THE DAILYALTS PLAYBOOK

February 21, 2020

Today, the DailyAlts Playbook talks about Zero Growth, The End of Discount Brokers, ESG Fever, and a Breakup at Senator.

PRIME OVERVIEW

Good morning,

We start today with the coronavirus. U.S. markets followed Europe lower on news that China reported 800 new cases of the disease overnight. The new total brings us to more than 75,000 cases in China with 2,236 deaths, according to the country’s National Health Commission. The virus has increased its South Korea, where there are now 150 cases.

This morning, several research outlets forecast zero percent growth for the global economy during the first quarter. Those same outlets – including BCA Research – expect that growth will bounce back during the second and third quarters. New cases of the virus are also emerging in Italy, and local officials are eyeing about 100 people who recently had dinner with a man who returned from mainland China in February.

MORNING MOMENTUM

RECESSIONARY FORCES – The impact of coronavirus is dramatically impacting growth in several key regions of the Asia-Pacific. This morning, Japan’s PMI fell to 47.6, while manufacturing in Australia also contracted. Europe has been a bit more resilient, showing expansion in February. The U.K. is the biggest stand out in the face of the Brexit, with manufacturing expanding at its fastest pace in nearly a year.

GOLD GLISTENS – Gold prices are sitting at seven-year highs as central banks around the globe pump more capital into the markets and investors fear coronavirus and the threat of economic weakness. ETFs have also been big buyers of the yellow metal.

BUBBLY – A new report by Deloitte makes a rather staggering prediction about the growth of ESG-mandated assets over the next five years. The report suggests that ESG could comprise about half of all managed assets in the U.S. by the mid-point of the decade.

CHANGING IT UP – Quant shop Quantopian announced it will return money to investors. It will also switch up strategies from the one that got Steve Cohen to commit $250 million to the firm.

DISCOUNT SPIRAL – Morgan Stanley (NYSE: MS) has snapped up E*Trade in a deal that Annie Massa says will effectively end the era of discount brokerages. One thing is for sure – if Fintech darling Robinhood faced massive competitive challenges after online brokerages slashed commissions to zero, it’s going to face an even greater uphill battle against Morgan Stanley and the new monster at Charles Schwab.d

BREAKING UP – Senator Investor Group’s founding partners are splitting up. Alexander Klabin is leaving the $6.9 billion fund to purchase a “more entrepreneurial approach to investing.” Douglas Silverman will stay behind to manage the firm with a recently promoted executive.

ACCRUED INTEREST

EXODUS – Pitchbook says that the number of global private capital funds declined for the fourth straight year in 2019. But the amount of capital raised for those funds set a new record, reaching $888 billion-a sign of the growing role strategies such as venture capital, private equity, and private debt are playing in institutional portfolios. Here’s the report.

CAPITAL WAVE – Horseman Capital’s Russell Clark noted this week that the level of capital flows into the U.S. may not keep the dollar strong. He noted that US Net International Investment Position (NIIP) as a percentage of GDP sits around 50% of the GDP deficit. However,
private sector deficits in China and Europe are sitting at about zero. This means that almost all of the money coming from Japan is heading to America.

CORRECTION – Yesterday, we noted that private equity shop Sycamore Capital was buying L Brands (NYSE: LB). That was incorrect. Here are details of the deal, which were reported by the company yesterday.

CARRIED INTEREST

Here is a slate of headlines gaining our attention on this Friday.

• Peter Thiel’s Founders Fund has raised another $3 billion for two funds.
• Lazard Fund Managers has introduced the Lazard Emerging Markets Managed Volatility fund
• In Europe, U.S. debt remains king.
• Alpha comes in waves.

QUOTE OF THE DAY

“I have been a pooh-pooher (if that’s not a word, it should be) of some who compare this current value pain to the tech bubble.”

That’s AQR’s Cliff Asness in a blog post on Wednesday. Asness had tried to do something that a lot of people do: Time the market on value. It hasn’t worked out this year, but he is staying the course.

LIABILITIES

HIDING OUT – Malaysian police revealed this week that Jho Low, the fugitive at the center of the 1MDB scandal, might be hiding in Wuhan, the epicenter of the coronavirus outbreak. Social media has been afire on the subject.

YOU AGAIN – Wells Fargo (NYSE: WFC) will pay another $3 billion in fines to make the Federal government go away.

OFFENSIVE PENALTY – Washington Redskins running back Adrian Peterson set up for a battle against Morgan Stanley over a failed investment. Peterson’s attorney says that the two sides are embroiled in an investment dispute that they meant to keep private.

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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.