State of the Economy
For the past 44 years Ed Hyman has been ranked by the Institutional Investor poll of investors for Economics, and ranked # 1 for 39 years. He presents his views on 2020.
00.00
well Larry brilliant has just talked us through some of the epidemiology me illogical issues that are posed by coronavirus and he's talked with broad range about a variety of other subjects and I'm sure that ed Hyman is going to take us through some of the potential economic effects that can come from coronavirus pandemics and other things like that Edie has been the number one economist on institutional investors list of Wall Street economists for something in excess of 35 years it may be 39 years he is just that good he does not come out and speak very often he does not come on CNBC very often at all it is a real treat for me to bring up on stage ed Hyman Edie come on out the floor is yours it's great to see you make big decisions about a state oh it's all yours
01.01
well this is this is a heck of a day the I came down here thinking I was gonna be meeting with maybe a dozen people and then I began to realize it's a lot more than that and I looked at the program and it blew me away the world champion accordion player and I see Norman Lear here who's 97 and not retiring so it's it's a heck of a group and this is a heck of a day to be here from my vantage point and I look forward to sharing with you some of the things that I see going on as you probably know the SP is down like a hundred points today if I have that right and bond yields are down 10 basis points so we started out talking about the coronavirus and that's exactly
02.00
what is impacting the markets today it started with Italy over the weekend where there were a number of new cases and deaths and they quarantine quarantine tent cities in the northern part of Italy which is where all the manufacturing is so it looks as though this could come here this could be one of the last times that you and I come to a big conference like this for a while flying is going to be an issue going to restaurants could be an issue but from my vantage point we just have to wait and see if that comes here or not so far it really hasn't but I'm on the edge of my chair and I'll in a second tell you what I think needs to happen to cope with that I want to show you a slide
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which is not showing up for me is it showing up for you good so we we survey about four or five hundred companies a week same companies the same person usually the CFO and ask them how their sales are we happen to have twenty-one companies that do business in in China and I thought this would go to 35 which is about where it was in oh nine and 2016 and it went through that like a knife through hot butter last week 233 it went down a little bit more last week 232 but this will be my main way to see how much the coronavirus is
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impacting China and it is impacting it a lot and I'm going to move forward here to inflation there doesn't seem to be any inflation this is a measure of not prices but of the way you and I feel about inflation it's a survey of consumer inflation expectations and last Friday it fell to a record low of two point three percent for the first half of February and on another score this is from the purchasing managers they have services and manufacturing and that's also low in February and this morning when I was getting ready to come down here they had inflation for Singapore which is not on the on the front of your mind right now but inflation there was point
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three year on year overall for twelve months so that was a I just wanted to make that point first because this is now front and center as I mentioned bond yields are now down ten basis points today they're down thirty base points recently and you now have an inverted yield curve it's about 20 basis points your - so 135 and 155 135 on the 10-year 20 basis points 155 on the three-month so when I did this just a day ago it was 15 and but maybe even yeah 13 and so the point I want to register is that given the seriousness of the coronavirus the fed is under
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pressure to cut interest rates and I think the stock market is going to be under pressure until they do that and I think they might do it as soon as March this is all brand new for me I know if it's brand new for you but I wanted to show you the inflation first because they're not held back by worrying about inflation by cutting too much but I don't see any weakness right now in the economy but the coronavirus I think could be a real factor in thinking about what's going on I want to show you this chart of global short rates these are emerging as well as developed and you can see where SARS will happen back in o3 global short rates were coming down and if you could maybe try and take a mental picture of this it went they went
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up and they peaked just before the recession I remember in oh seven when the Fed last raise interest rates to five and a quarter going this is insanity because at that point housing was already weakening significantly and yet they made that last move up at this point when the coronavirus is hitting the Fed has already been easing or central banks have been easing for over a year this includes as I mentioned emerging as well as developed and on the emerging side which you don't get to see is as often because it's not in the news too much the there have been almost 90 cuts ninety cuts nine zero cuts by emerging market central banks so moving to the US economy I mentioned at the beginning that we survey companies in the new business in China we do
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business in in Europe and this is a the surveys that we do for the US these are retailers homebuilders truckers banks and as of last Friday which is just you know yesterday almost the surveys were still holding up there's no evidence and that if you can see the level there is pretty high compared to history so I think the economy right now is growing something like two and a half percent when this is hitting in part because the central banks have been easing these are some other more traditional data the top chart as consumer confidence which is you know up the chart frankly and the bottom chart their housing starts which in the past two months have just skyrocketed they've been a million and a half it didn't look like they'd go to a million and a half and the entire cycle and now they've moved up there so I'm
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showing you this to sort of warm you up for this slide about four years ago I started noticing when I was traveling that places I was going to were doing really well as of now I found 96 cities that are doing well and four years later a lot of them are booming so the unemployment right here in Naples is two and a half percent I don't know if you would agree with me that Naples is doing well but it certainly looks like it's doing well and I was in Salt Lake City last week one of the guys I met with said that house prices in his neighborhood had increased 40% in three years and the guy who was driving I got in the car and he said hoops I'm sorry mr. Hyman I was on the phone I'll cut it off I'm a real estate agent as well as being a driver and of course this they hit me right away everybody
