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Our briefing for Wednesday August 19, 2020:
Aug 19, 2020 4:37:02 PM
- In the United States, Dr. Anthony Fauci, a leading member of the White House coronavirus task force said the understanding of the long-term effects of COVID-19 is a “work in progress”. Dr. Fauci points to the fact that many coronavirus survivors have reported of weeks, spanning into months, of symptoms after the first onset of infection. The common complaints are fatigue, muscle aches, and brain fog, along with some subtle, yet potentially dangerous side effects on the cardiovascular and nervous systems.
- In Canada, a province once seen as the model in dealing with the coronavirus outbreak, is now experiencing its highest number of active cases since the pandemic began. British Columbia confirmed 83 new COVID-19 cases on Tuesday, bringing the active case total to 775. The country’s third largest province has extended its state of emergency to September 1st and health officials have urged British Columbians to not partake in unsafe parties or large gatherings. There are also a number of contrasts with the latest batch of cases. There is a significant increase in cases from people aged 20 to 40, but hospitalizations have dropped to some of their lowest levels during the pandemic.
- The United Kingdom’s Office for National Statistics (ONS) says they plan to expand its coronavirus infection survey to five times its current state. As of right now the current sample size is 28,000, but by October the ONS wants to see it expand to 150,000 as the country prepares for a surge of cases in the autumn. So far, the survey has been too small to give strong confidence of its findings other than to signify a general downward/upward trend in infections.
- Germany, Spain and Italy have all recorded their highest 24-hour increase in new COVID-19 cases in months. Germany reported 1,510 cases, its highest number since May. Chancellor Angela Merkel has blamed the rise on increased travel as people vacationed during the summer, along with more contact between people. Chancellor Merkel called on Germans to stick to regulations in place to help curtail the spread. Spain recorded 3,715 new COVID-19 cases on Wednesday, its highest increase since the end of their lockdown in late June. Finally, Italy recorded 642 new cases in the last 24 hours, which represents their highest increase since May 23rd.
- Sweden appears to be balking another COVID-19 trend as the country remains one of the few European nations not to recommend using face masks when out in public. The Scandinavian country made headlines earlier in the pandemic for its less restrictive approach to COVID-19 for its citizens, which lead to a high death rate. Anders Tegnell, Sweden’s state epidemiologist said “It is very dangerous to believe face masks would change the game when it comes to Covid-19… face masks can be a complement to other things when other things are safely in place. But to start with having face masks and then think you can crowd your buses or your shopping malls – that’s definitely a mistake.” Tegnell pointed to countries like Spain who adopted a face mask requirement fairly early, but are now seeing a resurgence in cases.
- Earlier this week, Japan reported that its economy shrunk at its fastest rate on record as they, like so many other countries, battle the reality of the coronavirus pandemic. The world’s third largest economy saw its GDP fall 7.8% from the previous quarter and 27.8% on an annualized basis. The latest data marks the biggest decline since comparable figures were made available in 1980 and slightly worse than what analysts had predicted.
Covid-19 – Due Diligence And Asset Management
Exclusive: Fed’s Bullard – Wall Street ‘About Right’ as U.S. Muddles Through Virus Risk
Brief: A stock market hitting record highs in a pandemic might seem out of touch, but St. Louis Federal Reserve President James Bullard says Wall Street has got it right and he expects the United States to do better than many forecasters anticipate as businesses and households learn to manage coronavirus risks. Though the situation seems chaotic, with federal, state and local officials laying out competing ideas about what activities are safe and under what conditions, Bullard said that shows adaptation in process, and will allow the country to fine-tune behavior and economic activity to what a “persistent” health threat allows. “I think Wall Street has called this about right so far,” he said, noting how firms like Wal-Mart, with its mandatory masking and other rules, have found ways to operate that others will copy. “There is a lot of ability to mitigate and proceed and most of the data has surprised to the upside...So I think we are going to do somewhat better,” Bullard said in an interview with Reuters. “I expect more businesses to be able to operate and more of the economy to be able to run...successfully in the second half of 2020.”
Pension Giant Says Radical Post-Covid Changes to Hit Investments
Brief: Canada’s largest pension fund says some of the “radical changes” in consumer behaviors enforced during the pandemic lockdown are here to stay. The Canada Pension Plan Investment Board’s thought leadership lab sees permanent changes to consumer behavior as a result of the global pandemic. The era after Covid-19 will be defined by wider adoption of e-commerce among older consumers, as well as by long-term impacts on health-care and privacy policy, all of which will impact investment portfolios, it says. “The world will be different after Covid-19. For long-term investors, this will mean both new risks and new opportunities as we transition to recovery,” CPPIB portfolio managers Caitlin Walsh and Ruby Grewal wrote in the report. Gains in adoption of e-commerce have been patchy, according to the report. While the U.S. and Europe appear to be rapidly catching up to China, not all merchants are reaping the benefits with big players like Amazon.com Inc. and Walmart Inc. having enormous advantages over smaller retailers with more limited selections and unscalable infrastructure, Walsh and Grewal said.
