THE DAILYALTS PLAYBOOK

February 7, 2020

Today, the DailyAlts Playbook talks about Trump’s Latest Fed Pick, the Credit Suisse Shakeup, ESG Battles and Bubbles, and the Arrest of “Michael Jordan.”

PRIME OVERVIEW

This morning, U.S. markets are in the red as investors eye weak economic data across Europe and face renewed concerns over coronavirus.

Economic data shows that industrial output in Germany fell for the fifth time in seven months, raising worries about a potential recession hitting the country.

The OCED projects just a 0.4% uptick in GDP in 2020, and just 0.9% in 2021. This morning, the President of the DIW (German Institute for Economic Research) laid out a very bearish sentiment on Germany’s economy.

Marcel Fratzscher laid out a perfect storm of events that could rattle Europe and the rest of the globe: weak global trade,  coronavirus fears, geopolitical conflicts, and a slowing financial sector in Europe and Brexit.

The solution? More stimulus, of course.

MORNING MOMENTUM

WEWORK WOES: The activists are coming for SoftBank Group. Elliott Management Corp. has taken a $3 billion stake in the Japanese conglomerate and will push for change at the organization. The hedge fund’s stake will likely draw a lot of attention to the firm’s portfolio, which has consisted of risky bets on firms like WeWork. Reports also indicate that Elliott wants SoftBank to purchase up to $1 billion of its own stock.

BOARDROOM BATTLE: Tidjane Thiam is out at Credit Suisse. The CEO has been ousted after 13 board directors backed Chairman Urs Rohner following an investigation into the spying scandal that rattled shareholder confidence. Shareholders have chosen Thomas Gottstein to lead as CEO.

SPREADING: The coronavirus toll continues to rise across the globe. In China, the death toll has reached 636 with more than 31,000 confirmed cases. Auto companies like Toyota Motor Corp. (NYSE: TM) and Honda Motor Co. (NYSE: HMC) are considering plans to shutter their Chinese production facilities.

ACCRUED INTEREST

STARTING TO SURGE: As we always say, Tom Steyer really wants to be President of the United States. He’s spent tens of millions of dollars on campaign ads across the United States. It looks like he is finally making some traction as Joe Biden slips. Steyer has experienced a boost in South Carolina and currently sits third in polling at 18%. He also released his education plan ahead of the state primary.

ESG BATTLE: BlackRock is taking its ESG commitments seriously. The asset manager issued a two-page bulletin digging into the environmental record of Siemens. Specifically, BlackRock is questioning the firm’s work at an Australian coal mine.

ESG BUBBLE: The rush into green ESG funds has raised concerns that assets are now overvalued and a bubble may be permanent in the space. The more interesting data point from this story is the tobacco industry – which because of ESG and vaping concerns – now trades at a staggering 32% discount to the broader markets.

CARRIED INTEREST

POOR MR. MET: MLB Commissioner Rob Manfred said he doesn’t expect Steve Cohen to purchase the New York Mets. Cohen had been negotiating with the Wilpon family for a deal that would have seen the money manager become the majority owner. Cohen has owned a small stake since 2011. However, he walked away after the Wilpons reportedly changed the terms of the potential deal.

TESLA TROUBLE: The Financial Times reports that Crispin Odey’s hedge fund lost more money betting against Tesla in January than it did during the full-year of 2019. Tesla stock surged more than 50% last month. The Odey European Fund, which holds the short bet, was off 11.2% for the month.

QUOTES OF THE DAY

“In the United States there is absolutely no preparedness for an inflationary environment.“

That’s Citadel chief Ken Griffin at an Economic Club of New York luncheon on Thursday. Griffin said U.S. markets are “utterly and completely unprepared” for an uptick in inflation after years of low price moves.

“Her hearing performance could make or break her confirmation.”

Heather Long and Erica Werner offer a preview of the upcoming hearing for President Trump’s latest pick for the Federal Reserve Board, Judy Shelton. The nominee is an advocate of the Gold Standard, a frequent critic of Fed repo operations, and has even called on the FDIC to stop guaranteeing consumer deposits at banks.

ACTIVE MANAGEMENT

SLOW START: Pershing Square Capital exited its Starbucks Corp. (NASDAQ: SBUX) position earlier this week. Now, the numbers are coming out on performance. Pershing Square Holdings saw a 1.3% decline in January. The hedge fund hosted its first U.S. investor conference this week.

FLIGHT CUTS: Emerson Electric has cut its private aircraft fleet in half following months of criticism from DE Shaw. The activist hedge fund had issued a report in October 2019 that criticized spending at the company.

LIABILITIES

SETTLING UP: The SEC said Thursday that ABN AMRO Clearing Chicago LLC will pay more than $586,000 to settle charges of improper handling of “pre-released” American Depositary Receipts (ADRs). As part of the agreement, the company neither had to admit nor deny the SEC’s charges.

“MICHAEL JORDAN”: A new complaint in Arizona Federal Court hit John Michael Caruso, the founder of Zima Digital Assets. Caruso has been charged of defrauding more than 100 investors, including former MLB players, out of at least $7.5 million over 18 months. Caruso once claimed he was the “Michael Jordan of algorithmic cryptocurrency trading.” No, seriously, someone had the idea to put that in a press release last summer.

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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.