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John Sacco and Jason Schenker

Transcription:

Intro: The following is an original audio series from Sierra International Machinery: Pile of Scrap with your host John Sacco.

John Sacco: I thought, “You know what? What a great opportunity. We're going to have a great time tonight. Not only are we going to do this podcast, we're going to have pizzas –homemade pizzas and steak.

Jason Schenker: Nice.

John Sacco: So, we're going to have a good time this evening. So, Jason, thanks for being the good sport that you are. Jason Schenker, the Futurist Institute, Prestige Economics. What else am I missing here?

Jason Schenker: I write some books and do some things. So…

John Sacco: A prolific author of a gazillion books. I don't read that fast, Jason.

Jason Schenker: It's all right. And my – my mom tells me that. So, don't worry if my own mom can't keep up with the books I write, don’t feel bad.

John Sacco: Well, you know what, I think that's awesome. And, obviously things are well with you and you've been pretty amazing on your analysis of what's going on. So, the very first question I like to kick off, and I think everybody, you know, in the recycling industry really kind of wants to know this question right off the bat: Was your prediction of the Super Bowl right?

Jason Schenker: You know, I didn't have a prediction for the Super Bowl. I always go into the Super Bowl with an open mind and wanting to root for whoever I think is doing better. And, in the first quarter I really thought Kansas City had it. And then, I watched Q2 and Q3 and I'm like, “Oh man, they lost it. They just lost it.” And, then beginning of Q4, they had all these folks come in with analysis, which I'm going to forecast it, but I don't – I don't forecast football. And, they said “This is where they want to be. They’re, you know, point – they’re 10 points behind. They're going to come back and they are just going to slaughter them.” And, I'm like, “This is never going to happen.” And – and lo and behold, they came back, you know, whatever, 11 points in eight minutes. And they made it look like, like, like a child's game. They just…

John Sacco: So, you don't predict football, but you do project Q1, Q2, Q3, and Q4 of an economy.

Jason Schenker: Well, that's right.

John Sacco: All right. So let's… This Coronavirus.

Jason Schenker: Yup.

John Sacco: Okay. People in China dying… Is this real to the economies of the world? Is this a – what is this? I mean, I think, because this podcast is going to get released real quick within two days of filming this. What's the real effect on the economies?

Jason Schenker: Okay, so let's start first with what we know and then with what people are speculating about. Number one, we know that the Fed has ramped up its quantitative easing program again, which started in October, and that sent metals prices higher up until the Wuhan Coronavirus became a thing, right? Uh, copper prices, aluminum prices, other industrial metals, oil prices, equity markets… They'd all been going up, up until this became an issue sort of in the middle of January. Uh, so that's something we know, right? We also know that the U.S. and globally, there had been a manufacturing recession going on. There was a business investment recession in 2019. I know last time we spoke, we talked about this. We saw three consecutive quarters in the U S of a recession and business investment. Q2, Q3, Q4 of 2019, but we did not see it in the overall economy because over 70% of the U.S. economy is people buying stuff. And, we have the lowest unemployment rate of 50 years. People with jobs – surprise, surprise –go out and buy stuff, right? So, most of the economy’s okay. We were in a business investment recession. We weren't a manufacturing recession. We've been expecting 2020 to be the year that the U.S. business investment recession ends and the U.S. manufacturing recession and the global manufacturing recession ends. And there was an improvement of the some PMIs for January, but we're still a little bit below the 150, so it's still – still dicey.

John Sacco: So, the Coronavirus is kind of pulling the reigns in on this horse that wants to run?

Jason Schenker: Yes. So, this is the risk: So, as we think about the Coronavirus, we think about what we know coming into the year… Should have been a great year, should be a great year still. The Coronavirus, um, adds uncertainty and more for Chinese factory orders, Chinese manufacturing and global manufacturing. Less so for U.S. business investment which is going to be more driven by the fit. I think it presents less of a risk to U.S. consumption. Again, which is 70% of GDP. If we thought people were going to stop buying stuff that'd be a thing. But right now, e-commerce has become a – a bigger part of the economy. It's still small. It's only 11.2% of retail sales based on most recent third quarter date of 2019. And what we know for overall retail, if we exclude a food and beverage store or food and beverage places. If we exclude fuel, if we exclude auto vehicle parts, if we exclude things people buy at garden stores like you're not going to order online bags of cement. Right? Like it's never going to make sense. But, if we exclude all that stuff…

John Sacco: You don’t know that. Amazon’s going to be in the cement business before you know it now that you said that.

