- Economist Dr. Gary Shilling says the global economy was already in a recession before the coronavirus pandemic started.
- Shilling expects this recession to run at least through the end of the year and says the stock market is probably far and away from the bottom.
- Shilling thinks one of the most important things that has happened is the realization of how dependent we are on the rest of the world. As a result, he says, there will be a lot more protectionism which is much more inefficient and will probably lead to fewer domestic jobs.
- He says the US is likely going to see big infrastructure plans but they are not going to pull the economy out of this recession because it will be too slow.
- Visit Business Insider's homepage for more stories.
Dr. Gary Shilling, the president of A. Gary Shilling & Co., spoke to Business Insider editor-at-large Sara Silverstein about the global recession. Following is a transcript f the video.
Sara Silverstein: Gary, before we get into economics, tell us where you are right now.
Gary Shilling: Well, I'm in a bee yard. A bee yard is where you have more than one hive. In this particular bee yard, we have 31 hives. My colleague, Randy Gurling, and I are out here servicing them. We're doing all the things you need to do in the spring to get all these girls, and it's the worker bees, the females, that do all the honey gathering and the pollen and so on. We're getting them ready for the honey season, so this is the big time of year.
Silverstein: Later I'm going to have you show us around, but first let's talk economics. How healthy was the global economy before the coronavirus pandemic started?
Shilling: Well, they were slowing. I think a lot of people somehow thought that everything was just hunky-dory and then suddenly the virus came along and it collapsed. As a matter of fact, in our April newsletter, the monthly newsletter, Insight, which just came out, we cite a lot of statistics, the slowing of growth in China, the declining job openings in this country, declining growth in payroll, employment, in wages, and of course a lot of parts of the economy, capital spending and housing are going nowhere. You really had an economy that was slowing, and that's the point.
When you have an economy that is growing very slowly, it doesn't talk an awful lot to push it over the edge into recession, and that's what's happened with the virus.
Silverstein: You say that we're in a global recession now. How long and deep do you expect it to be?
Shilling: I think it's going to run at least through the end of the year. You not only have the problem of everybody staying home with self-isolation. I'm in a bee yard. You're at home. We're all trying to stay away from each other, but you've had a tremendous cut in production, and even if this thing gets handled within, say, the next month or two, it'll take a long time to restart the economy.
All the supply chains, they have been disrupted. I think that's one of the most important things that's happened out of this whole deal is the realization of how dependent we are on the rest of the world. For example, most of the basic chemicals that go into antibiotics are made in China, and you look at the face masks. They're made in China, a lot of these things. We're really seeing with this that show up in the supply chains just how difficult this is going to be.
I'll give you an analogy here because we're in the bees. Okay, in a beehive, and we're going to show you around here, in each one of these hives there are about 50,000 bees in each one of these 31 hives in this bee yard. There's only one queen, one queen.Now, the queen is a laying machine. That's all she does. A good queen can lay 2,000 eggs a day, and she has to because the worker bees only live 28 days during the season. They work themselves to death or they get knocked off by a dragonfly or a bird or something. You have a very, very efficient mechanism for pollination and for gathering nectar for honey, but if you have any problem with the queen, you got a real mess.
I think that's a good analogy with the supply chain. You break one link in what's a very, very efficient system, and of course, supply chains are made to be efficient. As you produce things, you produce semiconductors in Korea, then you send them to Taiwan for assembly, and then to China to put in the cell phones, and they're exported to the west. You break that, and it's the same thing with the queen. The queen disappears, boy, you've got problems.
As a matter of fact, we're just putting in queens. We ordered queens yesterday from my supplier in Chico, California, a very good supply house for queens, and those queens we're putting in today. They arrived FedEx overnight. That's working still.
Silverstein: Who are the queen bees in this analogy on the economic side?
Shilling: I would say that the queen bees are probably essential links in the supply chain, but the analogy maybe breaks down there, or at least should be broader, because you do have many, many pieces in the supply chain, and you simply cannot duplicate them.
We see this in, for example, in the auto industry you have parts that can't be... Well, they were air freighting parts in from Taiwan, I think, in some cases. There's probably a lot more links there, but the whole point is you have a very, very efficient system.
Honeybees are the most efficient pollinators. They're all from the old world. They came here with the European settlers. There are native pollinators, but they're not nearly as efficient as honeybees. I think the same thing. If we produce everything in this country, yeah, we could go back to that, and maybe we will.
