Contained, Not Contained (Radio Interview)

February 24, 2020

On the Trey Ware show, Karl discussed how the spread of the coronavirus OUTSIDE of China is what’s causing the recent sell off in stocks. But, Karl also reminded investors to focus on the percentage of the Dow Jones, not the points.


Trey Ware:                         The Dow is down close to 800, right around 800, give or take a few. We want to have Karl Eggerss from Creating Richer on the show this morning. He joins me every Monday at 6:50. We want to have him back on now to talk about this. Karl, they’re saying in the mainstream media a lot of this has to do with coronavirus. As you and I have talked though, it also has a lot to do with Bernie Sanders being on such roll and the free market doesn’t like the fact that he’s on a roll. So your thoughts. Go right ahead.

Karl Eggerss:                      Yeah. Thanks, Trey, appreciate it. You know, we’ve seen, obviously the coronavirus has been there for the last few weeks, but the fact that if you look at the overall, the new cases have slowed down a bit. But if you look at it outside of China, that’s really one of the issues that the market’s dealing with. And again, when you look at countries like South Korea, how much stuff do we get from South Korea? They’re a huge exporter, right? We get a lot of cars from South Korea. And so, I mean there are companies. I’ve talked to some people in San Antonio that have companies and say, “I can’t get parts right now.” So they’re shut down temporarily and that’s here. So magnify that globally. We know China’s about tripled the size their economy has on the global economy, the impact is triple what it was back in ’03 during SARS.

Karl Eggerss:                      So that’s why the market’s struggling. And look, the market had been going up pretty persistently for the last several months. So we’re getting a sell off. What’s interesting to note is that you look at the Dow Jones and we hear 800, 900, 1000 points. Those are big numbers. But again, we’re not at Dow 10,000. We’re at Dow, 28,000, 29,000. So percentage wise we had three drops in similar magnitude in just last August, and most people don’t even remember that because we just bounced back and kept on moving along. And ultimately I think this bull market will last. But there’s no question that the reason the markets sell and Wall Street sells is because they’re trying to discount what they know about the future. When people invest, it’s always about trying to predict the future in terms of profits and earnings and you don’t know that right now.

Karl Eggerss:                      You don’t know is the supply chain disrupted for three weeks? Is it just disrupted for three months? And until we know some quantifiable measure of what that is, then you see people sell stocks now, and I’ll figure it out later. So you’re seeing some of that move to the sidelines as we speak. And again, for those that are longterm investors, this was where you started cherry picking. You start looking, saying, are there things out there that I’ve been waiting to buy? You know, everybody wanted to buy Apple stock for example. Well guess what? It’s down 5% this morning. But what happens is when it does fall, then people say, well maybe it’s going to fall another 5%. It’s all this wait, and they keep waiting until it bounces back.

Trey Ware:                         We have no idea how long this is going to take. Even the medical community doesn’t know how long this is going to take because they’re not real sure what they have. And now that it is escaped China and we’re looking at a full fledged pandemic. Wiped out five people in Italy. Wiped out eight people in Iran. Iran is a closed society. When we are looking at that kind of thing go on, we don’t know when this is going to end. So worst case scenario, what happens?

Karl Eggerss:                      Worst case scenario is that it goes on much longer and in a global economy that is cruising. As opposed to a plane cruising at 40,000 feet, the global economy has been cruising at maybe 10,000 feet. So we don’t have as much room to spare. And so worst case scenario it tips us into a mild recession. That is a worst case scenario. And when you have a mild recession, there’s nothing magical about that other than the fact that company’s profits are all sudden not growing. And if they don’t grow, people don’t pay a premium for them. They don’t pay a premium. The stock market doesn’t go anywhere. It goes down. One benefit that you’re seeing, not only from the gasoline going down for drivers, not so good for those in the energy space, but you’re seeing interest rates at all time lows right now. All time lows.

Karl Eggerss:                      So if you’re buying a house, if you’re buying a car, if you’re looking to refinance, it’s an awesome time. And furthermore, if you’re sitting there in CDs and money markets, you’re about to get another cut in what you’re getting for that. So it entices people to go do something with their money. To go buy a house, right? To go invest those dollars. That’s kind of why the federal reserve always lowers interest rates during some kind of crisis. Because they want to entice our listeners to go out and do something with their money instead of just sitting in the banks with it.