Jason Schenker: They might be. But, you know, if we exclude all that stuff, what we find is that 23-ish% of retail of, like, the non – the stuff that's not in those buckets. In other words, every piece of furniture, piece of clothing, groceries, paper, pens, glasses, home goods, sporting stuff. All that stuff that could easily be ordered online… Less than a quarter of that is being ordered online and we know that that's going to go up over time. Right? That's going to be a bigger chunk of all that stuff and… but, at least, right now, it's a little bit under a quarter, which means even if the Coronavirus made people lose their nerve and not want to consume and not want to go out and shop…

John Sacco: They can still shop online.

Jason Schenker: They could still shop online and they're going to buy stuff. So, it's less of a risk than previous epidemic risks to U.S. consumption. In China, it's a different story and this is why aluminum prices and copper prices have been absolutely whacked by these risks, right? They have been falling hard and fast to levels that were similar to before the Fed did the quantitative easing at the beginning of October. And, the reason is that China’s clamping it down.

John Sacco: Is this what's driving the copper down?

Jason Schenker: That's what's driving copper down.

John Sacco: Um, I put out – so, you know, on my LinkedIn I and my Instagram, I asked people to submit questions because people know you in our industry and I got one. That was from Neil BICE. Uh, he wanted to know about the recent copper downturn and will we see it's real ­– What is the effect of the Coronavirus? And, I think you completely answered that. So Neil, that was a great question. Thanks, Neil, when you see it. All right, so tonight we have – we have to talk a little bit now, without picking a party – Republican, Democrat, we do have the election, we have the Iowa caucus tonight. We don't know the results as we sit here right now, but we have absolutely, completely two different possibilities going into this election. You have somebody who is known as a true capitalist and a couple of candidates who are borderline communist, so… They don't want to call it that. They want to call them democratic socialist – fine. Whatever you call it. What's the market going to react? How does the market react going ­– Is it just people put money on the side and wait because it could be dramatic, could it not?

Jason Schenker: So, uh, I will get to this. But, first let's talk for a second.

John Sacco: Okay.

Jason Schenker: One more thing I want to say about the Coronavirus.

John Sacco: Okay.

Jason Schenker: Here's the trick. If people talk it up enough, like the WHO declared this a global health emergency and the U.S. has suspended almost all the flights in and out of China – most of U.S. carriers.

John Sacco: Right.

Jason Schenker: And, China's under full clamp down and they're building hospitals for this in a matter of days to treat this. If everyone treats this as a crazy epidemic that could, you know, have global pandemic proportional impacts, ironically enough, then it probably won't because everything's contained, everything's treated. So, WHO and everyone says this is going to be bananas. And, so everyone responds and then it's not bananas. If the WHO were to say, “eh, we'll see how it goes. Maybe it's a thing,” then maybe it does become a pandemic because everyone's not clamped down.

John Sacco: So, we're clamped down. So, that's actually a good thing.

Jason Schenker: Right, because there's a higher probability if everyone's clamped down that two, three months from now, we'd probably stop talking about this. Copper, aluminum prices of everything else go back up because it becomes a nonissue because we addressed it at the right time.

John Sacco: And, actually the quick action makes a difference.

Jason Schenker: That's right.

John Sacco: Fantastic. All right, so when I was in, uh, um, well I wanted to – okay.

Jason Schenker: Let's get back to the political stuff?

John Sacco: Yeah, real quick.

Jason Schenker: Okay. So, here's the deal.

John Sacco: I don’t like to stay a lot on politics because I'm trying – this is not a political podcast.

Jason Schenker: That’s fine, that’s fine. I've written, uh, a nonpartisan book on the 2020 presidential election, optimistically titled The Dumpster Fire Election. Right? And, there's a few big takeaways, right? A few things. Uh, number one: Do you know what the number one most important predictor is to whether you get elected president? What do you think?

