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Media worth consuming - April 2020

A monthly look at dozens of local and global media articles that often do not receive mainstream coverage in Australia.

Finance

More than half the countries in the world have asked the IMF for a bailout. Over 25% of Michigan’s workforce has filed for unemployment benefits. 6% of US home loans are in forbearance. Some US retail landlords have collected only 15-30% of their monthly rent. 31% of US residential tenants didn’t pay their rent in the first week of April, up from 19% in March.

The long list of bailout funding programs and vehicles run by the Federal Reserve. There is no reason for the Fed to be buying ETFs with sub-investment grade bonds. The ECB has joined the Fed in opening the door to purchasing sub-investment grade debt.

Rating agencies have over 1,300 collateralised loan obligation (CLO) credit ratings on review for downgrade. CLOs are breaching their CCC rating thresholds, causing cashflow to be shut off to lower tranches. Citigroup made $100 million on a CLO trade in a week after PGIM sold to them at a hefty discount before prices rebounded. American and European banks are stuck with CLO warehouses, just like they were with subprime mortgages in 2008. Cruise company Carnival sold $4 billion of bonds at a 12% yield. S&P has downgraded a wave of commercial mortgage securities, including one from AAA to BBB-.

Small cap value stocks are at an extraordinary discount to large cap growth stocks. Private equity owned companies have been getting special access to American government bailout programs and have been lobbying Congress to allow dubious hospital billing practices to continue. Private equity is having a Minsky Moment. Australian superannuation funds are cutting their private asset values by far less than the listed equivalents have fallen. Many bond funds have lifted sell spreads, but it might not be enough to cover the substantial buy/sell spreads on the securities they own.

JP Morgan ignored its small business customers to prioritise large customers in accessing government loans. Fintech lender Kabbage has blocked its borrowers from using their overdraft facilities. The American boom in low quality, government insured mortgages is bursting. British banks are demanding at least a 40% down payment for home loans. The explanation of how oil futures traded at -$40 per barrel. Repurchase agreements juiced returns on the way up and accelerated the fall on the way down.

A CEO shocked a TV host when he argued that badly run companies shouldn’t be bailed out. Delta Air Lines is burning through $60 million of cash per day. Years ago Warren Buffett famously swore off buying shares in airlines, now he is selling shares in them in the heat of a crisis. Tail risk fund Universa is up 4,144% this year. AQR has lost 23% of its funds under management this year. Vanguard has closed a money market fund to new investors due to a rush of new investors diluting returns. Canada’s AIMCo has shut down its volatility strategies after taking $3 billion of losses.

Expect to see a lot more arguments like this one for banning share buybacks but there are deeper issues on their purpose and use. A US oil company paid its executives $14.6 million in bonuses days before it filed for bankruptcy. Low interest rates drove investors to leverage their debt investments, a strategy which has now blown up. Volatility bets create more volatility as dealers hedge their option trades. If Coronavirus hadn’t triggered the market drop, something else eventually would have.

China went on a record borrowing binge in March to stimulate its economy. Chinese investors have lost $1 billion on a Bank of China oil security, with many owing more than their initial outlay. Two more Chinese companies listed in the US have been caught cooking the books. Traps to watch out for when buying Chinese distressed debt. Brazil’s bond market has been slammed with open-ended funds forced to sell to meet redemptions. Emerging market debt has been slammed by falling prices and rating downgrades. Fitch has warned of a wave of multi-notch sovereign downgrades.

Politics and culture

Amazon has blocked a popular documentary about media manipulation and fake news. Trump’s business has asked its lender for concessions. Google is blocking ads critical of the Trump administration’s response to Coronavirus. The arguments that Trump is right to cut funding to the WHO after its mishandling of the Coronavirus response. American hospitals are firing doctors and nurses for speaking out about the lack of protective clothing.