I think the reaction to this is going to be a lot more protectionism because of this idea of self-sufficiency, so we're probably going to see a lot more of that, but it's much more inefficient, and consequently, if you have an inefficient system, you don't have as much problem.
That's true of some of the native pollinators. There's a blue orchard, a mason bee, blue orchard bees. They pollinate. They were here before Europeans got here, but they're not nearly as efficient. If you [inaudible] efficiency in favor of a less fragile system, you'll have much less... You've got a higher cost. You've got much more inefficiency.
Silverstein: If we end up on the other side of this with more protectionism, will that mean more domestic jobs and more domestic income?
Shilling: Probably not. That's what the protectionists are saying. That's been the argument of Trump, of course. We return jobs to this country, but if you look at the last time that we had serious protectionism was in the '30s. What happened is it so slows down global economic growth that nobody gains, even... Oh, I got a bee here. Come on, girl. Come on, girl. Come on.
Silverstein: Oh. You want to put your hood back on?
Shilling: Nah, it goes with the territory. The protectionists, I think this does work in their favor, and so we're probably going to see a lot more pressure for self-sufficiency. There's that thing. I had to knock it off. Tough luck. I hate to kill my livestock, but sometimes they got to go.
Silverstein: Oh, my goodness. This is definitely...
Shilling: Hey, come out here. I'm going to suit you up. I'll show you what's inside a beehive.
Silverstein: Where could the stock market go? Could you give us a frame of reference for how much farther it could fall?
Shilling: Oh, gosh. If I really know, you and I wouldn't have to talk. I think it's probably far and aways from the bottom, because now we're getting the shock of the illness, and it's spreading, and the death rate. The thing about this is it's the fear factor, Sara, because flu normally kills 20 to 40,000 people in this country every year, but only half the people get flu shots. We started to take that in stride. That's a fact of life. This is new, rare, strange, and exotic. It's very contagious, and so there's a big fear factor. We're going through that.
Then once you get through that, and even if we do get this under control with more isolation and washing your hands... I hope you're washing your hands. I'm washing mine. My wife is telling me to wash them 20 times a day. My skin is wearing out, but when we get through that, then you see the effects of a slow down, the supply chain disruptions, and of course, everybody is talking about this. The longer you go, the more people are out of work, they lose their skills, the more people will get dependent on welfare and on government programs and so on. The more disruptive it is, the longer it takes to start the economy.
I think you really have two stages. One is the health aspect. When we get through that, then I think we've got the real economic problem.
Silverstein: In your note, you talk about the recession, the global recession, will knock a trillion dollars off of global GDP every month that we're in this. Comparing that to the two trillion dollar stimulus or relief package that Congress has put together, is that the appropriate size for the US?
Shilling: It depends on what you want to do. It's probably appropriate to stabilize the situation, to give people income in lieu of their pay, people who have been laid off, people who are self-employed, and so on and so forth. You have that piece. In terms of rekindling the economy, though, I don't think it is enough. This is a judgment call, but that's probably going to take a lot more.
Now, one of the things they're talking about is another couple of trillion dollars. What's a trillion dollars amongst friends? You and I could probably retire on it, but more serious, one of the things that I think it will take the form of - but we've been talking about this for years. I talk about it in my newsletter almost every month - is infrastructure spending.
Now, we had that in 2009. The only problem is it takes a long time to get really fueled up. You remember they had the so-called shovel ready projects? It turns out the shovels hadn't even been made and they were being made in China. The federal government allocates the money, but then it is spent by the states and they have to draw up all the contracts and the environmental impact statements and all that stuff and get it ready. Two years later, only 30% of that money was spent.
Now, that doesn't mean it's not going to happen, and we've got something coming up in the first Tuesday of November this year, to pick a random date. I think there will be a lot of pressure on Congress and the administration to do something, to tell the people we're doing something, so we probably are going to see big infrastructure plans, but they're not going to pull the economy out of this recession. It just takes so long to get that money out there and spent.
Silverstein: Great, and I don't want to keep you too long with your hood off, so I would love if you put your hood back on, because it would make me feel safer, and if you want to show us around. What are those called?
Shilling: Okay, Want to get my veil back on here?
Gurling: No, I think you should work like that.
Shilling: Yeah, I know. You're a friendly guy.
Oh, yeah, they got the bees off them. You've heard about having a bee in your bonnet?
Silverstein: Yes, I've heard of it. I've never had one.
