THE DAILYALTS PLAYBOOK

January 8, 2020

Today, the DailyAlts Playbook talks Elon Musk’s dance moves, a pension battle over the XFL, the latest round of hedge fund performance numbers, U.K. financial crimes, and new AI guidelines.

PRIME OVERVIEW

“REVENGE”: On Thursday night, Dow Futures fell several hundred points, but have pulled back to a small projected gain this morning. Last night, Iran launched dozens of missiles at military bases in Iraq that house U.S. troops. The nation responded at the end of the mourning period for the U.S. targeted killing of Iran’s top general, Qasem Soleimani. Last night, Iran’sd Foreign Minister Mohammad Javad Zarif tweeted that Iran had responded in self-defense under Article 51 of the UN Charter, but concluded that “we do not seek escalation or war, but will defend ourselves against any aggression.”

BAD TO WORSE: This morning, a Boeing 737 plane bound for Kyiv, Ukraine crashed just minutes after taking off from Tehran, Iran. The 737 passenger jet – operated by a Ukrainian airline – crashed around 6 a.m. local time. A Ukrainian official said that none of the 167 passengers or nine crew members survived. It is important to note that this was a 737-800 Boeing plane and not the 737 MAX, which has been grounded by regulators around the world after two fatal crashes in five months. Investigators are looking into the cause of the crash.

MORNING MOMENTUM

IT’S ELECTRIC: Tesla Motors is now the most valuable automobile company in U.S. history. While the company has been accused of taking U.S. subsidies (and then going and building cars in China), Elon Musk was dancing like a drunk relative as he touted his company’s success in Shanghai. Then he qualified for subsidies in China and built a factory in roughly a year. Venture capitalist Paul Holland suggested that Musk’s ongoing commitment to Chinese production could be something straight out of the 500-year-old tome, “Art of War,” written by Sun Tzu.

CRYPTO CRACKDOWN: The Qatar Financial Centre (QFC) Regulatory Authority announced that “virtual asset services may not be conducted in or from the QFC at this time.” The order also bans Qataris from converting digital assets into fiat, or from exchanging one virtual asset for another. Crypto trading is, therefore banned in Qatar. This is a strict ban, one that prohibits anyone from even storing virtual currencies or maintaining control of them. How long before they find one of the politicians has been holding Bitcoin the whole time, and he just receives a slap on the wrist?

2020 Grumble: Tom Steyer really wants to be president. First, he bought tens of millions of dollars in ad space with his own money. Then, he bought some more. Now, he’s targeting that all-important voting base that could seriously swing him from 2.2% to 2.3% support in the polls – Good Morning America viewers.

ACCRUED INTEREST

ARE YOU READY FOR SOME ‘LITIGATION’: The XFL professional football league is generating buzz this morning after the rebooted football league announced several potential rule changes that even had ESPN analysts excited. They include the end of extra points and one-play downs that can earn teams up to three additional points after a touchdown (meaning a TD could net a team nine points). It’s exciting for people who want something new. But the Oklahoma Firefighters’ Pension & Retirement System isn’t impressed. The pension group has filed a lawsuit against the World Wrestling Entertainment, claiming that Vince McMahon’s company breached its fiduciary duty by relaunching the XFL.

CANNABIS CONTRARIAN: Last week, Illinois became the 11th state in the U.S. to legalize recreational cannabis. Chicago residents waited up to three hours in the cold to purchase marijuana. But based on the performance of cannabis stocks, you wouldn’t know demand is high. Hedge fund manager Will Meade said this week that 2020 could be the year that cannabis stocks finally find a bottom. Meade has an aggressive outlook for the cannabis industry and sees a significant buying opportunity this year.

AI OVERSIGHT: In a surprise move, the United States government issued guiding principles on the use of artificial intelligence. Why surprising: Because the rules are ambiguous and quite light when it comes to regulation (remember, the White House wants the U.S. to go it alone on AI and has rejected working with other G7 countries.) The “10 principles” for federal agencies to consider when developing laws leave a lot of leeways when it comes to encouraging “fairness, non-discrimination, openness, transparency, safety, and security.” The Office of Science and Technology Policy (OSTP), however, said that its guidelines are meant to encourage innovation and aim to avoid “handed innovation-killing models.” Now, if you’ll excuse me, I’ll need to start preparing my home for my robot overlord’s arrival in 2028.

CARRIED INTEREST

MISTER MARKET – As we move into the second week of January, performance numbers are tricking out of funds for all of 2019. We already know that Pershing Square Capital had a huge year with a 58% return, while Andrew Left’s firm clocked in a big gain during its first year. Let’s take a look at a few more.

