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JPMorgan's quant guru says US stocks will climb back to record highs in the first half of 2021

Wed, 04/22/2020 - 11:00am

  • JPMorgan's top quantitative analyst sees aid from the Federal Reserve and summer sunlight bringing a market rebound sooner than initially expected.
  • The S&P 500 will return to past highs in the first half of 2021, Marko Kolanovic wrote in a Tuesday note. A previous forecast said a resurgence would arrive in the second half of next year.
  • The Fed's slew of monetary-easing actions slashed the discounted earnings rate through recent weeks, effectively boosting valuations as anticipated profits outweigh near-term losses, Kolanovic said.
  • The lead quant cited preliminary government research suggesting that direct sunlight could kill the coronavirus, calling the report a positive signal for summer recovery.
  • Visit Business Insider's homepage for more stories.

Federal Reserve policy and summer weather has JPMorgan's top quantitative analyst feeling more optimistic about a stock-market recovery.

The S&P 500 index is set to return to record highs in the first half of 2021 as the coronavirus threat fades and businesses return to regular activity, Marko Kolanovic wrote in a Tuesday note. The firm previously saw a recovery arriving in the second half of next year, but new data on the coronavirus' spread suggests that "the worst-case pandemic scenario will likely not materialize."

Typical price-earnings ratios lose their effectiveness when shutdowns pull profits to the floor, the head quant said, making a discounted earnings rate the better metric for forecasting the market's recovery. When the rate falls, future earnings are discounted less and effectively make up for near-term losses.

The Fed's emergency interest-rate cuts and initial monetary aid pushed the discount rate lower in mid-March, but the metric quickly bounced higher as credit spreads widened. The latest wave of central-bank stimulus calmed the lending market and pushed the discounting rate 1% below pre-crisis levels, JPMorgan said. Should relief measures hold, a valuation boom could guide markets to past highs.

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"The combined suppression of the risk free rate and credit spreads by the Fed likely has a bigger positive impact on equity valuation, compared with the negative impact of the temporary earnings loss," Kolanovic wrote.

Where the Fed can provide a concrete boost to future valuations, a less predictable variable could become "the most important factor to consider" for reopening the US economy, he added.

A Department of Homeland Security briefing published April 13 described preliminary findings that sunlight could destroy the coronavirus in a matter of minutes, though the department cautioned against drawing conclusions from the document. Experts have previously said there is not yet conclusive evidence about whether the virus is killed by sunlight.

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Factoring sunlight-exposure data into its earnings model, JPMorgan sees the summer as a key period for wiping out the virus and its economic fallout.

A reopening could arrive sooner than expected if workplaces use sunlight to their advantage, Kolanovic said.

"One can think of the virus' 2-minute life in sunlight as a 'deep cleaning' of outdoor spaces every 2 minutes," he wrote. "Working spaces could be rearranged to allow for maximal natural sunlight, and artificial lightning with equivalent spectral and power output can be installed in high-risk areas."

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Former Defense Secretary Jim Mattis made his modeling debut wearing a $1,500 kangaroo-leather jacket

Tue, 04/21/2020 - 8:28pm

  • An image of Jim Mattis modeling in a photograph while wearing a kangaroo leather jacket circulated online, prompting questions as to why the former Defense Secretary appeared to be promoting clothing brand.
  • Kill Kapture founder Mark Wales, a former Australian soldier from the Special Air Service Regiment (SAS), told Insider he first met Mattis while attending the Wharton School of the University of Pennsylvania.
  • After meeting Mattis, Wales later invited him to an all-veteran photoshoot in New York City.
  • Wales reached out to Mattis to ask if he could use the photo for marketing purposes, which the retired general responded with: "Yeah, you can use it for whatever you want. You can put in on a billboard in Russia if you want."
  • Visit Business Insider's homepage for more stories.

An image of Jim Mattis modeling in a photograph while wearing a kangaroo leather jacket circulated online, prompting questions as to why the former Defense Secretary appeared to be promoting clothing brand.

The black jacket, hand-made in New York City, was created by the company Kill Kapture, a "tough luxury" clothing brand "designed by special operators." It takes roughly 10-12 weeks to manufacture the $1,500 jacket, which is also trackable with your phone if you ever lose it.

Founder Mark Wales, who is also a former Australian soldier from the Special Air Service Regiment (SAS), first met Mattis when he attended the Wharton School of the University of Pennsylvania. Wales's classmate served with Mattis in Iraq and invited the retired general to speak to a veterans group at the business school.

"I thought he was just the nicest guy," Wales said to Insider. "And he had such a good take on how veterans can contribute to the broader economy."

According to Wales, Mattis advised the student-veterans that "the best contribution to make for your country and to our security is to build strong businesses and develop the economy."

"Because I was Australian, I knew he was kind of US royalty, but I had no idea just how much of a figure he'd been in military history," Wales said.

"The way he talked about combat and doing the right thing — I think he understood what it meant to use force for your country," Wales added. "It wasn't just about war — it was actually about something much greater and promoting the values that we have as a free country. I think he understood warfare on a much different level than myself and other military people do."

In 2015, Wales was in Manhattan, New York, for an hour-and-a-half photoshoot when he reached out to Mattis and asked if he wanted to make an appearance.

Mattis accepted the invitation and also had beers while sharing stories: "What's so good about him is that he supports veterans in transition when they've left the military and try to contribute to the economy," Wales said.

Wales asked if Mattis could be photographed, which he said the general accepted. All of the models used in the photoshoot were also military veterans.

He later reached out to Mattis to ask if he could use the photo for marketing purposes, which the retired general responded with: "Yeah, you can use it for whatever you want. You can put in on a billboard in Russia if you want."

"I think he took a risk in getting that photo and helping us out, so I've always appreciated that," Wales said.

Mattis was two years into his retirement after leaving the helm of US Central Command. He was selected to become President Donald Trump's defense secretary in 2016 and was later confirmed by the Senate in a 98-1 vote.