John Sacco: I would've thought it was the economy.

Jason Schenker: It's if you're already the President. So, incumbency is the number one thing that determines if you become President. Right? Truth be told.

John Sacco: Okay.

Jason Schenker: Because incumbents, almost always, get reelected. It's a little bit higher for Democrats, like around 90%. For Republicans, it's between 70% and 80%. On average, it's between 80% and 90%, but almost all the time incumbents get reelected. The second thing is, there is one economic factor that does determine whether an incumbent doesn't get reelected and that's if the unemployment rate for the month before the final – before the general election – in this case, it would be October 2020 because that's released at the beginning of November. So, we'll see that when we go to vote. If that number of unemployment is higher than the midterms that we saw in November of 2018, then if it's higher, based on a hundred years of data, President Trump would not be reelected. If it's lower or equal, probably will be reelected.

John Sacco:      Well, all right. Unemployment's 3.5%, right?

Jason Schenker: And, it was 3.7% at the midterm.

John Sacco: Okay, I would argue that you can't go much lower and the reason is the people not working are truly – are almost not hire-able right now. There is a segment at every business that I talk to – every scrap metal operation, every waste collector, every hauler, everybody from oil field service out here in Bakersfield, and the Ag world, and to the wineries up in Napa, they cannot find labor because what's out there isn’t hire-able. So, how do we go any lower?

Jason Schenker: Yeah. So, this is the – the war for talent is pretty tough. And I've been talking to folks in this industry. You know, most of my clients are either industrial or light industrial and they're going into high schools, colleges, prisons, trying to recruit people before they come out into the world, under whatever circumstances those are, because you can't find people to do anything.

John Sacco:      Correct.

Jason Schenker: Right. So, uh, but so regardless of the 3:7 or the 3:9 or how tight it is, uh, in the last hundred years, there were only four times the unemployment rate went up between the midterm and the general election. Hoover, Ford, Carter, and George H.W. Bush. Those are the only four people who were not reelected in the last.

John Sacco: Carter lost and we know George H….

Jason Schenker: And Hoover and Ford, right. So, so these are the only four people who were not reelected in the last hundred years. And, it was because the unemployment rate went up. Again, big secret. Those of you at home, don't tell anyone: jobs matter. So, I know it's a huge secret. No one – everyone will be shocked to learn. But, as long as the economy is good and people have jobs, right. In my, and to your point, it could be an exception this time, but the job market is hot, right?

John Sacco: It is.

Jason Schenker: And people who have jobs don't like to jostle the…

John Sacco: In October, I was in a Budapest for the BIR and there was two different economists who spoke. One from Germany, one from France. Both said there's no way, in their opinion, and you said this, when we, uh, podcast back in September, no recession in 2020. Still feel that way?

Jason Schenker: I did say that. I absolutely feel that.

John Sacco: And, how are you feeling in – in that? You still feel that way? No recession?

Jason Schenker: No, of course. I mean, if anything, things have improved because the – the quantitative easing has been so massively effective in December 2019, housing starts rose to the highest level in 13 years.

John Sacco: That's a big ­– that’s a big number.

Jason Schenker: For most, I want to say for all but two or three of the last 11 or 12 quarters, housing has contracted. But now, we're looking at housing, which is – here's the thing about housing. GDP is new stuff only, so if your home price goes up, that doesn't help GDP. If existing home sales go up, it doesn't help GDP. The only thing that helps GDP is new houses that get completed that get sold. New stuff is GDP. And, if we see new houses this year, that's going to be a big upside for the investment part of GDP. Investments at 15% to 20% of GDP that's been in recession for three quarters. And, big surprise: the reason it was in recession last year, the reason we were worried about a recession of business investment last year was the Fed raised rates a hundred basis points – a full percent in 2018 and they started reducing the balance sheet. In October, the Fed didn't even wait for the fed meeting. They – at the beginning of October, they just said, “Hey, uh, we're doing more quantitative easing. We were reducing our balance sheet. We're not doing anymore. Now, we're making a bigger. They couldn't even wait like the two and a half weeks for their meeting. They immediately turned it on. That is like giving gas to the economy in a big way. So now you see housing goes up, equities went up, metals had been going up, oil had been going up until the Coronavirus stuff in mid-Jan. But, all that stuff was going up. Why? Because when the Fed is out there, what are they doing? They're buying mortgages and treasuries, which more buyers than sellers, right? So, what happens? The interest rate goes down.

