Is the great coronavirus bear market of 2020 now history? If by definition we’re in a new bull market, the question we should be asking is different: Will the stock market hit a new low later this year, lower than where it stood at the March low? My study of past bear markets revealed a number of themes, each of which points to the March low being broken in coming weeks or months.
What impact will the worst pandemic in 100 years have on the American psyche? Cuban’s comments came as S&P 500 index (SPX) technically entered a bull market, having now risen 20% from the recent low put in on March 23.
In many cases, it would have taken longer for a large company to put together a prearranged bankruptcy, but discussions with creditors were already in the works.
Billionaire investor Mark Cuban on CNBC's "Closing Bell" Wednesday said he isn't hopeful that the recent market rally signals the impact of novel coronavirus (COVID-19) pandemic on markets has bottomed out.What Happened According to the "Shark Tank" star, it could just be a matter of investors buying the rumor and selling the news."I think people are naturally optimistic right now in terms of the market," Cuban told CNBC. "I just don't think they are really factoring in what we are going to see on the other side."The NBA Dallas Mavericks owner said that while he is "hopeful" for the long-term, the market could see another coronavirus-caused slump in the short-term.Cuban added that he hadn't purchased any stocks in the last two weeks, and instead, he is "trying to get more cash."As for his stock bets, he continues to hold Netflix Inc. (NASDAQ: NFLX) and Amazon.com Inc. (NASDAQ: AMZN)."If I'm wrong and the market keeps on going up, my core holdings, Netflix and Amazon, are going to continue to do well," the Broadcast.com founder said at the CNBC show. "I just kept where I was. I haven't added or subtracted."Why It Matters U.S. stocks have recovered somewhat in the past two weeks after seeing historic wipeouts as coronavirus spread in the country.The COVID-19 cases have increased to 432,132 in the U.S. at press time, according to data from Johns Hopkins University, and continue on the upward slope.The most optimistic forecast from National Economic Council Director Larry Kudlow put a timeline of four to eight weeks on when the economy could restart, as reported by Bloomberg.Despite the recent gains, S&P 500 is down 14.9% year-to-date, Nasdaq Composite is down 9.8%, and Dow Jones has seen 17.9% of its value erased.In comparison, Amazon is up 10.5% year-to-date at $2,041.56 and Netflix is up 14.7% at $371.06.Photo Credit: Gage Skidmore via Wikimedia.See more from Benzinga * Dow, S&P Futures Drop Signaling An End To 3-Day Long Recovery Rally * Trump Lashes Out At Washington, Michigan Governors For Pandemic Response: 'We Don't Like To See The Complaints' * Senate Passes T Coronavirus Stimulus Package After Nearly A Week Of Tough Negotiations(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Dev Kantesaria of Valley Forge Capital Management says investors need to own ‘the highest-quality businesses on the planet.’
Allstate, Geico and Liberty Mutual are giving refunds to drivers. State Farm says it’s closely monitoring the situation.
Fundstrat's Tom Lee says history shows the speed of a market recovery is tied to the speed of collapse. That could mean a return to all-time highs this year.
(Bloomberg) -- With Saudi Arabia and Russia agreeing on the contours of an unprecedented plan to slash crude output, President Donald Trump is on the verge of getting the global oil deal he wanted -- without taking steps to ratchet down U.S. production.The tentative agreement -- which would be the largest-ever oil output cut agreed on by OPEC+ ministers -- is coming without the U.S. mandating curbs on its own crude production. And if Trump agreed to anything in phone calls with the Saudis and Russians in recent days, those deals haven’t been made public yet.In other words, Trump may win a global oil agreement by letting the market work.“The U.S. is already effectively cutting because we cut in response to market force,” said James Lucier, managing director of research firm Capital Alpha Partners LLC. “We’re not a state oil corporation; we’re not government-directed producers of oil. U.S. oil production has an automatic response to excess supply, which is to shut in” that production.The Trump administration is likely to take that argument to a virtual meeting of Group of 20 energy ministers Friday, as non-OPEC countries face pressure to come up with another 5 million barrels per day in oil production cuts.For more than a week, Trump has talked up the prospect of a Russia-Saudi agreement to reduce oil output by at least 10 million barrels per day. He resisted calls to force deep cuts in U.S. crude production in tandem with Middle East producers.Instead, the president and top administration officials repeatedly made the case that the free market is already paring oil production in the U.S. -- without the government lifting a finger.“The cuts are automatic if you are a believer in markets,” Trump said Monday. The president doubled down on that free-market talk Wednesday night, on the eve of Thursday’s OPEC+ summit. U.S. oil production already has been “cut back automatically,” Trump told reporters.Energy Secretary Dan Brouillette pushed that argument too, emphasizing that the global crude price collapse has already caused U.S. oil companies to idle rigs and curtail drilling. And the Energy Department offered numbers to prove its case. A short-term outlook released earlier this week underscored that 2 million barrels per day of oil production are already expected to be lost -- without any government intervention.Of course, Trump also has limited tools to force production cuts. He could quash 2.9 million barrels per day of oil production by halting the activity on federal lands. And a ban on U.S. crude exports could take care of another 3 million to 4 million barrels per day, according to Rapidan Energy Group.Trump’s laissez-faire approach has been “an effective bargaining position,” Lucier said. If Russia and Saudi Arabia say they want the U.S. to cut output too, the U.S. can effectively counter we’re doing it already, and “you need to match us, rather than we need to match you.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Oil prices reversed lower on reports that Russia and Saudi Arabia reached an agreement to reduce oil output by 10 million barrels per day not 20 million bpd.
