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Why markets could be headed for an 'L-shaped' recovery: Expert

Investor’s Advantage Corp Founder and President John Grace joins Yahoo Finance’s Seana Smith to discuss the market outlook as investors weigh some states reopening their economies amid the coronavirus pandemic.

Video Transcript

SEANA SMITH: Welcome back to "The Ticker." Stocks are mixed this afternoon with just around an hour left in the trading day. Now this comes as investors gauge the success of the reopening measures so far across the country. The Dow off just around a tenth of a percent as it stands right now. The NASDAQ, though, holding on to gains as big tech names continue to lead the way this afternoon.

So for more on this, I want to bring in John Grqace, the founder and president of Investor's Advantage Corp. And he joins us now. John, thanks so much for taking the time. Let's start with last-- last time we spoke was just around a month ago. And we were talking about this potential recovery. And you were saying that everyone wants to believe that we're in for a V-shaped recovery. But it might look more like an L shape. A couple weeks into the reopening efforts now, what are you seeing at this point?

JOHN GRACE: I don't see much changed in that regard, Seana. I mean, we all want it to just bounce back, and that would be wonderful. But the L shape to me is the most intriguing primarily because it's happened twice in history. Could we repeat this thing, all right? And let's recognize. I loved Colonel George Patton when he say when everybody is thinking the same thing, then somebody isn't thinking. We need to look at other possibilities, not just the one that we're enamored with.

And so let me ask you a trick question. The Japanese stock market and the Japanese real estate market peaked around 1990, 1991. The trick question is, which one has come back to even?

SEANA SMITH: Yeah. Well, and that's-- but that's the thing. I mean, that's why everyone is basing it on the fact that we're still seeing weakness overseas, the fact that we don't really know where to turn at this point. And when we try to gauge the timing of this economic recovery, there's so much unknown.

I mean, just take a look at-- there was a Gartner survey out recently talking about CFOs. And they were talking about the CFOs increasingly saying that their companies are implementing or planning for hiring freezes because there's so much uncertainty out there, because we don't know what the shape of our recovery here in the US will look like, because it's going to look different than what we're seeing play out overseas, especially at a time right now. So from an investor perspective, I guess, what do you think that tells us about where we stand, at least, in this point of the downturn?

JOHN GRACE: No one sees the future, right? But the point is, is that neither the Japan stock market nor the Japan real estate market have come back in 30 years. Really, that's just kind of hard to wrap your mind around.

And if you say, oh, well, that's Japan. Well, wait a minute. Let's go on to our country after the Great Depression. If I'm not mistaken, it took about 25 years for the stock market to come back even. It took about four decades-- yes, that's 40 years-- for the New York real estate market to come back to even.

So could those patterns play out again here? I think the odds are pretty favorable. And one more point here, this is something that nobody's talking about. Oh, it's just gotta go back. Let's recognize that globally, more people globally are 65 and older than five and younger. So we're just not bouncing back as people when we get older. And most of us don't have kids anymore.

And by the way, a lot of the world are not having kids. And again, everyone who is a parent knows that your peak spending happens when you have the children. And if you don't have the children, spending pretty much becomes optional.

And if that becomes the case that we have a replay of depression, the greater depression, now all spending is optional. And that's one of those situations that the government is in fear of because they have no tools to abate the practice of not spending, and maybe for the first time, doing the right thing at least for your own economy, and that's saving some money first.

SEANA SMITH: John, real quick, we only have about a minute left here, but I just want to get your thoughts on then what do you make of this rally that we've seen in the markets? We're seeing a total stark contrast between the rally that we're seeing in the market and then also this economic uncertainty, this weak data that we got out. I guess, real quick, do you think this dislocation is justified?

JOHN GRACE: I think it may be a head fake. We don't have buybacks. We've got a very thin trading market. We don't have the kind of breadth. You know, that's with the D that we've had before. And, you know, we're just going to have to look at what happens. And we've got earnings, which we all know each quarter is going to get less and less and less.

So I think we're all trying to-- you know, nobody wants to miss anything, and that's fear of missing out. So we're just trying to put this market on new highs. We're still in negative territory for the year. It would not surprise me to see that we end in negative territory for 2020.

SEANA SMITH: All right, John Grace, thanks so much for joining the show. I love getting your perspective.