THE DAILYALTS PLAYBOOK

February 25, 2020

Today, the DailyAlts Playbook talks about Buffett’s Crypto Snub, Why the Selling Stopped, Who’s Shorting Airlines, and the Odds of Another Rate Cut.

PRIME OVERVIEW

Good morning,

We start today in Asia, where the road to recovery from Monday’s massive selloff begins. Although the Nikkei lost 3.3% in overnight trading, Chinese markets were largely flat. The Dow is rebounding slightly this morning.

The 100-point gain in premarket hours comes a day after the Dow shed 1,000 points over growing coronavirus concerns. In recent days, we’ve seen a rising number of cases in Italy, Iran, and South Korea.

It was the worst single-day drop for the Dow in two years.

Reality appears to be sinking in. The spread is going to have a significant impact on global GDP. Mastercard (NYSE: MA) and United Airlines (NASDAQ: UAL) warned that they’ll both take a hit as a result of the spread. Also, we’ve seen cuts in global growth forecasts at banks like Goldman and watchdogs like the IMF. Finally, Oxford Economics projected that coronavirus could hit global GDP by $1 trillion.

Despite the downturn, managers in the region aren’t selling. Another Bloomberg report from Monday noted that firms like AllianceBernstein and Union Bancaire Privee are betting on the obvious: For the Peoples’ Bank of China and other central banks to continue easing to offset concerns about global growth. And why shouldn’t they? The answer to that question is that no matter what the central banks do – it could not be enough to stop the realization that a stunning disconnect exists between the fundamentals and equity valuations.

Why should they bet on easing: Because that has been the go-to maneuver by central banks for the better part of a decade. Treasury Secretary Steven Mnuchin has already hinted his expectation that central banks will move on easing very soon. In fact, we’ve already seen the odds of an interest rate cut by April has risen above 50%, according to CME FedWatch.

MORNING MOMENTUM

CORONA UPDATE: As the spread of coronavirus continues around the globe, new reports indicate that Iran’s Deputy Public Health minister has contracted the illness. The New York Times also reports that an Italian doctor on vacation in the Canary Islands may also have contracted the virus.

MUSK MADNESS: Tesla stock rallied more than 55% in January. This was good news for the hedge funds that tapped into the wild speculation. Two Chinese hedge funds were winners thanks to the rally. Optimus Prime Asset Management experienced 14.5% gains for the month. CloudAlpha Capital Management, which also tapped into the auto firm’s supply chain, jumped 17.6%.

COMMODITY CONTAGION: While everyone is hyper-focused on oil prices and gold prices this week, we aren’t hearing too much about copper. Anyone expecting higher prices in the near term can effectively throw in the towel as coronavirus rattles global supply chains. We are back to net-short levels reminiscent of last summer, at the height of the trade dispute between the United States and China.

ACCRUED INTEREST

CLOSING SHOP: Credit hedge fund Benefit Street Partners is shutting down. The Franklin Resources-owned firm started liquidating its positions in September after falling returns. It lost 11.2% through August and saw its AUM drop from roughly $1 billion to $575 million.

SHORT POSITION: Last month, we noted that Citadel and Marshall Wace had taken aim at airline stocks in the wake of the coronavirus outbreak. New reports indicate that those bets are paying off.

NO LOVE FOR CRYPTO: Crypto market participants seem to be unanimous in their opinion that the SEC will reject the Wilshire Phoenix bitcoin ETF. The SEC is due to deliver its decision tomorrow. (Bitcoinist) According to Jake Chervinksy, General Counsel for Compound Finance, it’s nearly a certainty that the SEC would reject the Wilshire Phoenix proposal. Here’s our take.

CARRIED INTEREST

Santander Asset Management announced it has launched a new hedge fund called Santander Patrimonio Diversificado. Its portfolio will invest in fixed income, equities, and absolute return funds. It will also dabble in venture capital, private debt funds, and real estate. Here are several new fund announcements for this week.

• Jeff Tompkins launched a hedge fund, Altos Capital, that started trading January 1. His strategy centers on trends and volatility analysis.
• M33 Growth II raised $260 million from endowments, foundations, and institutional investors. It also secured commitments from highly reputed founders and CEOs. This second fund follows on the firm’s $180 million debut launch in October 2017.
• Shawn “Jay-Z” Carter co-founded venture capital firm Marcy Venture Partners along with Jay Brown and Larry Marcus. The firm just raised $85 million for its first fund.
• VC shop Lakestar raised $$735 million (568 million pounds) for a Europe-focused fund. The firm will focus on early- and growth-stage companies.
• Another VC shop, Speedinvest, has closed its third fund at €190 million. The VC firm has already invested in more than 10 new companies. Investments include EIF, ERSTE Bank, and NEA.

QUOTES OF THE DAY

“Cryptocurrencies basically have no value.”

That’s Warren Buffett. Yesterday, we highlighted another quote by Buffett, but today we focus on Buffett’s mea with Justin Sun, CEO of Tron, who paid $4.6 million for the dinner with other crypto executives like Charlie Lee and Yoni Assia. The dinner benefited homeless programs across San Francisco, according to Sun.

“I may start a Warren currency.”

That’s Justin Sun, a day after the snub. Sun joked that he might create a cryptocurrency named after Buffett. In addition, he noted that Buffett does own cryptocurrency. Sun reportedly gave the famous investor a Samsung Galaxy Fold that included one BTC.

ACTIVE MANAGEMENT

THE BREAKUP: Hedge fund Third Point has taken a $2 billion stake in Prudential Plc. It’s now calling on the British insurance giant to break into two companies.  Here’s more.

LIABILITIES

GOING AWAY: A judge has sentenced hedge fund manager Nicholas Genovese to almost 12 years in federal prison. Genovese pled guilty to securities fraud after swindling investors out of roughly $11 million. The Justice Department says that the manager also failed to disclose that he had previous convictions for fraud-related crimes.

MASS LAWSUIT: Former Danske Bank CEO Thomas Borgen is being sued by Deminor on behave of 155 institutional investors. The former CEO has been accused by Danish officials of operating “one of the world’s biggest money-laundering scandals”.

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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.