THE DAILYALTS PLAYBOOK

June 4, 2020

DailyAlts Playbook: America on Fire, Goldman Shorts the Dollar, a $41 Trillion Hole, and the Death of Pensions.

PRIME OVERVIEW

Good morning,

It looks like the private equity industry has scored one of its biggest wins in its history.

The Labor Department today issued guidance that effectively allows 401K plans to invest in private equity funds.

The move comes in part as a reaction to President Trumps Regulatory Relief to Support Economic Recovery Executive Order 13924 issued in May.

That order suggested: “To aid those efforts, agencies must continue to remove barriers to the greatest engine of economic prosperity the world has ever known: the innovation, initiative, and drive of the American people.”

Chairman of the U.S. Securities and Exchange Commission Jay Clayton spoke favorably about the ruling saying that the guidance from the Labor Department “will provide our long-term Main Street investors with a choice of professionally managed funds that more closely match the diversified public and private market asset allocation strategies pursued by many well-managed pension funds as well as the benefit of selection and monitoring by ERISA fiduciaries.”

U.S. Secretary of Labor Eugene Scalia also commented saying in a press release: “This Information Letter will help Americans saving for retirement gain access to alternative investments that often provide strong returns. The Letter helps level the playing field for ordinary investors and is another step by the Department to ensure that ordinary people investing for retirement have the opportunities they need for a secure retirement.”

The Private Equity Industry has been lobbying for years for access to the massive pool of defined contribution retirement accounts like 401ks. At the end of 2019 there were about $4 trillion in 401K accounts, most of it in traditional mutual funds and insurance company pooled accounts with portfolios focused on publicly traded stocks and bonds.

The Information Letter addresses private equity investments offered as part of a professionally managed multi-asset class vehicle structured as a target date, target risk, or balanced fund. The Labor Department said in their statement that they were not yet greenlighting stand-alone private equity options in 401k accounts.

Now, let’s dive into the headlines.

MORNING MOMENTUM

VEGAS BABY: The casino industry is back in the United States. Today, casinos in Las Vegas will reopen. Hotels will not need to limit capacity, but the gaming areas can only operate at 50% capacity. It remains uncertain how many people will flock to casinos, and the city of Las Vegas had to pull a marketing campaign due to increasing social unrest across the area over the murder of George Floyd.

SECURITY: HSBC (NYSE: HSBC) and Standard Chartered (OTCMKTS: SCBFF) are two of the largest banks in Hong Kong. In a stunning development, both firms announced support for the controversial national security law that will expand China’s power over the financial center. HSBC posted a picture on social media showing its Asia Pacific CEO signing a petition in support of the law Standard Chartered, meanwhile, said that the new law “can help maintain the long-term economic and social stability” of Hong Kong. The new law has created new tensions between the United States and China and fueled concerns about trade stability between the nations.

CRUDE: Oil prices retreated yet again Thursday as concerns grew that OPEC and its allies may not extend their production cuts of 9.7 million barrels per day. Reports indicate that Saudi Arabia, Kuwait, and the United Arab Emirates will not extend those cuts past June, signaling that more output is coming in the months ahead. Meanwhile, traders are increasingly concerned about an uptick of U.S. crude inventories. New data shows that U.S. gasoline stocks increased by 2.8 million barrels, a figure that was three times larger than forecasts.

ACCRUED INTEREST

FUNDRAISING: ELITE, the London Stock Exchange Group’s (LON: LSE) international business support platform, and Global Accelerated Ventures have launched a post-COVID-19 fundraising program. It will help fintech and healthtech firms with additional capital needs that may arise after the end of the pandemic. Here’s our latest on the story.

WILDFIRE: Traditional methods of predicting wildfires rely upon how much dry vegetation is present in an area, or in other words, the “fuel” that can trigger and sustain a wildfire. Scientists also look at how dry the landscape is. These methods are chancy at best, and difficult to assess quickly enough across large areas. However, the analysis of satellite images with the help of artificial intelligence offers hope for a more reliable and faster prediction of wildfires. This is a fasincating development.

FED BOOM: Blackrock is going to benefit from the Fed’s buying. For the first time in history, the U.S. Fed is buying corporate bonds and corporate bond ETFs simultaneously as part of a massive stimulus package. The Federal Reserve Bank of New York announced that the Secondary Market Corporate Credit Facility (SMCCF) will commence purchases of ETFs on May 12. Seven iShares ETFs from the BlackRock (NYSE: BLK) stable accounted for 48% of the purchases between May 12 and May 19, according to data released by the Fed. Let’s breakdown the deal and how it benefits Blackrock.

QUOTE OF THE DAY

“The COVID-19 recession is over.”

That’s Moody’s economist Mark Zandi. He made that statement after the ADP report on Wedsday. Zandi also said that it was the shortest recession in history it will also likely be the most severe. Someone has to be first…

“That $#%# is worth money, though.”

Yesterday, looting continued to expand across Los Angeles. Video on Twitter shows a group targeting an art studio. The group of looters stop at first after they break the windows. Then, suddenly someone said this quote. Then, the group broke in and stole an untold amount of artwork from the local studio. I’m somewhat impressed by this looter’s knowledge of illiquid assets…

CARRIED INTEREST

Here are the other stories generating interest on Thursday.

• AI: Can’t concentrate at work? This AI system knows why
• FINTECH: Fintech Firms Fight Friction To Disrupt Banks
• VENTURE CAPITAL: Venture capital reckons with its racial disparities
• DIGITAL ASSETS: Taxing Digital Assets in Hong Kong
• ESG: Do You Even ESG, Bro?

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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