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We could still see a V-Shaped recovery: Expert

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Head of Macro Strategy at Academy Securities Peter Tchir joins Yahoo Finance’s Seana Smith to break down his outlook on the markets as coronavirus cases surpass 1.5M in the U.S., according to John Hopkins.

Video Transcript

SEANA SMITH: Stocks are rallying today, being led by gains in energy and industrials. We have the Dow up 937 points right now. S&P up nearly 3 and 1/2 percent, and the NASDAQ up just around 2 and 1/2 percent. Now this comes following the worst week for stocks in just about two months. For more on this, I want to bring in Peter Tchir, Head of Macro Strategies at Academy Securities.

And Peter, thanks so much for being here. Let's start with your recent note that you sent over and where we stand at this point. You referenced a conversation that you had with Meredith Whitney actually back in 2008. And in that, she was talking about how Wall Street tends to underestimate how creative Americans can be at, quote, gaming the system in 2008 related to mortgage delinquencies.

Today, you're applying it to what we're seeing play out in the labor market. And walk us through exactly what you mean by this and how you'd characterize the jobs market right now.

PETER TCHIR: So clearly there's a lot of problems in the job markets. A lot of companies have shut down. I'm clearly concerned about that, though I remain bullish. But I think we all have to take a little bit of a step back. And we all use these terms, unprecedented, unprecedented, unprecedented. And then we try and dump everything into existing models.

And if you look at it, between the PPP, that gives some companies an incentive to reduce their employees. Getting relatively high unemployment insurance makes you maybe not want to work. I think we're going to start seeing companies, people do things that are gaming the system. Maybe you stay on unemployment because you make more that way, then you go and work off the books.

So I don't think we're going to get a real good sense from the jobs data. And even on top of that, right, in a typical jobs scenario, if we lost 20 million jobs, the average person gets about $350 to $400 from unemployment. Those people are now getting almost $1,000, right. It's just a very different scenario that I don't think people are doing a good job accounting for.

SEANA SMITH: So Peter my question to you is do you think that that was the wrong then to include in the CARES Act? And do you think we shouldn't think about extending the extra $600 per week that people are getting, just because it does-- it makes it challenging in order to try and incentivize people to get back to work.

PETER TCHIR: So I think the initial decision was fine. I think it could've been fine-- you know maybe better implemented. But I think the reality was, we are shutting businesses left, right, and center. Someone had to step up and do something. But now I think we've got up to four months to figure out how do we make this work better.

I would much rather see people paid to go to work. I'd love to see this spending switched to infrastructure spending or something where we get something really productive out of this. But in the meantime, remember, when we get some of these weak retail sales numbers, people equate oh a lot of jobs lost, weak unemployment-- or weak retail sales.

I think we also have to really account for a lot of people can't work but are getting good money from the government. They just can't spend it. So we've got to be very clear. I think we're taking a lot of potentially overly negative signals from the job markets and retail spending. And that's where I think we'll be really surprised over the coming months by the strength of the economy relative to what job sales [INAUDIBLE].

SEANA SMITH: So then Peter my question to you is there's been a lot of debate as to whether or not more fiscal or monetary stimulus is needed at this point in order to help the economy recover from where we are right now. Fed Chair Jerome Powell last night he didn't rule out more monetary response saying that the Fed will keep going. They'll do whatever is necessary in order to help the economy.

What do you think is necessary? Do you think more monetary or an additional monetary response is necessary at this point?

PETER TCHIR: No, I really want to focus on the fiscal side of things. And my working assumption is we roughly lost say 30 out of 100 jobs during the shutdown. I suspect we'll get about 15 to 20 of those jobs back through reopening or replacement-type job. That's still going to leave a hole.

And I think that has to be filled by two things, you know, infrastructure rebuild. But I'm also a big believer that we are going to see supply chain repatriation. I think that's going to be a big theme where we look at everything in the medical community, where should we be sourcing that? Anything that Medicaid's spending money for, where should we be sourcing that? Where's the military spending its money?

And so I think you're going to see a huge push towards a what I'm calling supply chain repatriation. And what's really interesting, there was an article I think this past week in the New York Times pointing out that companies that had managed their supply chains better are seeing better stock pricing.

I think as we see ESG evolve, I think ESG's going to get more sophisticated and say, hey, what is your supply chain? How does this look? So I think there's going to be pressure brought to bear from a bunch of things. And that's what's going to take us from those 10 to 15 jobs that don't get replaced by reopening to created in a new function, and where I'd much rather see our money spent rather than kind of this ongoing paying people not to work due to them not opening.

SEANA SMITH: Well and Peter you've also said that you think that the real story here is the reopening of the economies and the success of what you say is success that we've seen so far. Tell us what you think the data is telling you at this point. And our strategy, do you think it's been effective in how states have reopened their economies over the past couple of weeks?

PETER TCHIR: You know one of the most difficult things for the past month for me as you look at the data and it's just stark and very depressing that over 50% of deaths in most states are occurring in nursing homes. And it's tragic. I think there's probably all sorts of reasons.

The only good thing about that though tells you if you start taking away just nursing home deaths, situation looks less dire. And nursing homes are already isolated to some degree. So we should be able to reopen. And you know, if you start adding in comorbidity factors, you start looking at age, it tells a very depressing story.

But it also paints a story that shows that we should be able to reopen, should allow people who are less subject to, you know, the risks of the virus to find a way. And I think that's what we're seeing. And I think when you-- to be honest, I think some of the big mainstream media may be a week or two weeks behind still spinning a different story than what the data's showing.

And I felt we were very late to shut down. I think we should have been more aggressive shutting down. I was very worried about the virus back in February. I think though now we might not be reacting quickly enough. I still want to wear a mask. I want to make sure we social distance which is why we're not going to get that full recovery.

But I think there's a lot of room to open more aggressively, get things going. And the economy's going to do better faster. And we talk about this V-shape, I think we're going to see that.

SEANA SMITH: All right, Peter Tchir, Head of Macro Strategy at Academy Security is confident that we could see a V-shaped recovery. Thank you so much for joining.

PETER TCHIR: Thanks a lot for having me.