Did you hear that Connecticut billionaire Ray Dalio, big finance guy, and his wife are donating $4 billion to health care workers to pay their bills? What a patriot! Did anyone tell Bernie Sanders?
…another hedge fund titan who presciently described the novel coronavirus outbreak as a “game changer” just six weeks ago is warning investors who are still desperately trying to catch a falling knife that he doesn’t expect the carnage to end anytime soon.
Appaloosa Management founder and Carolina Panthers owner David Tepper spoke with CNBC’s Scott Wapner on Monday, and warned that the market could fall another 10% to 15%.
Though Tepper also noted that he has started “nibbling,” buying some high-quality names, particularly in the tech sector.
“I’m nibbling right now, for what it’s worth,” Tepper, founder of Appaloosa Management, told CNBC’s Scott Wapner on “Halftime Report.” Tepper noted he is adding to his positions in tech giants such as Amazon, Google parent Alphabet and Alibaba as well as chipmaker Micron Technology. Tepper also said he’s buying some health-care stocks. “Things look really interesting for the long term.”
As the market struggles to judge the economic blow from the coronavirus outbreak, Tepper said he “wouldn’t want to be levered” right now.
“If you’re levered, I wouldn’t be levered,” Tepper said. “The market could go down more. On the other hand, we could be near a bottom once they [Congress] get this package done.”
Before the bottom is in, the market will need to see the outbreak peak in Italy and other badly hit European countries (some we saw a promising glimpse of earlier), Tepper said, while also wanting to see lawmakers in Washington pass the second part of Trump’s economic stimulus plan.
He added that instead of the federal government’s dithering about making up for supply shortfalls, Tepper said he wanted to see the masks and ventilators “rolling off the assembly line.
It’s not enough to hold a few press conferences and make some big promises, Tepper said. The public needs to see action.
“I’d like to see the ventilators rolling out of the assembly lines, I’d like to see the masks being given…You have to have a plan,” he said. Tepper added. “The key is to get out of this lockdown and into a distancing mode.”
A fan of colorful language, during the decade-plus post-crisis bull market that ended only recently, Tepper developed a catchphrase: going ‘balls to the wall’ when betting on record market gains.
Now, he says, his “balls” are resting in his jockstrap.
“Sometimes you hear me say “Balls To The Wall….Well, now, they are in my jockstrap,” Tepper said.
Unnamed White House Correspondent Has Suspected COVID-19 Case
The White House Correspondents Association says it has been informed of a suspected case of coronavirus among the White House press corps, according to Reuters.
“We have been informed that one of our colleagues has a suspected case of COVID-19. The individual was at the White House on March 9, 11, 16 and 18,” wrote White House Correspondents Association president Jon Karl in an email to members.
White House Correspondents Association president @jonkarl emails members:
“We have been informed that one of our colleagues has a suspected case of COVID-19. The individual was at the White House on March 9, 11, 16 and 18.” pic.twitter.com/RbUDfDxKX7
Gold Surges Most Since 2009 After Fed Unveils QEternity, Stocks & Bond Yields Tumble
The Fed unveiled its ultimate bazooka today – unlimited buying of pretty much any- and every-thing until this all calms down. The problem is – it didn’t reassure investors as they’ve had 10 years of knowing that whatever The Fed ‘creates’ is simply money-printed delusion that does not reflect any real economic progress.
Stocks knee-jerked higher thanks to their conditioned behavior – but that did not last as a rally is the last thing we need to force Washington to vote for the bailout bill, and stocks fell…
Erasing all of the gains in The Dow since Trump was elected…
Source: Bloomberg
Treasury yields tumbled on the headlines, spiked, then fell back to the lows…
Source: Bloomberg
But gold surged on the news, and kept surging…
For the precious metal’s best day since The Fed expanded QE1 in March 2009….
