Recorded April 2020, the hosts predict unemployment could hit 20-30% within weeks, surpassing the Great Depression. They describe a prolonged downturn lasting six to eight weeks, with massive layoffs already hitting food service, hotels, and construction. Their firm has cash to invest in distressed companies, but they doubt the CARES Act and SBA loans will stem job losses fast enough.
Give us some predictions about the virus and the way the sort of what's happening to businesses right now. You know, on one hand, you said your timing was good in the sense that you raised your big fund before all this, and now a bunch of businesses are gonna need liquidity. They're gonna need, you know, somebody who's a stable capital partner to come in and buy them. What are you guys seeing? What's your prediction on how this is going to play out? Well, for you and for the economy, I would say.
Yeah. Well, so, so for— well, let me, let me say broader. I think what we're predicting, and of course, no one has any idea, right? We're trying to do the best we can to triangulate information. We think it's going to be a pretty long— if you want to think about it, a good analogy I heard was, is a blizzard, a winter, an ice age, right? It's kind of the three stages, probably. You know, I think the blizzard is going to last for another at least 6 to 8 weeks, probably longer than that. And then I think we're going through a period of— it's going to be hard to restart a lot of these businesses. So there's— in theory, it sounds, oh, there's economic problems, it's no big deal, you just kind of go into hibernation and come back out of it and everything's fine, right? In practice, there's a lot of start-stop problems. I mean, you guys have run businesses, you know, if you had to mothball everything and try to restart it, I mean, you're not going to be able to do it, or at least be very difficult to do it. And so my guess is there's gonna be a lot of pain and suffering. So in our portfolio, you know, because we don't use debt, we have good balance sheets, and obviously we have a financial firm to back it up, you know, we're gonna be fine. I mean, a lot of the businesses we're involved in have been doing better than we expected probably 2 weeks ago. With that said, you just have no idea where demand's gonna go. And I mean, we're bracing and we have plans for, you know, depending on what level of pain and suffering happens, what the plan is, and we're gonna try to get the things back up and running as fast as we possibly can. The government intervention that just came out is interesting in how it's structured. So the CARES Act just got passed, I don't know, 20, 30 minutes ago, and it is, it's better than nothing. It's going through the SBA, and the SBA is, to be generous, like the DMV of the finance world, and so it's not gonna be an easy thing to get all that money deployed. Also, the SBA lenders that we're talking to that are at these banks— and we're not using the SBA, but obviously if it's forgivable loans, then it'd be insane for us not to participate in that— and they don't even know what the rules are, right? And so they're trying to get triangulated on what things are. So I think there's gonna be a lot of confusion. I think it's gonna take a lot of time to get the money into people's hands. I'm not sure it's gonna actually stem the tide as much as they think it will on unemployment. And so I fear that unemployment could go to 20, 25, maybe even 30%, which is—
you think that's realistic?
Yeah. Yeah.
Fucking A, man. That's crazy.
Yeah.
To put that in perspective, to put that in perspective, the Great Depression was what, 18 or 20?
I think it touched high 20s. So, so I mean, at the peak, and like I said, I mean, I look, I hope I'm wrong, right? Let's just say what it is. I mean, I hope that that's not This is not a good environment for us, actually. I mean, this is an interesting— we could talk about as being a firm that has a lot of cash right now. I don't think this is a good environment for us at all. I would much prefer a 2008, which was much more shallow downturn recession. This, the violence of this is basically rendering all information available like a non-issue. You just can't— there's nothing predictive about what's happened in the past and how it goes in the future. And demand curves, I mean, we don't— no one knows. No one knows what the demand curve looks like.
Are you betting for a 20% or 30% unemployment rate?
Well, I'm not betting on it. That's what I think is going to happen.
But I think that you think that's going to happen.
I think, I think we'll probably touch 20%. I think we could touch 30%. Yeah. And I think we'll see it in the next 6 weeks will be, will be when it really comes down. My guess is I called jobs— the jobs number, the unemployment number that came out, I had said previously I thought it was going to be about 3.5. It ended up being about 3.3, which was wildly higher than what the sort of consensus was, a million. And look, if you're involved in small businesses and you said there was a million people filing for unemployment, I said that's like a joke. Of course it was gonna be way higher than that. There's no way it couldn't be way higher than that. And I mean, what we're seeing is— I mean, I had a buddy this week who laid off 4,000 to 5,000 employees this week. Had another friend who laid off 585 of 600. I mean, and this is— that's just me. I mean, what I know, they in the hotel industry, or what was it? Just industry that— yeah, food service is one, and construction was the other. So it's just, it's, it's, it's a tough—
I mean, and why do you say this is, this is not a good time versus 2008? What's— what is the core difference there?
Yeah, so the core difference is the violence at which this has downturned is basically— you could see in 2008 a nice trend line. Like, you could see it was kind of like a soft— in private businesses, right? I'm not going to talk about the stock market. Stock market and private businesses are totally different. But in the stock market, it sort of had a violence to it, and then kind of petered out, and then had another violence to it.
This happened in fucking 8 days.
Right, right. I mean, obviously, Lehman and all that stuff come crashing down.
Oh, no, I'm talking about right now. Oh, but yeah, right now.
That's what I'm saying is right now, in private business, businesses, it is worse in private businesses than is reflected in the stock market right now. It's hard to know what's priced in. And what do you do with monetary policy when you have basically an unlimited bid? I don't know. Right. But I mean, when you look at it from the businesses that we interact with, it's carnage everywhere. I mean, you maybe have— I would say 90% of businesses have been adversely affected. 5% are probably, you know, sort of unaffected. And then maybe 5% have some sort of tailwind that's weird because of this. But 90% are just— it is suffering. I mean, I— it is unbelievable what's happening right now.
