THE DAILYALTS PLAYBOOK

March 18, 2020

Today, the DailyAlts Playbook talks about Buyback Blowback, Hyperbolic Growth, and the Movement to Stop Short-Selling (for now).

PRIME OVERVIEW

Good morning:

I plan on returning to a normal schedule tomorrow, but as you can imagine, it can be a bit difficult to sleep at these times.

I have reflected on the last 10 years of my academic career studying financial crises.

It’s interesting how I found this odd passion for understanding economic crises.

But it all started when I read Nassim Taleb’s book The Black Swan, a book that focuses on the extreme impact of rare events. It changed my life and thinking back in early 2009.

Ironically, I met Taleb at a conference three years ago. For a brief moment, I felt like a teenager at a Boy Band concert, and I told him, “Thank you. Your book was the reason that I went back to graduate school.”

He simply nodded, said “That’s nice,” turned around, and walked away.

Lesson: Never meet your heroes.

I have studied almost every financial crisis dating back to Roman Empire. And I am struggling right now to compare history to what might be on the horizon.

Has there been a moment where a government will need to ramp up spending in a way that rivals World War II production but also cannot mobilize its workforce?

I have said that it’s possible that the U.S. government might need to dramatically increase its percentage of GDP in the next two quarters, and then slowly abate to support the financial system with the hope that consumer spending will return to previous levels. Meanwhile, the question is how much money the government plans to drop from the sky to help companies and consumers cover negative cash flow.

I am reminded that things always do recover and that they do get better. But I expect that our thinking on the to change and consumer-buying habits to change after this. I expect that we’ll be reevaluating our medical systems and our educational system.

By the end of this, Amazon, Walmart, and a handful of other companies will have an incredible market share. If our supply chains teeter, we might see more consolidation. If we see anything similar to what is happening to Italy in my home state of Florida, I fully expect that we’ll see a wave of healthcare workers walk away from their profession. There will be structural changes that are very profound because this happens after every crisis.

But remember one thing. No matter what, there will always be money in vanity.

MORNING MOMENTUM

MARKET MOVES: The Dow Jones projected an 821-point decline as the futures market hit limit down yet again Wednesday morning. The volatile opening comes a day after the Trump administration announced plans to inject roughly $1 trillion into the U.S. economy to help consumers manage their finances. The Dow is now off 28% from its record high. Should another 7% drop in the S&P 500 come this morning, it would trigger the first level of three circuit breakers.

BUYBACK BLOWBACK: Boeing (NYSE: BA) is looking for a $60 billion in liquidity from the public and private sector for the aerospace sector. The firm told regulators that it does not have enough capital on hand to meet its current obligations with an economic downturn on hand. While Washington debates a bailout, expect to hear a lot of criticism about Boeing’s stock buyback programs over the last decade. The White House is considering a number of stimulus packages that would include roughly $550 billion in direct payments to Americans or tax cuts.

CURRENT PACE: The coronavirus has now spread to 50 states. Roughly 6,500 Americans have contracted the disease, with 114 deaths, according to Johns Hopkins University. The global number of cases now totals 200,000, with just under 8,000 deaths. If you haven’t seen Visual Capitalist’s tracking of COVID-19, it is a rather stunning visual.

ACCRUED INTEREST

SHORT WINS; Boaz Weinstein’s Saba Capital has doubled investors’ money in roughly two weeks thanks to short-selling. The Tail fund was up 99% in the first two weeks of March and is now up 175% to start the year.

SHORT STOPPAGE: The European Union has temporarily suspended short-selling on specific shares. The EU cited powers under the European Union Short Selling Regulation. Could the United States also implement a short-selling ban? According to Michelle Celarier at Institutional Investor, there has been increased chatter about the possibility.

FRAUD FINDINGS: An economic crisis is always a period where we start to reveal Ponzi Schemes and other illegal activities. The SEC could have a very busy year while still trying to navigate a short-term financial spiral. The latest case is Kinetic Investment Group. The SEC has charged Michael Scott Williams for an alleged fraudulent unregistered securities offering. Williams reportedly raised $39 million from 30 different investors. He used $2.7 million to buy a historic bank building in San Juan, Puerto Rico and three luxury apartments.

QUOTES OF THE DAY

“Instead of inspiring confidence, the market seemingly responded as if the Fed knows something we don’t know and it’s actually worse than we think.

That’s Scott Minerd at Guggenheim Partners tracking the events on Monday. He now worries that we have about a 10% to 20% chance of global depression if policymakers don’t get their act together. What doesn’t inspire much confidence right now is that Congress still has not passed The Families First Coronavirus Response Act, which is the law needed to react to this crisis. Minerd says that it shows “how long it takes to react to something” in Washington.

“No buybacks. Not now, not a year from now, not 20 years from now. Not ever.”

Mark Cuban on CNBC is pushing for the U.S. to treat all workers equally. He wants to eliminate stock buybacks to ensure accountability in the executive suite. He lays out the irrationality of executive compensation in a few sentences – something that took me more than 1,200 words a few years ago.

ACTIVISTS

STANDOFF: Elliott Management and Ichigo Asset Management will tender their shares after a bid on Unizo Holdings jumped to 6,000 yen per share. The agreement could help end the bidding war that has also involved Fortress Investment Group and Blackstone Group.

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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.