What You Need To Know This Week — March 21st, 2020
What You Need To Know This Week
A weekly recap to keep you informed on the most important events this week impacting markets, business, tech and the global economy.
GOVERNMENTS AROUND THE WORLD ANNOUNCE RECORD-SETTING FISCAL STIMULUS MEASURES TO COUNTERACT CORONAVIRUS-LED ECONOMIC DOWNTURN
Republicans introduced legislation to inject more than $1 trillion of fiscal stimulus into the U.S. economy in a plan to offset the economic contraction due to the coronavirus pandemic. The proposal includes cheques to individuals and businesses to keep them afloat as commerce grinds to a halt due to social distancing and self isolation measures implemented to stop the spread of the virus. The proposal would need support from Democrats. Meanwhile, Canada implemented an $82 billion fiscal stimulus package to support Canadians and businesses affected by COVID-19.
CENTRAL BANKS DO THEIR PART IN FIGHT AGAINST COVID-19 BY IMPLEMENTING SUBSTANTIAL MONETARY STIMULUS
The U.S. Federal Reserve announced another emergency interest rate cut, taking rates down to near-zero, and $700 billion of so-called quantitative easing. This monetary stimulus includes buying $700 billion of treasury bonds and mortgage-backed securities in a bid to ease financial conditions. The Bank of Canada implemented another 0.50% cut of its benchmark interest rate on an emergency basis while the European Central Bank launched a €750 billion stimulus program which includes the potential to backstop the Eurozone’s weakest governments. Also, the Bank of England cut its benchmark interest rate to an all-time low and announced that it would purchase £200 billion of U.K. government bonds. At least 22 emerging market central banks have cut interest rates this week alone.
MARKET VOLATILITY CREATES UNPRECEDENTED OPPORTUNITY IN MERGER ARBITRAGE AS DEALS CONTINUE TO GET DONE
Despite unprecedented volatility in the markets, exemplified by the VIX Index (also known as the fear index) exceeding the record-breaking level last set in 2008, mergers and acquisitions continue to be announced and deals continue to close despite merger arbitrage spreads trading out to record levels. For example, last week Macquarie triumphed over competitor Brookfield for the acquisition of Cincinnati Bell. This week, private equity firm KKR announced one of the largest leveraged buyouts of the year, scooping up garbage recycler Viridor in a £4.2bn deal. In addition, two parties continue to bid for television broadcaster Tegna, valuing the company at $4.4 billion.
Recommended Articles, Podcasts, Books and Tweets
Listen to Dr. Marty Makary discuss both the best case and worst case scenarios involving the coronavirus pandemic on the James Altucher Show.
Economists at Morgan Stanley and Goldman Sachs concede that a global recession is underway. Morgan Stanley expects global GDP growth of 0.9% this year, while Goldman is forecasting 1.25%. A global recession is defined as GDP growth below 2.5%.
U.S. Senators are facing calls to resign because they opportunistically sold stocks last month after being briefed about potential coronavirus impacts prior to the market falling.
What does the media do when stocks drop? Blame risk parity, a systematic strategy that involves selling stocks as they decline and volatility increases. “The risk parity Kraken has finally been unleashed.”
Understanding the exponential math behind the spread of the coronavirus makes the practice of social distancing essential. Yes, the mortality rate is low, but if the virus spreads unabated, hospitals will quickly be overwhelmed.
The effect of the coronavirus is an economic shock that has hit markets and global commerce incredibly quickly. “Now the idea that America — and the world — will begin to restart in three to six weeks is similarly unimaginable to many despite this being a *much* more likely scenario than the current shutdown was only six weeks ago. In fact, I would go so far as to say that America beginning to restart in three to six weeks is overwhelmingly likely.”
When the pandemic fades, Credit Suisse’s global strategist sees a quick, V-shaped recovery for the market: “We get V-shaped recoveries from exogenous supply-side shocks. Average decline is 22%, average rebound is 21%.”
Many REITs are now trading at “unprecedented valuations,” with an average discount of 29% to the NAV of their properties. That is an even steeper NAV discount than the previous record low of 27% during the financial crisis of 2008.
Some of the world’s most successful investors, including Warren Buffett and Carl Icahn, have been buying into stocks aggressively as of late, looking to capitalize on the “bargains of a lifetime”.
The now distressed Vision Fund is seeking $10 billion in additional capital to bail out some of its portfolio companies that have struggled with the coronavirus-led downturn. Also, Softbank is trying to pull out of its commitment for a $3 billion tender offer for WeWork stock.
Billionaire investor Bill Ackman expressed the need to shut down the country because “there is a tsunami coming,” due to the coronavirus. Despite spooking the market, he later claimed “these are the bargains of a lifetime if we manage this crisis correctly,” and stated that he was buying stocks.
One of the few investment strategies that is doing well in this market is tail-risk, which tend to lose money in normal market environments but win big during a crisis.
The economic disruption may cause some regulatory merger reviews to be delayed, as the Justice Department and Federal Trade Commission announced delays may cause them to seek more time to review mergers.
According to medical experts in Italy, 99% of those who died from COVID-19 in the country had existing medical conditions.