Source: Bloomberg
It appears it’s time to “turn the machines back on”…
US stocks were panic-bid into the close sending Nasdaq into the green… BUT right at the close, everything puked back into the red…
Source: Bloomberg
Nasdaq tried and failed to get green numerous times…
European markets all ended lower despite the brief surge on QEternity…
Source: Bloomberg
Meanwhile, there has been more volume in VIX calls with strikes 100+ this year than in the prior history of VIX options
Source: Goldman Sachs
IG credit crashed 30bps tighter today as VIX was steady and HY blew out further…
Source: Bloomberg
HY credit made new cycle lows (price), highs in spread as IG credit was bid on the QEternity headlines…
Source: Bloomberg
This was LQD’s biggest day since Sept 2008…
Source: Bloomberg
Treasury yields were very volatile around The Fed news but ended lower today with the belly outperforming…
Source: Bloomberg
10Y ended back below 80bps and 30Y back at its lowest close in 10 days…
Source: Bloomberg
The dollar rose for the 10th day in a row, rebounding off weakness on the Fed QEternity news…
Source: Bloomberg
The Mexican Peso continued its collapse to fresh record lows – it has been utterly destroyed in recent weeks…
Source: Bloomberg
In fact the entire EM FX space has collapsed to record lows as the dollar has soared…
Source: Bloomberg
Cryptos rollercoastered over the weekend, and rallied today…
Source: Bloomberg
Bitcoin bounced back above $6500 intraday…
Source: Bloomberg
Commodities were notably mixed with copper down hard but crude and the PMs popping…
Source: Bloomberg
Silver surged almost 7%, back above $13…
Gold spiked…
WTI Crude was down most of the day then was panic-bid into settlement…
While oil prices manged gains, Gasoline prices puked to 50c – the lowest since 2001…
Source: Bloomberg
Signaling lower pump prices ahead…
Source: Bloomberg
Finally, U.S. companies most inclined to buy back stock have rarely shown as much weakness as they have lately. That’s evident from the ratio between the S&P 500 Buyback Index and the S&P 500 Index.
Source: Bloomberg
The buyback gauge, tracking S&P 500 companies that spend the most on repurchases relative to market value, fell Wednesday to its lowest level versus the S&P 500 since May 2010. The low followed a 17% drop from a peak in November, according to data compiled by Bloomberg.
And, in case you were hoping it was nearly over…
Source: Bloomberg
It isn’t!
Guggenheim’s Scott Minerd offered a very insightful tweet to explain how we know there is more pain to come:
“How do we know when we have not reached the bottom? When the talking heads on CNBC are buying.”
Whatever The Fed is trying is not working…
Source: Bloomberg
And we give Sven Henrich the last word…
2019: There is no bull market without central bank intervention.
2020: There is no bull market even with central bank intervention.
It’s said that you want to buy when others are fearful. It sure seems that investors are currently losing their minds. Look, I get it, there’s a virus and there’s a good chance that a lot of us will get it. There’s conflicting data about the overall mortality rate which makes it all worse; especially as its origins in China are terrifying. All sorts of businesses are shuttering operations while the Federal Government seems hopelessly incompetent at fighting this thing. Meanwhile, local governments have created a dysfunctional patchwork of mandatory quarantines and arbitrary rules which will harm businesses and do little to fight the virus as people who don’t follow the quarantines will keep infecting those staying indoors (Full Disclosure: I’ve been staying home, eating my canned tuna and whiskey rations). It’s a complete mess and it is almost certain that economic conditions will get worse before they get better. I get all of that, in fact, it’s been pounded into my head every few minutes by just about everyone I know—which means they all get it as well. At some point, this gets priced in.
The Russell 2000 is now down 40% in a month and is currently at 2013 levels. How is it not getting priced in?
Various companies that I track are down by more than half since the start of the year and many are down by more than 80%. The selling is indiscriminate and it is clear that many large funds are getting liquidated. To me, this all spells opportunity. Sure, you won’t get the low tick, but if you aren’t buying stock down here, you’re simply doing it all wrong.
Investing is about looking forward a few years into a business’s future and figuring out if you’re getting a bargain. I promise you, for most companies, the next quarter or two will be awful. Who cares? I’m buying the next 5 years of earnings. Why do I care about the next two quarters if I get the subsequent 18 quarters at a MASSIVE discount?
Why am I so sure that the next 18 quarters will be so strong? Behind the scenes, all sorts of crazy schemes to prop up the economy are getting worked out. Lobbyists are calling in favors from their favorite congressmen. These things take time and right now, they can’t do much as we’re all told to stay indoors and stop spending. I promise you, by the fall, they’ll be rolling out a scheme a day as we head into the election.
Meanwhile, the big bazookas are owned by the Federal Reserve. Every day last week, friends looked at the tape and told me that QE doesn’t work on a virus. Of course, it doesn’t. You can’t solve a pandemic by printing money. You’re stupid if you thought that. However, the money is now out there. Eventually it will find its way into financial assets—it always does. My friends keep telling me the Fed shot its gun and is out of bullets. Are you kidding me? They own the bullet factory. They’ll come back in a few days with a bigger gun. The history of investing since 2008 is that the Fed will keep throwing solutions at the market and eventually, they’ll find the right combination of tools to arrest the market’s decline—then the market will take off as all that liquidity is out there, looking for a home. The Fed is in the bubble-blowing business. They’ll figure this one out and create a bubble to dwarf all others.