John Sacco: Which is great for the economy.

Jason Schenker: Which is great for the economy.

John Sacco: And for people who want to buy new houses.

Jason Schenker: New houses, cars or companies that want to buy equipment or make business investment, right? Equipment is contracted, uh, I want to say two of the last three quarters, something like this as well. So, equipment's been in a recession recently as well. So, but that is like you turn around with lower interest rates because now people see, you know, it's – it's worth my while to go buy new equipment.

John Sacco: All right. So, one question that was asked is: “How's our economy so strong given the amount of debt we have?” Okay, so…

Jason Schenker: Okay, so I am worried about the debt, but hey, look, we could get negative interest rates and then we'd get paid on our debt. Now, I don't expect that to happen imminently, but this is going on in other places, which is bananas. And, because we have all this debt, we have higher interest rates than places like Europe. And, because we have higher interest rates, that somehow attracts more money into our capital markets, which keeps the dollar strong and pushes our equity market up, which is crazy.

John Sacco: But, it hurts our exports. The strong dollar hurts our…

Jason Schenker: Strong dollar hurts your exports.

John Sacco: I’m going to – I'm going to shift to scrap iron…

Jason Schenker: Sure.

John Sacco: Right now because I tracked the dollar and at a $1.10, under $1.11, usually, scrap iron starts lessening in value in the U.S. because it just costs much more for Turkey and, you know Malaysia and the Asian countries to buy our scrap. Where are we with – with the iron market, per se, in that commodity? And, we'll get to copper and aluminum, but I've always tracked a dollar in the scrap market – scrap iron market. Dollar: real strong, iron market: not so.

Jason Schenker: So, there's two things here. One, if you look at the dollar, over the last five years, it's been one of the most stable periods of the dollar that's ever existed. It's been moving relatively sideways. Five years. That's a long time. Dollar often has big swings up, big swings down and we think it's been moving a lot lately, but it's actually been pretty stable. Now, it's also been stable at a high level, which is part of the reason that metals prices have been a bit depressed as well. The most important thing though for the metal side really is going to be global demand and global manufacturing. And, in 2019, global GDP was 2.9%. To put that in perspective, you get 3% GDP just for more people on planet Earth. So, 2.9% is not great. This year should be better between 3-3.5%. Again, the Wuhan Coronavirus: big wild card on that. But, the Fed's quantitative easing is still likely to be supportive. And, I feel like with the Wuhan Coronavirus, the more that people understand – you know, if we look at the number of deaths, right, and we look at something like the Flu that claimed 10,000 lives this past Winter. That's a big number. We're nowhere near that with the Coronavirus.

John Sacco: Well, my, I – my daughter left to go to Budapest for a semester abroad and last week, she had a little bit of a cold. We had the doctor come over and he said that this virus in the U.S. of this Flu virus has killed more people than this Coronavirus is ever gonna and we didn't – we don't have any drama with it.

Jason Schenker: Right. So, this might just be a fact that there's a media saying, “If it bleeds, it leads.” And, nothing bleeds quite like some disease that somebody got because they ate some, like, mongoose raccoon dog that they mixed with sushi and, you know, like, I mean this is – I mean I'm going a bit far here, but this is true.

John Sacco: A little bit, J. Just a little bit.

Jason Schenker: I mean, you've seen the videos, right?

John Sacco: Yeah.

Jason Schenker: And anyone who hasn’t, you should. The videos of all the weird animals they've got in cages that are wild that they're selling for meat in the same place that they're selling the seafood. And, this is where the weird disease is coming from because when you eat weird animals that people don't normally eat, you might get something, right? Like…

John Sacco: I think that's why they outlawed roadkill in the U.S.

Jason Schenker: Right.

John Sacco: I don't know.