It’s a scenario that could be detrimental to anyone’s finances, especially if they’re nearing retirement. At least 1.2 million people age 55 and older were unemployed in March, up from just about 1 million in February, according to seasonally adjusted figures from the Bureau of Labor Statistics. The unemployment rate, which is the number of people in the workforce divided by the number of those who are unemployed, for this demographic was 3.3, up from 2.6 the month before.
(Bloomberg) -- Three years ago, America’s largest pension fund made an unusual investment. It bought so-called tail-risk protection, a kind of insurance against financial catastrophe. In a market meltdown like the one sparked by the coronavirus, the strategy promised a massive payout -- more than $1 billion.If only the California Public Employees Retirement System had stuck with the plan. Instead, Calpers, as the fund is known, removed one of its two hedges against a bear market just weeks before the viral outbreak sent stocks reeling, according to people familiar with its decision.The timing couldn’t have been worse. The fund had incurred hundreds of millions of dollars in premium-like costs for those investments. Then it missed out on a bonanza when disaster finally struck.Softening the blow, Calpers held on to the second hedge long enough to make several hundred million dollars, one of the people said.Ben Meng, chief investment officer of Calpers, said the fund terminated the hedges because they were costly and other risk-management tools are more effective, cheaper and better suited to an asset manager of its size.“At times like this, we need to strongly resist ‘resulting bias’ -- looking at recent results and then using those results to judge the merits of a decision,” Meng said in a statement. “We are a long-term investor. For the size and complexity of our portfolio, we need to think differently.”Calpers had been warned about the perils of shifting strategy. At an August 2019 meeting of its investment committee, Andrew Junkin, then one of the pension plan’s consultants at Wilshire Associates, reviewed the $200 million of tail-risk investments.“Remember what those are there for,” Junkin told Calpers executives and board members, according to a transcript. “In normal markets, or in markets that are slightly up or slightly down, or even massively up, those strategies aren’t going to do well. But there could be a day when the market is down significantly, and we come in and we report that the risk-mitigation strategies are up 1,000%.”Costly Flip-FlopSure enough, the position Calpers gave up generated a 3,600% return in March. The costly flip-flop demonstrates the pitfalls of trying to time stock-market hedging. Like many insurance products, tail-risk protection seems expensive when you need it least.That’s especially true at a pension fund. Calpers tries to generate an annual return of 7% on its investments, leaving little room for error at a time when risk-free rates are close to zero. This kind of bear-market hedge can cost $5 million a year for every $1 billion protected, according to Dean Curnutt, chief executive officer of Macro Risk Advisors, which devises risk-management strategies for institutional investors.“It becomes hard to establish and hold these hedges because they eat away at precious returns,” Curnutt said. “Pension funds have return targets that are highly unrealistic.”Seeking ProtectionCalpers, based in Sacramento, manages about $350 billion to fund the retirement benefits for some 2 million state employees, from firefighters to librarians to garbage collectors. When the pension plan doesn’t meet its 7% target, taxpayers may have to kick in more money to make sure there’s enough to meet its long-term obligations.Half of Calpers’s assets are in stocks, and historically it has tried to blunt the impact of market downturns by investing in bonds, real estate, private equity and hedge funds. Over the past 20 years, the portfolio has returned 5.8% annually, compared with 5.9% for the S&P 500 and about 4.6% for an index of Treasuries.In 2016, Ted Eliopoulos, then Calpers’s chief investment officer, asked his staff to investigate ways of protecting its stock holdings from crashes such as those in 1987, 2001 and 2008, according to the people familiar with the fund. He’d been inspired by Nassim Taleb, the former options trader who wrote