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Our briefing for Wednesday September 9, 2020:
Sep 9, 2020 3:45:30 PM
- In what AstraZeneca is calling a “routine action”, the drugmaker is temporarily suspending its phase three COVID-19 vaccine trial after a participant in the United Kingdom section of the study suffered a suspected serious adverse reaction. According to two people familiar with the trial, the sick participant fell ill with a rare inflammatory condition. AstraZeneca, along with vaccine partner, Oxford University said it is reviewing the event to ensure it wouldn’t result in a significant delay with the trials rumoured to be starting up again as early as next week. The UK drugmaker had been in the lead to become one of the first to deliver a COVID-19 vaccine with the United States rumoured to be considered fast-tracking the process for the vaccine before its November presidential elections.
- In the United States, President Donald Trump continues to get battered by new books criticizing everything from his personality to his ability to run the country. The latest to hit the shelves is from Bob Woodard – no stranger to White House controversies from his work in uncovering the Watergate scandal in the 1970’s, and it isn’t very flattering for the President. Media have jumped on a series of audio recordings Woodward used for his book, titled Rage where President Trump admits to downplaying the seriousness of the coronavirus as he didn’t want to create panic. “This is deadly stuff”, Trump told Woodward in a February 7th meeting. In a series of interviews with Woodward, President Trump’s knowledge of the virus as a threat was known far earlier than he let on, adding the coronavirus was maybe five times “more deadly” than the flu.
- In Canada, two of its major provinces are trying to curtail COVID-19 spread as new cases trend upwards. In British Columbia (BC), the government is ordering nightclubs and stand-along banquet halls closed. They are also calling on restaurants to end the sale of liquor past 10 PM and to lower the volume of music to conversational levels. The changes come as BC has reported 429 new cases over the past four days. In Ontario, Premier Doug Ford and his government have paused its reopening plan for four weeks after seeing its COVID-19 cases spike. What this means Ontario won’t allow things like expanded social circles, gathering sizes or greater increases in the number of people allowed to attend sporting events. As of Tuesday, Canada’s most populous province had seen 13 straight days of new COVID-19 cases in the triple digits.
- As mentioned in Castle Hall’s Tuesday COVID-19 Diligence Briefing, the Financial Times is now reporting United Kingdom Prime Minister Boris Johnson plans to move ahead with tightening measures to reduce the spread of coronavirus in the country. The new measures will restrict how UK residents live and socialize, including a ban on most gatherings of more than six people. Under current rules the max gathering is 30 people and this new limit of six will be applied across England, whether you are indoors or outdoors and to all ages. There will be “reasonable exemptions” such as gatherings for work or school, along with weddings, funerals and organized sports if they are deemed “COVID-secure”. According to the Financial Times the new measures will be introduced on Monday.
- In Germany, a domestic drugmaker and its US partner are negotiating a contract with the European Union (EU) to supply at least 200 million doses of their potential COVID-19 vaccine. Mainz-based BioNTech, along with Pfizer, said if an agreement is reached, deliveries could begin by the end of the year, as long as the product receives regulatory approval. The EU would have the option to buy a further 100 million doses of the vaccine, which will likely require two shots per person immunized. BioNTech has already reached agreements to supply Hong Kong, Canada and Japan, while also committing 600 million potential doses to the United States.
- In China, researchers at the South China Agricultural University and Guangdong Academy of Agricultural Sciences released a report over the weekend of coronavirus lingering on food supplies such as fish. Chinese authorities have been looking into food as a potential source of infection since June and have been investigating imported meat, packaging and containers as potential COVID-19 sources. The report points to coronavirus lingering on chilled salmon for more than a week. The researchers found SARS-CoV-2, the virus that causes COVID-19 collected from salmon samples at four degrees Celsius (39 degrees Fahrenheit), which is roughly the temperature the fish were transported at.
Covid-19 – Due Diligence And Asset Management
U.K. Property Funds With $16 Billion Face Reopening Dilemma
Brief: The U.K.’s biggest property funds for mom-and-pop investors that were locked at the peak of the coronavirus market turmoil have been given the all-clear to reopen. They aren’t rushing for the keys. Funds holding almost 12 billion pounds ($15.6 billion) of commercial real estate halted trading in March, leaving investors to just watch as office and shopping mall values headed south. Now, they have a choice: reopen and risk a wave of redemptions or stay closed and invite the wrath of investors. “As soon as funds open, money will leave, that’s undoubted,” said Ben Yearsley, investment director at Shore Financial Planning. “Honestly, I think most won’t reopen.” As the pandemic froze real estate markets in March, fund managers including Aviva Plc and Standard Life Aberdeen Plc were thrown a lifeline. An industry committee said most properties couldn’t be accurately valued, prompting a slew of freezes that prevented investors heading for the door. On Wednesday, that group said the uncertainty had sufficiently eased, heaping pressure on managers to re-open. Now, any failure by funds to reopen following their next valuations could be a signal they don’t have enough cash if redemption requests have piled up since their freezing. That’s despite many having relatively healthy cash buffers prior to the coronavirus crisis upending markets.
