What You Need To Know This Week — March 28th, 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.
A RECORD 3.28 MILLION U.S. WORKERS FILE FOR UNEMPLOYMENT BENEFITS AS CANADIAN JOBLESS CLAIMS SOAR CLOSE TO 1 MILLION
Nearly 3.3 million Americans filed for unemployment benefits last week as businesses shut down across the country to halt the spread of COVID-19. To put the substantial increase into perspective, jobless claims increased by 3 million from the week before and the weekly level exceeded the previous record set in 1982 by nearly 5-fold. This massive jump in joblessness put an end to the longest streak of job growth on record, lasting more than a decade. Surprisingly, the S&P 500 was up 6.2% on the news. Meanwhile in Canada, nearly one million Canadians applied for unemployment benefits last week, representing almost 5% of the workforce.
U.S. GOVERNMENT APPROVES HISTORIC $2 TRILLION STIMULUS PACKAGE
In response to the economic fallout caused by the coronavirus pandemic, U.S. congress approved a landmark $2 trillion stimulus package aimed at aiding individuals and businesses. The plan includes a direct payment of $1,200 for each adult, $500 for each child, with married couples with two children getting $3,400. In addition to $301 billion in payments to households, there are $454 billion in loans to businesses, $349 billion in loans to small businesses, $250 billion in unemployment insurance, $221 in tax deferrals, $150 billion of aid to states, over $30 billion to airlines, in addition to payments to many other stakeholders.
ENDEAVOUR ANNOUNCES ACQUISITION OF SEMAFO IN $1 BILLION GOLD MINING DEAL
Endeavour mining announced the friendly acquisition of SEMAFO for $1 billion in a deal to create the largest gold producer in the Burkina Faso and Ivory Coast regions of Africa. The all-stock transaction was signed at a 54.7% premium and signals to the market that corporations are still confident enough to announce transformative acquisitions during a market panic.
Recommended Articles, Podcasts, Books and Tweets
The hosts of NPR’s Planet Money discuss the mechanics behind the U.S Government’s $2 trillion stimulus package.
The coronavirus-induced bear market was the fastest decline from an all-time high to a -20% drawdown, taking only 19 days. It was also the quickest bear market ever, as the Dow has rallied 20% off the lows and marked the start of a new bull run. The TSX also experienced a relief rally, gaining over 20% after three straight days of gains.
An update on “The Big Short 2.0”, which is a bet against shopping malls through purchasing credit protection on the CMBX 6 index, which tracks the performance of 25 mortgage-backed bonds that bundle debt from commercial properties. The trade is up 100% this month after falling for years. It was down -30% last year and many funds were forced to shutter before harvesting recent gains.
The Bank of Canada announced another emergency 50 basis point rate cut, taking the overnight rate to 0.25%, its lowest ever. The central bank also announced a foray into quantitative easing, stating the goal to buy a minimum of $5 billion in government bonds per week on an unlimited basis.
Investors put $286 billion into money market funds over the past week, an all-time record amount.
The amount of distressed debt in the U.S. surged by 4-fold over the past week to nearly $1 trillion, approaching the level last seen in 2008. Most of the distressed debt has been issued by battered energy companies.
Researchers in France treated a small number of COVID-19 patients with both hydroxychloroquine and Z-Pak. 100% of patients were cured by day six of the treatment.
Systematic value investing isn’t dead, it’s just that investors haven’t been paying attention to fundamentals for a while now, according to a recent paper from AQR. “Recently, there has been much written about the death of value investing. While undoubtedly many systematic approaches to value investing have suffered recently, we find the suggestion that value investing is dead to be premature. Both from a theoretical and empirical perspective, expectations of fundamental information have been and continue to be an important driver of security returns.”
Be careful with private REITs and other funds that hold illiquid assets. A number of private real estate funds have frozen redemptions as investors rush to the exit.
Mortgage investment funds have become the epicenter of the crisis as they experience margin calls and dramatic declines in value. Some have been forced to liquidate assets.
The price of Canadian oil fell to US$5.03 a barrel on Friday, sadly, less than the cost of the game Barrel of Monkeys.
The much-ballyhooed short selling bans have “little impact on stock prices” but they lowered market liquidity and increased trading costs.
The coronavirus bear market put the functioning of ETFs to the test, and they passed with flying colours. ETF prices have become “the effective benchmark prices of the underlying market.”
Thematic investing is just performance-chasing with a narrative.
Index providers S&P Dow Jones Indices, FTSE Russell and ICE Data Services have all delayed their index rebalancing, not wanting to cause more volatility in the market.
Which investment opportunities are vaccinated against the coronavirus? Look to arbitrage spreads in closed-end funds, SPACs and mergers.