Mattis resigned in 2018 after an apparent disagreement with Trump's foreign policies.

"One core belief I have always held is that our strength as a nation is inextricably linked to the strength of our unique and comprehensive system of alliances and partnerships," Mattis said in his resignation letter. "While the US remains the indispensable nation in the free world, we cannot protect our interests or serve that role effectively without maintaining strong alliances and showing respect to those allies."

Wales said he sent Mattis a complimentary jacket after he resigned.

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'I've gone to cash': Mark Cuban outlines his coronavirus investing strategy ahead of another 'leg down' in markets — and says now is the time to buy real estate

Tue, 04/21/2020 - 5:17pm

  • The billionaire entrepreneur and investor Mark Cuban is patiently sitting in cash and waiting for the fallout from the coronavirus to subside before jumping on new investments.
  • In the short term, Cuban sees "a leg down" for markets, echoing the views of billionaire "bond king" Jeffrey Gundlach.
  • Cuban also thinks commodities and real estate will make sound investments during this time period for those more daring.
  • Click here for more BI Prime stories.

"I've gone to cash."

That's what the billionaire entrepreneur and investor Mark Cuban said on "The Pomp Podcast" in regard to his personal investment strategy in a market that continues to joust with the coronavirus.

"I still think we have a leg down," he said.

Cuban's prediction echoes that of billionaire "bond king" Jeffrey Gundlach. In March, Gundlach warned market participants of a sharp decline in April that would eclipse the 30%-plus trough stocks had previously dug out. Those comments were echoed by Paul Singer's Elliott Management, which expects a 39% downside from current levels.

So far, those forecasts haven't come to fruition, as markets rallied sharply in the first half of April.

But even though Cuban forecasts a decline in the short term, that doesn't mean he's overtly pessimistic about the longer-term growth prospects in the US.

"Three years, five years from now, the market will be up from where we are today," he said. "When we look back in 10 years, there's going to be some amazing companies created — and having access to cash, or having cash, is going to give me an opportunity to invest in them."

For that reason, Cuban's approach to markets in this time period is based on a wait-and-see cash-heavy strategy. He's building his cash hoard now so that he can deploy it on the entrepreneurs and companies that emerge from this crisis.

"I think there are companies that are going to need capital in this America 2.0," he said. 

For clarity, the "America 2.0" that Cuban referred to is analogous to a post-coronavirus landscape in the US. 

What's more, with global supply chains in disarray, and manufacturing processes likely to come back to the US, Cuban thinks an uptick in consumer pricing pressure is to be expected. For that reason, he sees commodities as a main beneficiary of today's market environment.

"I think commodities will go up because I think we'll get some modicum of inflation," he said. "And as companies try to protect their own manufacturing and try to really bring core necessities domestically — I think that could push up the value of commodities." 

Cuban's inflationary forecast is similar to those laid out by strategists at heavyweight firms such as BlackRockJPMorgan, and Morgan Stanley. All of them have said the risk of higher inflation is underappreciated by investors at large.

Though Cuban didn't give recommendations for specific commodities to invest in, he said "on a macro basis," investors should expect an increase.

Investors looking to invest in a broad basket of commodities should consider Invesco DB Commodity Index Tracking Fund (DBC) and iShares S&P GSCI Commodity-Indexed Trust (GSG).

An opportunity in real estate

Cuban also sees opportunities in real estate for those willing to stomach the risk. He broke down prospective investments into two buckets: those that are budding and those that are ready for purchase.

"I'm trying to be opportunistic and agile," he said. "I just think there will be a lot of reformulating because there's so many companies that were leveraged. So companies went to buy land or buildings or shopping centers — whatever it may be — and they put down very little capital, and they went out and borrowed more."

He added: "I think you're going to see some deleveraging there, which creates some opportunities to buy land."

Though Cuban is optimistic about commercial real estate, he said the discounts haven't yet been baked into pricing, so it's best to be patient. Investors looking for broad exposure to the space can buy the Vanguard Real Estate ETF (VNQ).

On a more immediate basis, he thinks unit prices in densely populated cities that have been decimated by the coronavirus are starting to look enticing.

"In big dense cities, like New York, you're starting to see condos — the prices there have just dropped like rocks," he said. "If you think you want to live in New York in the future, now's the time to buy. If you think you want a house in an area that's been hit hard — Detroit or wherever it may be — now's the time to buy." 

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We read through billionaire Paul Singer's latest letter to Elliott investors. From destructive solar flares to money 'going to hell,' these are his 5 biggest worries.

Tue, 04/21/2020 - 4:49pm

  • Billionaire Paul Singer's latest letter to investors predicted an even steeper drop in stocks due to the effects of the novel coronavirus pandemic, but also warned about doomsday scenarios unrelated to the virus.
  • Singer warns about the damage a solar flare would do to the world's electrical grid and how hackers could have "unimaginably negative consequences."
  • The manager is known for his pessimism, and he scolds the overall market for missing "the slowest moving black swan in history." 
  • Visit Business Insider's homepage for more stories.

Billionaire Paul Singer, founder of $35 billion Elliott Management and known pessimist, believes stocks still have a long way to fall, as reported by Reuters earlier. 

But Singer also tells his investors in a 14-page letter that there are worries and concerns related to the stock market and current pandemic as well as not. He's worried about the structure of the global economy once business re-opens,  international relations with China, solar flares, and hackers. 

"The global economy is currently experiencing the deepest and quickest downturn in history (including the 1930s). Among the most surprising aspects of this situation is that most investors, Wall Street economists and strategists, business executives and governments were exceedingly slow in identifying that a deep recession and vast economic shutdown was underway," he wrote in a letter dated April 16. 

Singer, a former lawyer famous for using the courts to get his way as an investor, such as when he impounded an Argentina naval ship over a bond payment, believes investors currently are "too influenced" by 2008's economic crash, and warns that "there does not yet appear to be serious undervaluation" despite the stock market's plunge.

