THE DAILYALTS PLAYBOOK

March 26, 2020

Today, the DailyAlts Playbook talks about Bill Ackman’s $2.6 Billion Win, Jobless Claims, and Who’s Got the Biggest Bank Account After 2019.

PRIME OVERVIEW

Good morning:

Did you blink?

Because we just had the first two-day rally for the S&P 500 in a month.

While short-covering represented a large portion of this swing, it was a good week for any executives who purchased their stock last week. Not only did they potentially double their money, but they also will receive the unrelenting support of the U.S. Treasury Department and the Federal Reserve in the months ahead. Today, however, jobless claims are the name of the game. Expect a significant reaction to claims should they be much larger than the 1 million to 3 million estimates that we’ve seen in recent days. Anything over 1 million would shatter the record of 695,000 in October 1982. Even at the height of the Great Recession, March 2009 jobless numbers came in at 655,000.

We’re still making sense of the rallies this week.

A number of voices believe that the three trading days leading up to Tuesday’s rally represented the bottom for the markets. I’m not entirely sure how that’s possible given the uncertainty still surrounding coronavirus. While monetary policy and Congressional action appear to be solid support moving forward, the coronavirus is a wobbly, uncertain leg on this economic stool.

Even after this crisis subsides, I’m anticipating a dramatic shift in consumer behavior that will last for several quarters if not years. Airline companies are going to face a lot of challenges getting back to normal. Any reduction in travel will naturally impact the hotel industry. And I’m not sure that dining is ever going to be the same.

But – as I always say – there will always be money in vanity.

MORNING MOMENTUM

JOBLESS JOLT: This morning, markets are preparing for a record jump in the number of weekly jobless claims. We’ve seen projections ranging between 1 million and 3.4 million, well above the 281,000 from last Thursday. [UPDATE: U.S. claims came in at 3.28 million this week] This news comes after the U.S. Senate passed a $2 trillion coronavirus stimulus package that includes direct payments to Americans and provides hundreds of billions in support to U.S. industries negatively impacted by the ongoing economic crisis.

RAMBO: Meanwhile, Federal Reserve Chair Jerome Powell said that the U.S. central bank will not “run out of ammunition when it comes to supporting the markets. In an interview with NBC’s “Today” show, the Fed Chair said it will provide capital to American companies and help stabilize the economy after the virus subsides.

LATEST TALLIES: Finally, the number of U.S. coronavirus cases surged to more than 69,100 with the number of deaths topping 1,000, according to Johns Hopkins University. The university said that New York State now has 33,000 cases. The ongoing rise comes amid a national debate on when would be appropriate to reopen the economy. President Trump has pushed for Americans to return to work after the Easter Holiday. However, health experts have said this could require significantly longer, and some experts encourage Americans to continue engaging in social distancing for at least 10 weeks.

ACCRUED INTEREST

“BILLION-AIRS” – Institutional Investor puts together a “Rich List” every year to showcase how much money hedge fund managers earned in a year. I’m not sure why, unless they are trying to get Elizabeth Warren and Bernie Sanders on their mailing list so the politicians can boost their talking points when talking about “millionaires and billionaires.” That said, TCI Fund’s Christopher Hohn topped the 2019 list at $1.8 billion. Other people to earn $1 billion on the list included Renaissance Technologies’s James Simons, Citadel’s Ken Griffin, Points72′s Steven Cohen, and Appaloosa Management’s David Tepper. The top 25 earned $20.2 billion in 2019.

ACKMAN BETS BIG: Hedge fund manager Bill Ackman says Pershing Square Capital earned $2.6 billion by betting that the coronavirus outbreak would pummel markets. The news comes a week after Ackman appeared on CNBC to tell Americans that “hell is coming” for the domestic market. In a post on Pershing’s website Wednesday, Ackman said he earned 100 times his money on a series of $27 million bets during the turmoil.

DELEVERAGING: A Morgan Stanley Prime Brokerage report revealed extreme levels of deleveraging by hedge funds during this period of market turbulence. It reads: “The degrossing [a Wall Street term for deleveraging] last week was observed in all regions and seen first by the quants and multi-strat/macro funds…with the equity long/short funds joining in by Wednesday.”

CRASH – Moody’s Investors Service says that American pension funds have lost roughly $1 trillion on paper. According to a new report, funds are facing an average loss of 21% for the fiscal year ending on June 30. This figure is based on March 20 estimates, so it doesn’t include Tuesday and Wednesday’s huge rallies.

CARRIED INTEREST

Here are the other headlines getting our attention on Thursday morning.

• Paul Tudor Jones thinks that stocks will push back down toward their coronavirus lows. However, he’s bullish over the next three to five months.
• Michael Burry has been betting that GameStop (NYSE: GME) is oversold. Now, the Korean hedge fund Must Asset Management is taking a stake in the embattled gaming retailer.
• Here are the winners in the hedge fund space after oil prices tanked.
• The stimulus bill could be a big win for farmers still struggling with low prices.
• March is looking like a good month for Brevan Howard.

QUOTES OF THE DAY

“I don’t think we go back down under 2,300 again.”

That’s Rick Rieder at BlackRock arguing that the Federal Reserve’s massive stimulus operations combined with dramatic efforts by Washington could stave off further downturns in the market. I’m willing to bet that a lot of people disagree. But I’d also wager that a lot of people would be upset if we just saw the best buying opportunities of the decade disappear in just a few days. JPMorgan offered some bullish sentiment this week as well about stock prices moving forward.

“As market participants digest the magnitude of these stimulative forces we believe that the narrative will soon shift. We believe that the speed of the reversal, and the shift in sentiment, could be massive when it happens.”

That’s Jeff Talpins’s Element Capital Management telling clients to bet on a sharp, positive reversal in the markets. The note came on Monday before the market’s two-day surge on the back of a massive stimulus effort by the U.S. government.

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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.