THE DAILYALTS PLAYBOOK

May 18, 2020

DailyAlts Playbook: Vaccine Hopes, Bitcoin Jolts, Softbank’s Woes, and Community Banking 101

PRIME OVERVIEW

Good morning,

With the Dow up 700 points on speculation around Moderna’s vaccine trial for COVID-19, I’ll start with a brief note on what’s happening at DailyAlts.

Yesterday, we published the May Community Bank Investor Newsletter.

The community banking sector took a massive hit in March, like the rest of the market. And while the Fed has signaled its intent to support the banking system, investors have largely written off the space. This is a mistake, particularly as banks look to build their reach over the next decade.

Consolidation in the banking space has been an unstoppable trend since the 1980s. And with issues like Cybersecurity, regulatory oversight, aging boards, and other factors, M&A in the space will continue for the decade ahead. This is a fascinating little niche and an extremely profitable one. A great number of banks are illiquid and set up for terrific buy-and-hold opportunities that ride on demographic shifts across the United States.

Later today, I will be sending you Tim Melvin’s insight on the community banking space for May. It’s a brief read on the state of the financial sector and what lies ahead for the space. If you haven’t read Tim’s work or explored the Community Banking space, I think you’ll enjoy both.

I hope you’ll enjoy it, and I hope you’ll consider becoming a subscriber to the Community Bank Investor. We will be unveiling other research later this month and throughout June.

Now, let’s dive into today’s stories.

MORNING MOMENTUM

THE INTERVIEW: Last night, Fed Chair Jerome Powell appeared on 60 Minutes to discuss the state of the U.S. economy. During the conversation, Powell said that he was “highly confident” that the American economy would pull back from the depths. While he said he doesn’t expect a full recovery until scientists develop a COVID-19 vaccine, he said he doesn’t expect the downturn to resemble the Great Depression. That said, Powell said he does anticipate that the U.S. unemployment rate could top out around 25%.

THE VACCINE: Shares of Moderna (NASDAQ: MRNA) popped more than 35% in premarket hours after the biotech firm reported positive data from a phase 1 study of a coronavirus vaccine. The firm reported increases in immune responses across various dosage levels. After two doses, the company said that all 45 participants in the drug trial developed antibodies. The report suggests that patients tolerated the treatment well. The news comes as Johns Hopkins University reports that the number of coronavirus cases around the world topped 4.7 million. Roughly 315,023 people have died, according to date from Sunday night. Meanwhile, the U.S. is on the verge of topping 1.5 million cases.

THE CONFLICT: Moderna has reported positive trial results for a Phase One study for a vaccine for COVID-19. While the markets are rallying on the news, the person who is really cheering is Dr. Moncef Slaoui – a former pharmaceutical executive who President Trump tapped to push for a vaccine. Naturally, he is happy that the company is making progress. But as a former director of Moderna, Slaoui also has stock options worth more than $10 million. The stock was up more than 38% this morning at the time of this writing.

ACCRUED INTEREST

THE VALLEY: Things have gone from bad to worse at SoftBank Group. The company reported a record loss of $18 billion and placed a bigger spotlight on the practices of Masayoshi Son. Bad investments in WeWork, Uber, and a few other tech firms left it facing a large operating shortfall. The downturn had fueled activist pressure from Elliott Management to repurchase shares and boost corporate governance practices. Son went onto say that some of his startups had fallen into the “valley of the coronavirus.”

THE RALLY: Bitcoin topped $9,600 over the weekend. But there are concerns about the future of the cryptocurrency should it ever challenge the U.S. dollar. American regulators shut down messaging app Telegram’s decentralized cryptocurrency. This immediately raised concerns that the Fed and U.S. agencies will move in on Bitcoin should it ever be deemed a threat. That said, Bitcoin has seen a lot of institutional inflows as a hedge against inflation. Given that we are printing money out of thin air and dropping it from helicopters, it appears that Bitcoin could become a favorite place to store money. That and gold. Hedge funds love gooooold right now.

THE PUMP: Crude oil prices ripped higher on Monday as hopes for crude demand picked up over the weekend, and optimism surged around the Moderna. WTI crude added 9.4% this morning and hit a two-month high as the June contract prepares to expire this week. This is a huge difference from the day before the May contract expired last month. Crude prices plunged below zero and fell sharply into negative territory for the first time ever. Demand has slowly begun to recover since that event. OPEC and its allies have taken about 9.7 million barrels offline per day since May 1. And several members have slashed production voluntarily to help support global crude prices.

THE DUMP: Goldman Sachs (NYSE: GS) shares added 2.5% this morning despite news that Warren Buffett and Berkshire Hathaway (NYSE: BRK.A) had dumped a huge stake in the Wall Street titan. A 13F shows that Buffett’s firm cut its position in GS from about 10 million shares down to about 1.9 million. Berkshire had invested about $5 billion into Goldman with some very favorable terms during the last financial crisis. During Berkshire’s annual shareholder meeting, Buffett also announced he had cut his entire stake in airline companies and said that it was very difficult to find value in the current market.

QUOTE OF THE DAY

“I’m getting a little tired of watching 10-year-old golf tournaments [on television] where you know who won.” 

That’s President Donald Trump calling into NBC Sports’ live broadcast of a golf tournament. Trump spoke with NBC’s Mike Tirico about the progress of the PGA getting back to events later this year. The TaylorMade Driving Relief tournament was one of the first live sports events in two months. It also raised money for COVID-19 relief efforts.

CARRIED INTEREST

Every day, I have questions.

Luckily, the internet is a vast sea of information. Here are the questions I sought answers to this morning, and the answers that I found.

“Is Bitcoin’s Recent Rally a Message to People About the State of Our Economy?”

Yes.

“Can middle-market Private Equity firms survive?”

It will take a few steps.
“Does Blackstone Group just have a bunch of people sitting in their lobby waiting to give them money?”

Apparently.
“What did hedge funds buy during the first quarter as COVID-19 hit?”

Stay at home stocks.
“Who besides the U.S. Vaccine Czar is making money on the vaccine hunt?”

Millennium Management
“Why is David Tepper taking a stake in Twitter?”

Because Jack Dorsey will have a better year than the Carolina Panthers.
“How has the recent downturn in crude prices impacted Saudi wealth funds?”

The Softbank investments might be worse than their oil investments.

“What massive global event should we be worried about after Coronavirus?”

Something linked to Cybersecurity.

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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.