Shilling: If you have any just a little opening of the zipper, those girls are right in there, but a lot of times they're just flying around in there. They're just visiting. They don't necessarily sting. I've got to get my gloves here. But sometimes they do.
You see these gloves here? These are gloves with long sleeves on them. That's because if you have any little opening, any little hole, boy, those girls will get in there in a hurry.
Yeah, those are called hive tools.
Silverstein: Oh, wow.
Shilling: They pry the frames out of the hives.
Silverstein: I want you to know that I am in quarantine with my honey from Shilling Apiaries, which I...
Shilling: Well, if you need more, let us know. We've got plenty. We've got those girls working for you.
Silverstein: How much do you make every year?
Business Insider / Sam Ro
Shilling: Oh, gosh. We make about 4,000 pounds, about 4,000 for those jars, and we give them all away. If we ever sold any, we'd have to start keeping the books, and I don't want to make myself cry, because it's so labor intensive. My time would probably end up being worth a dollar an hour with a minus sign in front of it. I just got a bee in my... Oh, come on.Silverstein: Ah.
Shilling: I hate to kill a livestock, but I... Oh, she's buzzing around. She's not very friendly. I think I got her. I'm not sure. Anyway.
Silverstein: That is so scary.
Shilling: Well, again...
Silverstein: How many times do you get stung a year?
Shilling: 400-500 times.
Silverstein: I've never been stung by a bee in my whole life. I can't imagine.
Shilling: It's not the end of the world. Now, let's see. How are we going to do this? Randy, bring me a couple of frames with bees on them.
Gurling: I did.
Shilling: Oh, here we are, all right. Now, there's a... I got to hold this up here. Here's a frame with the bees on it. There are nine of those in each of the boxes in the hives, and these... Well, can you see these bumps here like?
Silverstein: Yeah.
Shilling: Those are drone cells, and the bees, they, in the two lower boxes, they call them hive bodies, the bees put the honey that they're going to use to get through the winter.
By the way, did you ever figure out why bees make honey?
Silverstein: Why?
Shilling: Because you like honey. Bees are off in their own world. I'm telling you more than you want to know. One of the interesting things about them is opposed to all the native bees, wasps, yellow jackets, hornets, is that they don't hibernate. The native species do. If you don't hibernate and in the winter there's no nectar, you've got to eat. You've got to keep warm. That's why they're making honey. But they're working fools. As long as there's nectar and a place to put their honey, they make more than they need, and that's where you and I come in. We leave what they need. In each of these hive bodies, we leave them 60 pounds per hive to get through the winter and take out the rest.
They put their brood in here. The queen lays an egg, and then in three days it turns into a larvae, and then they feed the larvae, the worker bees, for six days. Then they seal it over. It's a cocoon stage. We call it sealed brood, and in 12 days the bee, the adult bee, emerges. It's three plus six plus 12, 21-day cycle.
Now, they put the nectar and they make honey to get through the winter. They put the brood, and they put pollen. Pollen is their protein that they feed to the larva.
These, you have two of these boxes, and then on top of those you have what you call super. That's where's going to be the honey we're going to get. The bees are going to live in the bottom two boxes in what is called the queen excluder. Randy, you got the queen excluder there? Randy? You got a queen excluder? Yeah, let me show this. More than you wanted to know here.
Silverstein: No, it's great.
Shilling: This is a queen excluder, a piece of grate. It's a metal grate, and the worker bees can get through there, but the queen can't. We put that over the boxes so the worker bees can come up through it with the nectar and make the honey and put it on the cover boxes, but the queen can't because we don't want the queen down. We want the queen down there laying. We don't want her up there with the honey that we're going to take off and then strain and put in bottles.
By the way, honey is one of the few very pure products there is. You don't do anything to it. Well, you strain it to get the miscellaneous pieces of wax and stuff out, but that's it, and bottle it. Honey is a supersaturated solution. It has about 12% water and the rest is basically sugars. Because it has such a low water content, it's a lower water content than bacteria is. Bacteria will fall in there, they're desiccated.
See, the bees, they want that honey to last through the winter. They don't want it to ferment. They may also put antibacterial agents in there, and they're taking honey out of ancient Egyptian tombs which is just as good as the day the bees made it 5,000 years ago. You never refrigerate honey.
Silverstein: In my daughter's kindergarten virtual class today, it said, "Honey is the only food that never rots ever." Is that true?
Shilling: That's absolutely true. As I say, in ancient Egyptian tombs, they actually have taken that out, and it's just as good as the day the bees made it. It never ferments.