But Kuppy; isn’t the economy going to be in tatters all summer?
Who cares? Venezuela’s economy is in chaos and their market has gone vertical (they don’t have toilet paper either). If you print enough money and target it at the stock market, assets values will increase, regardless of economic conditions.
But Kuppy; how do you know it won’t go lower first?
I don’t know anything. I know that I’m buying businesses at a fraction of fair value because people have panic sold them. I see no solvency risk in my holdings and I accept the fact that they may drop a lot more first. I also know that once this thing turns, it’s going to be too hard to get on-board the freight train because I’m not the sort of guy who buys something that’s up 10% on the day and we’re going to be up 10% a day for weeks at a time.
But Kuppy; isn’t fiscal stimulus slow because it takes a long time to permit infrastructure programs?
Who said anything about infrastructure? That doesn’t get anyone’s votes. They’re going to do something akin to giving everyone a $5,000 Visa debit card with an October 1 expiration date.
I’ve now heard every reason not to be long. I haven’t seen palpable fear like this in ages. Everyone is sure that half the population will get this thing and a million people will die. Let’s say that is unfortunately the eventual outcome. In 2019, 2.8 million Americans died and the vast majority of them died from pre-existing conditions. Guess what the number one marker for mortality with COVID is? Pre-existing conditions. If 1 million Americans die, the vast majority of those individuals will be those who were likely to die at a different time from their pre-existing conditions. Now, I don’t mean to belittle death and suffering. Rather, I want to say that if the worst-case outcome occurs, I don’t think we’ll be more than a few hundred thousand deaths off trend-line in terms of overall mortality in America—COVID-19 probably won’t even be a 1-sigma event. It’s horribly unfortunate if it’s you, but it won’t change the economic situation here in America.
The only thing that can change the economy is government induced chaos. I suspect that we’ll get a few more weeks of that, but as a result, the rate of infection will slow and go negative—just like in every other country where they’ve eventually figured out how to “flatten the curve.” Then people will go on with their lives, right as the stimulus programs kick in. The ensuing recovery will lead to the biggest bull market run of my career. Now, you can be in the fetal position or you can front-run that. I don’t know what date the market bottoms, no one does. However, I’m pretty damn sure that once it gets going, you’re going to want to be at maximum exposure. I’ve spent the past few days buying stocks. I have the most exposure that I’ve had in years. A month ago, I wrote to warn you to take something off. Now is time to buy everything you always wanted to own, but for a fraction of the cost in January.
I’m not saying to be reckless; make sure the debt is termed out, make sure there’s plenty of excess liquidity, make sure your companies can make it through a lower for longer scenario. However, you don’t get bargains like this during a benign environment. You have to take on a bit of event risk.
I’m buying. My main theme is that deflation is dead—get long inflation. Remember, in investing, your only edge is your ability to cycle capital into something cheaper and take advantage of someone getting liquidated. If you have positions that have done well (bonds for instance), you really ought to be cycling into companies that are down a bunch. If you can’t figure out what to own, just buy gold–Powell intends to launch it to Pluto.
On a final note, I’m by no means saying you need to go “all-in” here. In fact, going “all-in” is what gets people into trouble. What I am saying is that this is the time to be buying, not selling. I took some off a few weeks ago and I put it to work in the past few trading sessions. I was a bit early, but I don’t regret it. As they turn on the fire hose of liquidity, we’re going to have one epic bull market in risk assets. I want exposure to that.
The last time I had a similar message to “buy shares,” was at the lows in 2018. I was about a week early, but the market subsequently rallied 40% over the next year. Back then, we didn’t know where the Fed stood on interest rates. Now we know they’ll do “whatever it takes” to prop up the market. In fact, every day we learn of a different alphabet soup of acronyms designed to prop up the market. I feel pretty confident that they’ll dramatically overshoot the mark this time. It’s time to buy shares, accepting that I may be a bit early once again. I intend to ignore the incredible volatility over the next few weeks and remain confident that a tidal wave of liquidity is coming behind me. The bull market of the second half of 2020 will stun people. I intend to ride it.
Moderna’s Experimental COVID-19 Vaccine Might Be Ready For Limited Use By The Fall
A human trial being held in Washington State to research a promising drug designed to fight COVID-19 is reportedly going better than expected, and it’s possible that a handful of infected patients – likely health-care workers – could be administered the drug by the fall.
Stephane Bancel, the biotech’s chief executive, told Goldman Sachs on Friday that mRNA-1273 could be made available to a few patients, likely health-care workers suffering from COVID-19, under emergency use authorization, according to a statement from the company picked up by Bloomberg.
