THE DAILYALTS PLAYBOOK

January 30, 2020

Today, the DailyAlts Playbook talks about the Return of Coronavirus, New Ponzi Schemes, and the State of Tesla Shorts.

PRIME OVERVIEW

The U.S. markets are deep in the red Thursday due to the ongoing coronavirus crisis in China.

The Dow shed 222 points on news that the death toll in China increased to 170. The number of confirmed cases of the virus has topped 7,700. It was just two days ago that the markets shrugged off warnings and bounced back from its Monday downturn. But now economic woes are kicking in. The Shanghai index was off 2.7%, Hong Kong stocks slumped 2.6%, and the Nikkei shed 1.7%. Oil also continues to fall as analysts slash economic growth outlooks across the globe.

The news this morning has not been good. Hong Kong is facing a shortage of surgical masks. The virus has spread to India and the Philippines. The United States has announced another evacuation of citizens from Wuhan, China, and Carnival Cruises are now holding passengers on their boats for virus tests. All the while, the VIX is back near 18 and will likely press much higher Thursday.

MORNING MOMENTUM

BIG DATA: In addition to a busy day of earnings reports, we’re waiting for this morning’s update from the U.S. Labor Department on the state of the U.S. economy. The U.S. Commerce Department will drop Q4 2019 GDP numbers an hour before the market opens.

RATE REALITY: The Federal Reserve held interest rates steady Wednesday and reaffirmed its commitment to higher inflation. Meanwhile, the Bank of England announced this morning that it will leave interest rates unchanged ahead of the Brexit. So, it was more or less Groundhog Day.

ZIRP IT UP: Shares of Tesla touched $650 on Wednesday evening after the company announced Q4 earnings. The media used words like “surges” and “rocket” to describe the stock movement. Articles have emerged about how Tesla is outperforming Bitcoin (as if that isn’t a warning sign). Tesla announced that it plans to sell more than 500,000 vehicles this year. Shares jumped as much as 12%, forcing the people who have been shorting Tesla (and doubling and tripling down) to question the entire premise of basic economics and their trust in the human condition. To them: I recommend the catnip that is “Extraordinary Popular Delusions and the Madness of Crowds” by Charles Mackay. It won’t win any money back over this craziness, but you’ll at least realize that it’s not your fault.

ACCRUED INTEREST

LAND GRAB: We already knew it was going to be a big year for real estate in the ongoing interest rate environment. Now, the Investment Intentions Survey 2020 says a minimum of 98.1 billion euros of fresh capital will pour into global real estate this year.

LONG ROAD: U.S. House Democrats are now pushing a $760 billion infrastructure spending bill over five years. The premise centers around “roads and bridges” and sustainability. Democrats hope that Trump, who has supported infrastructure in the past, will negotiate on the deal. 

GOOD DRUGS: SoftBank’s second Vision Fund is putting money to work. According to Reuters, the firm will lead a funding round for the Silicon Valley drug delivery company Alto Pharmacy. The valuation is set at more than $1 billion. Reuters calls its scoop “exclusive.” What? We put this together back in October and DailyAlts is only a month old.

CARRIED INTEREST

ESG GOALS: Goldman Sachs’ CEO David Solomon said that his firm won’t underwrite an IPO unless the company has at least one female director on its board. Now, the company is backing up that claim by hiring a search firm to help encourage more diversity among corporate boards.

PASSIVE PLAY: The European ETF market continues to experience record inflows. The Lyxor ETF Research’s Money Monitor 2019 says that inflows topped $110 billion into that market for the first time last year.

QUOTES OF THE DAY

“The Battery Company is now supplied by three different battery companies.”

Mark Spiegel is not happy about Tesla’s earnings report. Well, he’s not happy about the public’s reaction and additional buying. Spiegel has been active on Twitter about Tesla, including a note that the company has partnered with LG Chem, CATL, and Panasonic – all suppliers of electric car batteries. Reuters had also said that Tesla surprised on earnings Wednesday. Spiegel questioned what the “surprise” was: “The GAAP earnings number was worse than expected and the delivery number was announced in early January.”

“If you go on CNBC enough times and call Tesla a growth company, enough people will believe you and the stock price will go up. It doesn’t make it true.”

@TeslaCharts added its own commentary on Tesla as well. It pointed out that TSLA barely topped revenue from Q4 2018. The entertaining Twitter feed calls Tesla “the poster child of ZIRP absurdity.”

ACTIVE MANAGEMENT

GOODBYE, VICTORIA: L Brands CEO Leslie Wexler is reportedly considering an exit from the company. In addition, the firm may sell its Victoria’s Secret brand. Wexler was the head of the company for 57 years. He would exit at a time that the firm is facing a decline in sales due to the ongoing brick-and-mortar retail slump. Activists have also been banging on the door. Then, there’s that whole Jeffrey Epstein relationship that still sits there like a warm pepperoni on a Philadelphia sidewalk in 98-degree weather.

EVERYWHERE ELLIOTT: It seems like every newspaper you open features an article about activist activities by Elliott Management. So, imagine picking up the Kansas City Business Journal and learning that the KC Chamber of Commerce is publicly criticizing Elliott over its position in Evergy Inc.

LIABILITIES

PONZI PAL: The SEC has charged Christopher Parris with conspiracy to commit wire fraud, mail fraud and conspiracy to engage in money laundering. For six years, Parris and a colleague allegedly defrauded about 1,000 investors of at least $115,500,000.

MORE FRAUD: The SEC says that Edward E. Matthes from Pewaukee, Wisconsin “swindled nearly $2.4 million from 26 of his mostly elderly retail brokerage customers” and advisory clients. His alleged scam also ran for about six years. He bought a car, refurbished his home, and bought a bunch of things that the government will now sell at auction.

SOCIAL RESPONSIBILITY

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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.