THE DAILYALTS PLAYBOOK

January 17, 2020

Today, the DailyAlts Playbook talks about short strategies for Tesla and Apple,  where Ken Griffin was on Wednesday, Kyle Bass’ Hong Kong worries, and the GAO’s statement on Donald Trump.

PRIME OVERVIEW

This morning, the Dow Futures projected about an 80-point gain after investors digested China’s latest economic figures. The world’s second-largest economy grew by 6.1% in 2019. While that figure is the slowed GDP growth level in 29 years, it met analysts’ expectations in the face of the trade war. With the U.S. and China agreeing on a “Phase One” deal this week and expectations of further easing by the Peoples’ Bank of China, markets anticipate that China can bounce back in 2020.

On the hedge fund front, the industry saw outflows of $4.7 billion in November. That figure was a reversal from the $1.9 billion in inflows during October. The Barclay Fund Flow Indicator said that trading profits still pushed total assets up to $3.16 trillion that month. We’ll have to wait until February to get the final reading for 2019.

MORNING MOMENTUM

ONE POINT TO KYLE BASS: Yesterday, we talked about Kyle Bass’s warnings about the Hong Kong economy. He predicts similar problems there to what happened in Iceland during the financial crisis. This morning, we’re digging through earnings reports around the globe, and one stuck out. Swiss luxury goods giant Richemont reported a 4% increase in Q3 sales. Growth came from Mainland China and South Korea. It experienced a large drop in sales in Hong Kong – thanks in large part to the unrest in the region. Hong Kong has been its No. 1 market. The city’s economy fell into recession after contractions in the second and third quarters. It’s facing its first budget deficit in 15 years now. And it experienced a 40% decline in visitors during H2 2019.

THE AYATOLLAH SPEAKS: Though the markets have downplayed tensions between the United States and Iran, the possibility of renewed conflict lingers. On Friday, Ayatollah Ali Khamenei led prayers in his country for the first time in eight years – and what a “blessing” it was. During the ‘prayers”, Khamenei called President Donald Trump a “clown” who claims to support Iranian citizens. However, he said that Trump would shove a “poisonous dagger” into Iranians’ backs. The Iranian government also continues to crack down on protestors who remain angry at the regime over the downing of a passenger jet that killed 176 people.

MORE NOISE: Chief Justice John Roberts swore in Senators for the impeachment trial of President Donald Trump. Prepare for media coverage over the weekend to hit Super Bowl anticipation levels. It’s entirely possible for most independent Americans that Sober January ends early this weekend, and they just start dating all of their checks “February 1” over the next two weeks. On Thursday, most media members were overly excited to share the news that the GAO said that the Trump administration broke the law by violating the “Impoundment Control Act.” Sen. Chris Murphy called the conclusion a “bombshell.” And he’s right… because technically, the GAO ruling might weaken the impeachment case. The GAO has hit four Presidents in a row with similar statements – and the violation of that law – passed during the impeachment year of Richard Nixon – isn’t a “high crime or misdemeanor.” It’s not even criminal. It’s civil law – a tort.

ACCRUED INTEREST

CRYPTO CHASING: Grayscale Investments says that hedge funds, pensions, and endowments are increasing their exposure to cryptocurrencies. The firm said that it took in $608 million last year. Grayscale said 71% of those inflows were directly linked to institutions like hedge funds. The figure is up from 66% in 2018. 

NOWHERE TO BE FOUND: We quoted President Donald Trump on Wednesday at the trade ceremony with China. During the post-event speech, Trump asked Citadel founder Ken Griffin to stand. “Where the hell is he? He’s trying to hide some of his money,” Trump continued. “Look, he doesn’t want to stand up. Where the hell is Ken? See, Steve, you’ll stand, and he’s very quiet about it. He’s in here someplace; he just doesn’t want to stand.” It turns out that Griffin wasn’t even in attendance. That wasn’t the only awkward thing to happen at the event.

