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Our briefing for Thursday June 11, 2020:
Jun 11, 2020 4:10:38 PM
- In the United States, as multiple media reports are describing an increase in cases since reopening and the possibility of a second wave in the fall, the government says a shutdown of the economy will not be happening again. Treasury secretary Steven Mnuchin told CNBC, “We can’t shut down the economy again. I think we’ve learned that if you shut down the economy, you are going to create more damage.” Democratic leaders are also calling for a briefing from the White House coronavirus task force. Since the reopening of the country, the task force meetings have been cut back to about once a week and while members do communicate via conference calls with governors weekly, the last formal news briefing from the task force was on April 27th.
- In Canada, the doctor who was being blamed by the province of New Brunswick for creating a second wave of the coronavirus is seeking an apology from the Premier of the province. Speaking through his lawyer, Dr. Jean Robert Ngola says private investigators have found that he couldn’t have been the first patient, and that his trip to pick up his daughter from neighbouring province Quebec was not the source. The lawyer for Dr. Ngola notes he only interacted with a few people during the week of May 10th, all of whom have tested negative for COVID-19. Dr. Ngola has said he has been on the receiving end of threats, online racial attacks, local harassment and has seeked police protection since the New Brunswick government made the news public during a news conference. As of Wednesday, there were 28 active cases in the region Dr. Ngola practices medicine, most of which are residents and employees of a long-term care home.
- United Kingdom health secretary Matt Hancock has said around “70-80%” of those who tested positive for the coronavirus after taking an antibody test had not displayed any symptoms. The health secretary cited an Office for National Statistics study for the numbers. When pressed how this would influence the government’s test and trace method when so many don’t even show symptoms, Hancock insisted the test and tracing would help “break the chain of transmission”.
- In an interview with the Financial Times, Spain’s health minister and chief epidemiologist said the country will use “surgical” restrictions and improved detection to keep the coronavirus under control as they emerge from their lockdown. The health minister said once the government’s emergency powers conclude on June 21st, they would use existing health legislation to respond to new outbreaks. Compulsory quarantine of specific groups, as well as restrictions on activities in affected areas are examples of tools the government could use.
- The European Commission has outlined a set of criteria and guidelines that will gradually allow a reopening of Europe’s external borders as of July 1st. The decision to lift restrictions will be if a specific country is in a similar or better epidemiological situation than Europe, whether it has comparable hygiene measures at transport hubs, and whether or not the country has lifted travel restrictions for the European Union. European external borders have been closed since March following the outbreak of the coronavirus.
- Brazil restored its detailed COVID-19 data earlier this week on a national website after a ruling by the Supreme Court justice ordered that the full set of information be reinstated. It was noted earlier in the week, the removal of information over the weekend caused an uproar alleging the government was trying to cover up the severity of the coronavirus pandemic in the country.
Covid-19 – Due Diligence And Asset Management
Top Trump Adviser: Jerome Powell Should Provide the Data and Then ‘Keep his Mouth Shut’
Brief: On Thursday morning, stocks slid following the Federal Reserve’s monetary policy decision and a press conference from Chairman Jerome Powell highlighting ongoing economic challenges. The Federal Reserve says itexpects real GDP to contract by 6.5% in 2020, with the unemployment rate reaching 9.3% by the end of the year. Top White House advisor Peter Navarro, it’s safe to say, is not a fan of those projections or of Fed Chairman Jerome Powell’s approach. During a Yahoo Finance interview with Andy Serwer, Navarro commented that Powell has “probably the worst bedside manner of any Fed chairman in history.” If he was going to market sushi, Navarro added, we “would market it as cold dead fish.” Navarro added… Larry Kudlow, director of the White House’s National Economic Council,added to the pile-onin a Fox Business interview Thursday. "I do think Mr. Powell could lighten up a little when he has these press offerings" he added a joking aside that "we'll have some media training at some point. Like Trump, Navarro, who serves as the director of the White House Office of Trade and Manufacturing Policy, has long been critical of the Fed. In 2019, Navarrotold Yahoo Finance thatthe Fed “is playing checkers in a chess world.” However, Navarro’s and Trump’s comments today come off the heels of recent praise for Powell from Trump about the Fed’s response to the economic fallout of the coronavirus pandemic.
