THE DAILYALTS PLAYBOOK

May 6, 2020

DailyAlts Playbook: Coronavirus, Bond Bulls, an EU Slump, and Expectations for the Job Market

OPENING BELL

Good morning,

A late start to the day fueled by a minor health issue. Just be forewarned that if I disappear for two days or so next week, it’s nothing major. I am just dealing with the sudden discoveries that come with that period approaching 40.

Today, I am keeping a close eye on the mortgage industry as we received surprising news about the state of homeowners. The median price of a home in the U.S. ticked UP in March by 8% – to $280,600.

Even though buyers aren’t flocking in droves to purchase homes, the supply has really declined.

I still own a condo in Chicago that I tried to sell two summers ago.

When there was paralysis in the market during the summer of 2018, I elected to rent it and move to Florida. The location – about a mile west of Wrigleyville – already had a dearth of supply in 2019.

At that point it would have been an ideal time to sell. We were kicking around the idea of selling this summer, but we didn’t think we’d be able to travel to Chicago – so we rented it out through the end of 2021.

In conversations with my agent – the specs that my condo meet are in high demand despite the current market.

In fact, the supply at the price point, with the number of rooms, a garage, and access to public transportation in under three blocks – sits at FOUR – and two of the properties are pending.

Two summers ago it was 15, and that was considered low.

Sometimes a good, common sense hedge ends up being a losing trade. We’ll see what happens, especially given that the housing market may face ugly times ahead. Forbearance will come to an end in the next few months. And we could see a wave of defaults.

Let’s dive into what else is going on in the markets…

MORNING MOMENTUM

COVID: This morning, Johns Hopkins University announced that more than 3.65 million official cases of COVID-19 around the globe. States across the country will reopen their economies this week. Florida has opened restaurants with social distancing guidelines in place. California will permit clothing stores, flower shops, and bookstores to provide curbside pickup. And New York will let construction, manufacturing, and certain retail employees return to work. The official U.S. tally of coronavirus cases topped 1.2 million on Tuesday evening.

JOBS: This morning, the markets received their first warning about Friday’s jobs report. ADP announced that private payrolls declined by 20.2 million in the United States during April. That is the single largest drop in the history of the firm’s survey. However, the figure actually beat expectations as the consensus projected a decline of 22 million. The news parallels report that 30 million Americans have filed for unemployment over the last month. The service industry has taken the hardest hits due to social-distancing guidelines. On Friday, analysts expect that the U.S. unemployment rate will surpass 16% in April, up from 4.4% in March.

CONTRACT: Next, it’s not just U.S. economic numbers that are troubling. The European Commission has released its latest economic forecasts for 2020 – and the numbers are rather bleak. The EU now anticipates that the continental trade bloc will see a 7.4% contraction in GDP for 2020. That would be the worst economic performance for the region since the Great Depression. The forecast comes as European nations like Germany, Greece, Spain, and Italy assess the impact of recent lockdowns and plan to reopen their economies. The Commission is currently exploring a new Recovery Fund that could surpass 1.5 trillion Euros ($1.62 trillion) in the next week.

ACCRUED INTEREST

THIS IS THE END: Wharton Professor Jeremy Siegel has called the end of the 40-year bull market for bonds. The news comes at a time that the Federal Reserve is buying MBS and bonds to shore up the markets. “History has shown that somewhere this liquidity has to come out, and we’re not going to get a free lunch out of this. I think ultimately, it’s going to be the bondholder that’s going to suffer,” Siegel said Tuesday. “That’s certainly not the popular notion right now.” The news comes as the 24 primary bond dealers are struggling to keep capital moving through the U.S. markets.

BIG MOVE: Speaking of bonds, the U.S. Treasury Department announced a new 20-year bond to help fund the record amount of borrowing it aims to accomplish during the second quarter. According to reports, the Treasury wants to borrow at least $3 trillion this quarter. The new bond will emerge later this month. The agency plans to sell about $20 billion on May 20. “While the initial increases in financing related to the COVID-19 outbreak response were focused on Treasury bills, Treasury expects to begin to shift financing from bills to longer-dated tenors over the coming quarters,” Brian Smith, the agency’s assistant secretary for federal finance said. “In light of the substantial increase in borrowing needs, Treasury plans to increase its long-term issuance as a prudent means of managing its maturity profile and limiting potential future issuance volatility,” he later said.

