The Impact Of The Coronavirus On Your Portfolio (Radio Interview)

January 23, 2020

Karl Eggerss joined The Ride with Mac & Chad to discuss the impact of the coronavirus on the stock market and the economy.

Mac:                                    Hi. Welcome back to the show: 4-0-5-4-7-8-1-5-2-0, if you want to chime in and contribute to the conversation. We’ve got Karl Eggerss, Karl Eggerss from Are you still on the beach, man?

Karl Eggerss:                      I am not on the beach. I’m looking at dreary weather outside, back in the grind, back in the grind.

Chad:                                   Then I will talk to you today because you were on my naughty list last week. Check it out. Yeah, but now my wife’s in Miami.

Karl Eggerss:                      There you go.

Mac:                                    So what’s new? How’s it going man? What’s new with the economy? What are we looking at as far as the country, man and China and all these different tariffs? Are we really in a bad spot or we moving forward?

Karl Eggerss:                      No. You know what’s really grabbed the headlines the last two days is this virus in China. We saw not much activity here in the States. Once we saw the confirmed case in Seattle come out yesterday, probably midday, the stock market took a leg down as people started being concerned. The reason why you would think, “Well, what does the stock markets have to do with this virus that’s similar to SARS back in 2003?”

Karl Eggerss:                      What it has to do with this, people are worried, investors are worried. Wall Street’s worried that what happens if you and I are scared to go on a plane and go travel? Well, then all of a sudden the airlines aren’t as profitable and oil prices go down, which isn’t the worst thing in the world, but maybe travel gets hurt, maybe lodging gets hurt and the hotels don’t do as well. The economy actually slows down. Could it cause the economy to slow down?

Karl Eggerss:                      I actually looked back in 2003, when the SARS epidemic hit and it definitely affected the GDP, the growth of China during that time, but it barely budged the United States. It really didn’t have a huge impact on the United States then and I don’t think it will now. It did help today. Early this morning, the Chinese came out of course and said, “We’re on top of this,” right?

Mac:                                    Right.

Karl Eggerss:                      … Which we don’t know if that’s accurate or not, but we’re on top of this. The stock market jumped 100 points and it gave up some of those gains throughout the day. It seems to be a little bit of a non-event, but it definitely got Wall Street looking going, “Hmm, could this affect our economy?” That’s really what that has to do with Wall Street.

Mac:                                    That’s pretty interesting. Karl Eggerss with the Creating Richer Lives joins the ride with Mac, Chad, and producer Ryan. It’s funny. Well, it’s not funny. It’s not a funny thing. It’s that disease, but you wouldn’t even … You’re right. You wouldn’t even think about the stock market.

Chad:                                   Yeah. And Karl, what do you think with this impeachment bill, 24 hours of opening arguments on each side? Like I say, I’m a political junkie and I’m the kind of guy that watches C-SPAN and if I get bored and the senators start falling asleep, but it isn’t affecting our market.

Karl Eggerss:                      It’s not. In fact, a couple of weeks ago, or maybe actually last week, I think I mentioned to you guys that you can see when there’s two news events in one day and the market goes one direction or another, you can see what Wall Street’s valuing more than the other thing. Last week was a classic example of the market was going up on the China trade deal more than it was going down on impeachment because again, from an economic standpoint and from a profitability standpoint, the trade deal makes a heck of a lot more of an impact than even a full impeachment would.

Karl Eggerss:                      The impeachment has not affected the market at all. How do I know that? Because we were at all time highs just in the last couple of days. It’s not really affecting it. I don’t know if you guys have seen, but in Davos, Switzerland, they have this big economic forum. The President is over there right now, all the big leaders of JP Morgan and Morgan Stanley and all these big powerhouse hedge fund managers, everybody’s over there right now.

Karl Eggerss:                      It’s interesting. If you listen to some of the best investors, literally of our lifetime, some of the biggest and best, they all have a very similar theme, which is they all say the reason the market’s going up the way it is, it doesn’t have to even do with the trade at this point. It doesn’t have to do with … The market’s not even caring about impeachment. What it has to do with is the fact that the Federal Reserve is pumping money into the system.

Karl Eggerss:                      If you go back a year ago, they weren’t. They were raising interest rates and they were actually trying to slow things down and then they reversed course really quickly. What did they do all through 2019? They lowered interest rates, they expanded the size of their balance sheet and they’ve really done what many on Wall Street believe is another round of what’s called quantitative ease, which is something we haven’t heard in a few years.