Trey Ware:                         Well, part of the danger though is that these businesses that are on the sidelines now rendered powerless. Well you know Hyundai is a prime example. They can’t make cars right now because they can’t get the parts out of China to make the cars. And this is something we’re starting to see spread around the world. Well eventually if those companies can’t sell their products, well then they’ve got to start laying off workers.

Karl Eggerss:                      Well that’s it. Exactly. And we know that we’ve had a great employment situation here. But some people have argued it’s as good as it gets and we know frontline workers sometimes are the first to go, especially when factories are shut down. Even if they say [crosstalk 00:04:59].

Trey Ware:                         If you’re employing widget makers and you can’t get the widgets for the widget maker use, well then you’ve got to let the widget maker go because you don’t have any income coming in to pay the widget maker. It’s that simple.

Karl Eggerss:                      Yeah. And you know, Trey, I’ll tell you what’s scary, and you probably have already mentioned this is they’re apparently quarantining people and letting them go because they’re saying, “Well, after 14 days if your symptoms aren’t there, we’re good.” And now we’re hearing the quarantine should maybe be 24 days because it’s incubation period.

Trey Ware:                         28.

Karl Eggerss:                      28 days. So you may have people that are leaving these facilities that have it. It’s just the symptoms haven’t shown up yet. [crosstalk 00:00:05:39].

Trey Ware:                         I’ve said it a million times on the show, Karl. I’ve said it a million times on the show that it’s not 14 days. And these people that we let go out of Lackland last week, it was premature to let them go. I’m not saying they have it, but they allowed them to go to the bus stations and to go to the airport here in San Antonio and it was premature. The minimum now, and we’re not even sure if 28’s long enough, but the minimum now we know that somebody should be quarantined is 28 days. Minimum.

Karl Eggerss:                      You know for if we’re really being honest though, shouldn’t we be quarantining people with the flu as well? It’s kind of interesting how many people die of the flu every year. It comes every year and we know that.

Trey Ware:                         I can answer that though and I can tell you that if this is allowed to continue, this is going to be worse than the flu. The reason the flu kills so many people is it has been around longer and it is more dangerous. This is, as far as commonality and widespread, this is just now getting a toe hold in many of these countries. The flu has been in these countries forever in different strains. It just mutates all the time. I’ve talked to these immunologists. I’ve talked to these endocrinologists. I’ve talked to these guys. Epidemiologists.

Trey Ware:                         I can tell you their concern is the potentiality for it being worse than the flu is out there. It’s just a baby disease at this point in terms of its life. The flu’s been around since we have been around. So I hear people make those types of comparisons, but it’s apples and oranges. It’s not the same thing. We have something here that is extremely dangerous and can be extremely dangerous, not only to mankind and the health of mankind, but also to the economy. It’s a hell of a thing, Karl, to try to get people to wake up and do something about it, people in positions of power to take this seriously.

Karl Eggerss:                      Yeah. And you do have companies scrambling, some of the best minds in the world scrambling to come up with a vaccine. There’s a couple of stocks that are actually up today because they were working on that. And they’re trying to get more people to adopt it and do through trials. But this stuff takes time. It is scary. It’s the fear of the unknown is why Wall Street typically sells stocks.

Trey Ware:                         Absolutely. All right Karl. Thank you man. I appreciate your time this morning. We’re down 809 now and it’s just bouncing around right there. One quick thing before I let you go. What kind of territory does it have to get into before those automatic shutdowns come into play? We’re not even close to that, are we?

Karl Eggerss:                      No, we’re not close to that and there’s three layers. I won’t go into it, but there’s three percentages. One is kind of a pause. One is kind of a shut it down for the day type of thing. So we’re not near there. Again, all this was based on percentages rather than points. So the fact that we’re at 29,000, let’s think about that. A 10% drop would be 2,900 Dow points. In 1987 the Dow Jones dropped 22%. think about that, Trey. That would be like 7,500 points on the Dow just to put it in comparison.

Trey Ware:                         Very valid point.

Karl Eggerss:                      You have to look at the percentages.

Trey Ware:                         Yeah. These percentages on 29,000 versus, say 3,900, which is where it was in 1991. That’s a big difference. Yeah, you’re right. Okay. Thank you, Karl. I appreciate it very, very much. Creating Richer and we’ll be in touch with him over the next couple of days. All right. Let me punt here. Chris, go right into traffic.