The vaccine was developed in partnership with Moderna and the National Institute of Allergy and Infectious Diseases, with human testing starting earlier this month.
Moderna is ramping up production so it’s ready to produce millions of doses of its experimental vaccine if the vaccine is found to be useful in curing and preventing the virus. A commercially-available vaccine isn’t expected for at least a year.
Israeli scientists over the past few weeks had claimed that they could have a virus ready in a matter of weeks or months, though these claims have largely been debunked. Still, more than 20 companies are racing to produce a cure for the novel coronavirus.
A recent article by the Jerusalem Post outlined the companies behind some of the more promising efforts to develop a treatment or vaccine.
Moderna
The first dose of the mRNA-1273 coronavirus vaccine, developed by the US National Institutes of Health (NIH) and Moderna’s infectious disease research team, was given to the first participant in their Phase 1 study on March 16. The trial of the vaccine, built on previous studies of SARS and MERS, is intended to provide data on the safety and immunogenicity of the vaccine, and is expected to enroll 45 healthy adult volunteers over six weeks.
The Cambridge, Massachusetts-based drug discovery company emphasized that it is “still early in the story,” with no approved drugs to date emerging from its vaccine program and no previous human trials. The current trials are being carried out at the Kaiser Permanente Washington Health Research Institute in Seattle.
Dr. Anthony Fauci, director of the NIH’s National Institute of Allergy and Infectious Diseases, described the study as “an important first step toward” finding a safe and effective vaccine.
CanSino Biologics
Authorities in China granted approval last week for Phase 1 clinical trials of a coronavirus vaccine developed by researchers at Tianjin-based CanSino Biologics and the Academy of Military Medical Sciences.
Tests of Ad5-nCoV in animals, researchers said, showed that the vaccine candidate can induce strong immune response and demonstrated a good safety profile. Prescreening for the first human study has already begun, and is expected to enroll 108 healthy participants at Wuhan’s Tongji Hospital.
“Having committed to provide unconditional support to fight against the global epidemic, CanSinoBIO is determined to launch our vaccine product candidate as soon as possible with no compromise on quality and safety,” said CanSino chairman and CEO Xuefeng Yu.
MIGAL
Located in Kiryat Shmona, the MIGAL – Galilee Research Institute is working to adapt a vaccine initially developed to prevent the Infectious Bronchitis Virus (IBV) in poultry.
Funded by the government, the institute hailed a “scientific breakthrough that will lead to the rapid creation of a vaccine against coronavirus” in late February, based on the genetic similarity between the avian coronavirus and the novel coronavirus. Human testing of the oral vaccine, the institute said, is expected to begin within eight to 10 weeks, and safety approval is expected within 90 days.
“We are currently in intensive discussions with potential partners that can help accelerate the in-human trials phase and expedite the completion of final product development and regulatory activities,” said MIGAL CEO David Zigdon.
INOVIO Pharmaceuticals
Pennsylvania-based INOVIO announced the receipt of a new $5 million grant from the Bill & Melinda Gates Foundation on March 12 to accelerate the testing of its novel DNA vaccine for COVID-19, known as INO-4800.
Currently in preclinical studies, INOVIO plans to advance into US Phase 1 clinical trials next month, backed by up to $9m. in funding from the Coalition for Epidemic Preparedness Innovations. The company says it aims to deliver one million doses of INO-4900 and handheld intradermal delivery devices to administer them by the end of 2020.
“Our team of vaccine experts are working around the clock to advance INO-4800 and we look forward to attracting additional partnerships to expedite its development to meet this urgent global health need,” said INOVIO president and CEO Dr. J. Joseph Kim.
CureVac
Reportedly the target of an acquisition attempt by US President Donald Trump, German biopharmaceutical company CureVac announced that it is leveraging its mRNA-based drug platform to produce a vaccine against the novel coronavirus.
The European Commission has offered up to €80 million of financial support to CureVac, which plans to launch clinical tests in June 2020. If proven, the commission said, millions of vaccine doses could be produced at low costs in the company’s existing production facilities.
“The combination of mRNA science, disease understanding, formulation and production expertise make CureVac a unique player to fight against any infectious disease, no matter whether they are seasonal or pandemic,” said CureVac CTO Mariola Fotin-Mleczek.
BioNTech
German immunotherapy company BioNTech and American pharma giant Pfizer signed a letter of intent last week to codevelop and distribute an mRNA-based vaccine against the novel coronavirus. The partnership, originally formed in 2018 to develop flu vaccines, will accelerate BioNTech’s COVID-19 vaccine program BNT162, which is expected to enter the clinic by the end of April.
