THE DAILYALTS PLAYBOOK

January 21, 2020

Today, the DailyAlts Playbook talks about the World Economic Forum, Citadel’s return to China, Elon Musk’s latest distraction, and Guggenheim Partners’ warning.

PRIME OVERVIEW

This morning, President Donald Trump is speaking at the World Economic Forum in Davos, Switzerland. Trump touted his “America First” policy approach and the recent adoption of a Phase One deal between the United States and China.

“America’s newfound prosperity is undeniable, unprecedented and unmatched anywhere in the world,” Trump said. “America achieved this stunning turnaround not by making minor changes to a handful of policies, but by adopting a whole new approach centered entirely on the wellbeing of the American worker.”

Trump encouraged other nations to put “their own citizens first” as he praised the U.S. economy.

MORNING MOMENTUM

IMPEACHMENT UPDATE: While Trump talks about the global economy, he faces an Impeachment trial back in Washington D.C. This morning, Trump’s legal team has asked the U.S. Senate to reject two articles of impeachment filed against him. The United States will experience its third-ever impeachment trial of a sitting U.S. President.

BACK TO DAVOS: We’ll hear from a lot more voices at the World Economic Forum this week. But we want to start with the latest economic forecasts from the International Monetary Fund. For 2020, the IMF has downwardly revised its global growth estimate from a 3.4% gain to a 3.3% gain. The IMF attributed the bulk of that downward revision to a weaker Chinese economy. The IMF also cut its 2021 outlook from 3.6% to 3.4%.

FUNDS DUMPING OIL: After a breakneck pace of oil buying over the previous six weeks, the latest NYMEX and ICE WTI data shows funds sold roughly 99 million barrels in the six primary crude futures and options contracts. With funds less focused on geopolitical tensions in the Middle East, concerns are rising about the status of the global economy.

ACCRUED INTEREST

THE FREEZE ENDS: China’s stock market regulator has announced it has reached a resolution over Citadel Securities. The company’s Shanghai-based unit can finally trade after a four-year hiatus. In addition, its China-based group has paid 670 million yuan as part of a probe of its trading practices in 2015. That was the year that China experienced a massive downturn in its stock markets.

CRYPTIC CRYPTO: Last year was a tough one for Chinese blockchain companies. According to a new report, Chinese blockchain firms received just $3.5 billion in investment capital. That figure is about half of what these firms received in the previous year. Rhino Data reports that early-stage investments comprised the lion’s share of new funding. But the downturn displays ongoing concerns about how these blockchain companies will find a real value proposition.

CARRIED INTEREST

FEVER: A deadly coronavirus is spreading in China. Six people are dead and t300 hundred are confirmed to have the illness. Meanwhile, reports indicate that it can be spread between humans. The news is hitting the Hong Kong market hardest this morning in the wake of a credit downgrade and leaders calling for new security laws. Investors are worried that the spread of the illness could cause consumers to pull back spending ahead of the Chinese New Year this week

PREQIN: The Preqin All-Strategies Hedge Fund benchmark returned +2.00% in December, bringing the 2019 return to +11.58%. Funds of hedge funds gained 1.32% in December, generating a 2019 return of +8.34%, the highest annual return since 2013 (+8.82%). Hedge funds had their best year since 2013 but still fell short of the boom of the S&P 500.

SHADOWS: The Financial Stability Board has released a new report on the implosion of Neil Woodford’s fund. The FSB is now sounding the alarm about shadow banking. The broader issue for the FSB is that the fund’s closure came during a benign market as it struggled to cope with redemptions in a fund with a significant amount of illiquid assets. Had it come during a more volatile market, the FSB believes it could have had a much larger ripple effect.

QUOTES OF THE DAY

“ I love riding a horse that’s running.”

That’s David Tepper on CNBC last Friday. The hedge fund manager is still riding the bull market that started in March  2009. That said, he does expect there to be a slowdown “at some point.” He said that “the market will get to a level that I will slow down that horse and eventually get off.”

“That’s the goal.”

That’s Elon Musk talking about his goal to put 1 million people on Mars by 2050. Naturally, a new series of Tweets emerged to set a staggering goal just days after a major Wall Street bank downgraded TSLA stock. Musk talked about his plan to colonize Mars and said that 1,000 starships could ship “maybe around 100k people per Earth-Mars orbital sync.” That’s a lot of rocket fuel.

ACTIVE MANAGEMENT

MACHINE MAKEOVER: Japan’s most “active activist” has launched a $235 million hostile bid for Toshiba Machine. Yoshiaki Murakami and his City Index Eleventh fund have ignored Toshiba’s warning that it would initiate an activist defense strategy. Though hostile bids are uncommon in Japan, we’ve seen an uptick recently.

GAMING OFFER: Private equity giant KKR & Co. has raised its stake in Dave & Buster’s, news that sent the latter’s stock soaring 12% on Friday. KKR said it now owns 10.7% of the firm and is exploring its business strategy with executives.

LIABILITIES

CRYPTO CRIME: The SEC has charged convicted criminal Boaz Manor, his business associate, and two businesses for raising over $30 million from hundreds of investors in a fraudulent initial coin offering (ICO). Manor, a resident of Toronto, Canada, darkened his hair, grew a beard, and used aliases to hide his identity and conceal the fact that he had served a year in prison for charges related to the collapse of a large Canadian hedge fund.

TOPPING OUT: Guggenheim Partners is issuing its own version of a citizens’ arrest against global banks. The firm’s investment chief Scott Minerd has compared the inflation of asset prices caused by loose monetary policy to a “Ponzi scheme.” He expects that it will eventually collapse. “We will reach a tipping point when investors will awake to the rising tide of defaults and downgrades. The timing is hard to predict, but this reminds me a lot of the lead-up to the 2001 and 2002 recession.”

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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.