Elliott declined to comment beyond the letter.

Here are some of the worries Singer details for investors:

SEE ALSO: AQR's former machine-learning head says quant funds should start 'nowcasting' to react to real-time data instead of trying to predict the future

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Restarting the economy

As protests to reopen businesses spread across state capitols, Singer writes that "the path to restarting the global economy will be a labyrinth."

He is worried about the enormous balance sheets of central banks and low interest rates prior to the pandemic, especially compared to the relative cleanness central banks had before 2008. He believes the economic restart will create a new line of cronyism for politicians to "mine" for their backers.

Singer's fund has been railing against central banks' policies for nearly a decade, pushing them to "normalize" rates and balance sheets after the market recovered following 2008. 

"One can only imagine what is going to happen to central bank balance sheets and global interest rates now, given that the global economy is screeching to a halt. Is the $20 trillion of central bank securities holdings going to rise to $30 trillion? Almost assuredly yes. How about $40 trillion? $50 trillion? Who knows? Are short-term policy rates going to be negative everywhere? Is all this going to matter? Will there be a serious deflationary period that will cause governments to pour even more fuel on the fire? Following a brief deflationary period, is the even-more-radical monetary flood going to create a tipping point following after which fiat money is rejected and hyperinflation begins, a process which could be self-reinforcing and serve to wipe out the real value of global savings and send consumer prices, commodity prices and real estate prices to the moon?" Singer asked in his letter.

There is one thing "for sure," he said. 

"The global economy coming out of the virus situation will be more indebted and more dependent than ever before upon 'free money,' QE/MMT (Quantitative Easing and Modern Monetary Theory, meaning massive asset-buying by central banks and unlimited fiscal spending financed by central banks in their own currencies, respectively) and higher deficits in order to function."



An attack on the electrical grid

Among Singer's non-pandemic concerns are the consequences of the "interconnectivity of the world." Already, advances in travel and international trade agreements allowed the virus to travel faster than any other pandemic. 

But the world's current reliance on the electrical grid, Singer warns is "highly vulnerable," an electromagnetic event that short circuits it would be "extremely painful."

"In 1859, an EMP episode (called the Carrington Event) caused by a solar flare caused disruptions to the global electric grid, but that grid was very rudimentary at the time, so there was not much disruption to global life. "



An internet shutdown

Similar to the world's reliance on the electrical grid, any kind of disruption of the internet "would have unimaginably negative consequences," Singer writes. 

Hackers or an accidental shutdown of the internet could stymie markets and swing elections,  history has shown. Singer warns that "complexity and interconnectivity cause brittleness and people have short memories."

"Long-term vision is rare, and decades of smooth functioning encourage people to reduce cushion, eliminate spare capacity, increase leverage, rely on unsound and fragile structures. (both physical and organizational), and neglect preparation for real adversity and volatility."



China and the global supply chain

As Singer writes, China went, "in a breathtakingly short period of time," from a threat because of IP theft and unfair trade practices to something much more serious. Now, doubts about China's handling of the virus and transparency around what happened in the country will shape the relationship the world's most populous country will have with the rest of the world.

For companies in the US and elsewhere that rely on Chinese manufacturers for cheap production of goods, the questions they now must ask are "should we go back to China, build plants in China, depend on China as a primary or sole supplier?"

"The virus and the questions about doing business with China could do to international trade what tariffs could only have dreamed of doing," Singer writes. 

The pandemic has taught governments a lesson in supply chains, Singer writes, since "many items necessary for our national military or health security have become concentrated and risky," naming the pharmaceutical industry's reliance on China. 

"These factors will lead to significant re-thinking by many businesses and governments about their supply chains when the current crisis ends." 

 



Inflation when 'money is going to hell'

In tandem with his concerns about the rising debt that the economy will be under once it reopens, Singer sounds the alarm on the risk of inflation even to "real" assets like corporate real estate.

"It looks real because kicking it can break your toes, but it is generally highly leveraged and depends upon the relationship between rents and costs. If there are rent controls or moratoria, formal or forced by circumstances, and no controls on costs, commercial real estate can produce rapid insolvencies," he writes.

He believes "massive monetary expansion" is needed in the current pandemic so people can feed themselves, but "politicians love markets going up, and if there are no countervailing considerations, like rapid consumer price inflation, then they will try to keep markets high and rising and interest rates low forever." Eventually, Singer believes it will catch up to the world's economies. 

"'Paying for things with 'real' money is now a quaint, outdated concept. Money is going to hell," he wrote.



Dow tanks 632 points as oil's record-breaking plunge sends traders fleeing to safety

Tue, 04/21/2020 - 4:05pm

  • US stocks slid for the second straight day on Tuesday as oil prices continued to whipsaw in the face of a supply glut and a lack of storage options.
  • West Texas Intermediate crude contracts expiring in May traded as low as -$16.74 a barrel on Tuesday before settling at $10.01.
  • Amid the turbulence, June contracts slipped as much as 68%, to $6.50, before closing at $13.59.
  • Watch major indexes update live here.

US stocks plummeted on Tuesday amid the escalating strain on the oil market.

All three major indexes extended their downturns from Monday's session as West Texas Intermediate crude contracts expiring in June plunged as much as 68%.  The commodity market faces unprecedented pressure from a severe lack of storage capacity and weak demand during the coronavirus pandemic.

Here's where major US indexes stood at the 4 p.m. ET market close on Tuesday:

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West Texas Intermediate oil futures expiring in May traded as low as -$16.74 a barrel on Tuesday before settling at $10.01, up from Monday's close of -$37.63. Selling pressure seeped into WTI crude contracts for June, which closed 33% lower, at $13.59 a barrel.

Brent crude slid 23%, to $19.81.

The popular oil exchange-traded fund United States Oil Fund tanked as much as 38% amid the commodity rout. The fund's manager said in a regulatory filing on Tuesday that it had issued the last of its remaining shares and requested approval from the Securities and Exchange Commission to register an additional 4 billion. The lack of new issuances threatens to decouple the ETF from oil and its price changes.

