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Our briefing for Thursday July 2, 2020:
Jul 2, 2020 3:18:39 PM
- As the United States hit 50,000 new coronavirus cases a day, including a record 10,000+ in Florida, the government has purchased nearly the entire stock of a drug proven to be effective to severely ill patients with the virus. According to a news release, the Department of Health and Human Services (HHS) buyout of Gilead’s remedesivir represented 100% of projected production for July, followed by 90% in August and September. HHS Secretary Alex Azar called the move “an amazing deal” struck by United States President Donald Trump. The move wasn’t as well received in the rest of the world with the European Union reaching out to Gilead Sciences Inc. about “reserving a significant number of doses” for its block member states.
- In Canada, the country’s most populous province looks to move into Stage 3 of its COVID-19 reopening plan. Ontario’s 24 of its 34 public health units have been in Stage 2 of its reopening plan for nearly three weeks. While new cases are in the 150-range for the province, more than half of Ontario’s 34 public health units currently have fewer than 10 active cases. Ontario’s Health Minister Christine Elliott noted while they would like to move into the next stage as soon as possible, the government still needs another week of data before they make their decision.
- In the United Kingdom, the Office for National Statistics (ONS)most recent report shows the fall of coronavirus infections across England leveling off. The ONS says their data shows the current trend as being flat, which is significant as the country plans a significant easing of their restrictions this weekend with pubs and restaurants opening on Saturday.
- German Chancellor Angela Merkel has called the fallout from the coronavirus as Europe’s “most difficult situation in its history.” Chancellor Merkel has called on the EU member states to quickly come to an agreement on the $750B euro recovery fund to counter the economic consequences of the coronavirus. The EU nations are still fighting over the volume, financing and type of aid and have a little over two weeks to get on the same page when the 27 member states meet for a summit on July 17th and 18th.
- Trying to avoid a second full lockdown, Israel is instead imposing targeted lockdowns in neighbourhoods with COVID-19 flare-ups. Earlier this week, Israel experienced a single day record for coronavirus cases in back-to-back days. The country’s first lockdown left a third of the population looking for unemployment insurance.
- The Philippines announced Thursday they will release 15,000 prisoners in hopes to ease congestion and contain the spread of the coronavirus. The majority of the prisoners being released had committed light or bailable offences. Since Rodrigo Duterte became President in 2016, his war on drugs have helped fill the country’s prisons. Manila and Cebu City remain the coronavirus hotspots in the country and earlier this week, President Duterte said Cebu City will remain in lockdown for two more weeks.
- Tokyo, Japan’s 107 confirmed cases on Thursday were the highest noted in nearly two months. Despite this, government officials say they have no plans of reintroducing a state of emergency. Home to 14 million people, Tokyo has seen at least 50 new cases every day for the past week. Government officials had been hoping with the state of emergency lifted on May 25th that those numbers would be fewer than 20 per day. Because of this, Tokyo government officials have decided to move away from numerical targets and instead focus on expert advice on how to rein in the virus to avoid more economic damage.
Covid-19 – Due Diligence And Asset Management
Investor Who Made Billions with GFC ‘Big Short’ Bet Quits Hedge Funds
Brief: Just over a decade after John Paulson shot to fame and fortune, he's become the latest big-name money manager to quit the hedge-fund business, saying this week he's converting his firm into a family office. Paulson never managed to sustain the success and notoriety he found by betting against the housing market in the run up to the last financial crisis. Now, in the midst of an another period of economic turmoil, he's returning outside investors' money to focus on his own fortune, which the Bloomberg Billionaires Index puts at $US4.4 billion ($6.4 billion). He joins a list of industry legends who have recently called it quits amid a generational shift. Louis Bacon said in the past year that he was stepping back, as returns that were once routinely in the double digits dribbled away. David Tepper also said he was transitioning his firm, though he planned to keep a few outside clients. Stan Druckenmiller and George Soros, two legends of the 1990s, were among the first to switch to the family office model. The move also underscores the wider tumult in the investing world, where fund managers who for decades bestrode Wall Street as revered money makers find themselves struggling to compete with computer-driven, index-tracking funds that closely follow seemingly ever-rising markets at a fraction of the cost of traditional offerings.
Top-Performing U.S. Equity Funds This Year Are Betting On a Transformed World
Brief: U.S. equity funds that were able to best weather the global economic upheaval from the coronavirus pandemic this year are turning to healthcare, e-commerce and electric vehicle stocks as they look ahead to 2021. Few expect a quick economic recovery or containment of the virus that would allow a widespread return to office buildings and schools. Instead, top-performing fund managers say they are positioning their portfolios to benefit from an increase in new forms of technology as businesses and consumers change their habits amid a lingering pandemic. “It’s depressing to see the data that among the developed world, we’re having the worst situation, but we’re looking for the big industry trends that will persist no matter how long (COVID-19) goes on and will continue afterwards,” said Michael Lippert, whose Baron Opportunity fund is up 30.7% for the year to date. As a result, Lippert has been buying shares of warehouse company Rexford Industrial Reality Inc as a play on the growth of ecommerce and data, and cybersecurity firm Splunk Inc in anticipation that remote work will persist well into next year. Shares of Rexford are down nearly 10% in the year to date, while shares of Splunk are up nearly 33%.
