Recession 2020 Is Your Sales Team Prepared And Will Your Business Survive

Recession 2020 Is Your Sales Team Prepared And Will Your Business Survive


– Welcome to the Do
This, 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 wanna 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 Shenkers
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.
– All right, so Jason,
as we’re recording this,
this is the end of August,
2019, tell 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
if the orders get filled?
That stuff goes into GDP.
So if you work at a car
manufacturing company,
why would you buy more hubcaps?
Well it’s probably cause
you’re manufacturing cars,
when the cars get
finished, they go into GDP.
So those are leading
economic indicators.
People are buying more stuff
this month than last month,
it means they have
more orders to fill.
They’re buying less stuff
than last month it means
they have fewer orders to
fill and 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, have contracted,
and five of 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 the bad news.
The good news is
that the US economy
is in a much better spot.
In other words, a bit freaked
out, but 70% of the US
economy is consumption,
and consumption’s 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 muted
in the United States because
of that really fortunate
situation that we’re an
economy that buys stuff,
and people have jobs right now.
So not as bad in the
US, nowhere near as bad
as what’s going on in
the eurozone or China,
and our central bank still
has a lot more wriggle room,
I’d argue, than the
European Central Bank,
or than the Bank or Japan.
After all, just the past
week, German 30 year points
went negative interest
rates, that means
when you 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
as well, where you
take out a mortgage
and then had negative
interest rates.
So, that’s a really weird
thing to think about
but the Fed does not have
negative interest rates,
you can still cut quite
a bit, you could expand
it’s 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 if
you’re in Europe or China,
you’re feeling crunch right now.
– Okay, so you said that we’re
a consumption based economy,
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?
Doesn’t that portend that we
may be 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 mention
manufacturing is because it’s
a leading global indicator.
So manufacturing in the US,
the eurozone, and China,
in the US and Europe it’s
about 10% ish of GDP,
in China it’s about two
and a half times that,
they’re capital intensive
industries, they need
global economic growth.
In the United States, our
economy is 90% services.
So 70% of the economy
is driven by consumption
at 70% of GDP.
As for the corporate
profits piece,
that’s a different story,
and now we’re switching
gears a bit.
For 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 meeting on Friday,
that indicated that companies
need to move their stuff,
and there could be even,
at some point, I think hear
the hint of a regulatory
mandate of moving stuff
out of China, and that does
add cost, and that can hurt
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 in a
risky spot is last year
81% of IPOs were for companies
that had negative earnings.
There’s also about half
as many publicly traded
companies now as there
were 20 years ago.
Furthermore, the companies
with negative earnings
last year, which by the
way, 81% is a record,
which was previously equal
to the previous record
set back in I think 99 or 2000.
So, this isn’t 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 had
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 you
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 can
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 bleeding
into 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%,
and in 2016 it was 1.6%.
Notice, GDP’s still positive
even though corporate profits
took big hits, and cap
expending went down,
and corporate
profits took a hit.
So can companies lose money
and GDP still be positive?
Yes, but that’s the question
of what’s a recession?
And what makes the
stock market 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,
and to keep in mind, the
headline over trendline,
and the trendline to watch
is, 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 make sense, how is
it you have all these IPOs
and companies losing money,
and the more you lose
the more you’re worth,
doesn’t make much sense.
Those things, that can be really
negative for equity markets
especially if confidence is
lost, but 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 manufacturing
recession, which is going on
right now, and which also
happened through December 2014,
and then 2016, 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 the Great Recession,
because most peoples
largest assets, houses,
are secure, and that market
has still been widely
delevered, which means there’s
not a lot of crazy credit
out there, yes there is
for subprime auto loans,
cars are a lot easier
to repo than houses,
and so consumers are less
likely to lose confidence
than they did doing
the Great Recession.
– Okay, so the, I wanna
make sure I understand
what you’re saying, as
long as people have jobs
we don’t have to worry
about a recession,
cause we’re a
consumption economy.
Jobs equals money
in peoples’ pockets,
money in peoples’
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.
– To a certain
degree, that’s right.
I’d also add about the
labor market one other thing
that obviously if
companies with equity
and they take big hits,
they might lay off,
but right now, what’s
going on, is there’s not
enough people to fill the jobs.
The labor markets are the
tightest its been in 50 years,
and anyone I talk to, probably
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 too tight,
we can’t afford the people,
or we can’t find them.
This is the biggest
problem for every company
I’ve talked to 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, okay they’re waiting
for maybe a recession for
the time we go out hire all
the people they need,
which means, how bad
could a recession be if
companies are now waiting
to scoop up people as soon
as they would get laid off,
so that’s something to
keep in mind, I think,
really important
that the US economy,
much better place
than global economy.