Just one day earlier, the Mainz-based company announced a strategic development and commercialization collaboration with Fosun Pharma to advance its mRNA vaccine in China. Fosun Pharma will pay BioNTech up to $135m. in upfront and potential future investment and milestone payments.
“We feel a duty to exploit our full technology and immunotherapy expertise to help address the COVID-19 pandemic emergency,” said BioNTech founder and CEO Prof. Ugur Sahin, adding that the company is also working on a novel therapeutics approach for patients who have already been infected. Details, he said, will be disclosed “in the coming weeks.”
In Orlando, Florida, Angel Hernandezcinto, 31, has been arrested for allegedly stealing 66 rolls of toilet paper from a hotel — something that could constitute a bizarre new form of a crime of passion in the coronavirus pandemic. However, the rolls are valued at 99 cents each, meaning that this master crime amounted to around $65.
According to Fox 35 Orlando, a security guard for the Marriott Hotel in Orlando saw Hernandezcinto, who is reportedly part of the cleaning crew at the hotel, pushing a trash can and bag inside his van. When he looked inside, he saw the toilet paper.
Police say that Hernandezcinto said that it was for a poor woman that he knows. He was charged with theft from a public lodging establishment.
Theft of any property belonging to a guest of an establishment licensed under this chapter, or of property belonging to such establishment, by an employee of the establishment or by an employee of a person, firm, or entity which has contracted to provide services to the establishment constitutes a felony of the third degree, punishable as provided in s. 775.082 or s. 775.083.
I met a traveller from an antique land Who said: Two vast and trunkless legs of stone Stand in the desert. Near them, on the sand, Half sunk, a shattered visage lies, whose frown, And wrinkled lip, and sneer of cold command, Tell that its sculptor well those passions read Which yet survive, stamped on these lifeless things, The hand that mocked them and the heart that fed: And on the pedestal these words appear: ‘My name is Ozymandias, king of kings: Look on my works, ye Mighty, and despair!’ Nothing beside remains. Round the decay Of that colossal wreck, boundless and bare The lone and level sands stretch far away
– Percy Shelley, Ozymandias
It didn’t take long for the most opportunistic, nefarious and corrupt actors in the U.S. to turn a pandemic crisis into another massive power grab attempt. We’ve seen it before; after 9/11 and also throughout the response to the financial crisis a decade ago. The irredeemable sociopaths who always make the big, important decisions used those crises to consolidate wealth and power. They’re going for it again.
Jackpot: The “Big Short 2” Trade Has Absolutely Crushed It
Back in March 2017, a bearish trade emerged which quickly gained popularity on Wall Street, and promptly received the moniker “The Next Big Short.”
As we reported at the time, similar to the run-up to the housing debacle, a small number of bearish funds were positioning to profit from a “retail apocalypse” that could spur a wave of defaults. Their target: securities backed not by subprime mortgages, but by loans taken out by beleaguered mall and shopping center operators which had fallen victim to the Amazon juggernaut. And as bad news piled up for anchor chains like Macy’s and J.C. Penney, bearish bets against commercial mortgage-backed securities kept rising.
The trade was simple: shorting malls by going long default risk via CMBX 6 (BBB- or BB) or otherwise shorting the CMBS complex. For those who have not read our previous reports (here, here, here, here, here, here and here) on the second Big Short, here is a brief rundown via the Journal:
each side of the trade is speculating on the direction of an index, called CMBX 6, which tracks the value of 25 commercial-mortgage-backed securities, or CMBS. The index has grabbed investor attention because it has significant exposure to loans made in 2012 to malls that lately have been running into difficulties. Bulls profit when the index rises and shorts make money when it falls.
The various CMBX series are shown in the chart below, with the notorious CMBX 6 most notable for its substantial, 40% exposure to retail properties.
One of the firms that had put on the “Big Short 2” trade back in late 2016 was hedge fund Alder Hill Management – an outfit started by protégés of hedge-fund billionaire David Tepper – which ramped up wagers against the mall bonds. Alder Hill joined other traders which in early 2017 bought a net $985 million contracts that targeted the two riskiest types of CMBS.
“These malls are dying, and we see very limited prospect of a turnaround in performance,” said a January 2017 report from Alder Hill, which began shorting the securities. “We expect 2017 to be a tipping point.”
Alas, Alder Hill was wrong, because while the deluge of retail bankruptcies…
… and mall vacancies accelerated since then, hitting an all time high in 2019…
… not only was 2017 not a tipping point, but the trade failed to generate the kinds of desired mass defaults that the shorters were betting on, while the negative carry associated with the short hurt many of those who were hoping for quick riches.
