THE DAILYALTS PLAYBOOK

March 3, 2020

Today, the DailyAlts Playbook talks about Biden’s History Lesson, Trump Trolls in Carolina, Interest Rate Cuts, and Activist ESG Campaigns.

PRIME OVERVIEW

This morning, markets continue their rebound from last week’s brutal selloff. However, this appears to be a “technical” bounce back driven heavily by futures trading. It’s clear from the data that not many believe last week to be the last of the selloff. Markets anticipate an aggressive response to coronavirus by central banks around the globe. President Donald Trump has reportedly asked the Fed for a large cut in the wake of Australia’s 25-basis point cut on Tuesday.

The Group of Seven industrial powers is set to discuss the economic impact of the deadly virus. It is not expected to include any calls for central bank coordination or new government programs. That said, some countries have already moved on monetary policy. Australia, for example, cut its benchmark interest rate and cited a “significant effect” of coronavirus on the national economy.

Futures traders now anticipate aggressive action by the Federal Reserve on interest rates within the next 45 days. According to CME Fed Watch, the market has already priced in a rate cut of 75 basis points by the time of the central bank’s April meeting. Even more stunning, the probability that interest rates will fall into a range of 0% and 0.25% by December 2020 sits above 5%. The market has priced in the possibility that we will be sitting on the cusp of negative nominal interest rates by the end of the year.

Before we jump into the other news of the day, it’s important to take a step back and digest the latest economic report from the OECD. The group warns that COVID-19 represents an intensifying threat at a time that the global economy was already facing prospects of a slowdown.

MORNING MOMENTUM

PRIMARY ISSUE: It’s Super Tuesday, and we have a narrowing race in the pursuit of the Democratic nomination. Former Vice President and Declaration of Independence scholar Joe Biden is shooting up the polls after two centrist competitors dropped from the race and endorsed him. Sen. Amy Klobuchar (D-Minnesota) and South Bend Mayor Pete Buttigieg stepped out of the race on Monday. The news comes after Tom Steyer also suspended his campaign. The news is a boon for Biden as he will now likely earn enough votes in several states to become viable and lockdown delegates. Senator Bernie Sanders (I-Vermont) is still expected to win big in California and Texas. However, a surging Biden could prevent Sanders from locking down enough delegates to secure a nomination. By this point, a brokered convention is likely.

CORONA CASES: The number of confirmed coronavirus cases around the world topped 90,000 for the first time. The news comes as companies like Goldman Sachs Group (NYSE: GS) and Twitter (NYSE: TWTR) have called on employees to stop non-essential travel. The U.S. death toll for coronavirus now sits at six, with all fatalities happening in Washington State. Finally – just because people have seen him ill – the pope did test negative for the coronavirus.

COMMODITY CRAWL: On the commodity front, markets are largely sitting and waiting for a coordinated effort by central banks to provide support to the global economy. But oil prices are ticking higher on further expectations that OPEC will dramatically slash production. The world’s largest oil cartel and Russian officials will meet in Vienna on Thursday to discuss the possibility of a 1 million barrel-per-day cut to their collective output. This figure is much higher than the initial proposal to slash roughly 600,000 barrels per day.

ACCRUED INTEREST

GOING GREEN: Hedge-fund billionaire Chris Hohn has launched an effort at gutting financing for coal-fired power plants. The ESG crusader wants central banks to effectively stop the financing of coal power plants that he deems a threat to the global climate. Hohn sent the letter to a number of central bank leaders, including Bank of England Governor Mark Carney and European Central Bank President Christine Lagarde. He also sent the letters to the boards of Barclays (NYSE: BCS), HSBC (NYSE: HSBC) and Standard Chartered (OTCMKTS: SCBFF).

BOOMTOWN: CVC Capital Partners is reportedly seeking to raise up to 20 billion euros for a new flagship fund. That fund, in U.S. terms, is worth roughly $22 billion. Reuters reports that the private equity ship could possibly set the company record for the largest capital pool on record. The CVC Capital Partners Fund VIII would invest in companies in North America and Europe. Reuters suggests that the firm will end up raising between 17 billion euros and 20 billion euros.

FEBRUARY WINNERS: Who defeated the coronavirus last month? In market terms, it was Ken Griffin’s Citadel, Izzy Englander’s Millennium Management, Dmitry Balyasny’s Balyasny Asset Management and Steve Cohen’s Point72 Asset Management. Clearfield Capital also gained 7.5% in February. Finally, short sellers were able to take about $105 billion in gains during last week’s sharp downturn.

CARRIED INTEREST

Here are the other headlines that have grabbed our attention this morning across the markets.

• According to HFRI, the number of M&A deals in 2019 fell by 32%.
• Steven A. Cohen’s top quant is leaving Point72. Ross Garon had been there since 2009.
• Hedge funds bought big last week.
• Chinese funds are doing well despite the coronavirus worries
• The $54.2 billion Illinois Teachers’ Retirement System, Springfield is being very aggressive with new allocations and strategies. Here’s more on their Feb. 28 board meeting.
• The SEC might actually engage in regulation… this time around ESG funds.

QUOTES OF THE DAY

““We hold these truths to be self-evident. All men and women created … by the — you know — you know the thing.”

That’s Joe Biden. Nailed it.

“They are staging a coup against Bernie!”

That’s President Donald Trump during a rally at the Bojangles’ Coliseum in Charlotte, North Carolina. The most shocking part of the Trump rally this week was the existence of a building that is described as a coliseum and carries the name Bojangles as a sponsor and descriptive term.

ACTIVE MANAGEMENT

• Elliott Management is leading the push against Jack Dorsey at Twitter (NYSE: CEO). But there is one person in Dorsey’s corner… Elon Musk of Tesla (NASDAQ: TSLA) has tweeted his support. We’ll assume that Musk is cooking up a new way to attract investor capital from this.
• Jupiter Asset Management is pressing Barclays (NYSE: BCS) to slash its fossil fuel lending. The news comes the same week that Sherborne Investors Management sent a letter demanding that Barclays remove CEO Jes Staley from the board of directors due to his ties to Jeffrey Epstein.
• Finally, hedge fund Firefly Value Partners has nominated two board members to the head table of Gulfport Energy Corp. (NYSE: GPOR). The company’s stock has plunged under $1.00 over the last week and might need to engage in a reverse stock split to remain on the NYSE.

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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.