.png?width=200&height=78&name=CH%20Diligence%20(thicker%20line).png "CH Diligence (thicker line).png")
Our briefing for Tuesday September 29, 2020:
Sep 29, 2020 4:22:14 PM
- As the coronavirus has now claimed over one million lives worldwide, United States President Donald Trump announced the federal government will be distributing 150 million rapid tests. One hundred million of those tests will be sent to states with the President wanting governors to use them in nursing homes, assisted living facilities and schools, so in-person instruction can either resume or continue full-time. However, once the tests are obtained by the states, it will be at the governor’s discretion on how they want to distribute. America has surpassed 100 million COVID-19 tests in the last week, but public health experts say even more testing is needed as the country moves into the autumn and winter months.
- In Canada, Quebec, the province hit hardest by COVID-19 are ordering new restrictions to help curb the “more complex” second wave. Premier Francois Legault announced the curbing of social gatherings and limiting bar and restaurant service to takeout only for the next 28 days, as of this Thursday. The restrictions will be in place for Quebec’s largest city Montreal and two other regions. Businesses and schools in the three regions will remain open.
- In the United Kingdom, thousands of students across the country have been forced into a two-week isolation just weeks after arriving for their academic year due to outbreaks across several campuses. For instance, 1,700 students in a northern England university were asked via email to self-isolate in their residences for the next two weeks, regardless of whether or not they have symptoms. Officials claim the outbreaks are linked to illicit parties, while students claim it is unfair to blame them when they received little support from schools, or the government.
- German Chancellor Angela Merkel claimed the country could be facing 19,000 new infections per day by Christmas unless more efforts are made to curtail the virus. Chancellor Merkel issued new rules on social gatherings – a maximum of 50 people can gather in public or rented premises and those rules will only apply in areas where there has been 35 or more coronavirus cases per 100,000 people over the last week. Germany has seen its daily COVID-19 case count rise from 300 in late July to 2,400 in late September.
- Philippine President Rodrigo Duterte has extended the partial COVID-19 restrictions in the capital region of Manila until October 31st in order to keep the spread of the virus in check. The country continues to have the highest COVID-19 case count in Southeast Asia with over 307,000 confirmed infections and close to 5,400 deaths. People must still wear masks, face shields and observe one-metre social distancing, while children, elderly and pregnant women are urged to stay home. President Duterte also appealed to the country’s telecommunications firms to “do a better job” as public schools are set to resume classes remotely on October 5th. Many areas of the Philippines have been struggling with preparations due to access, availability and speed of data services.
- In China, the capital of Beijing has ordered importers of frozen foods to avoid countries suffering from severe COVID-19 outbreaks after several incidents of imported seafood tested positive for the virus. While health authorities, such as the World Health Organization (WHO) and America’s Centers for Disease Control and Prevention (CDC) have claimed the possibility of obtaining COVID-19 through food supply is low, China has for the most part, stopped domestic transmission of the virus and are on high alert for any possible resurfacing.
Covid-19 – Due Diligence And Asset Management
Airline, Hotel Industry Reps Both Say Their Rebound Depends on the Return of the Travel Business
Brief: U.S. airlines received $25 billion of payroll stimulus help from the government back in April. Now that relief is set to expire this week, the near future for the industry is little improved, and now its workers are desperate for another $25 billion in government help. Delta Air Lines, United Airlines, and American Airlines all have plans to lay off or furlough tens of thousands of airline employees this week if Congress doesn’t agree on another relief package. Air travel has yet to return to even half of the pre-pandemic daily levels, and the International Air Transport Association (IATA) in July pushed back its target to 2024 for when air travel will return to pre-pandemic levels. Much has been made about whether Americans are ready to travel again and feel safe doing so, but industry representatives say the issue isn’t passenger comfort level or pleasure travel: it’s the dearth of business travel. (Business passengers typically comprise 75% of airline profits.) Over the Labor Day weekend, airlines on average saw 50% passenger capacity from one year prior, which was actually an improvement over the past few months. But they only saw 25% of the revenue from one year prior, due to blocked-off seats, slashed ticket prices, and lack of business travelers.
Haywire Signals Leave Investors Guessing on Business Cycle
Brief: The once-in-a-century pandemic is wreaking havoc on the market’s tried-and-tested barometers for the business cycle. At first glance, Wall Street looks like it’s teeming with the kind of greed usually reserved for the end of an economic expansion. Corporations globally have already issued a record $2.7 trillion of debt. Private-equity firms are borrowing to pay lavish dividends. Tech stocks are at dot-com-era valuations. Yet that’s the wrong interpretation, according to market players like the strategists at Morgan Stanley and fund managers surveyed by Bank of America Corp. They reckon an economic recovery is just getting started, and once the virus is controlled it will power the cross-asset rally in earnest. That makes it a confusing time for anyone allocating assets based on where we are in the cycle. “You’ve got this early cycle and late cycle melding going on,” said Kevin Gaynor, founder of Rational Research and former head of international economics at Nomura Holdings Inc. “You’ve got a really simple answer for that: it’s interest rates.” Lower borrowing costs have helped juice market valuations since the March maelstrom as investors tried to front-run a recovery. The danger now is that risky assets are priced for the best-case scenario, offering none of the premiums that might be up for grabs at the start of an economic upswing.