Investors looking for clear winners and losers during the market turmoil aren't going to have it easy, said Chris Zaccarelli, the chief investment officer at Independent Advisor Alliance. The near-term outlook favors firms equipped to address the current demand shortage, he added, but several variables could quickly shift market sentiment.

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"Shippers and storage facility companies looked interesting yesterday and potentially still have room to run in the near term, depending on how long the current supply/demand/storage situation lasts," Zaccarelli said in an emailed statement. "Energy companies appear to be a falling knife at this point."

Goldman Sachs sees stabilization taking weeks to arrive. "Shutting down a well is extremely expensive," Jeff Currie, the firm's global head of commodities research, said in a Monday CNBC interview, adding that producers are unlikely to react quickly and bring rapid aid to the battered market.

"We don't think this is the end of it," Currie said. "You're likely to see this continue to go on at least through the middle of May."

Read more: Experts at Boyar Research lay out the Warren Buffett-inspired investing approach that's helped them crush the market over 7 years — and offer 4 stock picks for a coronavirus-battered market

The energy sector was particularly slammed by the commodity-market tumble. The combined market capitalization of S&P 1500 energy firms recently dropped to $700 billion, making that corner of the market roughly half the size of Microsoft's $1.4 trillion market cap, Bespoke Group reported on Monday.

IBM's first-quarter report added fuel to the stock-market fire. The company announced a 3% decline in year-over-year revenue and pulled its 2020 earnings forecast amid heightened uncertainty. Shares closed down 3.4%.

The back-to-back market slides are a sharp reversal from recent moves. After two straight weekly gains, Monday's session saw the Dow drop nearly 600 points amid the historic oil slump. Tuesday's decline is poised to wipe out nearly all gains made in the previous week.

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The IMF says governments should consider new wealth taxes to raise cash from the rich as coronavirus slams the global economy

Tue, 04/21/2020 - 4:03pm

The International Monetary Fund is pushing governments around the world to consider implementing wealth taxes to raise revenue as the pandemic slams economies.

In a "Tax Issues" policy paper released earlier this month, the IMF said policymakers should review ramping up income, property, and wealth taxes, modeled as a "solidarity surcharge," the organization said. 

For individuals, the IMF encouraged slashing payroll taxes as well as cash transfers to help those hardest hit with job losses or other circumstances.

The IMF's recommendation for a wealth tax marks a stark turnaround for an institution that long pushed tax cuts as a central element of its policy menu for developing nations. It serves as a lender of last resort to countries in dire financial straits.

Read more: Goldman Sachs talked to more than 100 investors about the historic oil market meltdown. Here are their top 5 questions — and what the firm thinks about each one, from dividends to the prospects for oil stocks.

The Guardian reported that evidence of lackluster growth in recent years compelled the IMF to shift gears and begin proposing plans to help reduce the gap between the richest people and everyone else.

IMF Managing Director Kristalina Georgieva said in a blog post earlier this year: "Inequality of opportunity. Inequality across generations. Inequality between women and men. And, of course, inequality of income and wealth. They are all present in our societies and – unfortunately – in many countries they are growing."

In the US, Democratic Sens. Elizabeth Warren and Bernie Sanders helped thrust wealth taxes into the mainstream with their unabashedly progressive presidential campaigns.

Both wanted to use wealth taxes as a mechanism to rein in runaway inequality and shrink billionaires' fortunes to finance sweeping proposals for universal healthcare and elimination of student debt.

Some variation of those taxes on the richest earners in the US could ostensibly be used to cover federal spending during the pandemic.

The government has already spent over $6 trillion to provide urgent economic relief to businesses and individuals through a combination of grants, expanded unemployment benefits and stimulus checks, The Washington Post reported.

The IMF projected last week that the pandemic could lead to an economic meltdown that rivals the Great Depression. It said that global gross domestic product would drop around 3% this year, and could fall lower if the outbreak isn't contained.

Georgieva said on Monday that the organization may need to propose "exceptional measures" to help nations alleviate the economic effects of the pandemic.

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A hedge fund manager who dominated the last financial crisis posted a 26% loss during March's violent sell-offs, new report says

Tue, 04/21/2020 - 3:45pm

  • East Lodge Capital founder Ali Lumsden was among the few to post huge gains during the financial crisis, but his main fund slipped 26% in March amid the coronavirus pandemic, Bloomberg reported Tuesday.
  • The hedge fund focuses on securitized credit positions, a corner of the market particularly battered by the virus and related business closures. As revenue streams dry up, risk of companies defaulting on credit soars.
  • Lumsden posted a 73% gain during the last recession by betting against the subprime mortgage market.
  • Visit the Business Insider homepage for more stories

When the last global recession roiled markets, Ali Lumsden made a 73% return. His hedge fund isn't faring as well amid the coronavirus pandemic and its economic fallout.

East Lodge Capital's main fund sank 26% through March, Bloomberg reported Tuesday, as the outbreak gripped assets of all kinds and likely pushed the world economy into a deep recession. The London-based firm saw a 16% monthly loss through another one of its funds.

Lumsden's office focuses on securitized credit positions, according to Bloomberg, one of the markets slammed hardest by the virus. Widespread lockdowns to stem the outbreak's contagion wiped out several companies' revenue streams, escalating the risk of late payments and defaults. While central banks and governments have been quick to issue emergency relief, regulatory hurdles and glitches have kept several firms from tapping the credit facility.

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The March tumble marks a sharp reversal from Lumsden's last recession-era performance. The manager was among the few to bet against subprime mortgages ahead of the housing market crash in 2007. While working at hedge fund CQS from October 2006 to November 2012, the then-chief investment officer posted average annual gains of 28%, according to Bloomberg.