about the probabilities of rare but devastating events in his 2007 bestseller “The Black Swan.”The year after the book was published, Lehman Brothers went bankrupt, stocks imploded and the global economy seized up. Calpers reported a 23% loss in 12 months, and Taleb became a celebrity.Rare EventsTail-risk hedging evolved from probability theory. In statistics, the fat belly of a bell curve represents events that are likeliest to occur while the skinny tail ends indicate those that are possible but infrequent, such as a collapse in financial markets.In 2017, Calpers hired two outside fund managers to provide tail-risk protection. Universa Investments, a Miami-based firm advised by Taleb, provided the potentially more profitable hedge; LongTail Alpha in Newport Beach, California, the second one.The investments, initially small and exploratory, quadrupled in size over the following two years. They ultimately safeguarded the pension plan against losses on several billion dollars, the people familiar with the situation said.The program wasn’t cheap. Calpers calculated that in the year ended June 30, 2019, the Universa and LongTail Alpha investments reduced its 12-month return by a total of 4 basis points, or roughly $140 million.Some of the hedging expense was management fees. Public filings show Calpers paid Universa $22.5 million and LongTail Alpha $3.2 million that year. The remaining cost reflected the declining value, or bleed, of the underlying positions at a time of low market volatility.‘Price Matters’At its peak, the Universa hedge was enough to protect some $5 billion of Calpers’s $200 billion in public equities, and Eliopoulos had plans to double the program’s size, the people said. It’s unclear how extensive the LongTail Alpha position was.Most institutional investors prefer a more traditional approach to risk management, such as diversifying assets and holding Treasuries. Insurance is harder to grasp and fund managers typically balk at the idea of investing in anything that loses money most of the time, according to Macro Risk Avisors’ Curnutt.“Tail-risk hedging does work,” Curnutt said. “But the price matters quite a bit.”The payoffs can be staggering. In an April 7 letter to clients, Universa said its fund returned 3,612% in March. Calpers could have used that windfall of more than $1 billion to buy more stocks at lower prices or stayed in cash.Eliopoulos left Calpers in late 2018 and joined Morgan Stanley as a vice chairman. He declined to comment.Meng, a former Wall Street trader, was skeptical of tail-risk hedging and ordered a review of the program as part of a wider effort to reduce the number of outside asset managers that Calpers paid, the people familiar with the situation said. A number of his subordinates argued in favor of keeping the hedges in place, saying it was only a matter of time before the 10-year bull market in stocks came to an end, the people said.They lost the battle, and Calpers moved to redeem its tail-risk investments. It gave notice to Universa in October and by January no longer had the position in place that would have paid out more than $1 billion, according to those with knowledge of the decision.LongTail Alpha persuaded Meng to hold on for longer, and fortunately he did. Because that hedge wasn’t terminated until March 31 -- after the stock-market rout -- Calpers was able to reap several hundred million dollars.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
With U.S. stocks down more than 20% from their February highs, investors who had taken money out of equities and corporate debt and put that money into cash in recent weeks have avoided a great deal of pain.
In another emergency announcement, the Federal Reserve announced $2.3 trillion in new funding programs to address the economic impact of the coronavirus.
Pfizer stock jumped Thursday after the pharma giant identified a potential coronavirus treatment and inked a deal with BioNTech for a vaccine. Gilead updated its remdesivir studies.
OPEC+ has agreed in principle to a two-month production cut that will take 10 million barrels of oil from the market each day. Of that figure, Saudi Arabia will cut 3.3 million barrels from its output and Russia will pare 2 million from its daily production.
Given the volatility of mortgage rates in recent weeks, time is of the essence for those looking to secure cheap home financing.
