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Media worth consuming - June 2020

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

Finance

Close to half of US retail tenants didn’t pay rent in April and May, kicking off a cascade of financial problems. As default notices from American landlords fly out the door, corporate bankruptcies soar. Rating agencies had given leeway to corporates in recent years, now they are set for a wave of catch up downgrades. The SEC has blocked bankrupt Hertz from selling almost certainly worthless shares to naive retail investors. US energy stocks are seeing wild trading in the lead up to filing for bankruptcy.

Chinese investors are taking losses on wealth management products and they aren’t happy. China’s banks are being pressured to make low rate loans to SMEs. German company Wirecard announced that its auditors couldn’t find €1.9 billion in cash it claimed to have and then its CEO was hit with a massive margin call. EY keeps getting caught auditing dodgy companies and attacking internal whistleblowers.

Ray Dalio has gone from “cash is trash” to being concerned about a “lost decade” for equity investors. New research shows that US private equity returns aren’t beating a comparable index, but they are creating an extraordinary stream of fees for managers and their advisors. A profile of the Silicon Valley billionaire who loves to point out the stupidity inherent in many investment firms. The revenge motivated buyout of StubHub right before lockdowns began will go down as one of the worst business deals ever. The author of the book 'Bailout Nation successfully applied for a government bailout for his business.

Calpers is adding leverage to its portfolio as it doesn’t think it can hit a 7% return target without it. Politicians have been pressing pension plan board members not to lower return assumptions. Distressed companies are using weak debt covenants to compel bondholders to take losses. Lenders pressuring companies can be good for operational efficiency and corporate governance. Well performing European banks are opting to leave existing hybrids outstanding rather than replace them with higher-yielding new issues. Japan’s Norinchukin Bank, who owns 10% of the US CLO market, announced it is pulling back its investments in the sector.

Politics and culture

The arguments that America has too many prisons and not enough police. The failure to prosecute violent and lethal actions by American police shows why qualified immunity has to go. In some US states, there’s a very different set of laws for police officers who commit crimes often allowing them to escape punishment. What do people want when they call to “defund the police”?

Black Lives Matter protestors are defacing monuments of people who opposed slavery. When the nicest country in the world has a problem with the Chinese Communist Party, it shows that the problem is the CCP.

A television reporter and crew were arrested for reporting on the Minnesota riots but promptly released after complaints were made to the state’s governor. American businesses have to hire their own security or arm themselves as police forces have failed to stop looters. A Philadelphia newspaper editor was ousted after using the headline “buildings matter too” to respond to looters and arsonists. The American press is destroying itself over trivial matters.

Economics and work

As the Federal Reserve has forced interest rates down, Americans have responded by saving more. Negative interest rates have been proven to harm growth, with the reasons for that quite straightforward. If you are going to use quantitative easing to finance deficits, at least use it to lower taxes as that is proven to create economic growth.

The Federal Reserve has front run treasury issuance pushing asset prices up, but that will reverse unless they print a lot more money. The Fed is pushing ahead with buying investment grade-rated corporate bonds, even though the sector was doing fine without it. With a lot of help from the Fed, high yield bonds are making a comeback. The Fed has openly confirmed it has no concerns with creating asset price bubbles. The hilarious Robin Williams comparison of junkies and markets addicted to central bank liquidity.

There’s a long road ahead for those trying to issue joint EU debt with four countries holding back, knowing that some recipient countries are likely to waste the funds provided. The EU is steam rolling through several economic taboos with its pandemic bailout debt. The ECB lent €1.3 trillion to banks at negative interest rates, with cheap funding encouraging banks to load up on sovereign debt.

Up to 68% of Americans receiving unemployment payments are receiving more than when they were working. Failed economists are claiming that looting is good for the economy. Keynesian economics is on its death bed. The back and forth arguments about modern monetary theory. The US government has a spending problem, driven by the soaring cost of social programs over the past 80 years. The growth in the US money supply looks like Argentina. Zimbabwe is experiencing hyperinflation, again.

Miscellaneous

70% of Sweden’s Covid-19 deaths were in nursing homes with the deceased previoously having had an average life expectancy of less than a year. A Seattle man left hospital after 60 days of treatment for Covid-19 with a $1.1 million bill. The science on how people transmit Covid-19 is becoming a lot clearer, helping guide ways to slow the spread. There’s tens of thousands of people willing to risk infection with Covid-19 as part of helping to develop a vaccine.

A 20-year-old amateur share trader committed suicide after seeing a minus US$730,165 balance on his account, an amount which is expected to have vastly overstated the eventual outcome from his options trading. Swiss police detained and took mugshots of an eight year old boy for trying to use toy money at a local store. Planes flying with few passengers are having unusual safety issues. In the 1990s Pepsi caused riots when it failed to payout $32 billion after it messed up a competition in the Philippines. Ageing wind farms can become far more productive with new turbines. A park in Oregon has been named after the time that the town blew up a dead whale.

 

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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