THE DAILYALTS PLAYBOOK

October 15, 2019

Today, the DailyAlts Playbook talks defections at the Libra Association, this very weird venture capital story that involves an actress from the Wonder Years, sacked CEOs, and the CEO that one California resident wants out of the board room.

PRIME OVERVIEW

Good morning,

Global markets are ticking higher on Tuesday as investors eye trade developments and the start of earnings season. Retail stocks led the 18 of 19 sectors that were flashing green this morning. Here are the three macro stories that are leading equity markets higher this morning.

• This morning, investors are trying to sort out the latest clues on global trade. The United States and China made progress last week on a “Phase One” deal. However, diplomats need to apply these discussions to paper and obtain a few signatures. China is reportedly seeking a reduction in tariffs. One of the early concessions by China was its plans to purchase roughly $50 billion in U.S. agricultural goods. However, analysts recognize that they will need to slash tariffs to accomplish that goal. Chinese buyers will first want to see President Trump and his trade team offer concessions and cut tariffs first.
• All eyes are back on Downing Street. The European Union’s top negotiator said Tuesday that a Brexit Deal could arrive as soon as next week. However, he also noted that the conditions for a deal had grown more difficult. The two sides are still locked in a debate over the hard border between Ireland and Northern Ireland. Here’s the latest.
• Earnings season kicks off Tuesday. And you know what that means: A lot of chatter about the health of the U.S. economy and consumer confidence. Today, we started the rounds with positive earnings reports from Goldman Sachs Group and JPMorgan Chase. The latter reported record quarterly revenues and a third-quarter profit bump of 8%.

MORNING MOMENTUM

• The Libra Association continues to experience defections from several high-profile would-be members. As we noted yesterday, Booking Holdings – the firm behind Priceline and Kayak – threw in the town. The online travel booking giant joined PayPal, Visa, Mastercard, and others at the exits. Regulators have pounded the Facebook cryptocurrency project for months over anti-money laundering compliance, data privacy, and more.
• JP Morgan suggests that retail investors and consumers are losing confidence in the U.S. economy. The bank cited the outflows of capital from the equity markets and the rush into bonds as a reason. In 2019, $683 billion has moved into bond funds. Meanwhile, stock funds have seen outflows of $177 billion. These figures come from the Investment Company Institute, EPFR, and Bloomberg. Here’s it all means going forward.

ACCRUED INTEREST

• THE COLLAPSE CONTINUES – WeWork will start cutting employees at a quick pace. The firm is going to lay off 13% of its staff, or 2,000 people, according to the Guardian. The company is struggling to keep cash flow available, and cost-cutting has become rampant after its IPO imploded. But the cuts are just getting started. The Guardian reports that the firm many more of the 15,000 person workforce. As we noted, WeWork may not have enough cash to get them through the end of Q2 2020 without aggressive cost-cutting, asset-shedding, and perhaps additional funding from a White Knight.
• A REMINDER – THIS HAPPENED: You know we’re analyzing the hard stories when we get a hot tip from People Magazine. But here goes: Crystal McKellar played Becky Slater on The Wonder Years (her older sister is Danica McKellar, who played Winnie Cooper). According to Peter Thiel, Crystal, who worked as general counsel at Mithril Capital Management, allegedly started writing anonymous letters to investors trying to “undermine” the firm after she departed in February 2019. McKellar pushed back and claimed she departed the firm after it “became clear” that firm leadership lied to investors. The firm used handwriting analysis to determine that she had penned the letter. She denies it, but the lawsuit is seeking $1 million in relief… Not even a great fiction writer can come up with this plot.

CARRIED INTEREST @ THE DAILYALTS PLAYBOOK

• James Bullard is back. And the St. Louis Fed Bank President believes that the U.S. economy is under pressure. The serial dissenter in recent rate change discussions believes that the risks to the U.S. economy remain high. He also warned that economic growth could slow sharply in the United States. Bullard has advocated for deeper cuts in U.S. interest rates.
• For the last few weeks, we’ve joked about the fact that everyone who owns a fund has bent over backward to announce they have an ESG fund. But the reality is that this sudden rush feels familiar and in some ways disingenuous. Recently, a British analyst put our concerns perfectly: “As financial institutions rush to profit from the boom in sustainable investing, they risk overselling its ethical and commercial benefits. It would be a shame if a movement with genuine potential to change the world were stopped in its tracks by old-fashioned misselling.” Exactly. Be sure to read this article.
• KKR & Co and its investment partners will lower the IPO price for their Australian non-bank lender Latitude Financial. A Reuters report indicates that the private equity giant could drop the price by at least 11%. This is likely a disappointment for KKR & Co. and its partners Deutsche Bank and Varde Partners. This is the second attempt to list Latitude by the companies. Here’s the back story on the major delays to this IPO.

QUOTES OF THE DAY

“Unlike smokers, we have no choice but PG&E.”

Andrew Pohlman, a citizen of California, wrote a letter this week to the Mercury News. In it, he takes PG&E to the woodshed and criticizes the firm’s corporate practices. He specifically calls out its current CEO William D. Johnson over the ongoing blackouts in the state. Pohlman calls Johnson an “Expert in bankruptcies” who is just trying to limit the firm’s liability and not a safety expert. Over the last week, Elliott Management and debt holders pressed for an alternative plan to address the utility giant’s massive obligations. Pohlman, however, wants to see William Johnson out and suggests PG&E is worse for Americans than cigarette makers.

ACTIVIST UPDATES

• A few years ago, Vanguard and BlackRock made noise when it forced Exxon Mobil to release a Climate Change Report. At the time, it was a watershed moment. But two years later, several reports show that BlackRock hasn’t lived up to the expectations on shunning fossil fuels. Now, social activists are aiming at the asset manager. The two-week climate change disobedience movement by Extinction Rebellion (XR) spilled into London’s financial district. It blocked traffic and streets around the Bank of England and BlackRock. Protestors glued themselves to the doors of the company’s offices.
• An interesting report from Bloomberg states that the hardcore member of the ESG world is shunning the most liquid market in the world. A $36 billion French state pension fund and Erste Asset Management are avoiding the U.S. Treasuries market. This is like financial veganism. The report names multiple other funds that won’t invest in American money because of the U.S. government’s stance on certain ethical investment topics. The funds put the U.S. government’s views on capital punishment and climate change as reasons for divestment.

COUNTRY RISK

• Keep an eye out this week for China. On Friday, the country will report third-quarter GDP, September industrial production, and retail sales data. This could be a very critical round of data for China. Stronger economic growth could signal that worries about the nation’s GDP earlier this year were a one-off event. However, weaker GDP could impact trade discussions with the United States. President Trump could consider a wounded Chinese economy as a reason to push harder on Chinese concessions.

BOOTSTRAPPING (PEOPLE ON THE MOVE)

• Neil Woodford has been sacked from the LF Woodford Equity Income Fund. After a four-month suspension, the fund will shut down and pay back several investors. Their money has been locked up in the fund since June.

SOCIAL RESPONSIBILITY AT 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.

Garrett graduated from the Medill School of Journalism at Northwestern University. He later received an MA in Global Security Studies (Economic Policy) from Johns Hopkins University, an MS in Trade Economics from Purdue University, and an MBA in Finance from Indiana’s Kelley School of Business. He 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.