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Yahoo Finance Presents: North Island Chairman Glenn Hutchins

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In this episode of Yahoo Finance Presents, editor-in-chief Andy Serwer speaks with North Island Chairman Glenn Hutchins about the impact coronavirus is having on the U.S. economy and ways to invest during the uncertainty.

Video Transcript

ANDY SERWER: I'm here with Glenn Hutchins, chairman of North Island. Glenn, great to see you. How are you doing, by the way?

GLENN HUTCHINS: Great to be seen, Andy. I'm doing wonderful. How are you, my friend?

ANDY SERWER: I'm doing all right. Who's that over your shoulder there?

GLENN HUTCHINS: That's Dante Alighieri, who wrote--

ANDY SERWER: Well, "The Inferno".

GLENN HUTCHINS: Yeah, exactly.

ANDY SERWER: Good. I'm glad I passed the test. So a lot of stuff to talk about, Glenn. And first of all, I want to ask you a little bit about a domestic care package program that your Family Foundation put out there. And it's great to see New Yorkers and people around the country stepping up. What's this about?

GLENN HUTCHINS: So what we wanted to do was to rush as quickly as possible to feed the people in New York who have been the hardest hit by this problem. New York is the epicenter of the crisis, as you know, in the United States, at least, as a consequence of which spikes in unemployment, and also large numbers of health care workers who are on the front lines of this crisis who live in these communities, Harlem and the Bronx, people who are at the lower end of the socioeconomic spectrum but do very important work in the hospital system.

And so we recruited the National Action Network, which is a network of African-American-led churches which has a distribution system, a group called Revolution Foods, which is associated with the World Central Kitchen, which means they make healthy, nutritious meals. And then brought in CARE, which I'm now chairman and co-chairman of the board as the wraparound, to brand a domestic care package. And so in about 10 days time, we're able to launch a program that will provide 135,000 healthy nutritious meals.

ANDY SERWER: Wow. I want to ask you about the markets and the economy. And so geez, I mean, where do we begin? What's your take on how bad things are for the economy and how quickly could we possibly recover?

GLENN HUTCHINS: So a couple of ideas to start this with. The first is you have to understand-- we always have to remember-- we all understand, but we have to remember-- that this is primarily a health care crisis that is driving economic problems. And so I don't think one can have a very good view about where you go with the economy until you have a sense of the resolution of the health care issue. And that is almost impossible right now to predict.

We do know, I think, two things to create the context for this discussion. The first is we appear to be at the end of the beginning. In other words, if you look at all the data for New York, the crisis is beginning to abate. And we were able to do that in New York without piercing the capacity of the health care system. The health care system stood up, and now we're getting our arms around that, and now it is time to start thinking about going back to work.

The other thing is-- I know-- I'm thoroughly convinced that some time, let's call it at most two years from now-- we will have had the right kind of capacity built to be able to live a normal life and to be able to really rebuild the American economy, get stronger and more prosperous than we were before.

There is a huge amount of uncertainty about what happens between now and then. The near-term future to medium-term future is a part that's looking through a glass darkly. And so I'm not sure you can have a strong opinion about that, and whatever opinion you have will be changed by circumstances as they present themselves. Do we get widespread testing? Does the virus come back in the fall? Do people prove to be immune? What's the strength of that immunity? Can we change the way we live, work, and commute to kind of to cope with it over the course of the next six, nine, 12 months until we get to a vaccine? Who knows?

But I would say that the likely pace of the recovery strikes me as having four stages to it. The first is a bounce back, an immediate bounce back of pent up demand. You don't look like you, like me, need a haircut. But the first thing I'm going to do is go get a haircut. And I'm going to take out some dry cleaning, and I'm going to get my car and home repaired, and I'm going to go to the dentist. And other people are going to do put off elective surgeries. Some things are just going to come right back, and those will go skyrocket right back up again.

