THE DAILYALTS PLAYBOOK

January 31, 2020

Today, the DailyAlts Playbook talks Dan Loeb’s Love of Soup and Distaste for the SEC. We also discuss Brexit Bargaining, Bernie’s Big Move, and Dalio’s Take on Coronavirus.

PRIME OVERVIEW

We start today with the arrival of a new Europe. The United Kingdom will depart the European Union tonight after a long, drawn-out process dating back to a stunning 2016 referendum.

Earlier this week, Nigel Farage conducted his victory lap while the British delegation laughed before the EU. The display concluded with the waving of tiny British flags. That final display caused EU officials to cut off Farage’s microphone.

This is one of the biggest political shifts on the continent in decades, and uncertainty looms. The UK is the world’s fifth-largest economy and will become a single market with its own customs control. It must now return to the negotiating table and reach a new deal with Europe.

They’d better not bring any flags to those meetings or else we’ll have to wait another 1,317 days for a deal.

Before we get onto the rest of today’s news, we want to take a moment to celebrate some great news. Though we’ve only been around for a short while, we received notice that we rank among the Top 100 Private Equity blogs, ranked by Feedspot. As we continue to grow, we hope that you’ll continue to read and support us.

MORNING MOMENTUM

200 – This morning, the Dow Jones shed another 200 points as concerns about the coronavirus weigh on investor sentiment. China is approaching the mark of 10,000 cases of the illness, and we’ve seen it now spread to 18 other countries. The WHO has declared a world emergency after the deaths of 213 people. The natural concern is that these figures underestimate the threat.

27 – Bernie Sanders is slipping under the radar ahead of next week’s Iowa Caucus. While Exxon earnings, Brexit, and coronavirus dominate the headlines, a Sanders nomination stands to create even broader uncertainty for Wall Street. Sanders is riding a new wave and now leads national Democratic polling at 27%. Former VP Joe Biden is at 26%. It will be interesting to see where the XLV trades come February 14 – the expiration date for options after Iowa Caucus and New Hampshire primary. There hasn’t been any significant indication of a Bernie trade, as traders expect Sanders to face incredible scrutiny as a frontrunner.

2,000 – Amazon easily topped earnings on Thursday. And Jeff Bezos added more than $13.2 billion to his personal net worth in a matter of minutes after the report. Expect to hear a lot of criticism about Bezos this weekend ahead of the Iowa caucus. Amazon now has more than 150 million Prime subscribers. It has a global headcount of nearly 800,000. And the gain to its market cap yesterday was $110 billion. That figure is bigger than the entire market capitalization of UPS.

ACCRUED INTEREST

COMMODITY SLUMP – While equities are still riding high, global concerns about coronavirus are weighing on growth commodities. In eight trading days through Wednesday, oil prices have fallen 7.5%. Copper is off about 10%.

RULE CHANGE: We could soon see changes to the Volcker Rule on bank investments. Regulators are working on a plan that would permit banks to invest in certain funds, something previously banned under the 2013 post-financial crisis rule. The new rule would redefine the “covered fund.” The Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corporation approved the rule yesterday.

SOUP SECRET: Last year, Campbell Soup stock rallied 50%. That helped secure a 17.1% gain for Third Point, which had a sizeable stake in the firm. Dan Loeb’s shop also benefited from big gains in Sony. A new letter to investors states that the hedge fund is a bit more concerned about macroeconomic factors this year. It lists risks that include the 2020 election, ongoing trade negotiations with China, and the coronavirus.

QUOTES OF THE DAY

“First of all let me be clear that I’m a “dumb shit” when it comes to pandemics because what I don’t know about them is more important than what I do know.”

Finally a breath of fresh air in a sea of uncertainty. Ray Dalio took to LinkedIn Thursday to offer his insight on coronavirus. His conclusion: We don’t know how the virus will affect the markets.

“Do not travel to China due to novel coronavirus first identified in Wuhan, China.” 

The U.S. State Department has raised its advisory on China travel to Level 4. Not only does the agency advise that Americans avoid travel to China, but it has advised citizens to depart the country as soon as possible if they live or work there.

ACTIVE MANAGEMENT

SWAMPY: Dan Loeb took the SEC to task on news that it plans to curb the power of shareholder advisories. Loeb called Washington the “swamp at its worst” and said that SEC officials had been suckered by corporate lobbyists. The critique came at the same time the firm pushed Sony to address the “topic of portfolio optimization.”

LIABILITIES

MUTUAL PROBLEMS – The SEC has formally charged Edward Matthes, a registered representative of Mutual of Omaha Investor Services. A suit claims that Matthes operated a Ponzi scheme that defrauded investors out of $2.4 million.

CRYPTO CRIMES – The SEC has also charged the firm Opporty International and its founder Sergii “Sergey” Grybniakof for its role in conducting an unregistered ICO. The agency said that Opporty and Sergii raised about $600,000 from 200 investors starting in 2017. We’ll continue to see the SEC uncover more and more of these schemes in the years ahead.

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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.