The DailyAlts Playbook: March 17, 2020

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DAILYALTS PLAYBOOK

March 17, 2020

Today, the DailyAlts Playbook talks about Medical Properties Trust, Roof Monsters, and What’s Happening in Washington.

PRIME OVERVIEW

Good morning:

Apologies that Monday’s Playbook didn’t make it out. MailChimp had some issues.

We have been following our models and sitting on cash since late February, so we’re riding this out. That said, I am waking up each morning and feeling like I am living in a dream.

Markets are in a spiral. Forced selling is driving down stocks. And we’re starting to see the downgrades that we were talking about in recent weeks. This morning, Boeing (NYSE: BA) was downgraded to BBB from A- by Standard and Poors.

The thing that gets me is the mentality of people still thinking that this is going to go away in two weeks. War mentality is necessary. I’m watching pundits sit on television saying that stocks are cheap – so you should buy them right now. I am getting emails that say that there are 19 stocks to buy right now.

Listen. Momentum is purely negative. 100% negative. Until buying pressure matches selling pressure, hang out with your family. I am looking at Medical Properties Trust (NYSE: MPW) right now. Shares of this REIT were off more than 20% on Monday.

Do you know what this REIT does?

They own acute care hospitals. Demand for hospitals is going to be pretty damn steady over the next six months if this breakout continues. And with interest rates sitting at zero, they will eventually be able to borrow money at low rates and finance properties.

This is a company that I want to own. But it continues to fall, and forced selling is the only reason that I can possibly say right now. I am digging into this today.

When we start to see some positive efforts, it will be the first thing we recommend.

But for now, I stand on the sidelines and watch this happen.

This is something that I’ve been preparing for my entire academic career. At DailyAlts, we are going to be very honest and very candid with you. We aren’t “entertainment” in the way that certain media outlets claim to be. We take this very seriously.

Let’s get into today’s insight. (PS, I am including yesterday’s quotes of the day).

MORNING MOMENTUM

WHAT NOW: Yesterday, I received some questions about how much the market has priced in the coronavirus. I remind people that it wasn’t extreme enough. We’re now starting to get the pressure that this could last into July/August and that oil prices could easily fall below $20. One analyst I spoke with this morning said that we could easily face the greatest supply and demand imbalance in the history of modern markets. Brent crude just fell below $30 on Monday for the first time since 2016. This means that the global benchmark is now off more than 30% since the start of the year.

BAILOUT BLUES: The White House has an almost impossible job to consider: Which industries should it bailout in this time of an economic meltdown. Reports indicate that the Senate is considering at least a $750 billion stimulus option for major companies and individuals. President Trump said he wants to help save the hospitality, cruise, and airline industries. However, aid packages may also need to assist banks that have been caught flatfooted by this crisis.

STIMULUS: The U.S. government is working on a stimulus package to help corporations, small businesses, and individuals overcome this ongoing slump. According to Bloomberg, U.S. Treasury Secretary Steven Mnuchin is seeking an $850 billion stimulus package that would boost liquidity in the market and provide fast loans. Reports indicate that the Treasury Department is considering a delay for quarterly tax payments for 90 to 180 days. While tax filings would be necessary, companies would be able to defer their cash payments.

ACCRUED INTEREST

PROPERTY PROBLEMS:  Wall Street is wasting no time discounting the economic effect from the deadly coronavirus, as seen from the very sharp cut in stock prices. It appears, however, that the real estate market is still ensconced in a cocoon of complacency, judging from the results of a recent survey by the National Association of Realtors (NAR). Home sellers may do well to dispose of their property to an iBuyer.

LEGACY WINNERS: ESG investment funds with long track records are beating new competitors as the markets continue to unravel. Roughly 400 of the 2,800 ESG funds were in positive territory for the year as of last Thursday evening. Just 45 of the funds had gains of 10% since January 1. The data, compiled by Bloomberg, says that 70% of those ESG funds opened before 2015.

PE PROBLEMS: We could see a lot of dry powder move off the sidelines for deals this year. But we could see a lot of previous deals implode in the mid-market. To keep potential returns in the zone that attracted investors in the first place, some firms increased the amount of leverage they used when structuring deals. Many of those highly levered deals will fail. This will take the PE firms right down with them. Those that have substantial allocations and energy combined with too much debt will find it difficult to remain viable. The remaining firms that resisted the urge to chase deal pricing higher could find themselves in a buyer-friendly climate with fewer competitors.

THANKS, E-TRADE: Ten minutes ago, I received this email: At E*TRADE, nothing is more important than the health and well-being of our customers, employees, and the communities we serve.” This isn’t an ad. I received COVID-19 emails from yoga studios that I visited three years ago, just once, before I received an email from E-Trade. What took them so long? Heck, I even got an email from the place that rotates my tires on Friday.

CARRIED INTEREST

Here are the other stories that we are watching on Friday.

QUOTES OF THE DAY

“This is a case for a nationalization, literally a nationalization, of crucial factories and industries that could produce the medical supplies to prepare this country for what we need.”

That’s Bill De Blasio, who argues that we need to have the government overtake manufacturing to make testing kits, masks, and hand sanitizer. As if these companies are idling their production in the face of a massive outbreak where demand for these products has gone parabolic. Yet government – in all its history of efficiency – would somehow make the best healthcare products in the world? This guy makes it perfectly clear that he has never had a job in the private sector. And he is a constant reminder that you should always trust people with motivation to make money from their effort than a person who has worked in government their entire life and will get paid no matter what.

“In God we trust — all others put up sufficient collateral.”

Kevin Williamson at the National Review. A perfect reaction to the revelation of what terrible leadership we actually have in the bulk of our politicians.

“Come clean my roof you monster. Your giant body will never fit in Washington DC.”

That’s a person who didn’t want Bill De Blasio to be President back in 2019… and whoever that person is, I hope that they know that I am thinking of them. And I hope they are thinking of me.

SOCIAL RESPONSIBILITY AND THE DAILYALTS PLAYBOOK

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DailyAlts Playbook: @DailyAlts

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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.

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