Rich Finance Workers to Flee Britain over Virus and Brexit Fears
Brief: The City is bracing for Brexit — but not the one you think. Some of the finance sector’s richest are planning to leave the UK as a double-whammy threat of a second Covid-19 wave and the Brexit fallout forms “a dark cloud” over the country, according to wealth, property and tax advisers. Wealth manager London & Capital’s clients, who include hedge fund managers, have indicated that the UK is the “least attractive” place to live amid the pandemic, according to Iain Tait, the head of its private investment office. Tait, who advises around 100 wealthy individuals with assets totalling around £1.25bn, said some of his clients were considering moving out of the UK to avoid a second lockdown and the ramifications of the impending end of the Brexit transition period. “There’s definitely been a pickup in enquiries that might give high-net-worth families greater optionality, if this pandemic and the potential for lockdowns continue,” Tait said. “[Clients] want to continue to have lifestyle and business optionality, both post-Brexit and [without] a continuing Covid cloud over one’s family life,” he added. “It’s a mixture of the two, which together form a pretty dark cloud [over the UK for] high net worths that we work with.”
How do Family Offices Manage Risk Amid Pandemic?
Brief: Anyone longing for a return to a more predictable economic era? A time when a rise in interest rates immediately triggered more overseas investment, leading to an inevitable strengthening of a country’s currency? Well, get prepared for a rather long wait, as ultra-low rates and aggressive central bank monetary supply – not to mention the ongoing geopolitical uncertainty around the US election – signals anything but a move to more conventional times. It is not like we have not been here before. What we are currently living through draws parallels with the post-World War I period, which led to hyperinflation and a prolonged global recession. The difference this time, other than inflation currently being kept down due to ultra-low interest rates, is that this environment will likely be concentrated into a much shorter time period, as opposed to the decade of pain experienced after 1923. If the macro was not enough to think about, there is also a particular global health pandemic fundamentally disrupting traditional working practices. This begs the question, with remote working looking likely to be here for some time and markets bracing themselves for a second wave of volatility, just how does a family office, set in its ways, manage risk right now?
CFTC Charges Georgia Man with Fraudulent Scheme to Profit from COVID-19
Brief: The Commodity Futures Trading Commission today announced that it has filed a complaint in the U.S. District Court for the Northern District of Texas against Kenzley Ramos, a Georgia resident, charging him with fraudulent solicitation, misappropriation, operation of an unlawful commodity pool, and failure to register with the CFTC. According to the complaint, Ramos falsely promised individuals the ability to profit from the COVID-19 pandemic by trading in off-exchange foreign currency (forex) and binary options with guaranteed 300 percent weekly returns. This is the second enforcement action brought by the CFTC alleging misconduct directly tied to the pandemic. [See CFTC Press Release No. 8195-20] “We will continue monitoring our markets and will pursue any individuals who choose to use COVID-19 as part of their illegal schemes,” said Division of Enforcement Director James McDonald… The complaint alleges that from at least December 2015 until the present, Ramos fraudulently solicited individuals across the country by using online advertisements and aliases to further his ongoing scheme, incorporating COVID-19 into his solicitations earlier this year. He falsely represented himself as a highly successful and experienced binary options and forex trader who could profit from the coronavirus even while stock prices were falling.
U.S. Pension Funds Sue Allianz After $4 Billion in Coronavirus Losses
Brief: Pension funds for truckers, teachers and subway workers have lodged lawsuits in the United States against Germany’s Allianz, one of the world’s top asset managers, for failing to safeguard their investments during the coronavirus market meltdown. Market panic around the virus that resulted in billions in losses earlier this year scarred many investors, but no other top-tier asset manager is facing such a large number of lawsuits in the United States connected to the turbulence. In March, Allianz ALVG.DE was forced to shutter two private hedge funds after severe losses, prompting the wave of litigation the company says is "legally and factually flawed". Together, the various suits filed in the U.S. Southern District of New York claim investors lost a total of around $4 billion. The fallout has also prompted questions from the U.S. Securities and Exchange Commission, Allianz has said. A spokesman for Allianz Global Investors said in a statement to Reuters: “While the losses were disappointing, the allegations made by claimants are legally and factually flawed, and we will defend ourselves vigorously against them.”