(Bloomberg) -- Legendary short-seller Jim Chanos said he’s troubled that private equity is seeking financial aid from the federal government due to the economic impact of the coronavirus epidemic.“‘I’m a litte bemused, puzzled and somewhat outraged, I guess, that private equity would be pushing to the front of the line to try to get taxpayer assistance,” he said in an interview Thursday on Bloomberg Television.The Federal Reserve’s move Thursday to throw a lifeline to small and mid-sized businesses and fund the purchases of some types of high-yield bonds has has been seen by some market participants as helping the private equity firms who owns some of these companies. Those firms earlier this week were dealt a setback in their attempt to gain access to billions of dollars of loans that the U.S. government is doling out to help businesses hit hard by the pandemic, Bloomberg reported.Chanos said a look at the year-end letters for the four biggest publicly-traded private equity firms showed they had more than $300 billion in dry powder to put to use.“I think private equity is possibly at a crossroads similar to where hedge funds were post the global financial crisis,” said Chanos, who runs hedge fund Kynikos Associates. “People are going to start to judge the high fees and the illiquidity and think: ‘Am I really getting the return commensurate for the risk?”Apollo Global Management Inc. co-founder Marc Rowan warned in an email to clients, policy makers and government officials written at the end of March that liquidity is evaporating from markets so quickly that the economy will unravel without more support from the Federal Reserve.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Stimulus checks to arrive by April 15 for millions of taxpayers. A new portal where some can supply direct deposit information could be out next week.
(Bloomberg) -- Luckin Coffee Inc.’s stock, which hasn’t traded since April 6, will remain frozen until it satisfies the Nasdaq’s request for additional information, the stock exchange said Thursday.The formerly high-flying Chinese coffee chain is enmeshed in an accounting scandal that saw its shares plunge almost 80% last week. The Nasdaq, which had halted Luckin trading with a “news pending” alert, has now changed that status to “additional information requested.” The exchange declined to specify what information is being requested.Luckin last week disclosed an internal investigation into alleged misconduct by Chief Operating Officer Jian Liu, saying his team may have fabricated sales that could represent a significant portion of the company’s revenue last year.This has sparked the worst crisis in confidence for Chinese companies listed in the U.S. since a decade ago. The disclosure surprised big name backers, such as Citron Research, as well as investment banks including Morgan Stanley and Credit Suisse, which extended margin loans to Luckin Coffee’s founder Lu Zhengyao, who defaulted after a collapse in Luckin stock.Goldman Sachs said on April 6 that an entity controlled by Lu’s family trust reneged on $518 million of margin debt and that lenders had seized as many as 76.4 million Luckin shares -- almost 80% of the company’s total float.The stake was worth about $335 million based on the closing price Monday, down from more than $2 billion before the scandal emerged. It’s unclear whether the banks have sold the shares or whether they’ll be forced to book losses on their loans. Goldman, which didn’t elaborate on individual banks’ exposures, was given the role of handling the share disposal.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Berkshire Hathaway sold $30.9 million of the bank’s shares. It now owns a stake of less than 10% in Bank of New York Mellon.
As shown over the past 12 years, the Fed is content to inflate the stock market and wait for the economy to catch up.
Our call of the day looks at the tricky question of dividends. The goods news is that big S&P 500 companies will probably hold up on those better than investors think.
U.S. Senator Kelly Loeffler said on Wednesday she would liquidate her individual stock share positions after the wealthy Republican and her husband were criticized over sales of millions of dollars in stock during the coronavirus outbreak. Loeffler, who was appointed to her Senate seat in January by Georgia's governor, has repeatedly denied any wrongdoing. In a Wall Street Journal opinion column on Wednesday, Loeffler said she was not changing her investment strategy because she has to.
San Francisco-based Yelp, whose business model is reliant on other small businesses, has seen its customer base decline during the COVID-19 shutdown.
(Bloomberg) -- JPMorgan Chase & Co. punished more than a dozen traders for using WhatsApp at work, firing one and cutting bonus payments for the rest.Edward Koo, who had spent almost 20 years at the firm and was put on leave in January, was formally dismissed after JPMorgan concluded he broke company rules by creating a WhatsApp group and using it to discuss market chatter with other trading employees, according to people with knowledge of the matter.Koo traded corporate bonds and credit derivatives. The cut to bonuses sparked outrage among subordinates who followed Koo’s lead in using the channel, said the people, who asked not to be identified discussing internal matters.A JPMorgan spokesperson declined to comment. Koo didn’t immediately respond to requests for comment.Messages on the WhatsApp service are encrypted from start to finish, and can’t easily be monitored by Wall Street firms’ compliance departments, a problem for companies that need to make sure their employees aren’t engaging in illegal activity such as fraud or insider trading.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.