The DailyAlts PlayBook – September 27, 2019

THE DAILYALTS PLAYBOOK

September 27, 2019

Today, the DailyAlts Playbook talks WeWork’s private plane, Europe’s never-ending rate cuts, private equity increasing dominance, and Elizabeth Warren’s war against it.

PRIME OVERVIEW 

Good morning,

The Dow Jones projected a 73-point gain Friday morning as markets digest the brewing drama in Washington and plans for trade discussions in two weeks. Oil prices continue to slump as negative economic pressures outweigh geopolitical factors around the globe. Meanwhile, markets continue to eye statements suggesting that central banks can continue to cut rates to stimulate economic growth (as if they haven’t tried this before).

Here are the three stories impacting global markets this morning.

  • “THE WHITE HOUSE KNEW” – The New York Times reported that the whistleblower at the center of Impeachment Inquiry was a CIA officer. Many readers are angry at the NYT for reporting the profession of the whistleblower. However, the media has dug up new details on the alleged “cover-up” that Nancy Pelosi accused the White House of conducting. The Washington Post reports that the administration had taken extraordinary steps over the last two years to “block details of President Trump’s phone calls with foreign leaders from becoming public.” Democrats may draft articles of impeachment by the end of October.
  • “A FOUR YEAR LOW” – Despite record-low interest rates, the European Union can’t break out of its slump. The European Commission’s monthly economic sentiment indicator fell to its lowest point since 2015. Germany’s economic slowdown is hindering performance. So, what’s the solution? Well, try the same thing over and over again. ECB Chief Economist Philip Lane told Bloomberg that the central bank could cut rates again. He also described the recent stimulus package as recently caused the departure of Germany’s senior representative as “not such a big package.”
  • TALKS RESUME – The United States and China will resume trade talks on October 10 in Washington. Chinese Vice Premier Liu He will lead the Chinese delegation. This is a reversal of Liu’s responsibilities after he was stripped of this role following a visit earlier this year.

MORNING MOMENTUM

  • “NO… NOT THE PLANE” – WeWork (aka We & Co.) is now bleeding so much cash that they might run out of money by next June. With the IPO in jeopardy and bond markets jittery, S&P Ratings cut the firm’s rating by a notch. The firm is reportedly seeking up to $3 billion in loans from Goldman Sachs and JPMorgan, according to Bloomberg. That said, the company must also cut costs. Some have speculated that up to 5,000 jobs could vanish. The firm did also announce that it was getting rid of the corporate jetso we guess that’s something.
  • NEVER STOP PUMPING – Former Fed officials Joseph Gagnon and Brian Sack argue that the Federal Reserve should buy $250 billion in U.S. Treasuries. In a blog post at the Peterson Institute for International Economics, the two argue that the central bank should build up reserves. Following those purchases, the two argue that the bank should “continue to grow its balance sheet as needed to expand reserves in line with nominal GDP.” The recommendation comes a week after turmoil in the Repo market.
  • BLAMING MARKET CONDITIONS – It was a terrible debut for Peloton Interactive (PTON) Thursday after shares sank well below their IPO price. Shares opened yesterday for the first time at $27.00, a figure that was already about 7% below its offer price. By the end of the day, shares sank 11.2%, one of the worst performances for an IPO since 2008. During its first day of trading, the firm erased about $900 million in shareholder wealth. CEO John Foley expressed optimism despite the weak opening trading session. However, Foley appears to have taken a dig at WeWork when discussing the difficult IPO market.

ACCRUED INTEREST

  • PULLING THE PLUG – Following the dismal debut of “laundry hanging device,” I mean… exercise company Peloton, Ari Emmanuel’s Endeavor has pulled the plug on its IPO. The company was set to debut this morning with Goldman as its lead banker. Endeavor called itself a “home to the world’s most dynamic and engaging storytellers, brands, live events, and experiences.” An IPO had been rumored since 2013, and next steps remain unclear. Investors continue to view the IPO market as overpriced in current market conditions. The decision is a possible blow to the UFC, which falls under the Endeavor umbrella.
  • CHANGING OF THE GUARD – Private equity is poised to become the top alternative asset class in Europe. While hedge funds have seen a 9% drop in AUM over the last 12 months, PE shops have added 8% on the year. The shift has pressed PE assets to €559 billion, according to Preqin. Additional data from Preqin shows that wealthy investors continue to pile into Private Equity as the hunt for income intensifies.
  • NO MONEY LEFTOVER – Millennials now value the paying off their student loans even more than buying a house or starting a family. That’s a finding on student loan debt from a survey by personal finance company SoFi of over 1,000 Americans aged from 22 to 35. According to the data, 35% of millennials thought their top priority was to pay off the student loan debt. Here’s more.

