THE DAILYALTS PLAYBOOK

April 28, 2020

DailyAlts Playbook: Gundlach Shorts, Technical Wizards, Germany’s Economy, PE Lobbying, and the Lakers Take a Loan…

PRIME OVERVIEW

Good morning,

It’s fitting that my two-year-old has left me sleep-deprived over the last two days. Momentum has returned solidly to the market, with buying pressure and FOMO now starting to kick in. How long that lasts is anyone’s guess, but I’m monitoring it and ankling my way into new positions.

There are some people I know who reject technical analysis, comparing it to palm reading or cloud watching. But they miss the point that out there in a sea of traders, everyone is looking at the same charts, with the same moving averages, and buying on the same patterns.

So, suspend your belief where necessary and keep the trailing stops tighter than usual.

Though I’m planning on wrapping up the CAIA within the next year, I’ve entertained myself with the full CFA I readings. Out of the thousands and thousands of pages in CFA I prep, the technical analysis portion is shorter than Heart of Darkness. It’s probably the easiest part of the full CFA I, though it seems that a lot of people I’ve met struggled with the Ethics section.

That said, I have met 34 of the best five technical traders in the world (according to their bios or first five minutes of conversations), and they’re not reinventing the curriculum. Everyone is doing the same thing. And if they’re wrong about a position, they usually just blame the Fed.

MORNING MOMENTUM

POLICY: The Federal Reserve will kick off its two-day meeting to discuss monetary policy in the wake of the history coronavirus outbreak. The Fed has taken extraordinary steps to stimulate the U.S. economy, including slashing interest rates to zero and buying junk bonds. The central bank will likely not announce any new plans until it has further information on the state of the American economy. The economy, which could face levels of unemployment we haven’t seen in more than 80 years, could take more than 18 months to recover. However, we could see some sectors fail to return to their pre-COVID strengths.

COVID: Around the globe, nations are feeling the negative impact of the COVID-19 outbreak. Germany has reported a historic low for employment across the country, while Argentina announced plans to stop all international flights into the country through September 1. Johns Hopkins University reported that global cases have now topped 3 million patients with the United States now on the verge of one million official cases. As the United States plans to ease lockdown measures, it’s worth monitoring developments in Germany. New figures suggest that German infection rates have increased as the nation moves to ease its lockdown. States including Alaska, Georgia, South Carolina, Tennessee and Texas have started to reopen their economies.

LOBBYING: The Carlyle Group (NYSE: CG)… SoftBank… Blackstone Group (NYSE: BX)… These institutions spent at least $3 million lobbying the White House and Congress for COVID economic relief. The firms have lobbied key Trump administration officials and fundraisers of the GOP. The three firms started lobbying back in March when Congress started debating the $2 trillion stimulus package. According to records, various Congressional Reps and Treasury officials expressed anger at the actions of these firms.

ACCRUED INTEREST

DEAL DROP: A new report from Preqin reveals a dramatic drop in venture capital deals during Q1 2020. The new report shows that world VC managers made 1,000 fewer deals during the quarter than during Q4 2019. That figure represents about an 18% decline in just a few months. The report shows that China was the largest victim of the COVID-19 downturn in deals. Overall, Chinese deals fell by 39% from the previous quarter. North American deals slumped by 27%, while European deals were off by 12%.

SHORTS: The last time I saw Jeffrey Gundlach, he had appeared as a glitchy hologram at the SALT Conference. Yesterday, the head of DoubleLine visited CNBC in human form to proclaim that he is shorting the market. Gundlach predicts that the market is mispricing the threat of social disruption due to COVID. While this isn’t exactly a radical prediction, it almost appears contrarian given the market’s recent run. I think a retest of the low is very plausible,” he said. “People don’t understand the magnitude of … the social unease at least that’s going to happen when … 26 million-plus people have lost their job.”

WIN: Meanwhile, 2020 has been the year for Black Swan funds to soar. According to the Financial Times, funds seeking to make money from tail risk are up 57.2% on average this year. This is their best year on record. New York-based Capstone is up 350%, while 36 South Advisors in the UK has gained 130%. Mark Spitznagel’s fund is up more than 4,000% since January 1.

QUOTES OF THE DAY

“I’m not a big fan of the fact that they took a $4.6 million. I think that’s outrageous.”

Treasury Secretary Steven Mnuchin wonders why the Los Angeles Lakers thought they could take out a $4.6 million small business loan with no one being upset about it. The franchise is worth $4.4 billion.

“Every time you touch a surface, you may be picking up up to 50 percent of the organisms on that surface.”

In the West, doctors are predicting the death of the handshake.

CARRIED INTEREST

Here are the other headlines getting our attention this morning.

• ALTERNATIVE INVESTMENTS: Can Value Investing Make a Comeback?
• ARTIFICIAL INTELLIGENCE: AI May Finally Solve Nuclear Fusion
• DIGITAL ASSETS: Estate Planning in the Digital World
• ESG: How the Brexit is Creating a Talent Shortage
• FINTECH: Binance has launched a Bitcoin Mining Pool
• HEDGE FUNDS: The Sector Gets Bullish on Oil
• LIQUID ALTERNATIVES: Behavioral Economics and the Role of Liquid Alts
• PRIVATE EQUITY: Constitution’s Latest $1 Billion Fund
• REAL ESTATE: More deals are falling through

VENTURE CAPITAL IN FOCUS

On Monday, the United States Oil Fund (NYSEARCA: USO) fell nearly 15% to close at $2.19. Weighing on the ETF was the latest announcement from USCF, the fund’s administrator, that the fund will close out its positions in the June WTIC futures contract, and roll them over to longer-dated contracts.

But worse is in store. WTIC fell 25% on Monday and plunged another 20% overnight to $10 a barrel. So what happens to USO?

“There are times in life where people know that there’s an instrument that is faulty, and they can shoot against that instrument and bury these people,” CNBC’s Jim Cramer said Monday.

In Cramer’s view, holders of June WTIC futures are lame ducks because they can’t accept the delivery – because there’s no storage left.

Cramer mentioned his conversation with John Hanson the CEO of the largest tanker company,  North American Tanker (NYSE: NAT) who said: “Look, there’s no room.”

Based on that, Cramer says “crude should go to zero faster than it did last time.”

Analysts confirm Cramer’s view. There’s every likelihood of the June contract also going sub-zero, and in triple digits at that. According to Mizuho analyst Paul Sankey, crude could “quite possibly” hit -$100 next month.

“The physical reality of oil is that it is difficult to handle, volatile, potentially polluting, and actually useless without a refinery.”

According to Cramer, the people targeting USO are financial people and large players. “They can wipe out the USO.”

“When you have an organization that can’t take delivery, well you should crush that organization every time, and that’s what probably happened,” he added.

“The people in the USO are naive. They’re rookies, and I wish them the best of luck,” Cramer said.

For more insight on ETFs and other alternative investments, check out our latest news at DailyAlts.com.

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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.