323: CEOs Resign, Nationalism, Will COVID-19 Bring Money to U.S.

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It's my pleasure to welcome a returning guest. But back to the show he's been on many times. Kerry Lutz runs the Financial Survival Network and he is an investment counselor. Carrie, welcome back. How you doing?

Hey, everything is good. I'm just really social distancing myself. I'm saving a fortune. I'm not making anything, but I'm saving so much that even.

Because you're not going out and spending money, right?

Yeah. I used to buy lunch three, four times a week. I'd go out to dinner three or four times and I'd still like to do it, but the government has told me that I cannot. So I just have to sit home and join the economic downturn.

You know the Economist, which I'm sure is a magazine you read to some extent at least. The COVID of the Economist magazine was so fitting. It had a picture of the earth as seen from outer space with a closed sign hanging on it. And it's absolutely crazy to me, I still gotta mention it that just a week and a half maybe it was two weeks ago Mnuchin said that we may or may not enter a recession. Are you kidding me? You can't close the global economy down and expect not to be in a recession. That's just absolutely nuts to say something like that. But you're interviewing people all the time on your show. Kerry, just what do you make of things? I'll ask you just a very general question. Take it wherever you like.

Yeah, well, you can't shut down the global economy even for 90 days and not expect to have a major recession, if not a global depression. China is opening up now, supposedly. But who are they going to sell their stuff to when all of their markets are closed? So they've been out for three months now they have to wait for the rest of the planet to catch up. So they're out for six months. This is the stuff that revolutions are made of because they had kind of a devil's pact with their people with we'll keep the economy growing, we'll Keep you fed and clothed and housed, and you just let us do whatever we want and let us do our totalitarian thing. And now that compact, that deal with the devil is over, and where do we go from here?

When you say that, you're talking about the Chinese people and the Chinese government, their perspective. And yes, China has always been extremely sensitive to, to civil unrest because the promise of communism and socialism is that the people will get their free stuff. And of course, it's not free. You got to work. But centrally planned governments and economies, that's kind of the deal they make. Right. But the people have to behave themselves. And this is the stuff revolutions are made of. So China is coming back online to some extent now. It seems, though, their infections have peaked and they're going to get back to work here before we do, because the disaster came later to the US and to Europe.

Yeah. So they're coming back on, but they got nobody to sell anything to. Orders are being canceled left and right. I mean, the amazing thing is Amazon supposedly hiring 100,000 more people to sell more Chinese stuff. I just don't know how this is all going to work out. But obviously it's going to really spur nationalism when you see the eu, the countries that comprise the eu, putting border controls back on to keep infected people out.

Now, wait a sec, I got to just comment on that. Imagine that people, countries have the right to have borders. Wow, haven't we been talking about that the last three years is everybody's hating on Trump. You know, this was like, oh, gosh, you know, it's absolutely ridiculous. Of course countries have the right to protect their borders. And yes, I do think the world is going to become more isolationist, for better or worse.

No doubt. And you look at the, you know, I know it's been beat to death, but the whole thing with antibiotics in the US Production has been outsourced to China. That's obviously going to change. But, you know, we're in a situation here where the world central banks and governments are going to be giving out hurricane helicopter money and literally dumping money on the people from helicopters. And this is not a good sign. I mean, it could conceivably be the death knell of the, the global economic system here.

Now, what you mean by that is you mean inflation, possibly hyperinflation. Right. With a dump, you can't create money out of thin air and expect not to ultimately have inflationary pressures.

Yeah, you can create money out of thin air, but you can't create wealth out of thin air. And that's distinction what they fail to get because just because the quantity of money goes up, the goods and services that represent the purchasing power of that money are not going up, they're going down. Now I'm not saying that there's going to be inflation because it could very well turn deflationary. I mean we look at the stock markets of the world, lost $25 trillion in value.

So that's asset deflation.