A New Front in Coronavirus Disinformation: Wall Street Research
Brief: Coronavirus misinformation is infecting the unlikeliest of places: Wall Street research that investors rely on to trade in the financial markets. In an early August note to clients, an analyst at a research firm called Fundstrat Global Advisors, which distributes widely-read reports and analysis to investors, cited a series of tweets by an ophthalmologist named James Todaro who painted a rosy picture of the US population's potential for developing herd immunity to coronavirus. In a research note sent to clients on August 11th, Fundstrat co-founder Thomas J. Lee included four tweets Todaro sent the previous day. One of Todaro's tweets cited "growing evidence that T cell immunity allows populations to reach herd immunity once 10-20% are infected with SARS CoV-2," the coronavirus that causes Covid-19. Todaro's claim is not supported by credible scientific research. In fact, Shane Crotty, an immunologist at the Center for Infectious Disease and Vaccine Research at the La Jolla Institute for Immunology, told CNN Business that Todaro's tweets are "dangerous" to public health. The presence of Todaro's tweets in a Wall Street research note suggests the campaign to downplay the virus championed by the president and his supporters is gaining traction. Todaro is one of the people who appeared in a viral video in July promoting hydroxychloroquine that Facebook and YouTube later removed because they said it was promoting misinformation.
Druckenmiller Says Inflation Could Reach as High as 10%
Brief: The markets are in a “raging mania” and rising inflation is a big threat, investor Stan Druckenmiller said. Inflation could hit 5% to 10% in the next four to five years, Druckenmiller said Wednesday in a CNBC interview, adding that the Federal Reserve has created conditions that have sent valuations soaring. Deflation is also a risk, he said. “Everyone loves a party but inevitably after a big party there is a hangover,” he said. “We are in a raging mania.” Investors, however, in general don’t see much risk of higher inflation in the U.S., according to prices in the market for Treasury inflation-protected securities. The 10-year breakeven inflation rate derived from TIPS is just 1.7%, suggesting the risk that the Fed will miss its 2% inflation target over the next decade is higher than that of exceeding it. Periods of deflation have been preceded by asset bubbles, Druckenmiller said, and Fed Chair Jerome Powell “has created this massive asset bubble, so ironically he’s raised two tails” -- the risk of inflation and the risk of deflation. Druckenmiller said the odds of hitting the 2% target “have actually gone way down with the Fed activity.” U.S. stocks sold off in the last three trading days, with a drop in technology shares gathering speed as investors fled the names that fueled a historic five-month rally. Heading into Wednesday’s trading, the Nasdaq 100 Index was down 11% from its record high set last week. Traders have sought safety in haven assets, pushing Treasury yields lower and strengthening the dollar.
SoftBank Unveils Headquarters Just as COVID-19 Forces Office Decemp
Brief: SoftBank Group Corp (9984.T) on Wednesday unveiled the building that will house its new WeWork-designed headquarters, in a long-planned move that comes just as the COVID-19 pandemic worldwide forces a shift away from office working. Tokyo Portcity Takeshiba’s biggest tenant will be SoftBank unit SoftBank Corp (9434.T), whose Chief Executive Ken Miyauchi told reporters at the unveiling that 60% to 70% of the wireless carrier’s employees are currently working remotely. Excess space can be opened up to other group companies, Miyauchi said. Some of these are currently renting space around Tokyo from office sharing firm WeWork, which SoftBank has taken control of globally following a series of missteps at the U.S. startup. The new development employs technology that supports social distancing, such as real time data on congestion at restaurants and SoftBank-developed robots for cleaning floors and making deliveries.
Hedge Funds on a Roll With Strongest Five-Month Showing Since Early 2000
Brief: Hedge fund managers running a range of investment strategies rose again last month, with August’s gains capping the strongest five-month run for the industry in more than 20 years. The HFRI Fund Weighted Composite Index – an investable barometer of the broader hedge fund industry published by Hedge Fund Research – was up 2.67 per cent last month. In the five months since April, following Q1’s coronavirus meltdown, the index has surged 15.4 per cent - the strongest five-month total return for hedge funds since February 2000. That puts its index value to an all-time high of 15,093. Year-to-date, the index is now up more than 2 per cent since the start of 2020. HFR president Kenneth Heinz said the impressive run – which is also the third-strongest five-month recovery return from a drawdown trough since HFR’s inception in 1990 – comes despite continued coronavirus concerns globally, ongoing economic and social upheaval in the US, and political uncertainty surround the US election, and underlines the industry’s fortitude. August’s gains were fuelled mainly by equity-focused hedge funds, which rose 4.25 per cent last month, and are now up 4.63 per cent year-to-date.
Goldman Sachs says Wall Street’s Fear Gauge is Flashing a Warning Sign Unseen since the Dot-Com Crash in 2000
Brief:
Goldman Sachs said Wall Street's top fear gauge is flashing a warning signal not seen in about two decades since the dot-com bubble burst in early 2000. The CBOE Volatility Index, also known as the VIX, is the market's best indicator of expected volatility in the next 30 days. When the stock market rises, ordinarily the index declines, and vice versa. A market that is steadily rising or falling has low volatility, but one in which rapid rises and falls follow in quick succession shows high volatility. A reading below 20% for the VIX means that the market is operating in a low-risk environment, while above 20 shows fear is picking up. A reading above 30 reflects heightened volatility. Goldman said this trend has been upended as both the benchmark S&P 500 and VIX index have been moving in tandem. This means that since the dot-com crash, the volatility index is at the highest it has been at a time when the S&P 500 is also at a peak since March 2000. "US equity markets have shown a strong 'vol up, spot up' pattern driven by single stock markets but influencing the VIX," Goldman analysts Rocky Fishman, John Marshall, and Rohith Medarametla wrote in a September 3 note, when the VIX stood at 26.6.
