THE DAILYALTS PLAYBOOK

May 26, 2020

DailyAlts Playbook: Hertz Goes Under, The Vaccine Gold Rush, and Just How Rich is Mark Zuckerberg

PRIME OVERVIEW

Good morning,

I hope everyone had a wonderful Memorial Day weekend, despite the ongoing circumstances. While efforts to reopen parts of the U.S. continued over the weekend, I wasn’t surprised to see pictures of places like Ocean City, Maryland pumped to the brim with tourists. I haven’t been to that town since June 2000 – which was my senior week – and I can still smell the suntan lotion billowing down the boardwalk. Over the weekend, people were practically crawling on top of one another to eat caramel popcorn, throw skeeballs into a clown’s mouth, and who knows what else – without a mask or any social distancing in place.

Meanwhile, down in Florida, I went for a drive over the weekend and pulled into a handful of new neighborhoods under development to see if construction had continued. It’s going slowly. But open up Redfin in Naples and Estero, Florida, and you’ll see a lot of homes for sale.

In my town, I had noticed more and more and more homes going up. I didn’t know if this was a good thing or a bad thing – perhaps all the people who wanted to sell in March now viewed June as a delayed period to fix up a home and sell.

But then a sobering moment hit. I had thought back to my previous neighborhood where we first rented in 2019. About 10% of that neighborhood worked for one company: Hertz.

With Hertz filing for Chapter 11 over the weekend, there is a lot of real estate up for sale. The company’s headquarters is about three miles down the road and the campus is rather large. More so, the firm recently sponsored the Hertz Arena – a minor league hockey and entertainment complex that sits a mile away. A major hotel development had been planned, but it’s unclear if that will occur now. Instead, the entire parking lot of the Hertz Arena is covered in rental cars that will now likely go to auction. The company is unloading its fleet, so if you’ve been eyeing a few BMWs and want them at a 10% discount, consider buying from them.

Consider it… but don’t do it.

I had viewed Southwestern Florida as long-term destination for a handful of Fortune 500 companies seeking a diverse and younger workforce, which has been flocking here for the better part of a decade due to cheaper homes and no state income taxes. I assume that a large company will eye Hertz’s campus as a potential destination.

Meanwhile, Hertz looks like it is finished. I wonder if Uber will now get into the rental industry to cover all of its bases. Anything can happen after COVID. After all, anything has happened.

There are two days of news to play catch up on this morning, so let’s go.

MORNING MOMENTUM

REOPEN: On Tuesday, shares of United Airlines (NYSE: UAL) and Southwest Airlines (NYSE: LUV) popped more than 7%. Shares of Carnival Cruise Lines (NYSE: CCL) jumped more than 10%. And shares of MGM Resorts (NYSE: MGM) and Wynn Resorts (NASDAQ: WYNN) both gained more than 4.5%. The reason: Investors are betting that the worst of COVID-19 is behind for the U.S. economy. With May coming to a close, we will be in for a very interesting June. We’ll learn bank stress test results from the Federal Reserve, determine if the recent oil price rally is real, and assess whether investors are poised to hold onto stocks for the long-haul or dump them after the recent rally.

TENSION: Meanwhile, the U.S. and China are back on the brink of more tension. Last week, China introduced a new security law that will effectively put an end to democracy in Hong Kong. The White House said Sunday that the U.S. will likely impose new sanctions on China if Beijing moves forward with the law and undercuts Hong Kong’s freedoms. Also – PE firms are still angry about Luckin Coffee.

VACCINE: Let’s talk the latest on COVID-19. Johns Hopkins University reports that the number of U.S. cases topped more than 1.6 million with nearly 100,000 deaths. The figure comes as investors continue to eye the recent efforts by states to lift lockdowns and reopen their economies. The lifting of “stay at home” orders comes at a time that the World Health Organization has warned of a second wave of the virus hitting the world this fall. With that in mind, Novavax (NASDAQ: NVAX) announced yesterday that it would launch the first human study for its experimental COVID-19 vaccine. The company will announce its results in July. NVAX stock rallied 20% in premarket hours.

ACCRUED INTEREST

MONEY: The wealthiest 25 billionaires in the world gained roughly $255 billion… in just two months. Of that group, Mark Zuckerberg at Facebook saw the company’s stock surge by 60% as it just hit a new record on Friday. He is now richer than Warren Buffett and Larry Ellison. Jeff Bezos, meanwhile, is sitting on $146.9 billion, which is 26% higher than where he was on March 23. Forbes has the tallies, and it’s fair to expect this turns into a national conversation about moral hazard and the impact of government stimulus to effectively make the richest people richer.

CHINA: You know how I felt about China’s national security law over Hong Kong, but that doesn’t mean I’m going to stop covering that economy from this perch. I don’t blame Chinese citizens, and I’m always interested in where they are putting their money to keep it out of the CCP’s hands. A new report shows that the Chinese wealthiest investors haven’t bought up property in New York City. Instead, they’re turning to luxury properties in Singapore and Sydney. The purchases will help reduce exposure to inflation and depreciation of the Yuan. With that in mind, I’ve been paying a lot of attention recently to Dubai, where property values have plummeted due to COVID-19 and the huge drop in oil prices. Marina apartments have plunged – in some cases – more than 60%.

BETTING: Hedge fund activist Jonathan Litt is the latest to short New York City’s largest office owners. His fund Land & Buildings Investment Management is shorting Vornado Realty Trust, SL Green Realty, and Empire State Realty Trust. Now, this is one hell of a bet, and it shows why I’m not a hedge fund manager. Because the first thing I’d want to calculate if I were doing this are the odds that the Federal Reserve and Congress bailout commercial real estate. We’ve heard Tom Barrack advocate and even lobby for federal dollars for real estate.

QUOTE OF THE DAY

“We now see a trend in an uptick in hospitalizations. It’s a small uptick, but it is an uptick and it’s unmistakable and it is probably a result of reopening.”

That’s Dr. Scott Gottlieb. Hospitalizations are up in Florida, Georgia, Virginia, Alabama, Maryland, Minnesota, and other places.

“If the EU is unable to consider it now, it may not be able to survive the challenges it currently confronts. This is not a theoretical possibility; it may be the tragic reality.”

George Soros popped up over the weekend to issue a stark warning about the future of the European Union. Soros raised concerns about the borrowing by the EU over the last few months in the wake of COVID-19. He is advocating for perpetual bonds for the EU to survive.

CARRIED INTEREST

Here are the other stories generating interest on Tuesday.

• Alternative Investments: Goldman’s Smart Money Bet
• AI: Is AI Investing Dead?
• Digital Assets: Crypto Renaissance in Africa
• Fintech: With Startups, India is the New China
• Private Equity: COVID May Drive Fee Reduction
• Hedge Funds: Barclayhedge says $85 billion in March Redemptions
• ESG: ESG is the New Normal

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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.