Karl Eggerss:                      That liquidity, when you have that much liquidity in there, what happens is your cash, the dollars you hold in your wallet, as we’ve talked about weeks ago, it becomes worthless. People say, “I’ve got to get rid of this cash and go buy something, whether it’s real estate or stocks or bonds.” That’s really what’s happening. Everybody that has money is putting it to work somewhere. I say everybody has money, I mean on Wall Street, people that have money to invest. The best place for it is not sitting in in their pockets.

Karl Eggerss:                      So that’s what’s really driving this market higher. That was a common theme this week and that to me, there’s no sign of that stopping. What would stop it is if we fast forward, let’s say six months from now and we start to see inflation pick up. If we start to see inflation pick up and prices start rising faster than everybody’s comfortable with, the Federal Reserve would change their tune and they would start raising interest rates. That’s what would cause the market to start to stumble because Wall Street loves when the Federal Reserve is being very accommodative, they call it.

Karl Eggerss:                      There’s an old adage on Wall Street that says, “Don’t fight the Fed.” That means if the Fed’s lowering rates and being easy with monetary policy, markets do very well. When they’re tightening and they’re choking things off. The market struggles. It’s been that way for as long as I can remember.

Chad:                                   Sure. Karl, let me ask you a question. I don’t know if you know the answer to this or don’t know the answer to this or I have a theory on it, but obviously we’re a big natural gas state-

Mac:                                    Of course I do, he says.

Chad:                                   … And for years we could not export natural gas, but I saw that we’re working on a deal with some European countries to start exporting natural gas, but prices for natural gas are really low.

Karl Eggerss:                      Yes.

Chad:                                   How long do you think it may be before we see a turnaround where natural gas prices start rising?

Karl Eggerss:                      That is a tough one. It’s interesting.

Mac:                                    I’m trying to throw you a hard ball.

Chad:                                   Yeah, check them out.

Karl Eggerss:                      Yeah, that’s a tough one. Well, if you look at it during all the fracking and everything that was going off, they were burning off natural gas just trying to get rid of it. Right? Because it just wasn’t worth it. I don’t know what will … The typical supply and demand is what’s going to turn it around. It’s really to where people that are in the natural gas business, they can be in the uranium business. They can be in anything that is like that. When the economic gets so bad in that business, guess what happens? People quit doing it.

Chad:                                   Yeah.

Karl Eggerss:                      Companies literally say, “You know what? Instead of natural gas, why don’t we focus on who knows what else? Uranium or gold mining or something different?” And so guess what happens? There’s less competition and less supply, hence, you tend to get the prices starting to rise. It may not be that the demand has to pick up. It may just be that the supply just starts going down. But all of this stuff, whether it’s oil or natural gas, we are so good at getting it nowadays. That’s why these prices are a little depressed. When that Iran, when World War Three happens … Remember that a couple of weeks ago?

Chad:                                   Yeah. I’m still waiting for Y2K.

Mac:                                    It was the world war that lasted an hour. Yeah.

Karl Eggerss:                      That’s right. Well, when that happened … Maybe we should call it World War 30 minutes. Anyway, when that happened, did you notice that oil went up 4% that night and when they quote unquote “retaliated”. I guarantee if we were to go back 10 or 15, 20 years ago and that would’ve happened, oil would probably spiked 10%. Even that type of incident didn’t cause oil to just go bonkers. It went up and it was a good day for it, but it didn’t go up to the levels you would have thought. It’s because we have so much of it and it’s the same thing with natural gas.

Karl Eggerss:                      Yeah, natural gas, it’s been a very, very tough business and there’s plenty of people that are looking at it going, “Is it now? Is it now? Is it now?” And it hasn’t turned around. I do think if we did see inflation, you would see all commodities go up, not just natural gas.

Mac:                                    Right.

Karl Eggerss:                      You will see spikes along the way because this stuff does ebb and flow, but it’s been pretty amazing to watch how depressed it has been the last few years.

Mac:                                    Karl Eggers, you’ve got knowledge bombs like America dropped bombs on Baghdad. I just had to say it, because we-

Chad:                                   Absolutely. I want to close this with a bit of humor. I know watching what’s going on in DeVos that you were really glad that with Ivanka Trump there, that Acosta was there to ask her how she felt about her dad’s impeachment. “My dad’s in Switzerland.”

Karl Eggerss:                      I know they all flew over there in their private jets too.

Mac:                                    Hey brother, the website, We appreciate you, man. Every Wednesday, 3:50. You’re a good man. Thank you, brother.

Karl Eggerss:                      Thanks you guys.

Chad:                                   Have a great one, man.

Mac:                                    All Right? It’s the right. Oh. I just turned my mic off. Yeah. Okay. It’s the right on KOKC. We’re going to take a quick break. We’re back after this.