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Our briefing for Friday September 18, 2020:
Sep 18, 2020 3:41:41 PM
- In the United States, a New York Times article is stating politics seem to be trumping science more and more when it comes to the coronavirus. The article points to a controversial move made by the Center for Disease Control and Prevention (CDC) last month which said people without COVID-19 symptoms didn’t need to be tested. The recommendation was not written by CDC scientists, but instead from the Department of Health and Human Services. The guidance came at a time when health experts were pushing for more testing, not less. On Friday, the CDC updated their guidelines yet again, rolling back the controversial changes saying testing should include asymptomatic persons, including close contacts of a person diagnosed with COVID-19. Other than the New York Times article, it is difficult to see what changed over the last month, which could lead to more confusion for Americans when it comes to testing.
- In Canada, the premiers of Ontario, Quebec, Manitoba and Alberta have issued a joint call to the federal government and Prime Minister Justin Trudeau. The call comes days before the government’s throne speech and the premiers are looking for an increase to boost federal health transfers, which have become more urgent thanks to the COVID-19 pandemic. The four provincial leaders want the funding increased from $42 billion to $70 billion per year, with an additional demand to cover 35% of health-care costs going forward. The prime minister’s office indicated no date for the call, but it is expected to take place before September 23rd, which is when the throne speech was expected to take place.
- In the United Kingdom, ministers on Friday announced plans to extend socializing restrictions to 3.3 million more in England. As of Tuesday, households will be prohibited from meeting indoors in Merseyside, Lancashire, excluding Blackpool, and parts of the Midlands and West Yorkshire. The new restrictions mean about 20% of the UK’s population or 13 million people, will be living under restrictions. Recent data has shown the number of new COVID-19 infections in the UK are growing up to 7% a day. Leading scientists are even suggesting to the government a nationwide lockdown for two weeks in October to help curb the spread, but Prime Minister Boris Johnson is said to be strongly against such a measure.
- India’s doctors are accusing their leader Narendra Modi and his government of callous disregard for their lives as they battle the coronavirus pandemic. The Indian Medical Association (IMA) said that 382 doctors have died from COVID-19 since the pandemic started and the situation is only getting worse as frontline healthcare workers deal with daily infections that are approaching 100,000. The IMA have stated the Modi government has tried to conceal the number of causalities and that the rate of fatality for infected doctors were nearly four times greater than the general public. The government’s pushback has been they have established an insurance scheme for healthcare workers infected with the coronavirus, but the IMA complained the program didn’t work and benefits were not reaching the intended recipients.
- The metropolitan government of Seoul, South Korea have stated they plan to seek $4.6 billion won, or close to $4 million USD in damages against a church for causing the spread of the coronavirus by disrupting tracing and testing efforts. Back in mid-August, a fresh wave of infections erupted at a church whose members attended a large protest in downtown Seoul. The outbreak has caused triple-digit increases in daily COVID-19 cases for more than a month.
- In Australia, the country is set to increase the cap on the number of citizens allowed to return home from 4,000 to 6,000. The move was confirmed by Prime Minster Scott Morrison during a Friday news conference as there are more than 25,000 Australians abroad waiting to return home. All travellers who intend to come back home are required to spend 14 days in a quarantined hotel at their own cost. Prime Minister Morrison also noted during the news conference that he is working with New Zealand towards the first elements of a travel bubble between the two countries.
Covid-19 – Due Diligence And Asset Management
Bank of America’s CEO Says More Stimulus Needed to Help Last of Recovery
Brief: Bank of America Corp. Chief Executive Brian Moynihan called for another round of federal stimulus to help the U.S. reach a full economic recovery from the coronavirus pandemic. “You’re back up to where 95% of the economy is back,” Moynihan said Friday in an interview with David Westin in advance of next week’s Bloomberg Equality Summit, adding that more help is needed for restaurants, airlines, performing-arts venues and state and local governments so they can “cross that same bridge” as housing, health-care and other recovered industries. “We’ve got to help everybody else get across.” Moynihan said a year-over-year increase in consumer spending is a sign of the economy’s resilience. U.S. retail sales rose 0.6% last month, following a 0.9% gain in July, the Commerce Department reported earlier this week. Government support for small businesses is running dry with the Paycheck Protection Program having closed in early August, and a supplemental $600 a week in unemployment benefits having expired at the end of July. Some House Democrats are keeping pressure on Speaker Nancy Pelosi to bring a new coronavirus relief bill up for a vote next week as they look to signal that the party is pursuing a deal to bolster the economy. Pelosi has held firm that the White House should first agree on a $2.2 trillion plan Democrats have put on the table.
