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.
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.
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.
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.
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.
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.