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Our briefing for Friday August 21, 2020:
Aug 21, 2020 3:32:52 PM
- In the United States as Joe Biden accepted the Democratic party nomination for president on Thursday night, he used a portion of his speech to take direct aim at current President Donald Trump and his government’s handling of the coronavirus. Biden called the United States response to the pandemic, “by far the worst performance of any nation on earth.” Former Democratic presidential candidate Michael Bloomberg took aim at President Trump saying he downplayed the threat, ignored science and recommended quack cures. Condemnation on the handling of the pandemic also came from the other side of the political aisle as dozens of former Republican national security officials came out in support of Biden, accusing President Trump of spreading misinformation and “wallowing in self-pity”. The president and the Republicans will get their chance to respond next week when they hold their convention.
- The Canadian federal government outlined their plan on how they will navigate out of their Canada emergency response benefit (CERB) on Thursday. The government will extend the plan by one more month, meaning it will now be in place until September 27th. In its place will be a collection of benefit reforms that will be aimed at helping Canadians through the transition as the economy reopens at a price tag of around $37 billion. Self-employed or gig workers can apply for a benefit of up to $400 a week for up to 26 weeks if they have stopped working or had reduced incomes due to COVID-19. A second benefit will provide 10 days of paid sick leave for any worker in Canada who falls ill and has to self-isolate due to COVID-19. The third benefit will support Canadians who must stay home to care for a child under 12, or another dependent because their school, daycare or the program facility is shut down due to COVID-19.
- The travel industry in the United Kingdom is calling on the government to stop what they call its “stop-start” strategy of quarantining countries with high COVID-19 rates. Each week the UK government has been revising its travel advice according to changes in the number of infections within certain countries. The government then gives British travellers as little as two days to return from those affected countries if they want to avoid the expected 14-day quarantine once back on home soil. “There is a ridiculousness to [these changes to travel advice] because holiday operators can’t stop-start at the rate that the government can, said the chief executive of an online travel company.
- The coronavirus epidemic is “out of control” in parts of Spain, according to the director of the country’s Centre for Health Emergencies. This is definitely not welcome news as Spain is now in a race against time before students return to school and citizens back to work next month following the summer holiday season. Figures published by the European Centre for Disease Prevention and Control indicated Spain’s 14-day COVID new case total was about 145 per 100,000 of the population. Apart from the small island nation of Malta, no other European country had a ratio above 100. During that same time period, France’s was 51 per 100,000, while the UK was 21 per 100,000. National and regional officials have blamed the virus resurgence on uncontrolled groups of youths drinking and socializing, along with large family gatherings.
- A New York Times article is citing a United States intelligence report that top officials in Beijing, China were kept in the dark for weeks in early January regarding the coronavirus. The report says officials in the city of Wuhan and in Hubei Province, where the outbreak began late last year, tried to hide information from China’s central leadership. American officials say it isn’t uncommon for local authorities to withhold information from Beijing and the Chinese Communist Party in fear of reprisal.
- After securing a deal for a potential COVID-19 vaccine earlier this week, Australia’s Prime Minister wants all 25 million of its citizens to get the potential shot. Prime Minister Scott Morrison said the government would make the vaccine free for its citizens and speaking at a radio station said the vaccine would be “as mandatory as you could possibly make it”. Later in the week, Prime Minister Morrison backtracked slightly, saying he would take measures to “encourage” citizens to be vaccinated. The country’s health minister though seemed to echo the prime minister’s earlier thoughts, stating, “he wouldn’t rule out” making mandatory vaccinations for travellers entering the country, including returning nationals.
Covid-19 – Due Diligence And Asset Management
Fed Has Used Only a Fraction of its Main Street Lending Facility
Brief: The Federal Reserve has used only a fraction of the $600 billion in an emergency lending program for small and medium businesses struggling with the Covid pandemic, according to a congressional watchdog report. Eligible lenders participating in the Main Street program have issued $496.8 million in loans, of which $472 million is Federal Reserve money, or about 0.07% of the central bank’s lending capacity as of Wednesday, according to the report issued Friday. “The Main Street Lending Program has seen modest initial activity thus far,” according to a monthly report from the Congressional Oversight Commission, the panel in charge of overseeing the Treasury Department and Federal Reserve responses to the coronavirus pandemic. “Some of the Main Street Lending Program’s modest activity may be because some businesses accessed the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), while others are able to rely on existing credit lines or other sources of liquidity,” the report said. The watchdog panel noted several other reasons why businesses may not be seeking the funding: only 160 of the 522 lenders registered with the program have publicized that they are accepting loan applications with new customers; businesses are unfamiliar with the program; and that the eligibility rules are complex and may exclude some businesses that wish to participate.
