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Our briefing for Monday August 17, 2020:
Aug 17, 2020 4:17:21 PM
- In the United States, a CNN report says that COVID-19, a disease that didn’t exist a year ago, now ranks third for the cause of death in America in 2020 (170,000+ have died from complications due to COVID-19). Health experts are now concerned over what they see as decreased testing in large parts of the country just as students are either returning or getting ready to go back to school in a matter of weeks. Fifteen states conducted fewer test this past week, compared to the previous week and the positivity rates are still higher than the recommended 5% in more than 30 states, according to Johns Hopkins University.
- In Canada, federal officials held a news conference on Monday to say a series of cyberattacks over the weekend that compromised the personal information of thousands of Canadians has been brought under control, with websites back up by Wednesday. However, the cyber attackers were able to obtain previous hacked usernames and passwords to acquire approximately 9,000 of the 12 million active accounts for the Canada Revenue Agency (CRA) and GCKey, a secure online portal that allows Canadians to access services such as employment insurance, veterans’ benefits and immigration applications. The CRA’s website has become a key tool for many Canadians applying for and gaining access to the financial support relating to the COVID-19 pandemic.
- The United Kingdom’s Institute for Public Policy Research (IPPR) is saying 2 million jobs in the country are in jeopardy if the government cuts off the coronavirus jobs support program too early. The government’s furlough scheme is set to end in October with the IPPR stating three million workers will be still be relying on the plan when the time rolls around. The IPPR believe two-thirds of those worker’s roles would be sustainable if the help was extended into 2021. However, the government insists the plan that has cost £35 billion pounds so far, can’t stay indefinitely due to the high price tag.
- In France, the government is sending riot police to the Marseille region to help enforce mandatory mask wearing after scattered incidents of violence have been reported of people refusing to do so. A government spokesperson said 130 police are being sent to the Marseille region with the country reporting 3,015 new cases on Sunday, one of the highest spikes since France lifted its two-month lockdown back in May.
- Starting today, Italy has reinforced some measures on nightlife and entertainment activities as fears of overly relaxed attitudes to COVID-19 have emerged. Nightclubs will be closed, and face masks required at night, even at outdoor venues until next month as new cases have doubled recently, while the average age of those infected has dropped below 40 years old. Vacationers and club owners have protested against the decision saying the government are discriminating against their business and young people, which could lead to €4 billion in lost revenue.
- South Korea has urged the residents of Seoul and surrounding areas to avoid travelling for two weeks as health officials try to curb the worst outbreak in the country in over five months. The restriction would curtail the movements of about half of the country’s 52 million people. The reduction of travel comes along with the closure of some public spaces and reductions in the size of school classes and religious gatherings as the new cases have been linked to markets, churches and retail chains. The Korea Center for Disease Control on Sunday reported 279 new cases.
- New Zealand will be delaying their national elections for four weeks after experiencing a recent outbreak in Auckland, their capital city. Prime Minister Jacinda Ardern made the move on Monday, delaying the national election until October 17th. It was originally supposed to take place on September 19th. Prime Minister Ardern had the option of postponing the election under New Zealand law for up to two months, but said she wouldn’t consider delaying the election again no matter what was happening with any virus outbreaks.
Covid-19 – Due Diligence And Asset Management
Most Companies Plan to Give Raises and Bonuses in 2021: Survey
Brief: The coronavirus crisis has hurt earnings, spending, and caused never-before-seen unemployment levels in the U.S. But a new survey from advisory firm Willis Towers Watson finds that most companies are planning to give employees raises and bonuses next year. Willis Towers Watson surveyed U.S. industries about their 2021 compensation plans and found that companies are projecting salary increases of 2.8% on average — across all levels of employees, hourly and salaried. According to the survey, this year saw a 2.7% increase, slightly below the projected 3%. The standard over the past decade has been around 3%. This year 14% of companies elected not to plan pay increases, and many industries are tightening their belts this year. The financial services industry, Reuters reports, expects to see bonuses slashed and job cuts with only investment bankers doing well as companies scramble to raise money. However, Willis Towers Watson's findings indicate that only 7% of companies plan to forgo raises next year, which the company calls "an indication that many organizations are projecting a turn toward normalcy in 2021…
Mark Mobius: Biden-Harris Win Will Be ‘Disastrous’, Trump Will Boost Stock Market
Brief: A Joe Biden and Kamala Harris victory in the US presidential election will be “disastrous”, veteran investor Mark Mobius has warned. Mobius, who left Franklin Templeton after more than 30 years in 2018 to set up Mobius Capital Partners, told Financial News that US President Donald Trump’s stance of lifting coronavirus lockdowns will kickstart economic recovery. “It [a Biden-Harris win] would be disastrous,” said Mobius. When asked whether a Trump win would boost the stock market, Mobius said: “Yes, definitely. His goal is to get people back to work, reduce unemployment and generally boost the economy.” Trump is somewhat losing ground to Biden, the former US vice president. Fifty per cent of US registered voters say they would vote for Biden if the election were held now, while 41% back Trump, according to the latest Wall Street Journal/NBC News poll. The coronavirus crisis has battered the world’s largest economies that froze into lockdown over the past couple of months. Last week, the UK stumbled into the “largest recession on record” because of the pandemic, which has killed nearly 47,000 people in the country. “Unless they [Britain] are able to end the shutdown policies and also end the erratic policy moves, the recession will continue and economic recovery will be difficult,” Mobius said. Meanwhile, the US economy shrank at a 32.9% annual rate between April and June — the country’s deepest decline since the government began keeping records in 1947.