Yes, that will translate into lower purchases, cutting back on spending. And you know, people, you just have to look at the travel system here. The travel network, if you will, has been totally decimated in six weeks time.

And it happened so quickly. This is such a sharp V shaped recession. You know, it looks like they're not going to bail out the cruise ship industry or the cruise industry, which by the way, I agree with. I mean I don't really agree with any bailouts as a, you know, generally philosophically, although, you know, practice and philosophy can differ and I'll be the first to admit that just from my own perspective. But you know, these cruise ships have been evading American taxes, yet the US is their biggest market for customers. And you know, they set up offshore and they hire offshore workers and you know, they, they skirt the tax system in the US and then expect a bailout. Give me a break. They don't deserve it. You know, if you, if you want to bail out from the US Government, then pay into the US Government, okay? If you want welfare from the US Government, pay into the US Government. Otherwise go get your bailout from the country where your ship is registered or where you're, where your company's registered. You know, maybe, you know, some of these companies that use the Ireland or the Dutch or the Philippine, you know, or the, whatever tax haven they're using, right, they can get them to bail them out. You know, see if they, see if those countries give them bailout like the.

Netherlands or Panama, I'm sure Panama is really going to bail out Carnival Cruise Lines. And you know, look, I go to Boeing and to me and all of these industries, the airlines, between the airlines and Boeing, they bought back since 2012. And this is according to Wolf Richter, Wolf Wolf of Wall Street I think is his, his site. They collectively bought back $90 billion of their shares and Boeing needs 60 billion. Now Boeing had bought back $45 billion worth of their shares. They're in the situation they're in because of bad management. So I had published the taxpayers bailout bill of rights. My feeling is just like in 2008, well, they're letting Boeing's management stay there. The very people who got them there. Now granted the head, Muhlenberg, he left. But he left with an $80 million golden parachute.

Yeah, it's ridiculous. These companies are scamming the taxpayers left and right. They abuse the system. American Airlines is a great example. Right. They made a fortune during the good times. They didn't bother to save any money to speak of. They bought their own stock back, enriching themselves and creating a fake value for, for their stock, and got other middle class investors to buy in after the fat cats. And now they go to the government and say, we need to bail out. Well, where's your savings account? Where's your contingency plan? That's ridiculous.

And on that topic all the while. So Boeing decided to buy back their stock rather than to invest in a Successor to the 737, which was a 1960s vintage airframe, which they've maxed out. They've done a great job.

They really have. They've milked that plane for a long time.

It hit its limits with the 737 Max. Now, 10 years ago, they had the option of replacing that with a composite frame, much like the 787. And they chose.

They didn't want to do the R and D. They just wanted to take the simple approach and do a 737.

Max and then buy back their shares. So what? And we should be specific. When you buy back your company shares. Look at it this way. If you're making $200 and it comes out you have 100 shares, then it's a dollar a share. But if you only have 50 shares because you bought back the half of them, then you're making $2 a share. Your bonuses get triggered because they're basing it on earnings per share rather than the actual profitability of the company and free cash flow, which is the lifeblood of business. And these people walk away. The year before Muhlenberg, In I think 2018, he walked away with 30 million. And this is a guy that destroyed the company. So him and his cohorts on the board and management all did this. They should all be expelled from the company for life. I had a few other things in there, like no moratorium on lobbying any government at any level. If you take our money and other things like bonuses don't get paid, disgorgement of prior bonuses that have.

What you're talking about is the taxpayer bill of rights. If the company accepts a bailout. These should be the rules under. You didn't really set that up for the listener, I don't think.

Right.

Yes. I wanted to give them the context of what you're talking about. No. Stock buybacks. That's what I say. That's what Mark Cuban was out saying. Yeah.