Wells Fargo Resumes Job Cuts After Pandemic Break
Brief: Wells Fargo & Co resumed job cuts in early August after it paused layoffs in March because of the COVID-19 pandemic, a spokeswoman said on Friday. The lender said in July it would launch a broad cost-cutting initiative this year as the bank braces for massive loan losses caused by the pandemic and continues to work through expensive regulatory and operational problems tied to a long-running sales scandal. Layoffs, branch closures and cuts to third-party spending are on the table, the bank’s executives had then said. “We expect to reduce the size of our workforce through a combination of attrition, the elimination of open roles, and job displacements,” a spokeswoman said in an email, adding that Wells Fargo was working to bring its expenses more in line with its peers and create a company that is more “nimble”. The bank will provide severance and career assistance to affected staff. Big U.S. banks had postponed decisions about staff cuts when the virus outbreak first began to take hold, with executives saying they are unsure how long the outbreak would hurt the economy and worried about being unprepared if business suddenly snaps back.
NYC Landlords Press Finance Bosses to Speed up Return-to-Work and Save City
Brief: The skyscrapers are mostly empty, the tourists are home and talk of New York’s decay is back. For the city’s real-estate barons, it’s time to put an end to it. A loose coalition of New York’s top property owners and managers is busily working the phones, pressing many of the city’s biggest employers -- including powerhouses like Goldman Sachs, Blackstone and BlackRock -- to speed up the return of workers. Their argument: It’s safe, and the eateries and shops that make Manhattan special can’t hold out much longer. Some are calling it the patriotic thing to do. “I’ve been really pushing the CEOs to bring people back into the office,” said Jeff Blau, the head of Related Cos., the developer behind the Hudson Yards project. “I’ve been using a little bit of guilt trip and a little bit of coaxing.” The reaction for now has been lukewarm. Behind the desperation lies fear of a vicious spiral. The longer commuters stay home, the more local businesses will disappear, and the less reason there is for anyone to return. Executives and firms who’ve made a fortune developing and owning the city’s towers are facing the prospect of a significant slump in demand and prices for offices and residential units. But the ramifications extend to all New Yorkers, Blau said. “I am watching the city decay as nobody is here,” he said. “Now is not the time to abandon the city and expect it to be in the same way you wanted it when you get back in a year from now.”
REITs Struggle After Landlords Faced Toughest Ever Quarter
Brief: The pandemic has battered real estate investment trusts that focus on retail stores, with Bank of America Corp. analysts calling the second quarter the toughest ever for landlords in the modern era of REITs. Before the outbreak of Covid-19, store closings had been running at a slower pace than in 2019 — but now they’ve almost eclipsed last year’s total with still more than four months to go in 2020, the analysts said Thursday in a research report. The 9,544 of closures that Bank of America has tallied this year compares with 9,670 in all of 2019. The jump in shuttered stores is weighing on real estate investments tied to malls and strip centers. Even with rent collections ticking up last month, mall REITs lost 11.6 percent in the third quarter through August 19, the report shows, while strip REITs tumbled 10.3 percent. “Accelerated bankruptcies and store closings will still push occupancy lower into 2021,” the Bank of America analysts said in the report. “While near term investor focus is on rent collection, we look to leasing activity as a signpost of normalizing conditions.”
Academics Attack ESG Failure to Outperform During Crisis
Brief: In the aftermath of March’s coronavirus crash, numerous fund managers and data providers determined that companies with high ESG scores outperformed during the rapid sell-off — and a surge of money followed into funds focused on environmental, social, and governance issues. A new academic study, however, raises questions about the link between ESG considerations and stock performance during crises. Researchers from Canada’s University of Waterloo, Tilburg University in the Netherlands, and New York University’s Stern School of Business challenged the “widespread claims by fund managers, ESG data purveyors, and the financial press” that companies with high ESG scores were better situated in the pandemic. In particular, the authors — Elizabeth Demers, Jurian Hendrikse, Philip Joos, and Bauch Lev — cited reports from BlackRock, Morningstar, and MSCI, which all found that ESG funds outperformed during the crash. BlackRock, for instance, reported its sustainable funds achieved better risk-adjusted returns during the first quarter, while 24 of 26 ESG-tilted index funds tracked by Morningstar also outperformedtheir “closest conventional counterparts,” according to the analytics firm.
Investor Who Scored Big in Coronavirus Rout and Now says Stock Market ‘Environment Presents… Largest Set of Tail Risks We’ve Seen’ in 15 Years
Brief: That is Jeffrey Talpins, the founder of Element Capital, in an Aug. 18 letter to his clients, cited by the Financial Times (paywall), explaining his decision to reposition his $16 billion hedge fund for a potential downturn in the market after an unprecedented rebound in equities in the U.S. and Europe since March. Talpins wrote that “less aggressive fiscal and monetary support” will eventually help lead to a slump from the stratospheric moves that stock benchmarks have enjoyed thus far since March. Bearish investors have pointed to a lack of political will for additional coronavirus relief for embattled American workers and a market that has gotten well ahead of its skis, in terms of equity valuations set against expectations for corporate earnings in the coming months and years. On Thursday, U.S. initial weekly jobless benefit claims rose in mid-August and topped 1 million again, potentially pointing to an increase in layoffs after a summer surge in the coronavirus epidemic or perhaps to more people applying for benefits after President Trump temporarily added $300 in extra federal payouts through a controversial executive order. Despite signs of weakness in the economy, the stock market has been primarily led higher by a handful of technology and e-commerce-related stocks that have enjoyed a boost from the COVID-19 pandemic, helping the broader market defy gravity.