CRISIS: In 2008, it was the residential housing market. This time, the ticking time bomb is the commercial real estate market. Bloomberg reports that special services that handle weak CMBS loans are preparing for the worst downturn in their careers. Debt levels in April shwoed that unpaid principal hit $22 billion in April, a 56% jump from the previous month, according to Trepp.

QUOTES OF THE DAY

“So when the US government needs money, they issue bonds to raise capital. Those bonds represent debt. But here is the big question — is it really debt if you never plan to pay it back?”

That’s Anthony Pompliano asking a very simple question. The next question is whether anyone at Treasury wants to answer.

“I love Bitcoin. Next Tuesday we have the Bitcoin halving where the inflation rate gets cut in half. You talk about inflation in fiat currencies where the Fed is printing money like a money printing machine, and in the Bitcoin space the money supply gets cut 50%. So, big deal there.”

Mike Novogratz is bullish about Bitcoin with the halving approaching on May 12.

CARRIED INTEREST

• ALTERNATIVE INVESTMENTS: Bitcoin Halving in 5 Days
• ARTIFICIAL INTELLIGENCE: An AI can simulate an economy millions of times to create fairer tax policy.
• DIGITAL ASSETS: Business Giants New Consortium To Help Firms ‘Manage Digital Assets’
• ESG: ESG a Win for Stocks, Less So for Bonds Amid Covid-19
• FINTECH: Fintech startup Robinhood raises fresh funds at $8.3 billion valuation
• HEDGE FUNDS: One-Man Hedge Fund Gains 56% With Virus-Resistant Tech Bets
• LIQUID ALTS: Buyers appear to be ‘calling the bottom’ in the JETS airline ETF, market analyst says
• PRIVATE EQUITY: Private-Equity Numbers Aren’t as Ugly as They Appear
• REAL ESTATE: New home listings plunged in April, one of real estate’s busiest months: Realtor.com
• VENTURE CAPITAL: How is the pandemic impacting venture capital?

FUNDS IN FOCUS

ApplyBoard has raised $75 million at a valuation of $ 1.4 billion.

ApplyBoard is an online platform that assists international students from around the world with their applications to study abroad. It’s a SaaS-enabled recruitment platform that Deloitte recognized in 2019 as Canada’s fastest-growing tech company.

ApplyBoard scored a phenomenal 12,525% GAAP revenue growth between 2015 and 2018.

On Tuesday it announced the closure of its series C funding round worth C$100 million (US$75 million). (Crunchbase)

The latest funding round valued ApplyBoard at US$1.4 billion, catapulting it into hallowed unicorn territory, even during the coronavirus crisis.

The round was led by Drive Capital and joined by certain funds managed by Fidelity Investments Canada ULC, Business Development Bank of Canada, and existing investors including Anthos Capital, Artiman Ventures, Garage Capital, Plug and Play Tech Center, and Candou Ventures.

Applyboard’s cumulative funding is now US$122.5 million.

ApplyBoard’s co-Founders, Martin, Meti, and Massi Basiri, launched the company in 2015 at the University of Waterloo’s Velocity Garage.

The impetus for the venture came from the difficulties they faced after they left Iran with the intention to study in Canada.

The Covid-19 outbreak jolted edtech, a sleepier sector by usual standards in Startup Land, into prominence.

Amidst lockdowns and quarantines, education has become digital as classrooms, examinations, and assignments quickly moved to an online mode.

Educational technology, or edtech, is playing a key role in this new normal.

Edtech startups are seeing record additions to their user base and fresh interest from venture capitalists.

According to technology researcher Amber Case, funding for educational technology is going to skyrocket now that the disruption caused by the coronavirus pandemic has revealed how critical it is in maintaining continuity of learning and facilitating impactful education.

“Accelerated by recent events, it’s vital we fuel innovation that supports the future success of the education sector,” says Martin Basiri, Co-Founder and CEO of ApplyBoard. “We are committed to advancing our work with students, educational institutions, and recruitment partners to improve lives through education.”

ApplyBoard plans to invest the proceeds of its latest funding round in its technology, to partner with educational institutions in new destination countries, and serve a broader diversity of students and recruitment partners globally.

For more coverage of Fintech, visit DailyAlts.com.

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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.