– Okay, 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
the economy, the
broader economy?
– Well I think if you look
at the trend the Fed’s
really struggled to engender
any kind of level of inflation.
Most central banks are
struggling to have inflation.
Bank of Japan, they’re
one of the biggest holders
right now of ETFs on the
Nikkei, the Bank of Japan
owns equities in large volumes,
they can’t create inflation.
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
it’s a really tough gig,
so where would all this
mythical, magical inflation
come from if we have global
deflationary pressures?
I think if we had a
little more inflation
it might not necessarily
be a bad thing.
Obviously for people who
are stake debt holders,
essentially, probably
a good thing we have
a little more inflation,
but the biggest thing
is the Fed wants to see
stable inflation around 2%,
part of the reason is the
Fed recently did a rate cut
is because we’re below
that, and we’re nowhere near
what their target really is.
So, a little more inflation
would not necessarily be
a terrible thing, and look,
the Fed was able to expand
it’s balance sheet by
more than three and a half
trillion dollars, and
we struggled to have
2% inflation, three and
a half trillion dollars
that came out of the
ether, by the way,
that’s not like, that wasn’t
government debt money,
that wasn’t da da da, the
Fed just said, hey, we have
another three and a half
trillion we’re gonna spend it.
They just made that money
up, and we didn’t get
any inflation, and by the
way, the national debt
is at record levels, and
the government is spending
oodles of 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 remain low
in the US, and part of
the reason I think the US
yield curve recently inverted,
so that’s the graphical
depiction of future
government interest rates,
normally the yield curve goes
up, it’s a normal yield curve,
because when you borrow
money for 30 years,
you should get more than
when you borrow for 10.
And when you borrow, when
you’re giving money to the
government for 10 years, you
should have a higher interest
rate than for two years,
cause there’s just longer term
risk, or that’s normal,
that the interest rates
would be higher.
When the yield curve inverts
that means that the interest
rates that are closer
in time are actually
going to be higher than
some of the ones that are
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 yield curve,
with the 10 year, you
get a lower interest rate
for giving the government
money for 10 years than you do
for two 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 recession,
China’s in a
manufacturing recession,
and German bonds are at
negative interest rates,
how much do you wanna
buy US bonds, which have
positive interest rates, when
the dollar’s already strong,
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
than we do in Europe
where you have to pay to
borrow, this is crazy,
then the other option is of
course the dollar’s really
strong then you’d also
make money on carry trade.
Which means that in the
future if the dollar’s weaker
and you’re a European
investor, and you bought bonds
with higher yields in the
US, you’re making a better
interest rate, and when you
turn it back into Euros,
the dollar might be lower,
and then you actually
get more euros too, why
wouldn’t the US yield curve
invert in that situation?
So that’s some of what’s
going on in the background
and the US 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, look, I think
it’s gonna be dicey for
business investor, I
think it’s gonna be dicey
for cat backs, for 2019, our
GDP forecast has consistently
been around two to
2.5%, not a great year,
not a bad year, it’s
pretty good, it’s okay,
so GDP, like to be
modestly positive,
could the line items for
fixed investment be negative?
Yeah, we saw that in Q2, there
was a contraction in business
investment already in the
second quarter of 2019.
Could that happen again
in coming quarters?
Yeah, has that happened when
we didn’t have a recession?
Very much so, it happened
in 2015, 2016, we could
see it again, of course.
Now, that’s the first piece.
The second piece is,
well what do we see
for the labor market, could
we see the unemployment
rate go up a little bit?
Yeah we could see that,
but I wouldn’t expect
anything dramatic, not
where we are right now
based on that consumption piece
for the overall US economy.
Now next year US GDP could
be even a bit slower,
some of this is a base
effect of how growth
feeds through to years,
and year on year effects,
and the whole thing, but
GDP between one and 1.5%,
it’d be a very weak year,
it’d the weakest year
since the great
recession, but notice,
still a positive year.
So, that’s not terrible
either, it’s just slowing.
And by the way, we have once
in a generation tax cuts
come through at the end of
2017, which really gave 2018
a boost, 2018 was feast.
Well, you know that feast,
and then feast some more,
and then feast some more.
It’s usually feast and then
a little bit of famine,
so this is the year where
we’re coming off record highs,
record activity in
many different ways
from 2018, so 2019 just
gonna be a little bit weaker,
2020 I like to
believe weak as well,
there’s also concerns about
how the political situation
will peek through, and concerns
about what might happen
with tax rates going
into the 2020 election.