And because from 2012 to now, there were $4.5 trillion worth of stock buybacks that inflated the stock market and helped put us into the mess that we are in now. And there's no economic justification for buying back your own stock, except in the limited situation where your stock is selling for below book value and then it becomes a good investment to a point. And there's been this orgy of buybacks going on. And really, you know, the Bible says, in times of peace, you prepare for war. In times of war, you prepare for peace. And, you know, in times of plenty, you prepare for famine, and in times of famine, you prepare for plenty. They just ignored this basic admonition of the Bible. And it's not religious. It's just common sense.

It is common sense. Now they're in a hole.

Now they're in a hole, and we got to bail them out. And we, you know, it's not like we're actually going to pay more in taxes. We're just going to have. Create more currency units to do the job and hope that we don't have major inflation.

Yeah. Which. Which of course, we ultimately will. Takes a while to work its way through the system, but yeah. Yeah, it's really something. Okay, so what's interesting, too, is that the Federal Reserve is now a bond buyer, and it looks like they're probably going to be a stock buyer soon if they get congressional approval. And the Fed is literally going to go into the market. In addition to buying bonds, which is already kind of crazy. They're going to buy stock. I mean, corporate bonds, I'm talking about. They're buying. Okay, so they're going to buy stock in companies to prop up the stock market.

Yep, exactly. And that, you know, Trump, before he was president, said the stock market's a bubble after he's president, he's taking credit for the rising stock market, and everyone's portfolio is going higher now that it's gone down. It's Covid 19's fault. It's not his. But you can't stake. You live by the stock market, you die by the stock market. And you can't blame, you know, if it wasn't COVID 19, it would have been Covid 20 or it would have been, you know, the Spanish Flu 2.0 or it would have been a war or something else. This balloon had to be pricked by something. And it was just COVID 19 in this case.

Let's talk about that for a minute. So just do a thought experiment with us for a moment, listeners. Let's just assume that the COVID 19 thing. And I'm not saying this, I'm just saying this is a thought experiment. So relax, people. I know some people are believers and they're really worried about it. And, you know, I kind of fall into that camp a little bit. Some people think it's a massive overreaction, it's a fake, it's a conspiracy. It's not really that big a deal. It's like the flu, okay? So you got these two sides diametrically opposite ends of the spectrum, Right. But let's just go with the people who think it's no big deal for a moment, okay? Now, if this thing comes along and, you know, let's assume it's not really that big a deal, okay? But the government or governments of the world, knowing that they've been totally irresponsible all these years, they've spent too much money, they've inflated these giant bubbles. We're in the everything bubble. And instead of having another great financial crisis like we did last time around, which, you know, all the corporations and the governments got the blame for that, rightfully so. But of course, nobody got any jail time. Sadly, now they get to blame it on coronavirus. So it's a very convenient excuse. And they just shut down the economy for a short time and say, oh, well, this is the reason. We need more control of your lives. We need to pump in money into the system. We need to paper over our sins from the past 12 years, or really the last five decades to an extent, too. You know, that. That is a. This is a convenient time for this to happen because everybody was talking about the bubble popping anyway right before this.

Yeah. And the thing is, it's very hard for people to know and appreciate that they're in a bubble when. When they're in the bubble, it's only after it pops. And you say, oh, that was a bubble. But for the people who got it before they cleaned up. And you didn't need to be Nicholas Taleb to clean up on this.

That's the Black Swan, right? The Black Swan book. Yeah.

Yeah. You could do it in other ways, just by various things. By living beneath your means, by investing in assets that are kind of mandatory, like single family homes, that type of thing. And in gold, which was the best performing asset for the past year and a half after, what, the debacle that took place in the stock market.

Kerry, what do you make of all these sudden CEO resignations? And like, right at the time that the financial markets finally sort of recognized coronavirus as a real threat, all of these CEOs just resigned their posts. They just, you know, the Disney CEO and a whole bunch of others, they just left. I mean, that, that was shocking. Not that many people are really talking about this.

Well, a lot of it.

Did they see something we didn't or what?

