THE DAILYALTS PLAYBOOK

February 18, 2020

Today, the DailyAlts Playbook talks about Coronavirus Blowback, Targeting the Astros, Digital Waste, Money Mergers, and the Shop that Predicted Tesla’s Surge.

PRIME OVERVIEW

We start the day with the U.S. markets in the red after Walmart Inc. (NYSE: WMT) missed earnings and Apple (NASDAQ: AAPL) warned about the impact of the coronavirus.

For the last two years, we had the uncertainty of the U.S. trade war to raise tensions between the United States and China, the world’s two largest economies. Now, the spread of the virus mixed with China’s authoritarian attempts to stifle it stand as new problems for relations. American companies with extensive exposure to Chinese factors must now reassess that commitment to the region. Apple serves as the best example of growing uncertainty.

In a statement, the company said that its iPhone production isn’t coming back at the pace it expected, despite factories reopening. In addition, demand for its products has stalled and retail outlets have shuttered. The question now is whether this will impact Apple’s other products and how it could affect a stock that more than tripled since Trump’s 2016 election.

MORNING MOMENTUM

Pump: The Federal Reserve’s easing activity registered at $18.9 billion last Wednesday. It was the 15^th of 16 straight weeks that the Fed has eased pumped more than $246.6 billion into the markets since September.

Passive Play: Franklin Resources (NYSE: BEN) and Legg Mason (NYSE: LM) have both been looking for ways to operate in a world where investors have increasingly shifted away from active management. The solution: A $4.5 billion deal that marries the two firms. Shares of LM stock popped more than 24% this morning, while BEN shares added 13.7%.

Community Banking: This week, DailyAlts will unveil its first research service – the Community Banking Investor Letter. Authored by Tim Melvin, the service centers around widely misunderstood banks and taps into the accelerating trend of consolidation in the space. The buy and hold strategy has averaged 16% to 22% annually since 2013 and is a very easy strategy to employ for do-it-yourself types looking for a combination of value and steep upside. In addition, this low-beta strategy reduces exposure to broader geopolitical and market tensions. We’ll be back with more on this opportunity this week.

ACCRUED INTEREST

Digital Waste – Americans are sitting on a lot of unpaid gift cards and store credits – to the tune of $21 billion.  A new study from Bankrate said that the average person is sitting on about $167 in unused card balances. I know I do, but what exactly can you buy with a $50 gift card from Brooks Brothers and how many times am I really going to go to a pancake house? While you can sell these cards at a discount on some websites, I’ve long wondered why public companies don’t just explore ways to convert outstanding gift cards to public equity.

Banking Crisis – Every cartel member’s favorite banking institution and Europe’s largest bank had a 33% drop in pre-tax profits. HSBC (NYSE: HSBC) stock fell 5.4% this morning after the firm took a $7.3 billion goodwill impairment linked to its European investment banking division. It will also cut its global workforce by 35,000 people and said coronavirus could deeply impact its operations.

Retail Apocalypse – Pier 1 (NYSE: PIR) has filed for Chapter 11 bankruptcy. The stock was off 5.8% on Friday but had been in a death spiral for the better part of two years. This process included a 1-20 reverse stock split last July to remain compliant with the NYSE minimum share price rules. Reports indicate that the company is seeking a potential buyer. However, no one appears ready to make an offer for the struggling business.

CARRIED INTEREST

Billionaires: Amazon (NASDAQ: AMZN) CEO Jeff Bezos announced plans to commit $10 billion to fund projects to fight the impact of climate change. Prediction: Reporters will ask Sens. Bernie Sanders or Elizabeth Warren on the campaign trail about Bezos’ commitment and they will say that “it’s not enough.”

Who Wins: Rajeev Misra of Softbank has a plan to raise up to $4 billion on listed companies. This comes at a time that the firm is trying to invest another $2.5 billion to get its Vision Fund 2 off the ground. However, Liam Proud writes at Reuters that the arrangement really only favors SoftBank in its current form. He explains why these plans aren’t suitable right now for big sponsors like the Abu Dhabi and Kazakhstan state funds.

Megatrend: New research from Charles Stanley shows that roughly 48% of British investors expect to increase their ESG investments over the next three years. However, the report also indicates that a large number of investors are still unfamiliar with ESG standards and what it would mean for their money.

QUOTES OF THE DAY

“If you don’t know the facts, then you’ve got to shut the $%^% up.

That’s Houston Astros shortstop Carlos Correa doing his best WWE heel impression. Over the weekend, Correa responded to candid statements from Los Angeles Dodgers’ outfielder Cody Bellinger, who argued that Jose Altuve stole an MVP award from Aaron Judge in 2017. That same year, the Astros engaged in a widespread signal stealing practice that allowed hitters to know what pitches were coming during home games. Bellinger believes that the Astros stole the title from the Dodgers in a seven-game series. The entire situation has been poorly mismanaged from the Commissioner’s office down to the individual clubs.

“You can bet at 1-to-15 (a $15 bet pays $1 in winnings) that the Astros get in a bench-clearing brawl over being hit by a pitch during the 2020 season.”

That’s the Triblive.com talking about what comes next for the Houston Astros. Las Vegas expects that the Astros will face extraordinary retaliation for their cheating in the year ahead.

MLB superstar Mike Trout criticized Houston players and called them cheaters over the weekend. He was the latest superstar to chime in on the cheating allegations. Now, MLB leaders are telling players that there will be suspensions if pitchers retaliate and target Houston in games.

According to a release from SBD, the over/under for the number of times Astros star Alex Bregman is hit by a pitch this season is now 10.5. Odds for the beaning of teammates George Springer (8.5), Jose Altuve (6.5), Yuli Gurriel (6.5) and Carlos Correa (3.5) are posted.

ACTIVE MANAGEMENT

Tesla Triumph: It appears that Elon Musk wasn’ the only big winner from the January Tesla (NASDAQ: TSLA) stock surge. New reports indicate that Renaissance Technologies – the computer-driven quant hedge fund – built a more than 2% stake in TSLA before its recent run.

Starting Over: DuPont announced it is removing its CEO Marc Doyle and CFO Jeanmarie Desmond after less than a year on the job. The firm is bringing back its previous CEO Edward D. Breen. You might recall that Dupont was in a long-time battle with activist firm Trian Management over spinoffs, shareholder value, and board seats.

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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.