One of them was investing legend Carl Icahn who as we reported last November, emerged as one of the big fans of the “Big Short 2“, although as even he found out, CMBX was a very painful short as it was not reflecting fundamentals, but merely the overall euphoria sweeping the market and record Fed bubble (very much like most other shorts in the past decade). The result was what we said four months ago was “tens if not hundreds of millions in losses so far” for the storied corporate raider.
That said, while Carl Icahn was far from shutting down his family office because one particular trade has gone against him, this trade put him on a collision course with two of the largest money managers, including Putnam Investments and AllianceBernstein, which for the past few years had a bullish view on malls and had taken the other side of the Big Short/CMBX trade, the WSJ reports. This face-off, in the words of Dan McNamara a principal at the NY-based MP Securitized Credit Partners, was “the biggest battle in the mortgage bond market today” adding that the showdown is the talk of this corner of the bond market, where more than $10 billion of potential profits are at stake on an obscure index.
However, as they say, good things come to those who wait, and are willing to shoulder big losses as they wait for a massive payoffs, and for the likes of Carl Icahn, McNamara and others who were short the CMBX, payday has just arrived.
Behold the CMBX as it stands now:
That, in the parlance of our times, is what traders call a “jackpot.”
The epic crash in the CMBX 6 BBB (the junk-rated BB tranche has fallen 25% in the past fortnight) meant all those shorts who for years suffered the slings and stones of outrageous margin calls but held on to this “big short”, are about to get very rich (and in the case of Icahn, even richer) it has also means the pain is just starting for all those “superstar” funds on the other side of the trade who were long CMBX over the past few years, collecting pennies and clipping coupons in front of a P&L mauling steamroller.
One of them, as noted above, is mutual fund giant AllianceBernstein, which has suffered massive paper losses on the trade, amid soaring fears that the coronavirus pandemic is the straw on the camel’s back that will finally cripple US shopping malls whose debt is now expected to default en masse.
According to the FT, more than two dozen funds managed by AllianceBernstein have sold over $4 billion worth of CMBX protection to the likes of Icahn. One among them is AllianceBernstein’s $29 billion American Income Portfolio, which is down 15% since the beginning of March, having written $1.9bn of protection on CMBX 6, while some of the group’s smaller funds have higher concentrations.
The trade reflected AB’s conviction that American malls are “evolving, not dying,” as the firm put it last October, in a paper entitled “The Real Story Behind the CMBX. 6: Debunking the Next ‘Big Short’” (reader can get some cheap laughs courtesy of Brian Philips, AB’s CRE Credit Research Director, at this link).
Hillariously, that paper quietly “disappeared” from AllianceBernstein’s website, but magically reappeared on Friday, shortly after the Financial Times asked about it.
“We definitely still like this,” said Gershon Distenfeld, AllianceBernstein’s co-head of fixed income. “You can expect this will be on the potential list of things we might buy [more of].”
Sure, quadruple down, why not. Meanwhile, one of America’s biggest mall operators, Simon Property Group, has closed all its US properties until March 29, and it is unclear not only when it will reopen but what viable tenants it will still have that are able and willing to pay rent. For a broader perspective on what Simon has to look forward to when it reopens, read “Widespread Panic” Hits Commercial Property Markets: Deals Implode, Renters Disappear, Businesses Shut Down“
In addition to AllianceBernstein, another listed property fund, run by Canadian asset management group Brookfield, that is exposed to the wrong side of the CMBX trade on Friday moved to reassure investors about its financial health. “We continue to enjoy the sponsorship of Brookfield Asset Management,” the group said in a statement, adding that its parent company was “in excellent financial condition should we ever require assistance”.
Meanwhile, as stunned funds try to make sense of epic portfolio losses, the denials got even louder: execs at AllianceBernstein told FT the paper losses on their CMBX 6 positions in the past fortnight reflected outflows of capital from high-yielding assets that investors see as risky. They added that the trade outperformed last year. Well yes, it outperformed last year… but maybe check where it is trading now.
Even if some borrowers ultimately default, CDS owners are not likely to be owed any cash for several years, said Brian Phillips, a senior vice-president at AllianceBernstein.
He believes any liabilities under the insurance will ultimately be smaller than the annual coupon payment the funds receive. “We’re going to continue to get a coupon from Carl Icahn or whoever — I don’t know who’s on the other side,” Phillips added. “And they’re going to keep [paying] that coupon in for many years.”
What can one say here but lol: Brian, dude, if there is a great depression in Q2 as virtually every bank now expects, not only are malls going to be swept in mass defaults soon, but your fund will likely implode even sooner between unprecedented capital losses and massive redemptions… but you keep “clipping those coupons” we’ll see how far that takes you. As for Uncle Carl who absolutely crushed you, since you will be begging him for a job soon, it’s probably a good idea to go easy on the mocking.