Third Point Hedge Fund Seeks to Raise More than $500 Million
Brief: Billionaire Dan Loeb’s Third Point is seeking to raise more than $500 million for a new hedge fund to wager on structured credit markets which imploded during the coronavirus market turmoil. The Third Point Structured Credit Opportunities Fund started fund raising on June 1 and has collected about $380 million, according to an investor update seen by Bloomberg. A spokesman for the New York-based investment firm declined to comment. The structured-credit market went into a tailspin in March, with some hedge funds invested in the market losing as much as 50%. Firms including Medalist Partners, EJF Capital and Prophet Capital Asset Management froze redemptions from their funds to avoid fire sales of assets. At the same time, many firms have started funds to take advantage of the dislocation. “In under three weeks, we saw a price decline in structured credit that took over nine months to achieve during the global financial crisis,” Third Point told investors in April while disclosing the plan to start the fund. The new fund will mainly invest in residential mortgages, consumer credit, consumer real estate and collateralized loan obligations. Investors’ cash is locked in for one year and the fund is aiming to return as much as 20% annually.
Pandemic Will Not Be the End of Office Buildings, Brookfield CEO Says
Brief: The coronavirus pandemic will not be the end of office buildings, Brookfield Asset Management Chief Executive Bruce Flatt said on Wednesday in an interview with Reuters Breakingviews. Office workers globally have shifted to working from home during the pandemic, with Gallup reporting that 62% of employed Americans in April had worked from home during the crisis, double the number in March.While this trend has raised questions about the future of office space, Flatt said he believes that company culture and productivity are dependent on sharing a common space and “it is ludicrous to think that companies will not return to offices. Anyone who says they’re not going to be in offices is naive about how company culture is built.”Toronto-based Brookfield manages over $515 billion in assets and is the parent company of Brookfield Property Partners, a real estate company that holds one of the largest commercial portfolios in the world. Commercial real estate has been hit hard by the pandemic, as retailers and restaurants have missed payments or shuttered entirely. Brookfield Property’s share price has fallen 33.8% in the year to date.
Goldman Sachs Employees to Start Returning to U.S. Offices from June 22
Brief: Goldman Sachs Group Inc said on Wednesday it plans to start the return of an initial group of its employees to its offices in New York, Jersey City, Dallas and Salt Lake City from June 22. The Wall Street bank also announced the return of more employees to its London office from June 15 and added that it was expecting to review the process of employees returning to its Bengaluru office towards the end of June. Working from home was made mandatory across many Wall Street firms in March as financial firms reported their first confirmed cases of coronavirus and the outbreak triggered a state of emergency in New York City. In March, Goldman Sachs told its employees that most staff across North America and Europe would start working from home or at one of the bank’s business continuity centers on a rotating schedule. Chief Executive David Solomon told employees last month about the bank’s strategy to gradually return staff to work in offices worldwide. Morgan Stanley, another Wall street bank, last month announced plans to start getting some traders to return to its New York headquarters in mid-to late-June.
HSBC Sees ‘Swoosh-Shaped Recovery’ with Asia Leading the Way
Brief: HSBC Global Asset Management anticipates a “swoosh-shaped recovery” for the global economy as it emerges from the coronavirus crisis, with China and industrialized Asia the best positioned economies. In a mid-year outlook report seen by CNBC, Global Chief Strategist Joseph Little said this manner of recovery entails a sharp rebound once lockdowns are lifted, followed by a gradual pickup to pre-crisis levels of activity. “Working backwards, it means the recovery has begun already in this quarter. By the end of next year, the global economy should be fully established on a new, lower trajectory, but a roughly similar trend growth rate,” Little said. China and industrialized Asia, including South Korea, Singapore and Taiwan, are best placed to capitalize on the recovery, while other emerging markets, smaller oil exporters, frontier nations and the euro zone are less resilient, according to HSBC GAM. Downside risks to this scenario, Little outlined, include policy flexibility in certain economies, the risk of a second wave of Covid-19 infections and the potential for permanent economic damage. However, he suggested that policy mistakes pose the greatest risk to recovery.
It’s Active Management’s Time to Shine: Has It?
Brief: In the first four months of the year, active managers got the opportunity they wanted to show investors that they can beat their benchmarks in periods of market volatility. So how did they do?Not well, according to new research. “Early 2020 results rebut the view that active funds navigate market turmoil better than index-based funds,” wrote Berlinda Liu, director of global research and design at S&P Dow Jones Indices, in a blog post published Wednesday. “Even where results are relatively favorable, the data show the difficulty of market timing. Mixed results in the short term did not change active funds’ tendency to underperform indices over the long term.” S&P Dow Jones Indices publishes two scorecards each year, reporting how active managers performed compared with their benchmarks. Given the record volatility in markets since the coronavirus shut down economies around the globe, S&P published a shortened version of its semiannual scorecard to see how active managers fared during the worst of the market carnage in March and during the recovery that began in April. Liu noted in the blog post that active managers “sometimes seek to soften the conclusions” of the index provider’s regular semiannual scorecards by arguing that “while index funds may have the advantage in rising markets, it’s in volatile downturns that active management can prove its worth.”