Jason Schenker: But, this is, right, that is an interesting story. And, if you haven't seen the videos, they're very compelling and that story sells and that story makes markets, makes people jittery, makes people react. And, then you add some health warnings that are really designed to prevent a pandemic and now people get kind of worked up, which means even though metals markets could fall a bit more, they may be generally speaking over big compared to what they'll be in a few months because a few months from now people may be bored of this and they'd be on to the next thing and they might realize, “Oh, you know what, the body count didn't stack up.” And so, it's not interesting anymore. Moving onto a new story.

John Sacco: Okay. The elections. Is it interesting enough to drive a market in right now with completely doing, we were – kind of coming back to that, but…

Jason Schenker: Let's do it.

John Sacco: Alright.

Jason Schenker: So here's the thing. Uh, there are still a number of democratic candidates on the dais. Uh, there are a few implications. There are a couple of candidates that markets might see as negative if they continue to advance. Uh, Warren and Sanders, uh, have very aggressive tax plans. That might be read as negative by equity markets if the probability of them going forward goes up. And, by the way, in eight of the last 10 Democratic caucuses in Iowa, the person who won got the nomination. There is also never been a time when a Democrat wasn't one of the top three named placers. And now they're… And, I say top three named because sometimes they have an “uncommitted” category, but the top three named people did not get the nomination. So, that's what you got to watch for is those top three name players. Now, I realized someone like Mike Bloomberg who would probably be more positive for financial markets, where we'd be perceived – perceived that way compared to a Warren or Sander's, dedicated no resources to either Iowa or New Hampshire. And, it's really focusing on the super Tuesday. And, I think there's a strategy to that, which is what often happens after the Iowa caucus is if you're not number one or number two, usually those candidates drop out. They can't raise any more money. And, so there's still half a dozen plus folks who've been on the dais, um, and I think Bloomberg's probably waiting to see a bunch of those folks fall off. And now, you might have for super Tuesday, which is March 3rd, which is usually the day by which you know who the candidate – the nominee from the party would be. You could end up with a protracted slug and this would be a thing. Now again…

John Sacco:  The convention for the Democrats…

Jason Schenker: Well, this, it's not the Democra – it's not the convention day. Super Tuesday’s a day when you have…

John Sacco: Well, I know what Super Tuesday is, but what I'm saying is: They're predicting this. Okay. Let's say Bloomberg gets some when some this and they go to the contested convention. Is that too much uncertainty for the markets or no effect whatsoever, in your opinion?

Jason Schenker: I mean, it depends who the other – who – it depends who it is, right? If it's Sanders or Warren, that's going to be perceived a bit more negative by the markets. If it's Buttigieg or Biden, they're kind of seeing, I think, is middle of the road for markets. And, Bloomberg would probably be, you know, from a market or a business investment standpoint, I feel like folks might look at a Bloomberg versus a Trump scenario as – from a business economy standpoint, as one that would be probably positive for the economy in either case. Um, whereas Buttigieg, Biden may be more neutral and Warren and Sanders would be a bit more of a concern. So, we really need to see what happens here and then who falls out over the next week. And, that's probably going to happen pretty quickly.

John Sacco: Well, that’ll be interestin. I think that, uh, you have completely different ideas of how to govern completely, fundamentally, dramatically different from taxes, as you said, with Warren and Sanders, which a lot of people like that idea and – but I wonder if Bloomberg is actually gonna split the Democratic ticket like a Ross Perot did when the billionaire, really – he costs George H.W. Bush the election.

Jason Schenker: So…

John Sacco:  So, does Bloomberg egotistically stay in this thing even if he doesn't get the nominee, he's going to run as a third party? Is there going to be a third party? Could there be a third party? There always could be, but do you think that's real, or you just, no way?

Jason Schenker: I think Bloomberg's running as a Democratic candidate and I think that Mike's a savvy guy, and I think he's looking at this as the best opportunity to get the nomination is wait until you have people flushed out after the Iowa caucus.

John Sacco: Keep your powder dry.

