THE DAILYALTS PLAYBOOK

February 26, 2020

Today, the DailyAlts Playbook talks about the South Carolina Debate Clown Car, Coronavirus Fears, Trump’s Market Woes, and Mike Bloomberg’s Naked Cowboy.

PRIME OVERVIEW

Good morning,

We start on Wall Street, where the stock futures aren’t pointing toward any significant recovery. We just experienced the worst two-day performance in four years as investors sound the alarm over coronavirus. This morning, Greece confirmed its first case, while France reported its second death. Royal Caribbean (NYSE: RCL) has canceled 30 cruises in Southeast Asia. And a top U.S. health official has suggested that a global pandemic is likely. This isn’t slowing down. Despite a 1,800-point slide in two days, there’s little reason to expect a massive bounceback.

They’re even talking about canceling the Olympics due to coronavirus.

President Trump said he plans to speak on the subject later this evening.

He is reportedly very upset that the markets are falling due to concerns about a potential global pandemic.

MORNING MOMENTUM

BATTLEGROUND – The South Carolina debate on Tuesday was a descent into madness. Deep down in the dark, dark political rabbit hole, the debate produced the sounds of dogs laughing and men gnashing their teeth. This morning, some pundits are treating it like a boxing match. I watched every minute of this vanity content, and I’ll say it was a seven-car pileup. Maybe Biden won? Maybe no one did? That said, it still wasn’t as crazy as Michael Bloomberg’s team hinting that the media mogul is about to drop “the mother of all oppo-research” on Bernie Sanders during a conversation with CNN yesterday.

CORONAVIRUS – While the economic impact of coronavirus could be north of a $1 trillion haircut to global GDP, the social cost could be terrible as well. The Communist Party may use the recent outbreak to intensify mass surveillance across the nation. If you haven’t read about the Chinese surveillance state (AI, camera use, facial recognition, and social scoring), it’s downright dystopian.

14 FIGURES – A new Preqin report shows that the alternative assets industry has reached “14 figures.” Total AUM surpassed $10 trillion for the first time in 2019. The industry added at least $700 billion to that figure during the first six months of the year. The combination of long-term performance at funds, increasing asset prices, and expected returns helped bolster private asset management.

SURPRISE – Guess what hedge funds did just before the last two days of more than 1,800 in losses for the Dow? If you said “ramped up leverage,” please collect your winnings.

ACCRUED INTEREST

RAISING REVOLUTION – Mobile-based neobank and a digital provider of financial services, Revolut, is a popular subject around here. Its valuation simply keeps rising. It just raised $500 million in its ‘D’ round led by TCV. Though it is yet to report a profit, Revolut now ranks as one of the most highly valued startups worldwide at $5.5 billion.

NEW RULES – The principles “lay the foundation for the ethical design, development, deployment, and the use of AI by the Department of Defense,” Deasy said. They apply to both combat and non-combat use of AI technologies. Here is the Five-point Charter.

PULLING BACK – A new report from KPMG says that global fintech investment cooled slightly in 2019. The report says that global fintech investment dipped from $141 billion in 2018 down to $137.5 billion in 2019. That said, Fintech M&A hit an all time high. The big winner for the year: cybersecurity, which saw its investment levels double over the course of the year.

EXIT STRATEGY – A new Pitchbook report shows that private equity shops are snapping up an interesting alternative investment. Flush with dry powder, PE shops have been snapping up VC-backed startups. The number of PE buyouts of startups backed by VCs increased at an annual rate of 18.1% between 2000 and 2019. That is nearly double the annual growth rate of total buyouts during the same two-decade horizon.

CARRIED INTEREST

Here are the other headlines that have grabbed our attention this morning across the markets.

• Northern Trust looks to boost its alts presence in Europe.
• Bank of Canada is talking about a national digital currency.
• Bob Iger is out at Walt Disney (NYSE: DIS); and Wall Street isn’t crazy about his replacement.
• Meanwhile, China’s digital currency needs to wait due to coronavirus.
• The Germans are coming around on private equity success.
• Preqin says that first-time funds are victims of fundraising hogs.
• New ammunition for pensions over fees at PE shops.

QUOTES OF THE DAY

“I think what’s right for New York City isn’t necessarily right for all the other cities, otherwise you would have a naked cowboy in every city. So let’s get serious here.”

That’s Michael Bloomberg at the South Carolina debate, proving that if he falls short in the primary, he can always spend his money and take standup lessons at the Upright Citizens Brigade. His attempt at humor fell hard and flat last night.

““To me, if you are an investor out there and you have a long-term point of view I would suggest very seriously taking a look at the market, the stock market, that is a lot cheaper than it was a week or two ago.”

Larry Kudlow explains the basics of valuations after a selloff. He’s trying to get the public not to panic. But it appears that President Trump is quite upset with the fact that the selloff came because of fear.

ACTIVE MANAGEMENT

PREEMPTIVE STRIKE – Elliott Management Corp. has reportedly increased its stake in Arkema SA. Now, the French chemical company is considering a few deals to shed assets. Company CEO Thierry Le Henaff knows the score when Paul Singer’s shop arrives. He’s taking preemptive measures to examine the firm’s portfolio instead of waiting for the activist fund to flex its muscle.

OUT OF SHAPE – Last week, Nutrisystem parent Tivity Health (NASDAQ: TVTY) saw shares plunged by more than 48% after a dismal earnings report and lackluster forecast. Hedge fund HG Vora is now looking for a shakeup. It has received permission to add two directors to the health company’s board of directors.

LIABILITIES

NEW CASE – Rhode Island’s State Treasury (on behalf of pensions) is suing social media giant Facebook over its $5 billion Cambridge Analytica scandal. The lawsuit effectively accuses Facebook of paying more money in settlement to “assuage regulators and win other concessions from the feds.”

IN CASE YOU MISSED IT – The SEC last week hit Wells Fargo (NYSE: WFC) for misleading investors about the success of its core business strategy when employees were opening fake accounts for customers. Wells Fargo has agreed to pay $500 million to settle the charges, which will be returned to investors. The $500 million payment is part of a combined $3 billion settlement with the SEC and the Department of Justice.

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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.