East Lodge manages $1.9 billion of assets and invests through a global structured credit fund, a European structured credit fund, and a specialty finance fund, according to its website.

Not all hedge funds slipped alongside the broad market decline. Jim Simons' Renaissance Technologies posted a 39% gain for the year through April 14 with its flagship Medallion fund, The Wall Street Journal first reported. Bill Ackman's Pershing Square notched an 11% windfall in March after turning a $27 million bet on credit-default swaps into a $2.6 billion profit.

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The US housing market is bracing for a drastic drop in home sales this spring as data shows new listings down nearly 50%

Tue, 04/21/2020 - 3:44pm

  • The median listing price in the US housing market was up year over year in March, but fewer and fewer new listings showed up as the month progressed, and they're down dramatically in early April data.
  • According to a report by Redfin, new listings were down 36.9% year over year for the last week of March.
  • And for mid-April, new listings declined nearly 50%.
  • And sales of previously owned homes, the majority of the marketplace, were down 8.5% in March.
  • Visit Business Insider's homepage for more stories.

The US housing market was on the upswing at the start of 2020.

As it headed into March, the market showed the kind of green shoots appropriate for the start of spring. In fact, in the last quarter of 2019, million-dollar sales were up 11%, and housing prices overall were up. On an annual basis, 2019 saw the most first-time homebuyers since 1993, according to Genworth Mortgage Insurance.

Then in January, new home sales and pending homes sales both jumped, and inventory was at its lowest level since 2012. The next month, existing-home sales hit their highest point in 13 years. In early March, mortgage rates hit historic lows, which boded well for homebuying in 2020.

But the housing market reversed course as the coronavirus outbreak brought most of the country to a halt, and now we're starting to get data showing just how bad the damage was.

Early data points to a nearly nonexistent spring market

A recent report by the Seattle brokerage Redfin said nationwide home sales dropped 9.1% from February to March on a seasonally adjusted basis — marking the steepest decline Redfin has seen since it started recording data eight years ago.

In the last week of March, new listings were down 36.9% from the same time last year. And as of last week, that decline had spiked to nearly 50%, according to Redfin. In fact, of the 85 largest US metro areas that Redfin tracks, only three saw a year-over-year increase in active listings: Omaha, Nebraska, at 9.9%, Minneapolis at 5.3%, and El Paso, Texas, at 1.3%.

This is a problem because according to Zillow, the period between late March and early April is when listings typically pick up and the spring market kicks into gear. The Wall Street Journal reported that about 40% of any given year's sales take place between March and June. But that's not going to be the case this year.

And there's carnage in some markets. According to Zillow, the markets that have seen the greatest slowdown in new listings since March 1 include Detroit with a 61.8% decrease, Pittsburgh with a 55.5% decrease, and New York with a 49.1% decrease.

And new-home construction, or housing starts, fell 22.3% in March from February, according to the Commerce Department, the biggest month-over-month such drop since 1984. Homebuilders aren't feeling confident, either; in fact, they've never felt worse. The National Association of Home Builders' housing-market index fell to 30 in April from 72 in March, the largest single-month decline in confidence in the index's history.

Prices are steady — and home sales are growing

It's not all bad news in the housing market — at least, not yet.

According to a report by Realtor.com, the national median listing price increased 3.8% year over year to $320,000 in March. And while the number of active listings dropped drastically (down 15.7%  year over year), Realtor.com said homes sold 60 days quicker in March than in the same month a year ago.

But Redfin said the March data didn't fully reflect the effects of the pandemic. 

"When trying to understand the apparent strength of home prices in March it is important to remember that most of the homes sold during the month actually went under contract in February, before the coronavirus began to shut down the US economy," the report said.

And home sales overall were up in March, albeit by only 0.8%, but that disguises a much more telling statistic. According to the National Association of Realtors, existing-home sales — which make up most of the homes for sale on the market — fell by 8.5% for the month, the largest month-over-month drop since 2015, The Wall Street Journal reported.

"More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise," Lawrence Yun, the National Association of Realtors' chief economist, said.

SEE ALSO: How New York City's housing market after the pandemic will compare to post 9/11: Industry leaders see many similarities, but a few crucial differences

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'This is the day of reckoning' for companies like WeWork. 10 real-estate insiders lay out the future of flex-offices, and how employers are preparing now.

Tue, 04/21/2020 - 2:54pm

  • The coronavirus pandemic is reshaping how employers are thinking about their real-estate needs, in particular the use of flex-office companies like WeWork.
  • Ten real-estate experts, from landlords to employers, highlighted how the industry is set to evolve in the face of the pandemic. 
  • In the short term, operators will feel a pinch as employees stay home, and some companies will likely go out of business or consolidate.
  • In the long term, though, the flex-space industry may see an uptick from employers who don't want to commit to traditional, long-term leases and who want more outsourced office management. 
  • Visit Business Insider's homepage for more stories.

Millions of workers suddenly forced out of the office are discovering that they can work from home – and in some cases that they want to work from anywhere but home. 

The coronavirus pandemic and its unintended mass work-from-home experiment promises to reshape the offices to which many employees will eventually return. Employers making real-estate decisions now are weighing how to safely bring their employees back, and, bigger picture, exactly how and where they'll have offices in the coming months and years. 

Before the pandemic, flexible-office companies like WeWork made up a growing sliver of real estate – 2.3% of leasable space in the US as of the first quarter of 2020, according to JLL research, and the sector has grown an average of 23% per year since 2010.

Now, insiders predict a short-term pinch for the industry, as employees fear returning to dense floors and some of the small businesses that relied on these spaces cut headcount. But in the long term, 10 real estate experts, from employers to landlords, said they expect flexible offices to be an even more critical component of real estate as companies hesitate to lock in long-term leases and rethink their real estate footprints – but not every provider will survive.

"This was like a nuclear bomb into flexible office. It temporarily blew it up," said Saeid Garebaglow, who plans real estate for Japanese financial services company MUFG and previously worked in WeWork's enterprise division. "From the strategy side, it's still a tool in the toolbox … That strategy is not going to change."