Rescue Cash Too Hot for KKR Proves Irresistible to Many PE Peers
Brief: Even inside battle-scarred KKR & Co., entering the political fray was enough to stoke unease. As several of the private equity titan’s portfolio companies got loans from an emergency U.S. program aimed at helping small businesses survive the coronavirus pandemic, executives at the firm’s New York headquarters issued a blunt message: Return the money to taxpayers. Yet across the cash-rich private equity world, many firms pushed ahead, benefiting from the $669 billion Paycheck Protection Program run by the Small Business Administration and Treasury Department, according to lawyers and lenders with knowledge of the strategies. Now, some of those firms face the prospect of tough public scrutiny, as the Trump administration acquiesces to pressure from lawmakers to name borrowers who drew potentially forgivable loans from taxpayers. After the government broadly excluded private equity firms from the program, dozens found ways to steer around the restrictions, often adjusting governance or ownership arrangements with portfolio companies in sectors including entertainment, fitness, sports and dermatology, the people said, asking not to be named discussing confidential arrangements.
Bridgewater’s Dalio Says Capital Markets No Longer ‘Free’
Brief: Recent central bank actions mean capital markets are no longer “free,” according to Bridgewater Associates’s Ray Dalio, founder of the world’s largest hedge fund. “Today the economy and the markets are driven by the central banks and the coordination with the central government,” said Dalio, speaking at the Bloomberg Global Asset Owners Forum on Thursday. As a result, “capital markets are not free markets allocating resources in traditional ways.” The Covid-19 pandemic brought economic activity to a standstill and sent markets spiraling downward in March. The Federal Reserve’s unprecedented multi-trillion dollar response eased concerns and helped fuel a shock recovery in financial markets even as the U.S. economy continues to struggle. Dalio said the U.S. now has the worst wealth gap since the 1930s, adding that central banks will need to continue to pump money into the economy. “You’re going to see central bank balance sheets explode, they have to because the choice is the sinking ship,” he said. Dalio also said that investors should favor stocks and gold over bonds and cash because the latter offer a negative rate of return and central banks will print more money.
Gundlach Sounds off on V-Shaped Recovery Prospects: ‘Highly Optimistic’ at Best
Brief: Billionaire bond investor Jeffrey Gundlach believes a quick economic recovery is "highly optimistic" — and probably not even plausible given that a rebound to pre-coronavirus levels will take at least a year to materialize. Themarket’s powerful surgefrom its March lows has been propelled in part by investor expectations of a rapid“V-shaped” rebound, especially as coronavirus lockdowns get eased. However, Gundlach told Yahoo Finance in an interview that scenario is unlikely for a number of reasons. "I think that whatever the consensus is on the so-called shape of the recovery, I'm taking the under," the CEO of $135 billion DoubleLine Capital, said on Wednesday. According to Gundlach, a sharp recovery from asteep, depression-like plunge "basically implies is that you can take 20% of the entire workforce...[and] put them on unemployment benefits, have them produce nothing,” the investor said, referring to the staggering post-lockdown job losses. To date,nearly 50 million peoplehave filed jobless claims in the wake of the COVID-19 crisis.
You’re Doing It Wrong: A Tail-Risk Hedger Calls Out His Industry
Brief: Portfolio hedges aren’t insurance, Ari Bergmann wants to point out. Bergmann created some of the first derivatives while at Bankers Trust in the 1990s, and he is passionate that tail hedge managers are shooting themselves in the foot by trying to get investors to see the strategies as insurance with a small annual cost. “If you make money on insurance, you are an arsonist,” he said. During an interview, Bergmann, who founded Penso Advisors in 2010 to provide risk mitigation strategies, got on a roll. “Why do you need insurance? The market came back. That tells you that you don’t need insurance. Insurance doesn’t help. Between the Federal Reserve and the government, you have the best insurance. That’s for free and the taxpayers are paying you.” Brevan Howard owns a minority stake in Penso. Tail-risk hedging funds are designed to profit from rare episodes like the global financial crisis or March’s Covid Crash. They took off in 2008 as they generated profits even as stock and bond markets fell around the world. Nassim Nicholas Taleb’s 2007 bestseller The Black Swan, which argued that unexpected events are more common than most people think, gave these hedge funds added tail wind.
