The Current State Of Financial Markets (Radio Interview)

March 19, 2020

Karl Eggerss was interviewed by Trey Ware & Sean Rima discussing the major dislocations in the financial markets.

Trey Ware:                         And now what they’re doing is trying to say, “Okay, now you can’t go out. What are you going out for? There’s nothing to go out for.”

Karl Eggerss:                      Right.

Trey Ware:                         There’s every reason in the world to stay at home. Now over here on the Stevens Roofing News Maker hotline, we’ve got Karl Eggerss from creatingricherlives.com. He’s on now, to talk about what people have been watching in the stock market. All of the gains that have been made in the past three years, the Trump administration, that’s all gone out of the stock market now. We’re under 20,000 and they are going to close the floor at the New York stock exchange coming up starting on Monday. And the federal reserve has launched a third emergency lending program, the money market, mutual fund liquidity facility, and that’s to help money market funds unload assets like commercial paper and things of that nature. So let’s talk with Karl about that and see how he’s feeling this morning. That’s the first thing. Karl, how are you feeling this morning after watching what happened yesterday?

Karl Eggerss:                      It’s quite surreal to see the change not only in our world and our financial markets in the last three weeks. I did want to clarify one thing. The New York stock exchange is closing the trading floor.

Trey Ware:                         Right.

Karl Eggerss:                      Electronic trading will remain open. The NASDAQ will-

Trey Ware:                         Oh, was I not clear on that? Yeah, the floor. Yeah. The floor is going to close, but the electronic trading is going to continue. Right. Exactly.

Karl Eggerss:                      Yeah, and a lot of people have said, “Look, why don’t we just close the markets right now as well.” I’m not a fan of that, personally. We did that after 9/11 for obvious reasons. I think we need to keep the markets open to function and some would say it’s not functioning right now, and I’ll tell you the main reason. Part of the reason the stock market’s falling as much as it is, is because the … and you alluded to it, the credit markets are clogged right now. In other words, people aren’t wanting to take any risks. People are liquidating and there’s simply not there somebody to buy those things that people are selling. After, 2008 financial crisis, what happened is the treasury and the federal reserve, they can’t do as many things that they could before. They need congressional approval to literally go in there and buy certain assets. I think in the next day or so you’re going to see that approval. That’s going to allow the treasury, Steven Mnuchin to go in there and literally say if somebody’s selling commercial paper and things of that nature, they will be able to just go buy it. Right now they’re trying to flood the market with money and then rely on everybody else to buy it and nobody’s really wanting to buy it.

Trey Ware:                         Okay.

Karl Eggerss:                      That’s a big …

Trey Ware:                         All right. So if you’re an investor of any kind and you have, let’s just say your retirement on a 401k, you’re getting killed, just killed right now. What are you telling people?

Karl Eggerss:                      Here’s the thing Trey. I mean it’s very easy right now to say, put me in all the money market because not only are stocks going down, bonds are going down, gold has been going down. There’s no diversification that’s worked other than the money market. Having said that, we’ve seen times like this before, not exactly like this obviously, but we’ve seen some times where usually you will get a very sharp rally in the net very quickly here. That’s going to make you really question you put it in the money market and it’s going to go up enough to where I think you will see people say, I shouldn’t have done that. Maybe I should have bought the other day instead of selling. That’s the time to reassess after you get that release bounce, that’s the time to assess and say, “Do I want to put some in the money markets, spread it out a little bit?” But it rarely pays to sell in these types of vortex selloffs.

Trey Ware:                         So what you’re saying is, is that V bounce-back that we hear about is a real thing and you’re still anticipating the V curve hitting, right and going back up.

Karl Eggerss:                      I am but usually you’re going to see something where it may bounce a third of the way back up, maybe even half. This is not going to be a V-shaped recovery in the stock market. I don’t believe, and I don’t believe you’re going to see a V shape recovery in the economy either, however you’re probably looking at some estimates came out today probably a seven to 10% drop in the second quarter in GDP, which is massive. However, the estimates for the third and fourth quarters are things like maybe three and a half percent up for each of those quarters. So it could be more of a U, we’ll call it as opposed to, people are thinking this was an L, the economy drops and it never comes back. That’s not going to be the case. I don’t believe we’re going to see this ramp up over time. What we don’t know is when can we go out and consume products. We can’t see that yet, but that’s why the stock market continues to sell off.

Sean Rima:                         Brother, this is Sean. I wanted to, first off, I’m a financial idiot, so I’m going to, I’m going to ask the question that maybe …

Karl Eggerss:                      I’m an idiot also, there you go.

