THE DAILYALTS PLAYBOOK

May 13, 2020

DailyAlts Playbook: Back to Basics, Druckenmiller’s Warning, More Stimulus, and Activists Do What Activists Do…

PRIME OVERVIEW

Good morning,

I’m back in the saddle today after a two-day break that was sorely needed. The combination of an arthritic flare and stomach issue has put me back at around 50% to 60%.

Three days is when people start to worry, so I appreciate the emails.

I am very excited about the future and what we are building at DailyAlts.com.

This month, we started our manager interviews. Tim Melvin interviewed both Tobias Carlisle and Meb Faber, and both interviews are fascinating.

I highly recommend that you give them a listen at some point in the next week. Tim will be back with another interview later this week, so please follow our emails.

In addition, we will be expanding our research capacity finally with Private Equity Replication, Real Estate, and Community Banking. We just released our Active Alpha letter, which is free and tracks major insider and activist buying across the industry.

But I wanted to take a moment to ask you a question.

What would you like to read? What information and insight is lacking from the financial media these days?

As an editor, I don’t think that enough people ask these questions and prioritize accordingly.

We have the capacity for macro research, more interviews, greater collaboration with data providers, and more. It is a question of always managing that work and life balance.

My two-year-old is very adamant now about her afternoon walks with her father and ice cream time in the evenings.

So, I want to ensure that I’m managing expectations across all roles this summer.

Please email me at gbaldwin@dailyalts.com with feedback.

Now, let’s dive into the stories driving the Dow Futures 150-point gain on Wednesday.

MORNING MOMENTUM

Stimulus: House Democrats have unveiled another massive coronavirus economic package that dwarfs previous spending efforts. The package provides significant relief for state and local governments that face budgetary concerns in 2020. In addition, it would provide a second round of direct payments of $1,200 per person and up to $6,000 per household. It boosts hazard pay for essential workers, boosts spending on testing, extends lofty unemployment benefits through January 2021, expands food stamp programs, and offers relief for the U.S. Postal Service. Senate Republicans suggested that the bill is dead on arrival at the Upper Chamber, but it could explore several provisions to help boost the economy.

Coronavirus: Around the globe, Johns Hopkins reports 4.2 million cases of coronavirus, with the United States toping about 1.37 million cases. In recent days, we’ve seen a dramatic uptick in cases in Russia and Brazil. Meanwhile, Mexico set a new daily high for new cases as it confronts the virus. Dr. Anthony Fauci warned the Senate on Tuesday that reopening the economy will create a lot of problems around the United States.

Deal: Gilead Sciences (NASDAQ: GILD) has been the subject of much attention due to its antiviral drug remdesivir. The firm has now struck a deal with five generic medication producers to produce this drug in 127 nations outside of the U.S. The company announced that the deal is royalty free until COVID-19 is controlled or “until a pharmaceutical product other than remdesivir or a vaccine is approved to treat or prevent Covid-19.” The suppliers are Cipla, Ferozsons Laboratories, Hetero Labs, Jubilant Lifesciences, and Mylan.

ACCRUED INTEREST

Rebound: Hedge funds rebounded nicely in April, according to new report from eVestment. The industry experienced a 5.02% jump a month after a nearly 7.5% decline in March. This report debuts the same week that we learned that activist hedge funds bounced back in April as well. March was the worst month ever for activists, according to HFR. For example, Nelson Peltz’s Trian Partners saw a 12% jump in April after losing about 16% in March.

Ugly Times: Stanley Druckenmiller warned this week that the risk-reward patterns for the equity markets are the worst he’s seen in his career. He doesn’t expect that the government’s stimulus efforts will be enough to overcome the challenges faced in the economy. “The consensus out there seems to be: ‘Don’t worry, the Fed has your back,” he said. “There’s only one problem with that: our analysis says it’s not true.” He proceeded to call the idea of a V-shaped recovery a fantasy. He also warned that payments to workers to not work and to zombie companies who could paper over debt, won’t help expand the U.S. economy.

Activist: Elliott Management was reportedly going to slow down its efforts, according to some conversations with colleagues in New York. Or at least that was the rumor as COVID-19 took its toll on the economy. But this morning, two companies are facing renewed pressure to enhance shareholder value. Evergy is going to start its sales process in June, according to Bloomberg. Meanwhile, Alexion Pharmaceuticals is now facing pressure to sell itself from Elliott. “The best approach for the Company and its stakeholders is the immediate exploration of a sale,” Elliott Associates wrote in a letter sent a day after Alexion’s shareholder event. Alexion has instead been buying smaller companies and aiming to boost its drug pipeline.

QUOTES OF THE DAY

“Yes, most likely. You know, something will happen when September comes around.” 

Boeing CEO Dave Calhoun predicted on Tuesday that a major U.S. airline could go under by the end of the year. It was interesting that this prediction came on NBC’s show Today and not on CNBC. That’s a much different audience with a wider net. It’s not exactly an investor audience. Sometimes the medium is more important than the message. I wonder what the goal of this was.

CARRIED INTEREST

• ALTERNATIVE ASSETS: Lars Windhorst To Purchase Illiquid Assets from H2O
• DIGITAL ASSETS: Crypto Funds Double AUM in 2019
• FINTECH: JPMorgan Extends Services to Coinbase and Gemini
• HEDGE FUNDS: Betting on a Big Oil Rebound
• SOVEREIGN WEALTH: Norway’s Fund Sees $37 Billion Withdrawal

ALTERNATIVE INVESTMENTS

Brookfield Asset Management (NYSE: BAM) is going into the retail rescue business.

Brookfield announced the launch of a Retail Revitalization Program to bring much-needed capital and assist with the recapitalization of retail companies with operations in the major markets in which Brookfield operates globally.

The retail investment program will focus on non-control investments in retail businesses to assist with their capital needs during the current disruptive economic environment caused by the COVID-19 pandemic. Brookfield is targeting $5 billion to be put toward this Program.

Ron Bloom, Managing Partner and Vice Chairman of Brookfield’s Private Equity Group, will lead the program.

He was a principal architect of the restructuring and rejuvenation of the automobile industry on behalf of the U.S. government during the 2008 financial crisis. “This initiative is being designed to assist medium-sized enterprises in getting back on their feet. We believe this is a critical component to getting the economy moving again, and we would like to partner with companies and entrepreneurs that can draw on our capital and expertise to stabilize and grow their business,” Bloom said.

Brookfield intends to make available its resources and expertise as one of the largest global investors in both real estate and private equity. It will focus on supporting long-term business performance.

The Retail Revitalization Program will focus on retail businesses that have $250 million or higher in normalized revenues and have been operating for at least two years.

Look for more coverage of this program and more 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.