Jason Schenker: Keep the powder dry and go after, go after where you can actually get the big wins. So, I think you could end up with a contested convention and then something like the superdelegates become more important. So, the thing about the Iowa caucus is it really is a deciding moment where people have, after that, it becomes almost a self-fulfilling prophecy. If you're not in the top of the pack, usually after the Iowa caucus, you can't raise money. You’re gone. Now, that being said, in 1992, Bill Clinton got 2.8% of the votes and ranked as the third named person in the Iowa caucus and he got the nomination. So, weird stuff can happen between now and the Democratic convention. It could become a protracted battle between Democratic candidates. The longer the battle is, the more donors are going to be… They're probably going to get fatigued with giving the candidates that they think might not actually get the nomination. And meanwhile, president Trump keeps his powder dry for the actual election.

John Sacco: All right, so let me let – let's go through some of these questions. Quick answers so we could get – I want to get through some of these questions that people put. So, for instance, here's one, is the domestic market for scrap going to be rejuvenated with the new consumers coming online?

Jason Schenker: Yeah, I mean, I think it's going to be probably a good few years. I don't see the section 232 tariffs reversing even if you had a democratic candidate coming in. I don't think even if you had a Democratic candidate, that the adversarial nature of the U.S. and China is going to change. I think there has been a broad-based recognition, a bipartisan recognition that China is a priority national security concern. And, we saw that in Miami in June when you had 10 Democrats on the dais, and they were asked, “What's the biggest national security risk?” One said Iran, one said Russia, four said China. And, that means that if we think about consumers in the U.S. for metal… What are we going to see for aluminum? What are we going to see for steel? What are we going to see for scrap? I think you're going to see more in the NAFTA region. I think you're going to see more manufacturing and potentially more metals production in the U.S.

John Sacco: All right, that sounds good. What was your takeaway from the Davos and that meeting that they have? What's your ­– is it just political grandstanding in some regards or is there something real that comes from it?

Jason Schenker: So, one of the biggest things that's going on right now is the move towards sustainability in ESG. And, I think this has implications for how…

John Sacco: ESG stands for…

Jason Schenker: Environmental Safety and Governance. And… Sorry, I'm so used to just saying the acronym, I had to think for a second. Um, activist investor initiatives. Both in the U.S. and globally, hit record all-time highs in 2018 and they're likely to have hit record all-time highs in 2019 and we'll probably see record all-time highs in 2020 as well. And, in 2018, 39% of those were tied to environmental issues and sustainability. And so, the environmental stuff with Greta and the whole thing has really been taking off. And, this explains why companies like Tesla have seen their stock price go up so sharply.

John Sacco: And Chevron and Exxon Mobil are getting clobbered.

Jason Schenker: Right. So, part of the story is, if you're an institutional investor or you’re a pension fund and the people for whom you are the fiduciary, you take care of their money and they say, “We want green stuff.” You have to go out and buy publicly traded green companies. There's not a lot of them. So, what that does is sometimes it might bid the stock price to an irrational level, but you are a fiduciary, you have a mandate, you have to go buy green stuff. So, I actually think, for the scrap industry, if it plays this right, there is the ability to position itself very well around this because this is a green industry, right? This is an industry where every ton of metal that gets recycled, every pile gets recycled, saves energy, right? Reduces across the entire metal supply chain, the environmental footprint, the environmental impact. And, I definitely think this industry can probably push forward to position itself better on this.

John Sacco: Where do you think that should come from? Make it – not know – here. The reason why I went – hold on. We ran a Superbowl ad on our social media about recycling pizza boxes ‘cause nobody, not one major pizza company talks about their – everybody's all about sustainability, diversity. But, not one pizza company is talking about their boxes that they deliver and billions across the U.S. is recyclable. We ran that ad, we had over 250,000 hits on that ad and comments from people from all over the U.S. who thought it was a fantastic ad. But yet, these big boys aren't doing it. And, so my point is where does it come? Where does the positioning – is it individual companies like Sierra, like our company who possess ­– who's educating the public that “Hey, our – what we're doing does save energy.” Or, is this some government mandate or does GM jump into this thing? Or, Apple? I mean, Apple doesn't promote that they're Apple box that you buy all their billions of iPhones come from, uh, a recycled content.