A lot of it was the me too thing, supposedly. There's probably guys seeing it coming and want to get out at the top. It always makes sense to get out at the top and get out at the bottom. You know, like Jack Welch, he got out right at the top of ge. A couple, three years later, the company's in the dumps.

Yeah, well, and even, even the Federal Reserve level, too. Not just, not just the big corporations, but Alan Greenspan resigned at just the right time.

Yeah, yeah, exactly.

Yeah, right. Yeah, they do. But. But the question is more of they obviously knew we were at the top. They must have known something. That's what people are saying. They must have known something the general public didn't know. Obviously, if you're the CEO of a big giant corporation, you have information that, you know, the hoi polloi doesn't have. Right?

Yeah, of course.

Yeah, right. But any thoughts on that?

Well, I don't know what they knew. Eventually, every boom ends with a bust and every bust ends with a boom. It's just the way of the financial markets. And you get to a point in your 60s, you start like thinking about other things, about, hey, I've got a limited time left on the planet, there's other things I want to do. I've got to the top of the heap in corporate America. And now, hey, like the old cliche, I want to go spend more time with my family. Well, you're getting to spend a lot of time with your family now that everybody's in isolation here.

Right, right, right. I've wondered if nine months from now there will be either a mini baby boom or a bunch of divorces. I don't know which.

Or both.

Or both. Yeah.

A lot of adoptions.

Who knows? Who knows what'll happen? Well, you said that the end of every bubble ends with a boom, and I think that's true. I like this idea that expansions create millionaires, but recessions create billionaires. And if you look back through Every, I mean, we don't have to look back to the Great Depression, okay? We can just look back 10 to 12 years ago to the Great Recession and look at all of the wealth that was created coming out of that. But when we were in it at the time, and I remember it well because, you know, it wasn't that long ago, 10 to 12 years ago, it felt like the world was ending. It felt like everything was over. I mean, asset prices were just collapsing. It was absolutely monumental. And it was much more slow than this has been. This has been very sudden. This, this one, obviously. But look at all of the, the new ideas, the new businesses, the new successes that were created out of that. I wish I had a list of examples. I know they're there because I remember thinking about a lot of them over the past 10 to 12 years. A lot of opportunities come out of these times, right?

Oh, absolutely. That old cliche, more millionaires were created in the Great Depression than at any other time in history. These trends of various so called essential industries coming back to the United States, the end of globalism will definitely create opportunities that we hadn't seen before. And the other thing is, I always refer to the US Dollar as the Taj Mahal of Baltimore.

Meaning that the dollar isn't that great, it's just better than everything else. Right? Is that what you're saying when you say that the Taj Mahal of Baltimore.

Good, best house in the worst neighborhood.

Right.

And.

So the fact is though, that the rising dollar or the stable dollar, it might all come collapse. But let's assume that it isn't going to because you can't do anything if it is anyway. So let's just assume the dollar will carry on in some way or form and more money is going to pour into the United States as a result. This recession is very predictable. You and I have been predicting it for three, the past eight, nine years that we've been talking. We knew it was coming and we knew it was going to be bad. And I said for the past decade that the next crash will be far worse than 08 and 09. 0809 was really bad, but this is far worse.

Oh yeah.

But out of the ashes comes a new world. And what you need to do is figure out the trends and get ahead of the trend. Look, this whole working from home thing, what's that going to do to the commercial real estate market?

Terrible. It's just going to collapse in so many ways. I mean, Kerry, I think this is, and people may disagree with me about this But I think this is a generational mentality change. I don't think. I don't think we will ever go back. I mean, and when I say ever, obviously memories fade eventually, right? But for a generation, or at least the better part of 10 years, to the hotel business being great, the travel business being great, concerts, big weddings, even funerals, you know, like any. Everybody has become a germaphobe. And, you know, we probably should have been better germaphobes before. I've been on the leading edge of that. I'm a little bit of a germaphobe, thank you. But not like this. Now I'm really. No, I'm really.

