last year so, we thought oats have swum you look at the seasonally adjusted annual rates are quite long now and they're. Likely to fall a bit further, one. Of the big things you know about cars is that car credit. Auto credit is really. One of the things that allowed for, this business cycle, expand, throughout, American, history after.
A Recession the, main source of growth was new housing, but, because of the nature of the Great Recession, housing. Credit became very constricted. And so new, credit, creation really, happened in autos there's a lot of subprime, auto loans, some recent data released by the New York Fed really underscored. This then you've got a lot of auto sales and subprime now, are, we gonna get a lot more auto sales for, new vehicles probably not if. We see the economy slow you. Know it really depends our houses are consumers, but are you gonna get more repo sure is that terrible for their company that did the auto loan not, necessarily. Because they keep the money people already paid on the other loan then, they repo, the car and still get to resell, it so, that's. Not necessarily a. Bad thing, and. You know depending on how big, that we get activity, wise but for the companies that have extended the credit it's very different than for housing, where right, now I'm sure there are people who default, their mortgage in the great recession in the housing crisis and today. Right. 11, 12 years later are still living in those houses I am sure, somewhere. There's somebody, like that right now for, cars you, know you're gonna pull up to a 7-eleven I'm going to get a Slurpee and Dog the Bounty Hunter's gonna come jump your friend right right that's, what's gonna happen and that's, a lot easier than trying to move a family, out of where they live and and. There's a whole ulcers. Of laws around this and all thing so I'm less concerned about that but I do think auto sales would be slow. I think, housing could slow down a little bit but it depends very much on the market somewhere it's gonna be very hot I live. In Austin Texas you know point radiators between two and a half and three percent, so, they. You, know there's a thousand people moving here a week and we still don't have enough people to really satisfy the need to the labor market really, depends very regionally, what's going on where, you are but Auto Sales like you to slow I wouldn't expect Auto prices, to go up much I think what's gonna happen is, you. Know you're gonna see some of the currency, arbitrage play, through as companies, try to foreign. Producers, of cars try to take advantage of strong dollar to repatriate dollars, without, having to adjust, of dollar price of their car in other words if, you're a foreign car manufacturer, you're selling you know that you else the dollar is really strong when. You turn that dollar back in your home currency whether that's euros again, or remember. You're, getting a lot more of, your home currency, and that's, what you really care about you don't care what the dollar price of the car because your. Stock price doesn't, trillion dollars your balance sheet isn't denominated, in dollars you, care about your home currency, so strong, dollars that you still you. Know going to be pretty good for foreign auto sales and preventing. Those inflationary. Factors. In the u.s. you, know I think, that the economic dynamics, are gonna prevent inflation so I don't think you're gonna see auto sales go down and auto crisis, go up I think you can see both auto sales, and prices go down a little bit further. Okay. The last one is the consumer. Credit card market. The consumer credit market, what, do you see for that in the next 12. To 18 months. Well, you know I think that, if. We look at again household, credit just as we did from the earth it came out showing a few, things so household, credit is, mortgages. Plus auto loans plus student loans plus, credit, card debt plus home equity lines, it's loosely all the debt you'd have in any house it is, just now higher than it was in a Great Recession which. Means and by the way but that's in nominal terms it's in dollar terms, not that's, that that. Means despite. The fact that we've had ten, years of inflation, we're just now at the same level we were that right. We're a little bit more than we were that so, the credit situation, isn't really a big crunch as long as people have jobs the.
Credit, You know credit card creation, and credit in credit new. Credit creation for credit cards you. Know you shouldn't be hindered to too much and by the way if the Fed starts cutting rates then. Those credit card interest rates can also fall as well so, not. A lot but, but you know every 25, basis points helps and and the whole thing so you. Know I think that we're gonna still see people spending I think we're gonna see the. Economy continue, to, remain relatively. Positive, although parts, of the economy will, be in recession I think those big expenses, big capital, expenditures. I think, there's a risk that some of those could. Be postponed. But again, a lot was probably pulled forward into, 2018. Because those passed out all. Right so, Jason where can people get more information from. You if they if, they're interested. In continuing. The conversation, with you or they want to know more about what's going to happen in the future where can they get more from you sure. I mean the best place for people to go is to my personal. Website Jason, Schenker com. If you worried about recession. You. Might want to check out my book recession, proof I wrote it in 2016 when business investment, was in recession when Chinese manufacturing. And the eurozone who. Were Chinese. Manufacturing, this recession eurozone, was on the edge even US manufacturing, mister recession, and that's actually what prompted me to write that book so that. Book recession, proof is out there, help folks navigate, what comes next but, if, you want more interest in what, I do, whether that's books. Or a research that, we produce or, continuing, the conversation, as you say Jason. Shepherd, on compass all. Right Jason Shanker comm we will put that in the show description, we'll put it on the notes on the website along with Jason's, bio Jason, thank you very much for spending a few minutes with us today and helping us understand, what's going on with the economy thank, you it's my pleasure to be here have a great day all, right thanks very much folks that'll do it for another episode of the do this sell more show I'm Dave Lorenzo we'll see you right back here again next Thursday at, 12 o'clock for another edition, of the. Do this sell more show.