Jason Schenker: So, I think this is a broader, ISRI discussion…

John Sacco: So, you think this is more of an ISRI discussion?

Jason Schenker: Uh, or BIR discussion? Yeah, I think it's an industry wide thing because I think there's a couple pieces here, but I know that institutional investors and pension funds, investment funds… They have a mandate to go out and buy equities that are doing green stuff. They have a mandate to invest in green stuff. There are a number of private funds that have a similar mandate and there is no reason why those same funds that are funneling money into other publicly traded companies that do green things shouldn't be funneling money into this industry as well. And, I mean this is a broader discussion, whether at the BIR, ISRI… Depending on whether you're taking a global or a national approach to it. But, I do think the industry should get more recognition than it gets because I think people just don't understand the impact. I also, from the ISRI meeting we had in Austin a while back, everyone visited one of the local MRFs.

John Sacco: Right.

Jason Schenker: And, I think the average American does not understand the deleterious effects of wish-cycling – where I've got something and I want it to be recyclable and I have the little blue bin and I go, “I'm going to feel good about this.” And I, you know, take that plastic bottle full of bleach and just dump it in there. And, that's not the right approach. And, I ruin a load and the whole thing.

John Sacco: Well I, I've had discussions with a couple of different people on this exact topic on the blue bin and there's the saying, “when in doubt throw it out.” A lot of people think they're doing their part by putting all this stuff in it and they're just contaminating the whole recycling stream. So, it's getting more expensive to recycle. These MRFs, these gigantic MRFs are big million – multimillion – $20, $40 million facilities and their costs to separating this material is going up to over a hundred dollars a ton and the commodity value for half this stuff is below $100.

Jason Schenker: For those of you non-scrap kiddos at home, a MRF is a municipal recycling facility. Often, what's done in a city or a county. And, they take the stuff in and about a decade ago, the rejection rate was about 10%. Today, the rejection rate’s around 25%. That means 25% of the stuff that goes to a recycler in a city or a town gets thrown out and put in a landfill because somebody puts stuff in that isn't actually recyclable.

John Sacco: Inner cities, it’s higher.

Jason Schenker: It's – I believe it. People just – they want to feel good about it. And so, I had this discussion and I'd love to share it here because I – and I'd love to talk to you about it because I asked a number of folks, tell me about that. They said the biggest problem in recycling is wish-cycling because if 25% of the stuff you recycled just ends up in the landfill, that's horrible. If you can get it back to the 10%, that's great. And it was, there were a few things they said you should definitely recycle. You should recycle corrugated cardboard, you should recycle the heavy plastic – it’s called PET. That is for, like, your pods, like, the fling pods for your dishwasher or your washing machine. You should recycle water bottles. You should recycle anything made of metal, like tin cans, aluminum cans, anything like that. Um, you should recycle soda bottles that have a thick plastic and you should recycle loose…

John Sacco: Milk jugs.

Jason Schenker: Milk jugs. And, you should recycle loose papers. It could be newspaper, office paperwork, whatever.

John Sacco: Mail.

Jason Schenker: Mail. Anything like that. That's fine. And, that's it, and the biggest scandal they told me… That's it. That's all you should recycle. And, I've tried to tell this to everyone I can get my hands since I learned this. The worst thing you can probably do is put glass in with your recycling because if you put glass in with the paper and it gets wet and then it dries, that's actually how you make fiberglass and it gets hard and it gets stuck and it can ruin the machines that allow recycling.

John Sacco: Absolutely.

Jason Schenker: And…

John Sacco: Glass is the number one wear into a box of a baler that gets in there that wears out the inside of a baler faster than paper or metal – glass.

Jason Schenker: Glass. And, unlike in Europe where they do separate the glass… They separate it by color…

John Sacco: Not in America.

Jason Schenker: Not in America. And so, when you throw it in with everything else, cities want to seem green and they green washed what they do and, “Oh, put your glass in here.” But then the problem is what they often have is an offtake agreement with a landfill in another town to just take their glass. Because otherwise, it messes up everything at the MRF. So one of the, aside from just recycle those six items, probably throw out your glass if you're in the U.S.

John Sacco: Yeah, well we have this aspirational goal of zero waste. It's just not real.