STOP TRYING TO IMPRESS ME: On Thursday, Alphabet – the parent of Google – reached the $1 trillion valuation club. The search giant that is tracking us everywhere we go joins Microsoft and Apple as the only companies to reach a valuation larger than all but 16 countries. The company showed off its inner geek by continuing its plans to buy back $5,099,019,513.59 in company stock. That figure is derived from the square root of 26 – the number of letters in the Alphabet.

CARRIED INTEREST

PERFORMANCE PROBLEMS: The 2019 numbers for Northlander Commodity Advisors arrived this week. The hedge fund saw a 50.6% decline for 2019. That was a massive plunge from a very positive 2018. LLP suffered a 50.6% plunge last year, a spectacular reversal from its 2018 position as a darling of the hedge fund industry.

MORE DRY POWDER: This year is off to an impressive start for fundraising. Each day, new press releases for funds pop up in my email, and it’s getting hard now to keep up with the latest closures and initiatives. Here are the latest fund launches for Friday.

• Frazier Healthcare Partners has locked down $617 million for a new life sciences fund;
• Microsoft Corporation has launched a $1 billion Climate Innovation Fund. The firm will focus on carbon-reducing technologies to address climate change. The firm is also pledging that it will become a “carbon negative” company by 2030.
• Blackstone Energy Partners secured $3.9 billion for its third fund. The new fund saw 79 limited partners commit to the new fund, according to an SEC filing. The fund doesn’t have a target, but it will likely surpass the $4.5 billion it raised for its predecessor fund.
• Rothschild & Co. veteran Jennifer Yu has announced plans to start a new private equity fund. Investments would target companies and opportunities in Europe. Yu has set a target of $800 million. Yu joined Rothschild in 2017 from Morgan Stanley.

QUOTES OF THE DAY

“It would be nice to get some candid comments.”

Wall Street expects that Boeing will take another hit when it reports earnings. Bank of America has set the total cost of the 737 MAX saga at up to $20 billion. This morning, Edward Jones’ analyst Jeff Windau spoke for the broader industry about the frustration around the company’s transparency. Though he doesn’t want a date on when the company might return the plane to the sky, he just wants to know what they are thinking.

“There is no going back now.”

 

That is former NFL coach Tony Dungy talking about the impact of David Tepper’s decision to pay Carolina Panthers’ new head coach Matt Rhule $60 million over seven years. Tepper, the newest member in the exclusive billionaires’ club of NFL owners, has upset a lot of people with his decision to pay a rookie head coach so much money. Tepper, however, doesn’t seem too concerned.

ACTIVE MANAGEMENT

BOOM OR BUST: Tesla and Apple stock have been climbing at a breakneck pace over the last few months. Even though Morgan Stanley downgraded Tesla this week, shares continued to hold above the $500 level. So what is on the horizon for the two companies? If you’re following hedge fund activity, they’re betting big on a downturn. As of Wednesday, Tesla was the most shorted stock, until Apple took back that title yesterday. Funds were selling short $14.5 billion in TSLA stock. AAPL shorts are sitting around the same level. That said, TSLA short sellers were down $2.6 billion over the first two weeks of the year.

BANKING PRESSURE: Driver Management is pushing Community Bankers Trust to sell. The activist firm owns 1.5% of the Richmond-based bank. CBT is the parent of Essex Bank. The activist pressure if a reminder that DailyAlts will be re-launching a Community Banking letter in February. The investment strategy has returned more than 13% a year since 2013 and taps into ongoing consolidation across the banking space. Also, analyst Tim Melvin has never had a losing position since he began writing a letter on the subject seven years ago. You can sign up for two free months, right here.

WATER WIN: Activist hedge-fund group Legion Partners sold its entire 9.1% stake, or 3.57 million shares, in Primo Water. Earlier this week, Cott Corp. announced plans to purchase Primo for $14 per share.

LIABILITIES

CATCHING CHAD: The SEC has finally caught up with Lester “Chad” Burroughs. The Connecticut adviser is facing charges for allegedly running a $575,000 scheme between 2012 and 2019. He promised to invest in guaranteed interest contracts that would lock in 4% to 7% annual returns. That’s not even that aggressive for a Ponzi-like scheme. But he went on to allegedly create fake account statements – and then started covering his tracks when investors began asking questions.

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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.