Where Is The Economy Going After The Pandemic? | Morning Joe

What is going on with the economy as prices seem to be going up everywhere?

And you also just can't seem to order anything. Things aren't there. Yes, we have disruption to the supply chain, not just domestically but globally. But the reason that there is inflation creeping into the system now is we have been pouring money from a helicopter into the economy since the beginning of the pandemic. All the stimulus programs, all the relief programs, we now know at least a trillion plus for infrastructure.

We don't yet know on the social bill. But all of these are very, very liquid events. In other words, pouring money into the system eventually gets in the hands of consumers, and they start buying goods and services. Now here's where it gets complicated: the goods and services they want are stuck on a ship outside of the port of Los Angeles for sometimes up to six weeks.

That problem, while the president has tried to solve it, has not been solved yet. Companies that make things like cars, that used to rely on parts that were inexpensive from the Asian market, can't get them anymore. They try and source them domestically at sometimes 30, 40, 50 percent higher prices. That goes into the product, it raises the prices, and there you have inflation.

Now, if you believe the supply chain is going to get repaired, those pressures should come off. My own opinion is that half of the inflation is coming from supply chain issues and the other half, which is not transitory, which is more permanent, is coming from the fact that consumers are flush with cash and want goods and services like they did pre-pandemic.

"Hey Kevin, good morning. It's Jonathan here. Walk us through a little bit of sort of the mix signaling the economy is showing right now. Stock market mostly good, you know, but obviously issues with labor force. The job reports have been disappointing the last couple of months. Could you give us just your assessment right now? We are now a year and a half or so into this pandemic. The administration has certainly had aggressive measures to try to spark growth, and yet it's been sort of fits and starts. Where do things stand right now? Where do you think they're going?"

"Well, I think I'm very constructive. I'm very positive. You know, I have investments in over 34 companies that are private in almost every sector in America, almost every geography. The demand equation is insatiable. It's like it was in the 60s, and we have a remarkable situation where the underlying economy is very, very strong. So the Fed is saying to itself, and they're in a very tricky situation. Their mandate is to watch for inflation, and they're starting to see it. They just don't know how much of it is transitory. You've heard that word many times now over the last few weeks.

So transitory would mean no problem. As soon as supply chain gets better, these inflationary forces go away—we can stop raising rates—but they don't know that yet. So they've cleared that option, and the market assumes that's going to happen. But I think the more interesting situation is that we don't talk about much. Our American economy now is so productive because of new technologies that were accelerated during the pandemic. Just think of every company, like Nike being a behemoth, has said in five months they were able to achieve what they thought would take six years. They're selling direct to consumers now; they have huge margins on those products, less reliance on retail.

At the end of the day, this makes the company far more effective and constructive with its capital because it has all that data—what size, what color, what style. The whole American economy has gone through this remarkable digital transformation direct to consumer. That's very, very efficient and our reliance on using older ways of distribution that are far less effective has been reduced.

That's very pro-economy, very pro-S&P; that's why you're seeing the market be so buoyant and optimistic. Margins are higher, productivity's higher. The new digital America 2.0 is here."

"Kevin, I have a question. Despite what you just said, that the market is much more efficient and that consumers buy directly from retailers, there's still an enormous shortage of workers. You see it everywhere you go, and that is one thing that's holding back the economy and some of the number of businesses. Do you see that easing in the next year or two, or is this something we have to live with?"

"You know, it's a great question, and there's two forces at play. First of all, remember we paid many people not to work, and those programs are just coming off now. September was when some of the checks stopped. So companies that were trying to hire workers, particularly in the restaurant and service industries, were fighting against the government. It was kind of a strange program: work for the government, do nothing, or work for business. So hopefully, that's going to stop. That's number one.

But number two, and you may find this statistic rather remarkable, most companies, including mine, tried to determine last year, last December, what number of employees were not going to come back to the office. And we made the assumption, along with many other companies in the S&P, that that would be about 15 percent of the employees—those that were in accounting, logistics, and compliance. They used to sit in cubicles, wouldn't come back.

Well now I have the data, at least for my companies, and they're a broad swath of companies, probably 10,000 people included in the supply chains for these companies. Fifty-five percent are not coming back to the office. More than half—not now, not ever. And as a result of that, they've moved to places where they can stay with their families, take care of elderly parents. They've left the city completely; they're never coming back to the office.

As a result, they won't work inside the cities anymore in their little cubicles at the desk because they've proven to the economy they can do it remotely, using the technology we've already talked about. So this has put a lot of pressure on the traditional job markets. The head of my own accounting in my operating company that oversees all of our investments said to me, 'I grew up on a farm; I'm going back to a farm. I'm going to live on the farm, and I'm never coming into the office. If you don't like it, I'm going to work for somebody else.' Think about that; that's exactly what's going on everywhere."

"Well, and I've spoken to some groups of women lately, getting out again for 'Know Your Value,' and all of them raise their hand when I say, 'You know, who's remote, and do you like it?' They love it. They get so much done and they can still do their jobs, and it frightens me because I feel like women are just going to take on more in the house. But yeah, no, this is a huge reality in a conversation. We need to talk about commercial real estate."

"Kevin, you know, is that something you should say you should be short on at this point?"

"Well, you know, another great question. I actually sold half of our commercial real estate portfolio—not because of the pandemic, because it became too large in terms of our diversification mandates. But then when the pandemic started, we continued to sell down commercial real estate because what are called cap rates—in other words, the value of the building—is going down, particularly AAA office in Boston, New York, and other major cities.

Because you know, the law firms and the financial services companies are cutting their need for real estate. So commercial real estate's in a bit of a funk right now as we try and figure out. The owners of the buildings are very optimistic—everybody's coming back—but that's not the only problem. Many of these buildings were built over 20 years ago, where there has been inadequate systems; the airflow systems, the way they work within a pandemic environment is not good enough for people to want to go back into the building.

The air circulation isn't filtered and all those things, the washrooms aren't configured for pandemic or for flu, and as a result, millions of dollars have to go back to change that, and that puts a lot of pressure on it. I want to just say one thing about women in our economy—you might find this interesting. Over the last seven years, the majority of my returns in my private companies have come from companies run by women, particularly during the pandemic—they were remarkable in mitigating risk.

And that old adage, 'If you want something done, give it to a busy mother,' applies perfectly to small business in America. So now I'm very biased; I generally invest in women-led companies because they return my money back faster."

"Yeah, I can totally see how that happens and agree with you completely, by the way. Elizabeth, do you know what Kevin's nickname is on Shark Tank?"

"I do not."

"It's Mr. Wonderful, and now I know why! But Kevin has a lifestyle platform called 'Shop Mr. Wonderful.' Tell us about it."

"I'm in the wine business; I have a very large wine business and we learned that people didn't want to go out to buy wine anymore in stores. A case of wine weighs 39 pounds, and we discovered that people's propensity to shop for wine in 42 states, where we're allowed to ship them from our vineyards to them directly, went up dramatically.

And as a result, the demand for different varietals and different kinds of wines went up and up and up. People started discovering wine is a wonderful thing for people to enjoy. So 'Shop Mr. Wonderful' is a brand new site that expands my wine offerings by a hundredfold. I'm curating wine for people; people trust me on wine; I'm a member of the Chevalier de Tastevin, and I choose it.

It's almost like a wine club. You can order a case, you can order a bottle, you can order six months' worth of wine, and it's doing very, very well. I'm very proud of it. I just love wine; you know, it's one of those things that I love to grow, love to make. My wife and I do it together; it's a wonderful family business. But boy, has it ever grown, and 'Shop Wonderful' is trying to accommodate that growth."

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