Jason Schenker: At this point. it's very tough. I mean, I also find it really weird and I've had discussions with other recyclers about this that we don't do more waste to energy. They do this in Scandinavia.

John Sacco: They do it all over Europe.

Jason Schenker: They do it in Europe, they do this.

John Sacco: There's no way they’re don't allow anybody to burn waste in this country.

Jason Schenker: And that's, you know, and that's, I think that's right. We should recycle everything we can. And if it can't be recycled, if it's plastic, why not burn it? It's already a hydrocarbon plastic is made of the same C-chain molecules as gasoline. It burns usually cleaner than coal.

John Sacco: The politicians who create so much of this zero waste and these green goals and all this have never worked in a recycling facility. They have aspirational goals that are unrealistic goals and we're never going to get to zero waste unless we start burning it. And, I can tell you in the state of California, under the current situation, that will never happen.

Jason Schenker: So, this is – this is really interesting thing about – because if we think about green countries, we think about Germany, we think about Scandinavia. These are countries that do waste to energy that burn the trash that otherwise would just go in a landfill. And, I think it's two things. I think that there should be more information because I didn't, I've been involved with the scrap industry since 2004 and I had never heard the term wish-cycling until 2019.

John Sacco: All right, look, let's wrap this up. Jason, It's always great. Thank you again. You're the greatest sport. You always, you know, I think your knowledge of how the, how the economies work and your way, you make your predictions, you, you're at the top of the list of all your things that you do all the time. One – give us, leave us with one final word for the recyclers. What is 2020 and looking forward, can you look to 2021 what's it look like for this industry?

Jason Schenker: So, first, let me take it a little further out if I may and then we'll bring it back in.

John Sacco: Sure.

Jason Schenker: 30 years from now there will be 2.1 billion more people on planet Earth. Three years from now, people in China on a per person basis will have the same income as Americans today in real dollar terms. 30 years from now in India, people will earn three or four times what they do today in real dollar terms. That's a lot of people making a lot more money who are going to need a lot more cars, durable goods, washing machines, refrigerators, sinks, TVs, computers, cars, all that stuff.

John Sacco: Roads, bridges. How are you gonna…

Jason Schenker: Roads, bridges, right? Imagine if China, every single person's GDP per person, that level was equal to what it is in America today. It has to triple for that to happen, but that's what's like going to happen in the next 30 years. There's going to be a lot more demand for all this stuff and we're going to have to figure out how to recycle more. And, I think that we also do need to talk about environmental footprint because the plastic that just ends up in the ocean, maybe we should be burning because that would have less of an impact and it's already hydrocarbons. So there's a few different things. I think when you think about in the long run, in the short term, I think the recyclers need to be watching what's going on in the global economy. Uh, the Wuhan Coronavirus presents them short term risks, but there's the headline and there's the trend line and the headline stuff is noisy. But the trend line is, by the second half of the year because of what the Fed's doing, the global economy should be improving and we should be out of the global manufacturing recession. That's bullish for metals. That's bullish for manufacturing. As we look one, two, three years out, that's all very supportive for metals demand. So in the short run, once we get past the next few months, I think we're going to see more demand for metals, but even if it were soft for the next year, that demand we see 30 years out. That's going to come in quicker than we can feel. That's going to be very supportive for long term dynamics in the recycling industry.

John Sacco: Well, that sounds like good news for our industry.

Jason Schenker: Very important industry. Like everybody talks about doing green stuff. This industry has been one that's been doing green stuff forever.

John Sacco: I love it. Jason, thank you, sir.

Jason Schenker: Thank you, John.

John Sacco: Always a great pleasure to have you. Welcome home. Now, let's go have some pizza. We're gonna have some steak.

Jason Schenker: Pizza, steaks…

John Sacco: Maybe another drink. You want to say it? It's been another episode of…

Jason Schenker: Pile of Scrap.

John Sacco: Got it.

Jason Schenker: Boom. Sold. Cheers.

John Sacco: Cheers.

Conclusion: This has been a Sierra International Machinery original audio series. Thanks for listening. Please share this podcast and make sure to subscribe.

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