COVID-19 Is Reminding Traders That They’re Not So Tough After All
The virus doesn’t care who you are, what firm you work for, how close you are to closing a big deal or what your P/L looks like. At many Wall Street firms, where being the alpha male can help you bludgeon your way through problems, the virus has humbled many former Wall Street “tough guys”.
For instance, Bloomberg shares the story of a trader at Goldman Sachs who worried his entire floor after trying to fight off a fever. He apparently wound up going home and then coming back to the office, only to then leave again due to chest pains. Bankers and traders are caught in a catch 22, walking a thin line between “public health and private profit,” the article notes.
Jim Toes, who runs the Security Traders Association said: “People do come in when they have a cold. Sometimes you have that old boss where you’re damned if you do, you’re damned if you don’t: If you stay home, you get that snickering response. If you come in, you get in trouble.”
And with the market still open, it’s that simple to tell traders to simply not come in to work. One trader said he is expected to be at work if there’s money to be made, despite what the company’s PR machine is saying about the steps the firm is taking. Some bankers have even called for a market shut down.
Goldman is telling its employees (publicly, at least): “If you are not feeling well, you must stay home even if your symptoms are mild. Take sick time or work from home until your symptoms have subsided.”
And while many executives can easily work from home, the rank and file – like operators – don’t find it as easy to make the decision.
Banks like J.P. Morgan are making some workers com in despite announcements to stay home. “After a senior mortgage executive told employees on a call that underwriters with remote access should start working from home, a subordinate stopped many of them from telecommuting in Milwaukee,” the article says.
Next door, in the Wells Fargo building, workers were hauling computer monitors and keyboards home with them.
At least 100 people in JPM’s home lending group were told they couldn’t work from home until they showed they could access the company’s systems remotely. This forced some workers to use PTO or sick leave if they couldn’t come into the office.
A JPM spokesperson said: “We have moved very quickly to enable work-from-home capabilities for our mortgage underwriters, and today the majority are. The remaining groups will be work from home by the end of the week.”
At Citigroup and Bank of America, call center workers have continued to report to work, but have been told to keep their distance from one another.
Paul Sorbera, president of Wall Street executive search firm Alliance Consulting, concluded: “There are managers who will say, ‘We’re all in this together, if you want to take care of your kids and families, stay home. And then there are others who will say, ‘We have a business to run, and there are clients to take care of.’”
Imagine that you live in China, and that the only news you get comes from state-controlled media. In early December 2019, you begin to see stories about a mysterious new virus, not unlike pneumonia, affecting patients at hospitals in Wuhan, a central city of 11 million people. Day by day through January, the number of reported cases multiplies, and in February, local officials order you to stay at home. It’s inconvenient, but authorities seem to have the situation under control. “Despite coronavirus outbreak, China will continue to advance,” the state newswire Xinhua reports on February 7.
Now imagine you’re active on Chinese social media. In mid-January, doctors in Wuhan start sounding the alarm—the virus is overwhelming hospitals, and the authorities seem ill-prepared to contain it. Government censors, citing a concern over the spread of “rumors,” shift into high gear. Unnerving posts pop up and then quickly vanish. One Wuhan doctor, Li Wenliang, issues a dire warning, and the government detains him for rumormongering. He falls ill with the virus and dies on February 7, just as state media is trumpeting the country’s effective response. Li’s last words are: “a healthy society shouldn’t have only one voice.” Social media explodes with a degree of outrage that even China’s censors struggle to contain.
The Chinese government is widely seen as having finally gotten the crisis under control. Last week, Beijing reported that the number of new confirmed cases of COVID-19 had dropped to zero. (On Sunday, Beijing reported 46 new cases, 45 of them reportedly imported from overseas.) Quarantine measures are easing, even in Wuhan. Beijing is leading an international fight to contain and treat the illness, donating medical supplies and diagnostic tests to countries around the world. At home, it is implementing sweeping policies to aid economic recovery. And the authorities have formally exonerated Dr. Li.
Yet Beijing’s well-documented record of coverups, censorship, and intimidation of critics should give us pause about accepting its narrative. It’s now well-established that Chinese authorities covered up the spread of the disease in its early stages. Beijing initially refused to allow U.S. disease experts to visit Wuhan. As the virus gathered pace, it censored even tangential discussion of the crisis online. It detained hundreds of citizens, including medical workers, for “spreading rumors” or criticizing the government’s response.