Former KKR Dealmaker Launches Healthcare-Focused Buyout Firm
Brief: Jim Momtazee, a former dealmaker at U.S. buyout firm KKR & Co Inc (KKR.N), has launched his own firm to pursue private equity deals in the healthcare sector. Momtazee, who spent 21 years at KKR and led its Americas healthcare team for a decade, said in a statement he formed Patient Square Capital together with Maria Walker, a former partner at consulting firm KPMG. The move comes as the outbreak of the novel coronavirus has strained some healthcare providers, while spurring growth in some sectors such as telemedicine and vaccine production. Patient Square Capital plans to look for deals across the healthcare industry, including technology-enabled services, biopharmaceuticals, the pharmaceutical value chain, medical devices, diagnostics, providers, digital health and consumer health, the statement said. “We’re going to be broad-based in our focus on all aspects of healthcare, bringing depth of knowledge, scale, expertise, and long-term view to our investments,” Momtazee told Reuters in an interview. Prior to leaving KKR last year, Momtazee worked on some of the buyout firm’s biggest healthcare deals, including the $33 billion take-private of U.S. hospital operator HCA Healthcare Inc (HCA.N), as well as the acquisition of contract research firm PRA International for $1.3 billion in 2013.
Commentary: From COVID-19 to Climate Change, Fed Must Act to Address Systemic Risks
Brief: In mid-July, investors representing nearly $1 trillion in assets joined with a bipartisan group of former legislators, regulatory agency heads, investors and other leaders to call on the Federal Reserve and other financial regulators to address and act on climate change as a systemic risk. They wrote: "We call on you to immediately consider whether decisions being made right now could inadvertently exacerbate the climate crisis. Additionally, we ask you to implement a broader range of actions to explicitly integrate climate change across your mandates. Such actions are needed to protect the economy from any further disruptive shocks." The ongoing response to the COVID-19 pandemic has underscored the critical importance of financial regulators — particularly the Fed — in keeping the economy stable and resilient in the face of systemic disruptions. Yet, as the Fed has pumped trillions of dollars into keeping our markets afloat through efforts like the Main Street Lending Program and by broadening the tent of corporate bond purchases, there are growing questions about the climate impacts of these decisions and the embedded financial risks that they expose our markets to.
A Crisis is Coming, and Americans are Woefully Unprepared
Brief: America is in bad shape. While the rest of the world seems to be moving past the Coronavirus, the US is still experiencing record deaths nationwide. Americans continue to struggle just to get bills paid, while Washington debates semantics surrounding mail-in voting. The disconnect between Main Street and Wall Street continues to grow larger, to the point that when (not if!) the stock market bubble pops, it will be nothing short of disastrous for the large majority of the population. Let’s start with what we know. President Trump recently signed four executive orders aimed at Coronavirus-related economic relief. Most notable are the orders that extend unemployment benefits and the federal eviction moratorium. Firstly, Trump’s unemployment order specifies USD44 billion in funding to extend enhanced unemployment benefits to a USD400 weekly payment for those already collecting state benefits. How soon this will be implemented or how many people stand to benefit remains unclear, as states must both request the assistance and have a system in place to deliver it. There are a myriad of issues concerning this requirement, most important being the fact that state systems are objectively not prepared for the volume that such benefit distribution would entail. Associations representing states have estimated that it will take at least five months to enact changes of this scale.
GMO: The Market Looks Like Wile E. Coyote
Brief: The U.S. stock market looks like “Wile E. Coyote, running off the edge of a cliff,” according to asset manager GMO’s James Montier. According to Montier, the U.S. stock market has priced in all the good news it possibly can, which suggests little upside for value investors right now. This is a reversal from his and colleagues’ previously bullish position on the markets in March. “There is no margin of safety in the pricing of U.S. stocks today,” Montier, who works in asset allocation at GMO, wrote in a new white paper, adding that the U.S. stock market “appears to be absurd.” The rally narrative is that investors are linking the Federal Reserve’s balance sheet expansion and the equity markets, Montier wrote. By performing quantitative easing, the Federal Reserve would lower the bond yield, and as a result, drive up the stock market, as the thinking goes. Montier is skeptical, however, of a “clear link” between bond yields and equity valuations. Quantitative easing hasn’t previously lowered bond yields. He pointed to 10-year bond yields during three recent quantitative easing programs: January 2009 to August 2010, November 2010 to June 2011, and September 2012 through October 2014. During each of those time frames, yields rose.