Garebaglow, who works out of New York, said signing a short-term contract with a flex-office provider like WeWork would be a better deal right now than a traditional 10-year office lease, since so much about the market could change quickly, from rent prices to employer demand.

But he cautioned he would add a clause to any contract specifying that if a flex-office provider doesn't fulfill the contract, the landlord would take over the space. 

See more: Seduced by WeWork's sky-high valuation, coworking firms have multiplied. A shakeout could see them merge, shutter, or specialize.

One glimpse into the future for the US comes from how Asian companies, which are about a month or two ahead of the US in dealing with the virus, have transitioned.

David Wong, the CEO of Hong Kong-based flex-space booking platform Booqed said that after a first wave of cancellations, he received a wave of interest from companies looking to flex office to cut real-estate costs and for business continuity planning.

Companies directed their employees to various locations, minimizing risk to a team if a teammate got sick. But now that Singapore is again under lockdown, he's seen a second wave of demand falling. In China, meanwhile, some cities are open and starting to pick up, while others are still quiet.    

"It's definitely not going to be a V-shaped recovery," he said. "I'm starting to wonder if it's a U shape, or a series of W's: two steps forward, then another cluster of infections and people draw back." 

The US is still, at minimum, weeks away from any timeline for white-collar workers' return to the office. In one clue about the outlook, Facebook canceled events until June 2021, Mark Zuckerberg said Thursday.  

In the midst of this uncertainty, here's how the flex-office industry could evolve in the coming months:

Short-term pinch: 'This is the day of reckoning'

The worst, economically, is still yet to come, as companies continue cutting headcount and employers struggle to think about paying rent for offices they're not using in May and beyond. As CEO of coworking software company Proximity, which processes bookings, Josh Freed saw transaction volume drop 40% across about 600 coworking brands in the first week of April. 

"That's a huge cliff. That just happened immediately and I think we're only about halfway there. I think we're going to be somewhere in the 60, 70, 80% range before we start to find a floor," he said.  

Scott Harper, a senior vice president with brokerage Colliers, said he's seen most flex space users ask for rent relief completely for three to six months. He said flex-space square footage in San Francisco could drop by half in six months, as demand falls away. 

Broadly, flexible-office companies that were overleveraged or had too much space could struggle. Private-equity companies are already circling for distressed opportunities.  

"Who has the cash reserves to emerge from this? There'll be fewer of them, but those that survive will be stronger" Harper said.

Charlie Morris, the practice leader in flexible office solutions at Avison Young, said private-equity firms and landlords still understand the importance of flexible space. 

"We've not heard one doubt the viability of flex. We've seen them doubt the viability of deals to date, and the partners," he said. 

As Business Insider detailed last year, the flexible-office space was already trending towards a shakeout, with a high potential for operators to either merge or close as the market crowded with a slew of venture-backed companies expanding rapidly. This crisis may be the impetus for that shakeout.

Bill Bennett, CEO of Chicago-based company Novel Coworking, said clients aren't willing to sign long-term contracts. He thinks the virus is accelerating both the growing acceptance of work from home and a demand trend he's spotted in recent months: clients want office suites and private offices, not a traditional coworking seat in an open office. Bennett doesn't expect every company to survive, particularly when some were on shaky ground heading into the crisis.  

The major flex-office providers have already been hit hard by layoffs and furloughs: 435 total employees have been impacted among Convene, Industrious, and Knotel, and cuts are reportedly coming at WeWork. But staff reductions won't be enough to salvage some balance sheets.

"This is the day of reckoning. I'm expecting that more than half of venture-backed coworking companies will not make it through the year," Bennett said. "Most of these landlords will win. It's a big game of chicken right now ... most [coworking companies] will go through bankruptcy and restructure. Many will not reappear, and some will stick around as a much smaller version of themselves." 

Medium term: changes from operators to floor-plans 

Restructuring isn't necessarily a death sentence. After the dot-com bubble burst, Regus (now IWG) sold off 58% of its UK business and its US business filed for Chapter 11 bankruptcy protection in 2003. Regus was able to exit Chapter 11 within a year after cutting costs, and repurchased its UK business in 2006. Before the coronavirus, IWG was operating more than 3,000 locations globally – WeWork has 800 – and its stock price had soared. 

As some flex-space operators walk away from space – Knotel could give back 20% of its portfolio, largely in New York – landlords are already thinking about how to rework those floors. Some will take on the space themselves, an easier proposition now that most tenants don't need to be sold on the value of flexible space and software like Proximity has made management easier. Others will bring in another operator like Industrious, which has long partnered with landlords, rather than just leasing space from them, like WeWork. 

For landlords, the choice comes down to two main factors: their own ability to run an operations-heavy hospitality business, and the cost of bringing an operator in versus running on their own. 

"For us, it's a matter of cost," Francis Greenburger, chairman and founder of office landlord Time Equities said. Time Equities has run its own flex space for decades, and has found it cheaper to operate on its own.

No matter the operator, post-coronavirus offices will look much different than the open, dense plans popularized by WeWork, with hundreds of people on one floor sharing kitchens and couches, where they work almost shoulder-to-shoulder.

A CB Insight report from January 2019 found that the WeWork locations allotted, on average, about 50 square feet per person, compared to an industry average of 250 square feet per person. Some of the common areas could be repurposed to private offices – but that takes capital landlords and flex-office companies may not have. 

When reached for comment for this story, WeWork pointed to a brochure it sent to brokers earlier this month. 

WeWork is planning more cleaning and taking out some seating in offices and common spaces, among other changes the company highlighted in the brochure.

Another flexible-office company, Industrious, is convening a group of architects, public-health experts, engineers, and real-estate experts to develop a new framework that goes beyond more frequent cleaning, CEO Jamie Hodari said. One small part of that solution could include lights to indicate when someone exited a phone booth, indicating the need to clean it. 