The US government’s stimulus oversight committee currently has just one member to review $2.2 trillion of programs. Seven years after exiting bankruptcy, Detroit is in financial trouble again. The Indian government has badly managed its Coronavirus lockdown. The candidates to replace Kim Jong-un if he is indeed dead or incapacitated. The debate about face masks shows why people are losing trust in so called experts.

Police in Missouri have sparked a constitutional debate by fining attendees at a drive-in church service. The Mayor of Chicago was busted for getting a haircut during a lockdown that included a prohibition on haircuts. A Texas Mayor broke her city’s stay at home order to get her nails fixed. An Idaho mother was arrested for taking her kids to a playground as part of a playdate protest.

Economics and work

In this time of widespread bailouts and government intervention, Hayek’s legacy is more important than ever. Keynes had disdain for savings and entrepreneurship and we now see the terrible consequences of implementing his policies. This crisis should be a lesson to individuals to save more and spend less. The tricky moral and economic question of how much should be spent to save someone from Coronavirus?

After America declared a war on poverty, welfare dependency has more than doubled. With unemployment soaring and welfare payments increasing, the welfare/poverty trap will be an even more significant issue in coming years. An American restaurant chain has found many of its employees won’t come back to work until the unemployment benefit top-up ends in August. Some Americans are gathering to protest restrictions on their right to work. US meat production facilities are a hotbed for Coronavirus transmission, with the meat supply at risk after shutdowns. European farms don’t have enough migrant workers, so locals will need to take over the work of picking and packing.

In the 1920/21 recession, the US government did almost nothing and the economy recovered quickly, in the Great Depression the US government interfered and made the situation far worse. A call to end the crony capitalism and allow poorly managed businesses to go bankrupt.

Miscellaneous

Airbnb encouraged speculators to use leverage and buy multiple properties, but with the rent gone it is ending badly. The case that Zoom software is malware. The “Undertaker of Silicon Valley” is busy cleaning up busted start-ups. Amazon used data from its sellers to launch competing products.

A Q&A with the scientist who has been warning about pandemics for over a decade. Copper is a virus killer, but hospitals are slow to install it. Opening a window is a simple way to fight germs. Taiwan’s transparency and diligence in managing the Coronavirus outbreak has been highly successful, without requiring widespread shutdowns. The controversial arguments against taking draconian actions to stop the spread of Coronavirus. New York’s trains and parks are packed during its Coronavirus shutdown. While Australians line up to buy toilet paper, Americans line up to buy guns. The toilet paper and food shortages are due to a shift in demand with suppliers struggling to switch from commercial to retail buyers.

Compared to previous years, fewer people are dying as people change their behaviour to avoid Coronavirus. Scammers in Kentucky set up a tent and were charging consumers $240 for fake virus testing. Shutdowns of sports, restaurants and construction have cut off the income of New York’s gangsters. A Singaporean man broke a stay-at-home order to eat pork soup and is now heading to jail for six weeks. A small store owner in New York is facing jail time for stocking up on health supplies and selling them at a profit. More than a dozen countries have reported defects in medical equipment bought from China to fight Coronavirus.

The intriguing story of ring announcers Michael and Bruce Buffer. How seven men pulled off a near perfect bank heist in Argentina, before going to jail and becoming celebrities. A long story about what it takes to earn the US Army Ranger designation. The toilet system on the US Navy’s newest aircraft carrier frequently clogs up. As humans hide inside, animals are roaming around cities. Cruise ships are ceasing pay for some workers stranded on board. It’s surprisingly tricky to park thousands of planes around the world. More sustainable funeral options are growing in popularity.

 

Written by Jonathan Rochford of Narrow Road Capital. Comments and criticisms are welcome.

This article has been prepared for educational purposes and is not a substitute for professional and tailored financial advice. The accuracy of the material cannot be verified in all cases. Narrow Road Capital advises on and invests in a wide range of securities, including securities linked to the performance of various companies and financial institutions.

 


 

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