CARRIED INTEREST

  • PROGRESSIVE’S SEEK DOUBLE VICTORY – While the Ukraine story raises concerns about Trump, the Wall Street Journal notes that the other person who could fall now is former Vice President Joe Biden. The now-Democratic frontrunner thought that his son’s business dealings had passed as controversy. But some speculate that the more progressive members of the Democratic Party want to air out this scandal and try to knock out Trump, Biden, or both ahead of 2020.
  • IS WARREN THE FRONTRUNNER – Elizabeth Warren is now in the spotlight. Warren, who is leading in some polls has targeted Wall Street and private equity. She has put forward a bill that targets leveraged buyouts and a variety of PE practices. Wall Street has warned that Warren would be detrimental to the economy and especially the financial industry. However, the designer of the CFPB relishes in the fear. This Sunday, we’ll feature a column on Warren’s hate-hate relationship with Wall Street and outline her plans should she become the nominee.

QUOTES OF THE DAY

“Lance the boil.”

This is the most British phrase we’ve ever heard. It comes from British Prime Minister Boris Johnson, who warned yesterday about the rhetoric surrounding Brexit. Johnson said that tempers needed to cool around the debate. He believes that settling the Brexit debate would cool the situation… or whatever euphemism he says above. Johnson expressed confidence that leaders would strike a deal.

“These valuations of private tech companies are most probably too high.”

Blackstone Group Chairman and CEO Stephen Schwarzman warned that we’re moving toward Dot.com results from the startup industry. He said asset valuations had reached bubble-like proportions. He also expects a painful reckoning of losses from companies such as Uber and WeWork. Schwarzman said that “Fear of Missing Out” (FOMO) had sucked investors into late-stage funding rounds of fast-growing but unprofitable tech ventures. These funding rounds set up escalated valuations of the firms typically planning IPOs.

ACTIVE MANAGEMENT

  • Paul Singer’s Elliott Management continues to make moves at a breakneck pace. Now the activist fund has taken a stake in Mobile Mini (MINI), the largest U.S. producer of portable storage containers for businesses. Singer’s shop wants the firm to merge with WillScot Corp (WSC).
  • Activist Fund Teleios Capital Partners is pushing German lender Aareal Bank AG to explore the sale of its software division. Teleios has disclosed a 3.4% stake in the company and sent a letter to its board on Thursday. Teleios argues that real estate lending and software are two very different businesses. According to the letter, obtained by Bloomberg, the fund says that the firm is “in danger of failing to achieve its full potential” without divesting the software arm.

LIABILITIES

  • The SEC has charged three foreign individuals, Gil Beserglik, Raz Beserglik, and Kai Christian Petersen, with deceiving U.S. investors. The agency claims they caused investors – including vulnerable retirees – to lose tens of millions of dollars through fraudulent, online sales of high-risk binary options. The SEC says that the defendants use call centers in Germany and Israel as “boiler rooms.”
  • Plenary indulgences are remissions of the temporal punishment for sin. Now, get ready for “planetary indulgences” as airline passengers remiss the punishments of a carbon footprint…Oh, yes… they’re coming. This week, Bloomberg reports that “Flight Shame” has become an increasing human emotion over guilt tied to the “environmental cost of travel.” It is now listed as a business risk to airlines in Europe.

BOOTSTRAPPING (PEOPLE ON THE MOVE)

  • Wells Fargo has named Bank of New York Mellon chief Charles Scharf to the title of CEO. He will take office on October 21. Before his role at BNY Mellon, Scharf served as CEO of payment giant Visa. Check back for additional updates as this story broke before the bell on Friday morning.
  • Citadel is launching a new office in Zurich to host its marketing-arm, Citadel Securities. This division is one of the world’s top shops for high-frequency trading. The fund has appointed Nicolai Meinshausen to lead the office. Meinshausen is a professor at Zurich’s ETH. He is an expert in machine learning and has advised Citadel since 2013. The 43-year-old Berkeley and Oxford graduate accompanies another new firm hire in Stuart Feldman.
  • Sandra Wheeler has left Wells Fargo Advisors to join Stifel Financial in Obispo, California. Wheeler has 25 years of industry experience and has managed client assets worth $140 million. In a statement, the firm said it is “very pleased that Sandra chose Stifel and that she will become an integral part of WIN – Stifel’s Women’s Initiative Network led by First Vice President Crystal Schlegl.”

For more People on the move, click here.

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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.

Garrett graduated from the Medill School of Journalism at Northwestern University. He later received an MA in Global Security Studies (Economic Policy) from Johns Hopkins University, an MS in Trade Economics from Purdue University, and an MBA in Finance from Indiana’s Kelley School of Business. He 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.

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