Heritage Capital President Paul Schatz joins Yahoo Finance’s On The Move to assess the state of the U.S. economy.

Video Transcript

- Let's bring in Paul Schatz to talk about this. He is the president of Heritage Capital. And Paul, when I throw that question to Julie about some of our guests in the past saying that we've hit a trough, that the market has essentially hit bottom, do you agree with these people or do you think that they're smoking something?

PAUL SCHATZ: Good morning. Well, I think you certainly have to differentiate the markets from the economy. Economic news is always a lagging indicator when you look at it versus the market. You look at '09, market bottomed in March, the news didn't bottom until June. In this case, I think it's kind of lumpy. I would be absolutely floored if we see those Thursday first time jobless claims exceed the low that we saw that was, what, 16 million plus people we saw eight-ish six, seven weeks ago.

But now a lot of the numbers that are coming out now are because of the slowdown-- it's kind of dragging on as the market looks forward three to six months, and is saying, OK, we see economic activity coming back. I think I never thought the V recovery was even remotely possible. But here's the problem for the market. What's going to happen when the PPP money runs out in this summer and companies have to say, geez, I've got to lay people off now? That's going to probably lead to a second but less dramatic leg lower in the economy. So in essence, you're seeing the market here, the economic numbers here. There's always going to be that lead lag.

DAN ROBERTS: Paul, Dan Roberts here. Thanks for being back with us. You know, something--

PAUL SCHATZ: Dan, you're looking good.

DAN ROBERTS: It's something I wonder about. This is a note from JP Morgan this morning on the retail numbers. Says, what's more important and more doubt is the vigor of any summertime recovery, which of course, is the take many are our following-- pick your industry, pick your set of data. And it's interesting, because people can then either be bearish or bullish. You hear people say, oh summertime, we'll see a big bounce back. You know, it's what President Trump has been saying all along, pent up demand. It's hard for me to really believe that that's what we're going to see as we drag on here, because we're pretty close to summer.

I mean, you know, we're late May, the weather here is beautiful. We're starting to feel like is everything really going to be open and running? And of course, sports leagues are looking at the same possibility. They're trying to start up in summer. I don't know, man, in this JPM note, sees annualized real consumer spending growth in Q2, tracking the ballpark of down 50%. It's just hard to imagine even as stores reopen, that suddenly, everyone is going to rush out, and spend money, and vote with their wallets, so to speak. What do you see happening in the late summer and fall? And of course, eventually if schools are going to open, we have the back to school shopping season. Maybe there's a silver lining?

PAUL SCHATZ: So that was so much in one very long question, Dan, so I'll do my best to bullet point it. So number one, the economy-- the economic collapse we're seeing now is nothing like we've ever seen, because it was government-induced. Number one. We've also never, ever seen a response from the Treasury and from the Fed like we have. So you've got some-- there's no playbook to go from.

In my very humble opinion, I think as they reopen economies-- from what I see online and what I kind of feel-- 25 to 33% of the country is going to go right back to where they were full steam ahead. So some of the economy is going to come back, but I think the majority of people are taking a cautious to very cautious approach. They're going to continue to spend online.

Yes, there's pent up demand for things like cars. And I saw that in our Norwegian and Carnival are seeing a surge in bookings for 2021. But when you surge from zero, the absolute number is wonderful, but on a relative basis, it's nothing. I think whatever happens, it's going to be lumpy, very, very uneven until we get probably a years hence. So it's hard to fathom, but we're going to see-- that's why I think instead of a V-- it's you came down and collapsed, we're going to recover a third to half of what we lost, and then we're going to have a lot of sawtoothing around. We'll be at the mercy of whatever indicator in an economic report of the day shows great or poor.

And finally, to your point about school, we just don't know. I mean, some colleges have already said, we're going to do distance learning in the fall. I know summer camps by us, many of them are closed. It's going to be very, very, very uneven and extremely volatile.

- So Paul, bring it back to what you do. What do you do with all that when it comes to investing? I mean, I don't know what letter, you know, the sawtooth is, but how does that translate to-- is there a place to hide in this market or is there anywhere that you want to take risk right now?

PAUL SCHATZ: There is always somewhere to go. There's never-- I've never been in a market. I've been doing this almost 32 years, where I crawl up in a little ball under my desk and suck my thumb. I've never been in that case. So there's always somewhere to go. I think into weakness-- so I think markets are trading range Dow bound by 25,000, 22,000. Toward the top end of the range, you prune your portfolio. Towards the bottom end of the range or the middle, you add to it. But things are working. You know, gold stocks are-- they've been in absolute-- the rock of Gibraltar. In a weakness, if we ever get it, I think you can buy them.

You know, biotech a little overdone. Health care, we all know about. Technology is working. Those things should continue to work. I'm not so much a lover of the Costcos and the Walmarts, but I think there's plenty of opportunities. And for those people who got caught with the real junk of junk in their portfolios, you have had plenty of opportunities in these rallies to pare them back.

Most of these stocks that are decimated are not going back to new highs certainly in the next couple of years, if ever. So in rallies, you can find other things, but there's clearly-- there's plenty of areas in the market that offer good opportunities. You just have to be a little more nimble than usual.

- All right, Paul Schatz is the president of Heritage Capital. It's always good to see you. We look forward to you staying healthy and coming back.

PAUL SCHATZ: You guys, too. Thank you.