• Ray Dalio predicted a “Paradigm Shift” in the global equity markets. But Bridgewater Associates’ performance didn’t match the expectations. Its Pure Alpha fund was flat most of the year, while its Pure Alpha 18 that uses more leverage fell by 0.5%.
• Tiger Global wrapped the year up 33%. The fund finished the year strong with a 10% jump in the fourth quarter alone.
• The Broad Reach fund ended the year up 42.5%. The $800 million fund operated by Bradley Wickens found success in a series of macro bets.
• Rokos Capital Management – the London-based fund operated by Chris Rokos – saw a 50% pop in profits last year.
• Citadel’s top fund ended the year up 19.4%. The firm’s Wellington fund was in positive territory across all five of its strategies. The firm’s Tactical Trading fund – which takes a more quantitative approach – ended up 20% on the year.
• Point 72 finished up roughly 16%, according to Yahoo! Finance.
• Crispin Odey’s hedge fund didn’t fare that well. It saw its fourth loss in five years as it missed on a series of short bets. Its European Long/Short fund lost 10.1% last year. That said, things could have been worse. A decision to switch from net short to net long in December helped it achieve about an 11.4% gain last month.

QUOTES OF THE DAY

“All is well.”

That’s President Donald Trump responding to Iranian attacks on U.S. and coalition forces across Iraq. Trump said that the U.S. was assessing the damage and plans to make a statement today on the state of affairs between Iran and the U.S.

“Following Mr. Fisher’s recent public comments, we had to question whether the firm, Fisher Investments, has the cultural respect and diversity we look for when hiring investment managers.”

That’s the Kansas City Public School Retirement System’s board of trustees, who have voted to put Fisher Investments “on watch.” The board sent a letter announcing its stance in the wake of Ken Fisher’s questionable comments during an investor conference in October.

ACTIVE MANAGEMENT

CUTTING BACK ON SOUP: Daniel Loeb’s hedge fund Third Point Capital has slashed its stake in  Campbell Soup. According to a Securities and Exchange Commission filing from last night, the fund sold about 2.1 million shares. The news is somewhat surprising given that the firm had appointed two nominees of Third Point to its board. Also, the firm had a significant role in the appointment of Mark Clouse to CEO.

IPO 2020: The Nippon Active Value Fund has planned a 200-million-pound float on the specialist fund portion of the London market. This would be the first IPO of 2020. Nippon has long invested in Japanese stocks.

LIABILITIES

BRITISH BAD GUYS: Chief Investment Officer provides an annual list of the top Fraudsters and Financial Crimes of 2019. Among the 600 convicted fraudsters, these are the ones that stand out.

• One of the U.K’s biggest tax crimes consisted of a 107.9 million pound fake-eco investment scheme. The fraudsters – all facing decades in prison – convinced wealthy investors to put money into carbon emission reduction certificates that would help other nations meet UN emissions targets. The money never quite made it there. The fraudsters just took more than 100 million pounds and bought properties in Dubai and London.
• Next up, two individuals had stolen more than 60 million pounds in another tax scheme: This time, it targeted investors who were interested in HIV research and conservation. The fraudsters targeted wealthy investors with promises of planting trees in the Amazon and research to find an HIV cure. They went on to falsify documents and expense reports. Ironically, the name of their investment company was called: Ethical Trading and Marketing Ltd. It was all a scam – and it even included a reputable conservation scientist who helped forge documents.

BOOTSTRAPPING

• Barclays announced it had hired Christian de Haaij from Goldman Sachs. De Haaij was once Goldman’s co-head of investment banking for France. He spent 16 years at Goldman before taking a role at private equity firm Cobepa. He will now serve as Barclays’ vice-chairman for Europe.
• Baylor football coach Matt Rhule has accepted a job under David Tepper as the new head coach of the Carolina Panthers. He received a seven-year, $62 million deal, which is Jon Gruden-level money despite having little experience in the NFL. Though it’s a lot of money, Tepper appears to be taking a long approach to rebuilding the franchise that he just purchased for a record price. It turns out that the biggest loser could be the Cleveland Browns, who might have to turn to actor Dennis Leary to coach at this point, given the limited interest among actual NFL coaches. 

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ABOUT THE DAILYALTS PLAYBOOK

Garrett Baldwin is the author of the DailyAlts Playbook.

An economist and author based in Naples, Florida, Garrett has an extended history of financial analysis, business journalism, public relations and consulting experience in hedge funds, private equity, alternative investments, housing policy, commodities, and public equity coverage. He holds degrees from Northwestern University, Johns Hopkins University, Purdue University, and Indiana’s Kelley School of Business. He also has a Certificate in Global Business from Harvard Business School.

An avid Baltimore Orioles and Buffalo Bills fan, he would prefer to discuss other sports, please.