"Companies that are focused on 'how do we stay regulatorily compliant' are missing the mark," Hodari said, predicting that companies without office managers or outsourced managers to oversee more rigorous cleaning could struggle in the post-coronavirus era. But the extra preparation and management layers come at a cost, just as companies are cutting expenses and headcount. 

 "We might not make a lot of money in this period," Hodari said.  

The costs for flex operators will be similar to those at traditional offices, Despina Katsikakis, Cushman & Wakefield's head of occupier business performance said, as companies will have to invest in better air filtration systems, infrared cameras that monitor workers' temperatures, and switching to entirely prepackaged foods. 

Of course, the people who work in flexible-office spaces will need to trust that heightened standards of cleanliness are actually being followed. Wong, the CEO of Booqed, spoke of a client in Malaysia that had doubled the amount of cleaning it was doing, but found that their customers wanted access to cleaning supplies so they could ensure the space was cleaned.

"The message that we (the operator) were double-cleaning wasn't landing," Wong said. "People wanted alcohol to spray their own space."

Long term: 'Work from home just got a decade shot in the arm'

Katsikakis highlighted another change for flex-office operators besides the cleaning regime: location. The big-name flex office operators have focused on major cities – WeWork has no locations in Milwaukee, for example – but Katsikakis said companies may find more regional opportunities, helped by the accelerating wave of distress in retail real estate.   

"They're rethinking underused retail locations for that (flexible working), which could be a really interesting shift for shopping center operators," she said.

Freed, Proximity's CEO, said he's talking to employers about shifting their teams out of dense cities like New York and San Francisco, as they view concentrating their staff together in those centers as a risk.

Now, they're looking to perhaps maintain their own headquarters while sending staff to work in more satellite offices that they prefer to manage via outsourcing. Employees will also drive some of the demand as they seek to reduce long commutes and move out of big, expensive cities, now that they know many of their jobs can be done well remotely. 

"As a workforce we can do better, and that is distributed teams in less-centralized, geographically-distributed, smaller groups. That will be balanced between work from home, work from headquarters, and work from something in between,'" Freed said. "Work from home just got a decade shot in the arm."

This period of remote work is also moving employers to reconsider their need to have senior leaders in an expensive urban headquarters, accelerating a trend already in play for firms like asset manager AB, which is moving much of its staff to Nashville. 

"Even for myself, if you were a senior director or above, our strong preference [before the pandemic] would be that you worked in New York," Industrious CEO Hodari said. "I already know coming out of this that if we found a great chief marketing officer or VP of people in Houston or Chicago, we'd hire them. I can already tell in our own business we'll be much more comfortable with a distributed model coming out of this and I think that'll be true for 90% of businesses." 

There's precedent for long-term change, even at real estate's glacial pace of change: coworking, though the concept existed for years, became popularized out of the last recession, when a new wave of tech entrepreneurs needed a different kind of real estate that was more flexible for growing companies. 

"Now is the time to install flexible 2.0," Morris from Avison Young said."What we know as coworking today was born out of the last recession, and it scaled out of the last recession."

The second generation of flexible space is still forming out of this crisis, but Morris said that a major factor will be an increase in demand for flexible space, as companies decentralize their offices

This vision is shared by many who counsel companies on flexible space. 

"That trend we've seen over the last 5 years- companies adopting a more liquid portfolio- that will only continue," Benn Munn, JLL's global flex-space lead, said. 

Wong from Booqed is already seeing that vision playing out.

He's heard of one client company in Singapore that's drastically increasing the amount of flexible space that it's renting so that it can adapt to changing conditions in the different geographies it operates in, and choosing multiple flex-office companies so there is no single point of failure if one company's space closes or is temporarily closed because of a coronavirus case

"(The company said) We don't just want a team in WeWork, we want a team in every coworking company out there," Wong said. 

SEE ALSO: Knotel is scrambling to pay millions in bills that started stacking up before the coronavirus hit, and hasn't paid April rent at some locations

READ MORE: The CEO of a coworking software startup explains how he inked a deal to buy a smaller rival in the midst of the coronavirus pandemic — and why he sees more consolidation in the space

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Gold prices will nearly double to a record $3,000 as central banks fuel 'financial repression,' Bank of America says

Tue, 04/21/2020 - 2:49pm

  • Gold will rally 80% over the next 18 months as central-bank stimulus and economic turmoil drive record interest, Bank of America analysts forecast in a Monday note.
  • Monetary authorities are spending trillions of dollars to keep economies above water. The widespread spending will place incredible pressure on currencies, pushing investors to gold and its scarcity, the bank's analysts said.
  • There's still plenty of room for investors to pile into the metal, the bank added. Positioning "has been surprisingly weak" even after gold's rally in late March, and a massive influx of capital will send prices soaring through the year.
  • Watch gold trade live here.

Central banks' stimulus frenzy amid the coronavirus pandemic will drive gold to a lofty record by October 2021, Bank of America analysts projected in a note on Monday.

The firm's analysts lifted their 18-month price target for the precious metal to $3,000 per ounce from $2,000, praising gold as "the ultimate store of value" during the severe economic downturn. After an initial sell-off and subsequent rebound, the safe-haven asset sits near its highest level in eight years, but Bank of America reckons that potent easing policies around the world will send its value 50% higher than its record.

With an official recession looming, monetary authorities are poised to buy record amounts of financial assets and double the sizes of their balance sheets, the firm said. In March alone, G7 central banks bought up nearly $1.4 trillion of assets to calm roiled markets. The policies will place outsize pressure on currencies, driving massive interest in gold and its scarcity.

Read more: A 47-year market vet explains why he sees the economy's 'super-cycle' hurtling towards depression — and lays out his case for an 80% stock plunge later this year

"Beyond traditional gold supply and demand fundamentals, financial repression is back on an extraordinary scale," the team led by Michael Widmer said.