Wall Street’s Return-to-Office Push Finds Virus Won’t Cooperate as Infections Hit Trading Floors
Brief: Wall Street leaders made the case this week for bringing more workers back to the office, while a rash of COVID-19 infections on trading floors showed how quickly they could be sent back home. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Barclays Plc all had to quarantine groups of traders after employees tested positive for the coronavirus. The setbacks threaten a ramp-up of return-to-office efforts that executives have said are necessary to preserve productivity and firm cultures… But ending the lockdowns will mean trying to head off new outbreaks. Goldman Sachs had to send some traders back home after at least one employee tested positive for COVID-19 at its Manhattan headquarters. The firm hasn’t seen any transmission of cases within its offices, according to a person monitoring the situation “Our people’s safety is our first priority, and we are taking appropriate precautions to make sure our workplaces remain safe for those who choose to return,” Leslie Shribman, a spokeswoman for Goldman Sachs, said in a statement Thursday.
How Covid-19 Permanently Changed the Way Businesses Operate
Brief: Companies looking to return to the norms of January 2020 should rethink their expectations. The Covid-19 pandemic has permanently changed how businesses operate, according to a report from the Carlyle Group. The virus caused a sudden and swift shock to the U.S. economy. In March, U.S. businesses switched from all staff working in the office to many working from home in just days. The big surprise? Companies of all sizes were able to meet or exceed prepandemic business volumes, according to Jason Thomas, Carlyle’s managing director and head of global research, who wrote the report When the Future Arrives Early. Don’t expect any big changes to remote working once the economy recovers, which could take a few years, wrote Thomas, adding the virus broke the inertia of companies requiring staff to be in the office full time. “Some people may never go back,” Thomas wrote. “In the future, work arrangements will be optimized based on what works best for the employees and the business rather than expectations that had been inherited from a different time.”
A “Psychological Placebo”: Why This Hedge Fund Manager is Betting Against Drug Companies in the Race for a Covid Vaccine
Brief: The frantic hunt for an effective vaccine against coronavirus could leave some pharmaceutical companies highly exposed in a fiercely competitive race – and UK hedge fund Argonaut Capital is weighing in with several key bets against the sector. Argonaut’s CEO and CIO Barry Norris, who runs the firm’s Argonaut Absolute Return equity long/short fund, is avoiding large blue-chip drug names such as AstraZeneca and Pfizer (“the vaccine doesn’t really move the dial for them,” he says) as well as small-cap stocks, where there is a liquidity risk. Instead, he has built short positions against the “five biggest pure plays” in the sector, including Moderna – which has a USD25 billion market cap – along with US-focused German companies BioNtec and CureVac, as well as Novavax. “None of them have ever brought a drug or a vaccine to market successfully,” Norris says of his targets, which he sees as being overvalued. “Between them they’ve got about USD500 million of revenues this year, but they’ve got a USD50 billion market cap. There’s a lot of hope and speculation in those share prices.”
Investec Sees Profit Falling as Much as 68% on Virus Fallout
Brief: Investec Ltd. expects first-half profit to slump as much as 68% because of the economic slowdown caused by the coronavirus pandemic. Headline earnings including the bank’s demerged asset management unit will likely fall to between 7.3 pence and 9 pence in the six months through September, compared with 22.7 pence a year earlier, the Johannesburg-based lender said Friday. “The first half of the year has seen lower average interest rates, reduced client activity and a 22% depreciation of the average rand against pound sterling, compared to the prior period,” it said in a statement. “Capital and liquidity ratios remain robust and are expected to be stable.” The owner of banks and wealth-management businesses is restructuring its U.K. lending operations and planning as many as 210 job cuts -- about 13% of staff -- in order to remove redundant roles and save costs. Investec spun off its asset management unit in March to provide Ninety One Ltd. with more scope to scale-up, while creating a more focused banking unit. Investec Plans to Cut 210 Jobs at Its U.K. Banking Division In line with regulatory guidance in South Africa and the U.K., Investec doesn’t expect to declare an interim dividend, the bank said. In May, the lender scrapped its final dividend and doubled loan-loss provisions as it braced for further fallout from the pandemic.
A $700 Million CMBS Portfolio Is on the Brink as Malls Collapse
Brief: Bond investors who wagered on a group of malls owned by Barry Sternlicht’s Starwood Capital Group are starting to take losses after the Covid-19 pandemic shuttered stores and wiped out emergency cash reserves that had been keeping interest payments flowing. The commercial-property bond, known as Starwood Retail Property Trust 2014-STAR, is backed by an almost $700 million defaulted loan. It’s cutting interest payouts to investors for a second time, after a reserve account dried up in June and a sharply lower property valuation led to the servicer holding back some funds. The bond’s performance shows how rapidly the pandemic is deepening losses in a sector that was already getting crushed by online shopping. Even the part of the bond deal that was once rated AAA -- meaning bond raters saw virtually no risk of taking losses just two months ago -- have now been cut deep into junk territory. “The experience of the mall CMBS from Starwood is certainly symptomatic of the larger narrative,” said Christopher Sullivan, chief investment officer of United Nations Federal Credit Union. Weakening mall asset fundamentals and fewer willing investors “will present ongoing financing problems.”
