THE DAILYALTS PLAYBOOK

March 5, 2020

Today, the DailyAlts Playbook talks about why it’s Time to Ditch T-Mobile, Berkshire’s Delta Buy, a Bearish Bill Ackman, and the Global Response to Coronavirus.

PRIME OVERVIEW

Apologies again for the later delivery this morning.

The new T-Mobile update has been a disaster. It deletes calendars. It installs games that haven’t been relevant since the 1990s. It comes with weather apps without permission. Then it knocked out all of my alarms. So, we started a little later than usual.

We’re back in negative territory for the Dow this morning as the post-Biden bump gave way to the reality of coronavirus. We’re down 750 points at about 9 a.m., and CNBC is back showing pictures of sad traders on the floor holding their hands over their faces.

California has declared a state of emergency after its first coronavirus-related death and confirmed cases surpassed 50 overnight.

The 10-Year Treasury bond is back under 1%.

And investors are wondering what ammunition the Fed has left to prevent markets from spiraling.

Larry Summers said two days ago that the Fed risked “scaring people.” It’s very clear that we’re past that part. The U.S. has 159 active cases and 11 deaths so far from the virus.

Meanwhile, Human Health and Services keeps changing their numbers on the availability of masks. They just promised to buy 500 million masks over the next 18 months.

Airline stocks continue to fall due to ongoing concerns about travel.

They will eventually become a major contrarian play when we do finally see a recovery.

Investors should pay close attention to Delta Air Lines (NYSE: DAL), which is a major holding of Berkshire Hathaway (NYSE: BRK.A). In fact, Berkshire just bought another big chunk of DAL stock.

There has been some speculation in certain circles that BRK could just go ahead and buy all of Delta because 1) It’s boring and has a lot of barriers to entry similar to railroads. 2) Delta is a massive marketing machine for American Express (NYSE: AXP), another big Berkshire stock.

Momentum is still negative. But the other companies I’m looking at this morning:

• SVB Financial (NASDAQ: SIVB) – the bank feeds Silicon Valley money and has an EV-EBITDA under 3 right now. The consensus price target here has the stock 50% higher from today’s levels. Even a conservative $250.00 target is attractive.
• Herzfeld Caribbean Basin Fund (NYSE: CUBA) – It’s sitting at a 15.8% discount to its NAV. It pays a 5.4% dividend. While everyone is cheering the news that Royal Caribbean (NYSE: RCL) was paying a dividend north of 4%, this closed-end fund pays more, has RCL as its second-largest holding, and offers more upside.
• Chipotle Mexican Grill (NYSE: CMG): Bill Ackman still loves it, and they have announced plans to start operating Drive-Thrus. Without the coronavirus pressure, this stock would have easily cruised above $1,000 on that announcement. I’m a fan of serviceable burritos and cash flow.
• Jet Blue Airways (NASDAQ: JBLU) – EV/EBITDA of 4.19 and trading under book value. It’s going to keep falling, but this would be the first entry point back into the sector.

Let’s dive into the other news this morning (Note: No Playbook on Friday. Key West is calling).

MORNING MOMENTUM

RATE CUTS: The Bank of Canada followed the Fed with its own cuts. The central bank to the north slashed rates by 50 basis points. That could press the Canadian housing market into overdrive. Asian governments are now coordinating to pitch upwards of $40 billion in new spending to reduce the economic impact of coronavirus. And President Trump is likely to sign a new emergency spending bill valued around $7.8 billion.

VISIT VIENNA: Yesterday, I received a long email from Seeking Alpha telling me that if I “missed” buying opportunities in 2008, then I MUST BUY OIL right now. That’s quite the speculation ahead of the meeting in Vienna among OPEC members and Russia. The world’s largest oil cartel has agreed to slash 1.5 million additional barrels per day in production. This comes while Wall Street starts cutting price targets in the sector. We’re not going to pay any attention to oil-related assets until we see oil prices down around $37.00 per barrel. That’s where some of this stuff actually starts to become attractive.

BEARISH BILL: Bill Ackman is bearish for the first time since 2008. Ackman sent a letter to investors about the threat of coronavirus on Tuesday. Here’s the full text.

ACCRUED INTEREST

CAMPUS CLIMATE: Brown University has divested 90% of its holdings in companies that extract fossil fuels. In a letter to the campus Wednesday, President Christina Paxson announced the decision. The school’s endowment will eventually liquidate the rest of its holdings. Paxson said that climate change “may be the single most pressing problem that society faces today.”

DEAL DECLINE: S&P Global Market Intelligence surveyed private equity dealmakers from around the world. The study found that less than half of them thought 2020 would see as much deal activity as 2019. Pessimism picked up from last year as 20% of all respondents anticipate a decline in deal-making over the next 12 months, up from 14% who felt the same last year.

DECLINES: No one is really safe from the recent downturn in the markets. Ray Dalio’s Pure Alpha II fund is off 8% so far in 2020. Meanwhile, Third Point posted a pretty big loss last month as well. Equity long holdings didn’t fare well last week.

TURNING DOWN MONEY: Investors are showering ExodusPoint to the degree that the firm has had to turn some of them down. The firm just raised $3 billion in roughly four months. The fund has only been around since June 2018 and manages about $8.8 billion. It’s been closed to new investor capital since October 2018.

CARRIED INTEREST

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

• Bitcoin is back above $9,000.
• South Korean hedge funds already had a problem thanks to Lime Management. Now, the coronavirus is wreaking havoc across the nation’s sector.
• Australia’s largest pension fund has too much money.
• Private equity faces coronavirus on its own.
• All is well: Taco Bell is going to start selling booze (in the suburbs).

QUOTES OF THE DAY

“It’s unclear whether that response will re-establish confidence because the confidence is really about the disease and not about the financial markets per se.”

Blackstone CEO Stephen Schwarzman said it “remained unclear” if the Fed can restore economic confidence following the coronavirus outbreak.

“What we’re seeing so far in terms of official case numbers in the U.S. is probably just the tip of the iceberg.”

Jeremy Konyndyk, a former director of the U.S. Agency for International Development, talking on CNBC.

ACTIVE MANAGEMENT

• Crispin Odey’s hedge fund expects a bigging war for Sirius Materials. The company’s shareholders just approved a £405 million rescue takeover by Anglo American. Odey wants a better offer.
• Elliott Management has reached a truce with The Bank of East Asia after a long battle over asset sales and operational efficiency. The bank has hired consultants to explore divestments or ways to improve its business. It only took more than a year.
• Korea Corporate Governance Improvement (KCGI) snapped up a bigger stake in Korean Air. This is the latest in an ongoing family boardroom drama that rivals the plot of HBO’s Succession.

SOCIAL RESPONSIBILITY AND THE DAILYALTS PLAYBOOK

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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.