Top Oil Fund and Exec to Face SEC Action
Brief: The world’s biggest exchange-traded fund tracking oil is facing U.S. regulatory action after it took a series of extreme steps to survive the historic crude selloff earlier this year. The Securities and Exchange Commission has issued the United States Oil Fund ETF, known as USO, with a Wells Notice about the intended measures, according to a filing on Wednesday. The fund was being probed over whether it had adequately disclosed risks to investors after it was forced to dramatically reshuffle the mix of futures contracts it tracked during the market turmoil. That helped protect the ETF, but meant deviating from its past investment strategy. The notice states that the SEC has made a preliminary decision to recommend an enforcement action against the ETF, its Chief Executive Officer John Love and United States Commodity Funds, the company which manages USO. The decision relates to disclosures made in late April and early May. USCF, USO and Love said they intend to vigorously contest any allegations. Judy Burns, an SEC spokesperson, declined to comment. It’s the latest dramatic twist in the story of USO, which was at the center of the storm as crude prices plunged earlier this year. As volatility swept the market, it issued six disclosures in less than two months announcing changes to the fund’s investment strategy, and temporarily halted new share creations -- potentially untethering itself from the contracts it was tracking.
Why Oaktree is More Conservatively Positioned Than Usual
Brief: Oaktree Capital Management is being more conservative than usual with its credit portfolio — particularly after investors piled back into debt and equity following the government’s emergency support for markets during the pandemic. “We see reason to be cautious,” Armen Panossian, Oaktree’s head of performing credit, and Danielle Poli, who leads the product specialist group, said in the asset manager’s credit report for the second quarter. “It is easy to envision a panic scenario in which these investors are shaken by bad news around economic performance and therefore choose to quickly exit the markets.” Some countries and U.S. states are seeing alarming increases in Covid-19 cases after reopening their economies — with some regions reverting to lockdown, Oaktree pointed out. The firm worries that these “fits and starts” have caused companies to file for bankruptcy and said it expects many industries to see several years of stress as they reassess costs such as real estate. “Liquidity injected into the markets by central banks has allowed investors to look past the ‘valley’ of lost output during the pandemic,” Panossian and Poli wrote. “Today’s pricing of risk assets indicates an expectation for a quick economic recovery.” Oaktree, the Los Angeles-based investment firm cofounded by Howard Marks, is protecting capital in anticipation of market volatility while seeking to reserve capital should buying opportunities suddenly emerge, according to the report. In public markets, that means rotating out of companies and sectors that have outperformed.
Big Banks Sit on $250 Billion of Murkiest Trades After Covid
Brief: The pile of the murkiest trades at global banks, long the bane of regulators, got much bigger during Covid-19. Lenders including Barclays Plc, Citigroup Inc., BNP Paribas SA and Societe Generale SA reported a surge of more than 20% in their most opaque assets during the chaotic first half of 2020, Bloomberg calculations show. The banks are now sitting on hard-to-value trades that they say are worth about $250 billion, including categories that gained notoriety during the financial crisis, such as complex debt securities. There’s no single, clear-cut explanation for the jump in these so-called Level 3 assets. For some, the surge was a natural consequence of pandemic turmoil: safer assets became difficult to price as markets froze, and risk managers had to shunt them into a different category, according to analysts and people familiar with the situation. Others are likely to have added to their riskiest bets after seeing the potential for a windfall in the chaos, said Jerome Legras, managing partner at Axiom Alternative Investments. “Banks need a little bit of complexity to actually make a lot of money,” said Legras, who oversees about 1.6 billion euros ($1.9 billion) at Paris-based Axiom, including bank debts. “Clearly, there is a link with record profits.” Either way, for many of the lenders, the increase since the end of December was the biggest in half a decade. As European banks don’t report quarterly Level 3 figures, Bloomberg News used six-month figures for comparison.
U.S. Private Equity Giants Banishes Staff from the Office For 14 Days if they use Buses or Trains, over Coronavirus Fears
Brief: Employees at global asset manager Carlyle Group have been told to avoid public transport when offices reopen around the world. They must avoid public transport on their commute, and if they use public transport over weekends, they should work from home for 14 days, according to one report. Staff are expected to walk, bike or drive to the company’s offices, including in New York and Washington, D.C. as it looks to control the spread of the coronavirus and avoid staff outbreaks. Carlyle Group CG, -0.13% said that returning to its 31 offices globally would be “entirely voluntary” and the measures around public transport were to protect its staff. “Our global policy, which includes encouraging workers not to use public transportation, is designed to protect the health and well-being of every colleague,” it said. “As the situation continues to evolve, we are asking everyone to take an approach that works for their personal situation,” it added. Offices at many of the world’s biggest financial institutions have been near empty throughout the coronavirus outbreak, and many firms are looking at ways to permanently keep staff working remotely to some extent.
