THE DAILYALTS PLAYBOOK

March 30, 2020

Today, the DailyAlts Playbook talks about Commercial Real Estate Woes, Crude Collapse, 2002 Music Reviews, and Ackman’s “Hell is Coming” Defense.

PRIME OVERVIEW

Good morning:

The markets are flat this morning, and my projection this week is that we’re looking at more downside pressure. We are likely heading into a period of significant consolidation, so we have to be patient as we wait for buying pressure to return to the markets (one day). Momentum is still negative, and cash is still the best place to be for the foreseeable future.

So, we can get to the news instead. Let’s start today in the commercial real estate market.

Or better yet, the next face of this financial crisis.

Taubman Centers (NYSE: TCO) sent a letter to tenants last week saying that they must honor their leases and pay rent despite the spread of coronavirus.

In a letter dated March 25, the mall operator said that it needs the cash flow to meet its obligations to utility companies and mortgage lenders.

The letter is a preview of what could be a very ugly April for commercial real estate.

Last week, Cheesecake Factory (NASDAQ: CAKE) announced that it would not be paying rent in April, a decision that will likely set precedent for a number of other restaurants and retail firms. This morning, I dug into this a little bit, and plan to start cracking through REITs and commercial property managers. As I noted, some of the best analysts that I follow in this sector are on the record saying that they really have no idea how this is going to play out. That’s how out into uncharted waters we are right now.

Cash-strapped retailers don’t have the money to pay the property managers (and a lot of jobs and families are impacted by long-term stability).

If property managers don’t get paid, they can’t pay their mortgages or their utility bills.

And if the mortgage lenders and utility companies don’t get paid… we’ll we have another emergency on our hands for banks and investors.

Tom Barrack of Colony Capital wrote a massive whitepaper on March 22 outlining all of the problems that COVID-19 creates for the commercial real estate market. It largely went ignored by the cheerleader press because stocks were climbing higher last week. But this isn’t going away.

I’m sure the government is on top of this, right?

MORNING MOMENTUM

CORONA UPDATE: The Trump administration has announced it will extend social distancing guidelines through April 30 in an effort to flatten the contraction curve. The administration aims to keep the expected death toll under 100,000.  Johns Hopkins University said on Sunday night that it has confirmed 713,000 coronavirus cases around the world. The U.S. is the leading nation with cases surpassing 136,000. About 50% of all cases are in New York, where 59,000 cases have been reported.

CRUDE REALITY: Oil prices plunged again this morning as concerns about demand weigh on global sentiment. WTI crude slumped 5.8% to hit $20.25 per barrel. Meanwhile, Brent crude slumped 5.6%. Despite the stimulus efforts in Washington, the world is currently awash in crude oil due to the global outbreak. In addition, there appears to be very little progress in talks between Russia and OPEC to cut production and help support global prices.

ACCRUED INTEREST

WINNERS AND LOSERS: The $2 trillion stimulus package passed by Congress and signed by President Trump last week contains winners and losers for the private equity industry. This morning, we broke down both categories at DailyAlts.com.

LOOKING ELSEWHERE: As the spread of the coronavirus continues to have a severe impact on the global economy, private equity and venture capital firms are increasingly looking to Asia for opportunities. Carlyle Group (NYSE: CG) announced it had raised $2.3 billion for its fourth Japanese buyout fund, Carlyle Japan Partners IV. Other firms are moving quickly across the continent too.

CNBC: An actual sub-headline: “Dow set to drop after best week in 82 years.” Cheerleaders are going to cheer. Despite the headline, virtually everything else in the article is bearish, from plunging oil prices to the threat of another mortgage crisis. But hey, stocks “went upsy” last week, and ended the bear market, to paraphrase the Wall Street Journal on Thursday.

CARRIED INTEREST

Here are the other headlines getting our attention on Friday morning.

• Richard Branson’s Virgin Atlantic is asking the U.K. government for financial help.
• Wuhan funeral homes are stocking up on urns despite the government’s claims that it has the coronavirus under control.
• China’s government may have awakened its once docile younger generation. While totalitarian regimes have used this crisis to crack down on freedoms around the globe, this generation in China is demanding free speech and other rights.
• Allianz Global Investors is shuttering two hedge funds.
• Sovereign wealth funds in oil-producing countries are dumping stocks to shore up cash.
• Greenwich Associates sees disparity among investors on 2020 returns.

QUOTES OF THE DAY

“Nothing is out of the question. The question is, will it be needed?”

That’s Quincy Krosby, chief market strategist at Prudential Financial. Krosby said over the weekend that the Fed is poised to use whatever steps are necessary to save the economy and provide confidence to the markets. This has included speculation that the central bank would purchase ETFs or even take passive stakes in U.S. companies. The speculation comes on the growing evidence that the $2 trillion stimulus from Congress and multi-trillion moves by the Fed might not be enough to address brewing problems in real estate.

“The idea that my appearance pushed the market down an additional 4% that day is absurd.”

That’s Bill Ackman saying that he didn’t try to manipulate the market with his “Hell is Coming” statements on CNBC. The defense comes amid accusations after Ackman revealed that he had turned $27 million into roughly $2.6 billion after taking defensive positions to protect his portfolio before the outbreak of coronavirus hammered the U.S. equity markets. Look, I have a lot of thoughts about this. Anyone who was watching that appearance felt an utter amount of horror that day. This is going to be a rainy day subject for the future. Because it warrants greater discussion.

RECORD HIGH

As I said Friday, I’m using this government-ordered “coronavirus house arrest” to return to my music vaults on a year-by-year case.

With the Shelter in Place Order nationally back to April 30, I’m going to need to go back deep into the vault on music. I’m still planning on marching through the Florida deadline in mid-April and proceeding with my daily plan of tracking my years.

Saturday, I looked at 2000 to be a mix of tastes. “Stankonia” by OutKast is probably the commercial breakout of the year. “Since I Left You” by the Avalanches is the most underrated album of the year. Great album. I love the insanity of “Frontier Psyciatrist” and John Waters’ references. Phish’s (yep) “Farmhouse” is underrated. And Radiohead’s “Kid A” was damn good.

Moving onto 2001 – Discovery by Daft Punk, Radiohead’s Amnesiac, and Tool’s Lateralus always reminds me of a great first year of college. Fugazi’s “The Argument” is their best album. Jay-Z’s “The Blueprint” was good, but not great, yet still a sign of things to come. My winner is Gorillaz’ “Gorillaz,” which came out that year, and Damon Albarn is my favorite musician. Total bias.

On Monday, we’ll be blasting music from 2002 across this Florida golf community from the back of a golf cart as I drive around the campus in search of a quiet place to work outside. It appears that most of my neighbors have cleared out. So, might as well take advantage of the tranquility

Today, we’re onto 2002. And that really only requires two albums: “Sea Change” by Beck and The Flaming Lips’ “Yoshimi Versus the Pink Robots.” You don’t need to do anything today if you’re stuck indoors. Just enjoy those sounds. I have both on vinyl. The other album on vinyl from that year that is pure enjoyment is Wilco’s “Yankee Hotel Foxtrot.” I have to give a shout out to Dr. John Sarwark at Northwest Community Hospital in Chicago, a person I haven’t seen in 20 years and is probably on the front lines of this epidemic, for introducing me to Wilco. Hope you’re well, John.

One final note: El-P’s Fantastic Damage deserves credit, as one half of “Run the Jewels” really established himself.

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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.