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was a real estate agent at one point but every place I was in in Atlanta last week and it's now these places they're not doing well they are booming and so I've never seen the US economy doing this well across so many places I'm not saying as fast but I'm just saying there are many many cities that are doing well and I've studied them and these are the things that are making them do well one is entertainment and a place like Naples is sort of a you know destination you know fits with that you have the movie business in Atlanta you have sports teams entertainment has become you know 40 years ago it wasn't a big deal now it's a huge deal another thing is Healthcare has become a big business I'm sure it is here it is in New York is in Boston Nashville is a good example of a place where there's a lot of health care industries and then
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you have higher education has become you know every time you find a place that's doing well like like Pittsburgh there'll be a school that's generating kids that are coming out and so those are those are the new things that are driving local economies and they're not the normal manufacturing jobs that we had in the past but I'm trying to lay this up when I think about the role that the virus might have that I think the US economy is doing as well as I've ever seen it do these are a couple more examples the top chart on the left is employment in South Korea and then employment in Singapore I have a bunch of other employment numbers but employment has is strong everywhere so more so than a lot of my colleagues I see a lot of strength globally it's like an employment and in the US and our
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company surveys are when I travel around this is a chart of the OECD global le I I don't if you had to have a picture in your mind but I showed you global short rates earlier on and they've come down a lot and over a year and now after they've come down you're getting a little upturn in global economic activity so this pandemic is occurring when central bankers have already been easing and economy is already turning up I don't know how bad it's gonna get here but I'm not counting it out I'm looking at it square in the face on this one we'll find out soon enough whether this is right or not in 1959 alan greenspan a game of speech he says the condom 1959 he says the
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stock market drives the economy and Bernanke when he was trying to defend quantitative easing in 2007 say we do quantitative easing it drives up the stock market and that drives up consumer spending so we're gonna find out soon enough whether or not this big increase in the stock market we've seen over the past year which is lifting consumer net worth as along with house prices is up 10 percent we're going to find out whether that will help the economy improve now if the pandemic comes in and impacts the economy this will soften it so i might not be able to test it but at the moment I'm thinking the economy should improve in 2000 2020 I'm thinking as I'm walking here as another thing as impacting the market and that is the upcoming political election and to the extent the economy is weaker Sanders
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would have a better chance of winning or Trump would have a harder chance of winning so it's going to be very interesting to see how the the Trump administration handles the pandemic if it starts to come here are they gonna quarantine cities holy smokes so state stay tuned and see if this supports the economy like I think it's going to warren buffett's all over the news today as you've seen and he is be fearful when people are greedy be greedy when people are fearful and I buy that and then Sir John Templeton has the phases of the stock market from greed to fear and Howard Marks I'm a big fan of in his latest book he says there are three keys to investing the third key is
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to know whether or not people are bullish or bearish and then go the other way so I just wanted to lay that out and show you this chart the the red line are people putting money into bonds which they've been doing and the lower line is what they've been doing with the stock market which is basically not a lot we serve a hedge fund managers every week about 40 of them the same ones every week and ask them how they're positioned and they're defensive I was at two the biggest fund complexes in the past two weeks and they said they told me that inflows were pretty good but they're all going into bonds or defensive products so my view is that the investors you and me are still pretty much glass
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half-empty for frankly lots of good reasons like we're 11 years into the upturn valuations are pretty high the stock market is over 3,000 you have the promise with China you have the election coming up that's enough and but I'm saying with the monetary policy and with people pretty defensive to begin with I am frankly sort of looking up except for this problem I have right here and now with the pandemic you may know this but if you don't let me share it with you Australia hasn't had a recession in 28 years now there there are two things that they have going one they're close to China and two if you know Australia they've had a huge increase in immigration over these years which is helped keep the economy going but my feeling right now is that the odds of recession in the u.s. are pretty slim I
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wouldn't say another 11 years but I'm just sharing with you that I think this expansion could go on for a long time and my experience tells me that the end of this expansion will occur under one or two or combination of these two things one inflation picks up so far that hasn't happened second is you might get a bubble in asset prices and you don't have to judge whether or not that's already happening I don't think it is but you could get a combination of those but you could have possibly no inflation but if the SP goes crazy you can get a bubble that would then fall on its own weight the last thing I wanted to share with you is this fun slide I hadn't seen before this goes back and looks at previous big moves in the stock market
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we have a gold Nikkei thailand technology in the 90s the US housing bubble and then we have this monster so I'm I'd like to get you to think about whether or not we're seeing something in the technology sector that has never happened before I'm talking about your Microsoft Google those bank stocks that have been driving the stock market and reflecting what's going on in the economy so if this is if we're seeing some sort of huge explosion and technology that's impacting our lives one thing it does is it keeps downward pressure on inflation it should be good for productivity and it should keep the expansion going longer and longer so those are the main things that I wanted to cover I'm sorry
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I had to be down here today when this virus is breaking out and and frankly as I mentioned I think it might continue to build so far it has it showed up here in the states but if it does we'll know about it very quickly I've put a marker of a hundred cases to indicate that we have the same sort of thing that Italy has going and if that happens then the next thing that has to happen to keep the stock market on an even keel not going down anymore is for the Fed to cut interest rates so thank you very much for your time hope this was useful I would say see you next year but not sure and thank you so much okay so great to see you guys thank you very much
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