Trump is really ahead because he even shake people's hands. When I met him, held off shaking his hand because I knew he was a germaphobe. And it went into the bathroom by his office, and there was a huge sign on the mirror. All employees must wash, scour and disinfect their hands before coming back to the office.

I remember reading that about Trump years ago, before everybody, before half the country hated him and half the country.

We shook hands and he insisted on shaking hands. But I didn't push that on him because I knew that. That that was his thing. Well, for one thing, what year did.

You meet Trump, by the way?

It was 2000.

Yeah. Okay.

Right before 9. 11. And, you know, now you think, like, just think, all these people, hand sanitizer. I've got Lysol wipes in my car. I wipe my car down.

You shouldn't tell people that. They might break into your car.

Yeah, I'm leaving them showing, too. I gotta tell you a funny story. So. So, you know, I'm single and I do date, but dating's kind of been on hold because there's no place to go. And know this one woman who I've been friendly with for a while, we had a date yesterday. We went to Sam's Club. And the highlight of the date.

That was your date. Sam's Club. Okay.

Yeah, there was. Well, we bought discount gasoline first. Really cheap because gas is going down the drain. No pun intended.

Oil meaning. Yeah, oil.

Yeah.

Oil prices are so cheap, it's less than half the price. You need to have the oil industry come back.

Yeah, it's a disaster. And then we went in there and there was toilet paper, 45 rolls for 20 bucks. And there was paper towels. So this was like a bonanza date. It was a whole different way of relating, of courting, if you will, interacting on a date. That's, you know, it Was actually a lot of fun. And I didn't have to drop hundreds of dollars. We didn't have any wine. We didn't, you know, maybe we picked up a hot dog there, but that was it. It was like a whole different way. And I think that the way society relates to each other. Look, Jason, in our area here, I get this thing called spotcrime.com and normally there'd be five or six incidents per day, you know, mostly minor thefts from people's yards and stuff like bicycles, and no major crime. But now everyone's home. There's virtually no crime in the neighborhood any longer.

I was thinking about that. I was thinking this would be a terrible era in which to be a burglar because everybody's home.

Well, you could obviously rob a commercial building because nobody's there. So I guess you could go in and if you wanted to break into an office and steal something, it'd probably be fine.

Little more generally, well, retail established, it's a little more fortified, but the opportunity exists. But because nobody's on the street.

Right.

You see the traffic. The traffic's turned. It's disappeared.

Yeah.

Hey, we don't need more highways. We just need a worse economy. And we got all the highways we need. And so anybody that's on the highway stands out like a sore thumb. And. And then I think also we have collective shock that has set upon the country and the world. And when you're kind of in shock, you don't really do much. And if that. If your productivity is being a burglar or a criminal, your productivity has gone way down lately. So all those things form. Just look in our neighborhood here, people walking around always had people walking around and biking.

Not like now. Yeah.

And you stop and talk to your neighbor.

I know. Yeah. It's very different. It's different.

That's a great thing, too. We're so disengaged and disconnected from the people living 20, 30ft away from us. And that's been a real negative of technology and of. Of the suburban sprawl and other. Other factors.

I gotta ask you a question about that suburban sprawl. Okay. Look at. You are from New York. Now, you lived in Westchester county, but I believe there was a time when you also lived in Manhattan, Right?

Yes.

Okay. So the big trend that I've been predicting is that after this blows over, and it will, there is going to be a major mindset shift and people are going to start moving to less densely populated areas that are safer. The suburban, I think we're Going to see the rise of suburbia. I really think suburbia is coming back. I don't think rural areas. I mean, some will obviously, but suburban is a good choice. You can socially distance people are going to be worried about the next pandemic because another one will come after this. It's just the way of things.

Yeah, well, the places that have been hit worse by the pandemic, and that's not just this one, all are the most densely populated places, which also happen to be like New York and the.