When I think about 2021 I
think things have improved,
monetary policies become
more accomodative,
and the global
economies improve, so,
look at these next 18
months as a choppy patch,
it’s gonna be very choppy
for equity markets,
a lot of risk, a lot around
trade that’s gonna remain,
I think, elevated trade
risks, I don’t think
those go away, a lot of
uncertainty of policy,
so that’s gonna make
people really scared,
but that effects 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
in making that distinction
between what’s the economy
and what are 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
a hundred basis
points last year.
So, autos have slown,
you look and you see
some of the adjusted annual
rates are back down now,
and they’re likely to
fall a bit further.
One of the big things to know
about cars is that car credit,
auto credit, is really one
of the things that allowed
for this business
site will 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 was a lot
sub-prime auto loans.
Some recent data released
by the New York Fed really
underscored this, then you’ve
got a lot of auto sales
in sub-prime.
Now, are we gonna get
a lot more auto sales
for new vehicles?
Probably not; if we
see the economy slow,
it really depends what
happens with consumers,
but are you gonna
get more repos?
Sure, is that terrible
for the company that did
the auto loan?
Not necessarily because
they keep the money
people already paid on the
auto loan, then they repo
the car and still
get to resell it.
So, that’s not
necessarily a bad thing,
depending on how big that
would 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’ve defaulted on their
mortgage, in the
great recession, in
the housing crisis,
and today, 11, 12 years
later, are still living
in those houses.
I am sure somewhere
there’s somebody like that.
Now for cars, you’re
gonna pull up to a 7-11
and go in get a Slurpee,
and Dog the Bounty Hunter’s
gonna come jump in
your car and drive off.
That’s what’s gonna happen,
and that’s a lot easier
than trying to move a family
out of where they live.
And there’s a whole
series of laws around this
and the whole thing, so I’m
less concerned about that,
but I do think auto sales
will be slow, I think housing
could slow down a little
bit, but it depends very much
on the market, some markets
are gonna be very hot.
I live in Austin, Texas,
the unemployment rate here’s
between two and a half and
3%, so, there’s a thousand
people moving here a week,
and we still don’t have enough
people to really satisfy the
needs of the labor market.
Really depends very
regionally what’s going on
where you are, but auto
sales likely to slow,
I wouldn’t expect auto
prices to go up much,
I think what’s gonna
happen is you’re gonna see
some of the currency
arbitrage play through
as companies try to,
foreign producers of cars
try to take advantage
of a strong dollar,
repatriate dollars,
without having to adjust
their dollar price of the car.
In other words, if you’re
a foreign car manufacturer
you’re selling into the US,
you’re dollar’s really strong,
when you turn that dollar
back into your home currency,
whether that’s euros
or yen, or Renmimbi,
you’re getting a lot more
of your home currency.
And that’s what you really
care about, you don’t care
about the dollar price of the
car cause your stock price
doesn’t trade in dollars,
your balance sheet
isn’t denominated in dollars,
you care about your home
currency, so strong dollar’s
actually still gonna be
pretty good for foreign
auto sales and preventing
those inflationary factors.
In the US, 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 prices go up,
I think you could
see both auto sales
and prices go down a little
bit further than we are now.
– 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, I think that if we look
at again, household credit,
just last week, data from
the New York Fed came out
showed, a few things.
So household credit is
mortgages plus auto loans,
plus student loans,
plus credit card debt,
plus home equity lines,
it’s usually all the debt
you’d have in any house.
It is just now higher than it
was in the Great Recession.
Which means, and by the way,
but that’s in nominal terms,
that’s in dollar terms, not,
that means, despite the
fact that we’ve had 10 years
of inflation, we’re just
now at the same level
we were then.
We’re a little bit
more than we were then.
So, the credit situation
isn’t really a big crunch
as long as people have
jobs, credit card creation,
in credit, new credit
creation for credit cards,
shouldn’t be hindered
too, 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 every
25 basis points helps
and the whole thing.
So, 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 tax cuts.
– All right, so, Jason,
where can people get more
information from you if
they’re interested in
continuing a conversation with
you, or they wanna know more
about what’s gonna
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, JasonShenker.com,
if you’re worried about
recession, you might wanna
check out my book
recession proof, I wrote it
in 2016 when business
investment was in recession,
when Chinese manufacturing
and eurozone were,
well Chinese manufacturing
was in recession,
eurozone was on the edge,
even US manufacturing
was in recession, and that’s
actually what prompted
me to write that book, so
that book Recession Proof
is out there, that’ll help
folks navigate what comes next,
but if you want more
interest in what I do,
whether that’s books or
research that we produce,
continuing the conversation
as you say, JasonShenker.com’s
the best place for that.
– All right, JasonShenker.com,
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.

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