Then there's a second set of things that will happen that will also be meteoric in terms of their recovery, which is scaling up-- and it's happening right now, too-- scaling up the supply chain for all the things we need to go back to work-- cleaning supplies, masks, testing kits, all that sort of stuff that. Whoever manufactures that stuff and can get manufacturing capability and distribution capability set up to do that, there'll be almost unlimited demand for that. So that'll be another part that'll grow very, very rapidly once we get back in the system.

But then there are going to be some things can happen very, very slowly. Very good example of that is air travel. When will you be in a circumstance where you'll do any air travel other than what you actually have to do? And what will that take in terms of creating the conditions under which both you feel safe consuming it and in which the people who provide it to you feel safe providing it to you? So that will happen very, very slowly.

There'll be some things that will completely go away, some activities that we had before that we aren't going to need any more. One of the things companies are learning, for instance, is-- well, another good example is retail. Physical retail was in the last stages of its decline, and many of these retailers are going to be toppled over as a consequence of this crisis. And the kind of ways they provided their goods, and the goods they provided, are likely just to go away permanently.

And then there's a whole new, exciting set of things which are the new parts of the economy that we've learned that we're going to need. Two months ago, almost nobody had ever heard of Zoom. Now it's a brand name like Kleenex. And there are going to be pieces of that that are net new innovation around the new ways which we work.

I was just looking at a company the other day that makes a product that as people walk into an office building, it takes their temperature from a distance, and based on identifying them, has enough information about them to understand whether or not there is some chance they have the flu, and then can be diverted as they walk in an office building into another queue in order to go through the health safety check.

Net new piece of technology would not have thought we needed six months ago might well be installed in every office building in the Super Bowl cities in the United States a year from now. Brand new kind of things like that that we'll be consuming that entrepreneurs will be coming up with.

ANDY SERWER: As an investor, what do you do here?

GLENN HUTCHINS: Well, it's an interesting question. So my view right now is I think we really need to-- before you start allocating capital in serious ways-- well, two pieces of it. One is there are some things which you can do kind of right away if you can get the analysis right.

So for instance, let's take an example. Let's say there's an office building in Manhattan where the rent rolls are filled with creditworthy clients who aren't necessarily affected by the pandemic, but because the real estate financing markets are shut down, they can't raise capital. That looks to me like to be a no brainer. There are some things that right now, you can see they're just good companies because of financial dislocation, good assets you can do something with.

There are other things which-- well, you know, companies that someone that comes and says, well, if you get this money, we're going to spend it down at this rate, and we think the pandemic will be over a year from now. Our cash burn rate is 18 months. We then get through it. And then when we turn our business back on, we'll be good again. The answer is well, no, I don't know how long the crisis is going to last. I can't really give a good analysis of your burn rate because we don't know how long that period is going to be.

And then there's the third set of companies, like the one I mentioned earlier, which are net new innovation to serve the future. And so those are three kind of categories of ways of thinking about how to invest.

ANDY SERWER: Just time for just one last question. Warren Buffett said that he was unable to invest in companies that were down and out because the Fed responded so quickly, so strongly, companies didn't get down and out enough. Is that a good thing? Do you approve of what the Fed has been doing?

GLENN HUTCHINS: Look, very much so. I think the Fed has done extraordinary work here, standing up all the facilities that they had in the toolkit from the 2008 crisis, inventing some new ones, putting a real backstop on the economy. But we've got to remember the Fed can't do everything. And there's an important continuing role for the Legislature to act. And I think the one thing that's happened here which has been pretty good so far is that Congress has acted in a-- you know, they always go through their partisan theatrics, but they have been able to get nonpartisan bills done pretty quickly that have addressed some of the key issues of the crisis.

But I think we still have more to do. And I think the key thing that we have to do more of that these bills haven't done yet is we need to put more money into the system, in the health care system for the discovery and production of therapies and vaccines. If you think for a moment about what the most efficient way to spend the money is, we would spend trillions of dollars more helping people who are out of work for years and years and years. Or we could put hundreds of billions of dollars today into inventing the things that could enable us to get them back to work. And I think that's what we haven't done enough of yet.

ANDY SERWER: All right. We're going to have to leave it at that. Glenn, great to see you. Thanks for your time.