THE DAILYALTS PLAYBOOK

March 20, 2020

Today, the DailyAlts Playbook talks about Insider Trading in Congress, Stimulus Packages, and the Threat of a Credit Crisis

PRIME OVERVIEW

Good morning:

We start in Washington… but not on the stimulus plan.

We’ll get into those details in a moment because the United States people have a new public enemy.

This is perhaps one of the most frustrating stories about the recent downturn, and one of the reasons why the STOCK Act had to be passed several years ago.

Senator Richard Burr (R-NC) – the Senate Intelligence Chair – unloaded up to $1.72 million in stock in early February after allegedly receiving briefings on the potential impact of coronavirus on the United States.

He made no purchases. This came just a short time after he wrote an OP-ED saying that the U.S. was well prepared to contain this crisis.

Then, not long after, he was unloading $150,000 in equity from Wyndham Hotels and Resorts (NYSE: WH), a stock that fell from about $59 the day he sold it to a 52-week low of 14.50.

He also sold $100,000 of shares of Extended Stay America, which has fallen by about 50% since the day he sold it.

And he’s not the only one who engaged in this behavior.

Rookie Senator Kelly Loeffler apparently started selling stock on January 24, the same day that leaders in Washington received a briefing on coronavirus.

People are calling on both of them to resign… from all sides.

Former Democratic candidate Andrew Yang said: “If you find out about a nation-threatening pandemic and your first move is to adjust your stock portfolio you should probably not be in a job that serves the public interest.”

That sums it up. I don’t think this could be any more blatant. Is there a coincidence by any chance? I argue that we let them talk on live television and try to defend themselves since it would probably only provide several self-incriminating statements.

Just consider this: It might be the first time that I’ve seen Alexandra Ocasio-Cortez and Tucker Carlson agree on anything: Burr and Loeffler have to go.

They have a right to a full investigation, and if they violated federal law, they will have a right to a trial. The one thing that has gone overlooked is that Burr was just one of three Senators to oppose the STOCK Act, which prohibits the use of non-public information by Congress for private profit when it passed in 2012.

These are the types of stories that erode confidence in leadership in a crisis.

And it’s the type of story that could wind up costing Republicans the Senate in 2020 as it provides an incredibly negative narrative as we head into the unknown of this virus’ spread. Burr is a huge liability for Republicans right now. He’ll be pushed to resign.

Let’s get into what’s happening in the market on Friday.

MORNING MOMENTUM

STIMULUS: Back to the well of the Department of the Treasury we go. Senate Republicans are looking to finalize their plan to provide economic relief to Americans. It combines the direct payments of the post-9/11 plan with several elements of TARP in the post-2008 crisis. The deal would include cash payments of $1,200 for individuals and start to phase out above the $75,000 line based on adjusted gross income. The total relief package is set to come in around $1 trillion. The bill will also provide a $108 billion lifeline to big business in the form of loans. Airlines would receive $150 billion, $8 billion would go to cargo, and $150 billion to other distressed businesses. The government would benefit financially from any gains obtained by the companies to which it lends money.

CHINA RECOVERY: While China reported 39 new cases from people traveling to the country, it is largely getting back to business in the alternatives space. This morning, Preqin reports that VC and PE managers in the region anticipate a recovery in the months ahead. That said, there was a huge downturn in the Chinese economy during the outbreak. Aggregate deals during the first two months were off 63%, while the total number of deals fell by 50%.

OIL REBOUNDS: This morning, crude oil is pushing higher after a huge slump hit the markets this week and crude dipped to lows not seen in nearly two decades. That benefited anyone who shorted crude oil, including Doug King, who leads the RCMA Merchant Commodity Fund, oil trader Pierre Andurand, and Lansdowne Partners. The Andurand oil fund surged 40% during the downturn.

ACCRUED INTEREST

OVERLEVERAGED: Hedge funds used borrowed money from the repo market to leverage up and take advantage of the price differences between futures and cash Treasuries before the Fed took action. JPMorgan Chase said this morning that some of these firms levered upward of 50X their positions.

CREDIT WOES: Despite Friday’s rally, some are warning that we are still in the early innings of this event. Former Federal Reserve advisor Danielle DiMartino Booth said that the economic fallout of the coronavirus could spark a credit crisis in the United States. As companies all tap into their credit lines to emergency funds, we could see problems in the months ahead.

FUND WOES: HFR reported something that it hadn’t before. According to new data, hedge funds that make long and short bets have slumped by 14% this year. That would be the worst quarter on record. It seems it’s neither a good time for active investors nor passive ones. As Bloomberg contributor Shuli Ren noted this week, the coronavirus has disrupted correlations and violated conventional thought. Over two weeks, all major asset classes were falling even though everyone knew the stimulus was coming. Ren argues that even if people like Ray Dalio aren’t making money, then ordinary investors won’t either.

CARRIED INTEREST

Here are the other stories that we are watching on Friday.

• AI: A new AI system can tell you when air pollution will occur before it happens.
• Digital Assets: Bitcoin rallied to $6,600.
• ESG: Proxy season will see more than 400 ESG resolutions.
• FinTech: Coronavirus threatens the Alt-Fi world.
• Hedge Funds: The purge.
• Liquid Alternatives: The “Illiquidity Doom Trap.”
• Private Equity: Goldman Sachs warns that corporate raiders are coming.
• Real Estate: Moving home sales online in a COVID-19 world.
• Venture Capital: Group therapy for everyone.

QUOTES OF THE DAY

“What’s happening has not happened in our lifetime before … What we have is a crisis. There will also be individuals who have very big losses. … There’s a need for the government to spend more money, a lot more money.”

Ray Dalio puts corporate losses on coronavirus north of $4 trillion.

“You make most of your money in a bear market; you just don’t realize it at the time.”

Shelby Davis.

ACTIVISTS

HOGTIED: Harley Davidson (NYSE: HOG) is facing activist pressure from Impala Asset Management. The hedge fund is trying to get the board to replace two directors and to hire a new CEO. It wants to get back to focusing on its core demographic of committed motorcycle riders.

PUSHING PRODUCT: Starboard Value has nominated four people to the board of eBay. In addition, it is seeking a new CEO to lead the online auction and retail company.

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.