So are Beijing’s current data accurate? Has China really stemmed the tide? “It would be really hard to speculate on this question because nobody really has any evidence whether the Chinese government is being honest or not,” says Minxin Pei, a China specialist at Claremont McKenna College.
One complicating factor is the pandemic’s sheer unpredictability. New information emerges on a daily basis from scores of countries, and conflicting data abound. We remain unclear about the virus’ virulence, its degree of contagion, and its incubation period, which could range from less than two weeks to 24 days. Estimates of its mortality rate range from less than 1 percent to nearly 6 percent.”The data collected so far on how many people are infected and how the epidemic is evolving are utterly unreliable,” writes the Stanford disease prevention expert John P.A. Ioannidis.
China, as the source of the outbreak, clearly possesses troves of potentially useful information. In assessing the reliability of that information, it is important to distinguish Beijing’s incentives to be transparent about its current circumstances from its incentives to be transparent about its decisions when the outbreak began.
Beijing has ample reason to be honest about its current data. The Chinese government is obsessive about its global image, and if attempts at a current coverup are revealed—especially amid their humanitarian aid campaigns abroad—their growing clout would quickly evaporate. Beijing knows the risks of a well-timed leak. (Despite its draconian information controls, it cannot control everything, as Dr. Li’s protest aptly demonstrated.) We also know that China is adept at disaster control. Its authoritarian governance structure allows it to mobilize resources quickly, and to control communities with astonishing precision. When Beijing says its citizens are under strict quarantine, we have every reason to believe it.
Yet those incentives could abruptly change. Despite state media’s united front of reassuring headlines, the country’s situation remains volatile. Beijing’s count of “confirmed cases” excludes asymptomatic carriers, according to a COVID-19 “prevention and containment plan” published by China’s National Health Commission. The Chinese magazine Caixinreported provincial data on March 1 that suggested as many as one in six carriers could be asymptomatic, and their risk of spreading the virus remains unclear. Schools in Beijing are still closed, and many of the city’s residents require special authorization to leave their residential complexes. Wuhan is still under near-complete lockdown. Local and regional officials are under immense pressure to report low numbers of new infections. The country risks being overwhelmed by a second wave of cases, upsetting the government’s narrative and incentivizing officials toward dishonesty.
That brings us to the past. Any true accounting of this pandemic, and of humanity’s efforts to contain it, will require close scrutiny of what transpired in Wuhan from December 2019 through February 2020. Yet Beijing is desperate to avoid being seen as the incubator of a global pandemic, and its accounting of that period is complicated by rampant censorship, intimidation, and deflection, leaving little room for trust.
Chinese authorities have exerted strict control over the internet since the network first entered the country in 1994. But under President Xi Jinping, who rose to power in 2012, angering authorities on the web often carries severe, real-world consequences, including police visits, extended interrogations, forced confessions, and lengthy stints in jail.
As of March 12, at least 452 internet users in China have been “punished” for “spreading rumors” related to the coronavirus, according to the nonprofit group Chinese Human Rights Defenders. People have reportedly been arrested over even benign or equivocal statements that are now impossible to corroborate, including accounts of suspected cases at small city hospitals. At least three citizen journalists have gone missing since the outbreak began; they had traveled to Wuhan, where they reported that local authorities were underestimating and downplaying the crisis. Some officials weren’t implementing disinfectant measures, they reported; in some areas, food supplies were running low.
On March 15, 69 year-old Chinese tycoon Ren Zhiqiang—a longstanding critic of the Communist Party—went missing after he posted an article denouncing the government’s response to the outbreak. “Without a media representing the interests of the people by publishing the actual facts, the people’s lives are being ravaged by both the virus and the major illness of the system,” he wrote. On March 17, Beijing expelled all China-based reporters from The New York Times, The Wall Street Journal, and The Washington Post. This was at least ostensibly a retaliation against the Trump administration’s restrictions on U.S.-based Chinese reporters, but the move sends a clear message that independent reporting within China’s borders can carry steep costs.
This has provided fertile ground for conspiracy theories, many of them spread by Chinese officials—and many of them, especially in recent weeks, suggesting that the pandemic did not originate in China. In mid-March, Chinese Ministry of Foreign Affairs spokesman Zhao Lijian claimed that COVID-19 is an American disease spread by the U.S. Army during an autumn visit to Wuhan for the 2019 Military World Games. A Sunday editorial in the state-run Global Times implored scientists to “figure out where the virus started.”
The Chinese government’s role in the pandemic—both in containing it and in allowing it to spread—will be debated for years. But in a time of so many unknowns, one thing is abundantly clear: Any information coming from China should be treated with caution. The authorities there have not earned anyone’s trust.
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