Major metropolitan areas and LA and San Francisco. And guess what's coming next? The new hotspot is New Orleans.

Oh, well, you know that place.

In more ways than one for 100 years. But you know, you look at it, all of the cities, states, et cetera, that are hit the worst, especially New York, are people with the states with the highest population density. Massachusetts, New Jersey. New Jersey is the most densely populated state in the country and, and has the most densely populated city in the country, which I believe, I think I remember it being Hoboken, but I could be wrong. Most densely populated city in the country. And then you look in China where it spread like wildfire.

It's super dense. Yes.

Yeah.

And Italy is very dense. I mean European cities are very dense. Suburbia, the idea of suburban living is a uniquely American idea. And the reason that is true is because Post World War II, the baby boomers got busy and there was this huge development boom and they just. The sprawl began in post the post World War II life. And that's what created suburbia. And then there was of course, the famous Levittown, which was like the suburban model. Right. And America had the automobile and the, you know, we have this romance with the car in this country and that's why we have suburbia. European countries.

China. No other country really has a suburban concept in the way America does. And that's a great opportunity for real estate investors.

Oh, totally. Especially with the price of energy coming down. And understand energy prices have been coming down in inflation adjusted terms for a long time. So just a continuation of the trend. And look, I don't know about you, but driving much less so finding things in your neighborhood to entertain you and to connect with people is really a great thing. And it's, it's like a hidden gem that we've all forgotten about. And you know, the idea like when you used to move to a new neighborhood and the neighbor had the welcoming committee, there was a credit check on you. But they.

But the point is it was a Great thing. They brought you a cake and you felt like you were part of something. We've gotten away from that, and that's also the family. So this might be a real buildup for the family as well, because we're not out there trying to acquire everything. So the age of acquisitiveness, acquisition maybe is going to diminish substantially. Consumerism, go back to where we were in the 50s, which wasn't so bad.

Yeah, right. Hey, listen, I agree. I think there's a lot of good stuff that will come out of this. The message for listeners, though, is you've got to look at. Things are moving around. Whenever this happens. Wealth moves around, things move around. Certain industries die, other industries are born, certain investments really suffer, and certain investments thrive. So that's what we're here to help you with. Carrie, give out your website.

Oh, sure. It's Seth. And just let me make one comment before we wrap up. It's financialsurvivalnetwork.com I started it in 2011. I was getting ready to rebrand because I'm saying, you know, I'm just not relevant anymore right now. You've got a great name, money has jobs, and literally, I was few, maybe a month away from a total rebrand, and here we are. Jason.

Yeah, I know.

And know what? I'm keeping the name.

Yeah, yeah, I think the name is good. You know, for years during the Great Recession, my number two podcast of all the different shows that I run was the Holistic Survival Show. And the tagline is protecting the people, places, and profits you care about in uncertain times. And for the past 10 years, times have been pretty certain. Everybody's partying and spending and everything looks good and rosy. But now that show has come back into popularity. So the Holistic Survival show is now gaining ground. And I think your name is perfect.

For eventually, narrow ties come back into style. Eventually, the wide ties come back into style. You and I are back in style here.

That's right. Yeah.

Not that we were ever out, but, you know, it's a huge drag to rebrand your show and your website and everything. And I really didn't want to do it, but. But, you know, my. My last parting message is don't let this thing get you down. It's like a depression isn't just an economic depression. It is a mental state shared by the majority of the participants in society. And you can decide whether or not you're going to participate. There's a lot of good things, a lot of hopeful things. My son's been living with me for the past two and a half weeks. It's been great. We kind of reconnected and he's out there in the world making his way. But it's been a great experience and I'm grateful for it.

Yeah, no, there are lots of good things that come out of this. So thanks for sharing all this, Carrie, and be well and we'll talk to you soon.

All right. Thanks, Jason. Always great to come on the show.

Happy investing.

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