Sean Rima:                         All right, we’re a couple of idiots.

Karl Eggerss:                      Yeah.

Sean Rima:                         Being someone who doesn’t really follow the stock market and things of that nature, when we hear the president say, once we get clear of this, the economy is going to rebound very quickly, which is what he says repeatedly. Is that something you agree with and what exactly does that mean? How does that happen?

Karl Eggerss:                      These press conferences he’s done have not helped him or his administration at all and not exuded confidence. And they’re doing a lot of things really quickly. I mean, compared to 2008 they’re compressing this today, it’s pretty amazing how fast things are being done. But the press conferences haven’t helped. Having said that, I do agree with them because we have to have this economy ramp back up. People are going to be really quick to want to go do things because of the fact that we’ve been cooped up. Companies need to make money. They’re going to want to make money and spend money. So I agree with that. Here’s the problem though, Sean, when you look at a company, if a company can’t project what they’re going to make the next week, two weeks, six weeks. Then they tell Wall Street, “We don’t know what we’re going to make.” Well how do you value a company?

Karl Eggerss:                      And we’re seeing that home builders are coming out right now and saying, “Things were great up until now, but we can’t give you guidance. We can’t tell you what’s going to happen.” So that’s why you see the stock market go down, you can’t value a company unless you know the profits and there we simply don’t know what they will be. And until companies start saying, “Okay, we know how much we’re going to lose, we know how much we may make.” Then you may see things start to stabilize. But it’s really tough right now. But I do agree with them because it has to ramp up. It’s just not going to be a minus 7% GDP and then all of a sudden a plus 7% went backward work. That’s not the way it works, unfortunately.

Trey Ware:                         Yeah, I don’t know about the 20% unemployment rate that Mnuchins been talking about. The president said yesterday, that’s the worst case scenario, but I do know this. We have shut down large segments of the economy. All you got to do is look on the streets and you can see in New York city in particular, you look up there and you go, “Oh my God, where did everybody go? Did the rapture happen? And everybody was taken except me.” But you see that in major cities all across this country. Even in San Antonio, I had to go out for a couple of appointments yesterday that I just had to go to and the streets were basically, it looked like a weekend day yesterday driving around San Antonio. You just don’t refire … When you shut down major sectors of the economy like this, you just don’t refire that overnight. That takes some time to get the workforce back. These companies that are going to die, there will be companies that are going to go away completely. Now you’re going to have, to have new startups come back. You’re going to have to train people, new employees as you get things going. It’s going to take at least through the end of the year and probably more like 18 to 24 months before we get this thing rocking and rolling again.

Karl Eggerss:                      Yeah, it’s going to look almost like a check mark. Went down really sharp and then over time it just gradually comes back because how many people are working from home for the first time and trying it, using technology and saying this isn’t all bad. I mean I can actually do my job without having to go to [crosstalk 00:07:43].

Trey Ware:                         We were talking about that off the air a minute ago, Karl. And that is that a lot of people who are doing what we’re doing, we’re in a bunker right now, are going to say, you know what? This is safer. And a lot of companies are going to say, you know what? This is safer. Maybe going to contract employees who are off site. That alleviates a lot of liability for those who can do that. And of course obviously a Toyota car manufacturer can’t do that. But a lot of the service industry can go to that type of business model. So this is going to be a complete change, I think a C change for the economy.

Karl Eggerss:                      Well you’re right and we’re fortunate in one regard that we are much more of a service economy than we used to be.

Trey Ware:                         Right.

Karl Eggerss:                      However, if we’re not going to work driving to work, we’re probably not going through the Starbucks drive through even. So you can see the domino effect here, and then Starbucks obviously doesn’t have as many employees that they’re making calls.

Trey Ware:                         Well and you’re not buying gasoline and that hurts the oil and gas business right here in Texas. So I mean there’s a lot. We’re all connected in one way or the other and with that we got to hold it there. But Karl, we will do some more of this because this is just absolutely necessary. Let our people know what’s going on. Thank you for your time this morning.

Karl Eggerss:                      Thanks guys.

Trey Ware:                         As always, Karl Eggerss from creatingricherlives.com. Now coming back, my friend [Jimmy Haslacker 00:08:53], at Jim’s restaurants, [inaudible 00:00:08:55], of course, magic time machine and all that. Are they going to continue to serve? You bet. And we’ll tell you how when we get back in just a couple of seconds. Ware and Rima KTSA.