THE DAILYALTS PLAYBOOK

February 5, 2020

Today, the DailyAlts Playbook talks about Tesla’s Rally, Interest Rate Cuts, Corona-covery, and “Leverage” in the Art Markets

PRIME OVERVIEW

This morning, we start with Tesla Inc. (NASDAQ: TSLA).

The parabolic rise of Elon Musk’s electric vehicle company has seen its stock jump by 100% to start the year.

Short sellers like David Einhorn have been on the losing end of one of the most irrational stock surges in recent memory. Shares have exploded since Rob Baron suggested that the company could generate $1 trillion in revenue in 2030.

However, Wall Street has called the top. Shares are off 4.5% this morning. Canaccord downgraded the stock this morning to a Hold. The firm set a price target of $750, which is a pretty large drop from Tuesday’s closing price of $887.06. New Street also downgraded the stock to “Hold” with a price target of $800.

Even at that level, the price reflects a rather sensational reality about the future of the auto industry. Tesla isn’t profitable, yet its stock has surged by triple digits this year. Ford Motor Company (NYSE: F), meanwhile, trades at a PE Ratio of 22.95 and just reported profits of $47 million in 2019. Shares of Ford stock are off 8.2% and trade at just $8.42. It’s clear that Wall Street views TSLA as the future, and Ford as a dinosaur.

MORNING MOMENTUM

BREAKTHROUGH – Oil prices pushed higher on reports of a drug breakthrough to combat the coronavirus. Still, the virus has now claimed 490 lives, according to the China National Health Commission. The Chinese government has confirmed 24,324 cases of the coronavirus. That said, China appears extremely concerned about coronavirus misinformation while the WHO presses forward to address online rumors. Meanwhile, hedge funds expect a quick recovery for Chinese stocks and have poured money in quickly. We’ve already seen stocks like Alibaba (NYSE: BABA) recover quickly. Despite a $700 billion wipeout in the Chinese markets earlier this week, the search for quick gains has turned everyone into a speculator on the country.

DISUNION: Last night, the annual State of the Union provided a series of partisan fireworks. President Trump spoke for more than an hour on the state of the economy, drug prices, immigration, socialism, and other topics. However, the controversy centered around Trump’s refusal to shake Speaker of the House Nancy Pelosi’s hand, the decision to give Rush Limbaugh a Presidential Medal of Freedom, and Pelosi’s decision to tear up a copy of the speech at the conclusion of the event on live television.

RECOVERY: The +11.45% return of the Preqin All-Strategies Hedge Fund benchmark marked only the second time in the past six years that the annual return has reached double digits. Here’s more from the 2020 Preqin Global Private Equity and Venture Capital Report.

ACCRUED INTEREST

LEAVE THE METS: Steven Cohen and his pursuit of the New York Mets might be coming to a close. According to MarketWatch, the hedge fund manager is walking away from the Wilpons. Cohen reportedly sought an 80% stake in the National League franchise. However, the Wilpons reportedly changed terms of the deal, a factor that fueled Cohen’s departure from negotiations.

PRIMARY CARE: Humana (NYSE: HUM), the U.S. insurance giant, has launched a joint venture with a private equity firm. The agreement will see Humana launch new primary-care centers for Medicare Advantage enrollees. Humana’s deal is with Welsh, Carson, Anderson & Stowe. Here’s more.

CASPER CUTS: Mattress company and venture capital darling Casper is in the process of pricing its IPO. New reports indicate that it will cut its price range from $17 to $19 down to $12 to $13 per share. The story was developing at the time of publication.

CARRIED INTEREST

BOO BERNIE: The Iowa Caucus debacle has produced just two-thirds of the vote so far. Sen. Bernie Sanders (I-Vermont) has been the biggest loser out of the situation. He currently ranks second to Pete Buttigieg, who surprised and found success siphoning away votes from Joe Biden’s supporters. Meanwhile, the Sanders campaign once had dreams of spiking the football, claiming victory, and raising millions of dollars. Today, the revolution will be on standby.

GAINING LEVERAGE: Daniel Sundheim has acquired more than $300 million in artwork using a collateral pool. Leverage has come to the world of art.

QUOTES OF THE DAY

“Investing is our mission and ESG is our soul.”

That’s Davide Serra, who runs the $12.5 billion fund Algebris. The firm is planting 25,000 “eucalyptus, mango, orange, avocado and papaya trees” around Tanzania to offset its carbon footprint.

“I would anticipate, if there are clear signs of a slowdown, that we will indeed see a rate cut sometime in the spring.” 

That’s Benn Steil, director of international economics and senior fellow at the Council on Foreign Relations. In a conversation with CNBC, Steil suggested that the Federal Reserve will slash interest rates by the end of the second quarter. His reason: Coronavirus. The expectation for a rate hike hit 60% earlier this week after the S&P 500 pulled back a paltry 2%. The combination of lower rate cuts and never-ending liquidity injections will likely push the Dow over 30,000.

ACTIVE MANAGEMENT

AUCTION ACTION: Starboard Value is pushing for eBay (NASDAQ: EBAY) to sell or spin off its Classifieds Group. The hedge fund took a stake in the company one year ago beside fellow activist Elliott Management. Both firms have pushed for spending cuts and the divestiture of assets like online ticket marketplace StubHub.

ELLIOTT NEWS: It wouldn’t be an activist section without mentioning Elliott Management. The company recently won its battler with the Irish government over junior bonds set by the Anglo Irish Bank. The Financial Times featured the firm’s standoff in a profile on the “value of stubbornness” this week.

BOOTSTRAPPING

RESIGNING: The Australian $212 billion sovereign wealth fund chief is stepping down. Future Fund CEO David Neal is departing to take over at IFM Investors.

SOFTBANK “ISSUES”: Michael Ronen is out at SoftBank after he expressed concerns about “issues” at the firm’s $100 billion Vision Fund. SoftBank has faced repeated pressure over its collapsing investment in WeWork. The former Goldman banker joined SoftBank in 2017.

NEW RECRUITS: Federated Hermes has appointed Ingrid Kukuljan to the role of impact investing specialist. The firm also announced that Caroline Cantor will become an investment director.

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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.