The average gold price in 2020 will reach $1,695 per ounce before soaring demand pushes it to $2,063 the following year, the analysts said.

Gold traded at $1,670.73 per ounce as of 1:30 p.m. ET on Tuesday, up 12% year-to-date.

There's also plenty of room for investors to pile into the metal, Bank of America said. Positioning "has been surprisingly weak" despite a rally through late March, and momentum investors "are only slightly long gold," the analysts wrote. Though prices have rebounded spectacularly, the bank's model suggests most capital has not followed the trend and rushed into the asset.

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Even if the metal is set to double in 18 months, challenges remain. The US dollar's strength could bite into gold's relative value, as could a downtrend in stock-market volatility, the bank said. Demand will struggle to catch up in emerging markets as well, with jewelry demand set to plummet as consumers save cash. Even when the global economy recovers, weakened purchasing power in India and China will maintain pressure on the metal, the analysts added.

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Here's what 4 analysts are saying ahead of Netflix's quarterly earnings — the first to show the impact of coronavirus (NFLX)

Tue, 04/21/2020 - 2:47pm

  • Netflix reports first quarter earnings on Tuesday. 
  • It is one of the first earnings releases that will show the impact of the coronavirus pandemic and US lockdowns on the streaming platform. 
  • Here's what four analysts have to say about Netflix ahead of the earnings report. 
  • Watch Netflix trade live on Markets Insider.

Netflix is set to report its first quarter earnings Tuesday, one of the first releases to show the impact of the coronavirus pandemic on the streaming platform. 

Shares of Netflix have gained 35% year-to-date through Monday's close, outperforming the broader market and boosted in part by the coronavirus outbreak that's kept millions of Americans at home. The streaming platform has been named in a number of "stay at home" baskets of stocks, slated as one of few companies to benefit from social-distancing to curb the spread of COVID-19 

Here's what analysts surveyed by Bloomberg expect:

  • Earnings per share (GAAP): $1.64 expected  
  • Revenue: $5.74 billion expected 

In addition, Netflix has recently released a slew of popular new content, including titles such as "Tiger King," reality show "Love is Blind," and the third season of "Ozark." 

Read more: GOLDMAN SACHS: Buy these 21 stocks that are beating their peers by paying down debt amid an unprecedented plunge in cash spending

The new shows may have helped Netflix compete against other streaming services including Disney Plus — the pace of subscription cancellations on the platform declined in both February and March, according to data from subscription measurement and analytics firm Antenna, Business Insider's Ashley Rodriguez reported. The rebound came after Netflix was hurt by the launch of Disney Plus last year. 

In March, Netflix's US registration website saw a surge in traffic, especially in the last three weeks of the month, according to data from analytics firm SimilarWeb. The spike coincides with the US going into lockdown mode amid the coronavirus pandemic.  

Here's what four analysts have to say about Netflix ahead of its earnings report:

1. Cowen: "Expect a strong quarter"

Price target: $445

Rating: Outperform 

"We expect a strong quarter driven by a solid slate of originals coupled with, a captive audience due to the COVID-19 pandemic," a group of Cowen analysts led by John Blackledge wrote in a note April 15. 

He continued: "Our view is supported by our positive proprietary 1Q20 survey data. We raised our US sub forecast modestly to reflect lower churn & higher gross adds in 1Q & FY20." 

"We view the increase in consumption, as well as positive 1Q20 survey data from our proprietary US consumer internet tracker as a positive for net adds, and we expect the benefit to subs to carry forward into the out years of our model."

Read more: An expert at Boyar Research lays out the Warren Buffett-inspired investing approach that's helped the firm crush the market for 7 years — and offers 4 stock picks for a coronavirus-battered market



2. UBS: "Streaming video leader"

Price target: $400

Rating: Buy 

"Against a backdrop of global sheltering in place to address COVID-19, NFLX's position as the streaming video leader (in terms of scale of subscribers and breadth of content) should be on display in its upcoming Q1'20 EPS report," wrote Eric Sheridan of UBS in an April 15 note. 

New and returning series should also boost  performance. "On comparative basis, Netflix titles continue to perform well against the most recent seasons of network shows and original series from Hulu & Amazon," Sheridan said. 

He continued: "Notably, Tiger King: Murder, Mayhem, and Madness ranks third for peak search interest in the US ahead of Conversation with a Killer: The Ted Bundy Tapes S1. Ozarks S3 and Love is Blind both ranked within the top 15."

Read more: A top strategist for JPMorgan's $2 trillion asset-management arm shares his 4-part strategy for a coronavirus recovery — and breaks down a surprising bond-market bet

 



3. Bernstein: COVID-19 boost could "set up 2021 very nicely for Netflix pricing"

Price target: $487

Rating: Outperform 

"After significant price increases in most markets throughout 2019, we never expected much pricing activity for Netflix in 2020. Now add to that COVID-19," Todd Juenger of Bernstein wrote in a note April 8. 

"While positive for Netflix engagement and subs – it also creates a difficult environment for any company to raise prices, despite the increased usage," he said. 

He continued: "This could, however, set up 2021 very nicely for Netflix pricing, depending on the macro- economic recovery path. The increased engagement and appreciation for Netflix that a growing number of consumers will experience in 2020 could make it that much easier for Netflix to successfully pass through pricing increases in 2021."

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4. Canaccord Genuity: "Longer-term COVID-19 should be a tailwind"

Price target: $450

Rating: Buy 

"As consumers around the world spend more time indoors, streaming video is certainly seeing a boost, and the cancellation of live sports has created an opening for SVOD platforms to capture a higher share of entertainment time," Canaccord Genuity's Maria Ripps wrote in an April 15 note. 

"At a time when some competitors may be working through production delays for shows that are instrumental to their recent and upcoming launches, Netflix's vast library of original and licensed content sets it apartment competition." 

She continued: "The recent stock performance is pricing in a healthy subscriber trajectory over the near-term, and we think that Netflix will see a boost to new subscriber addition along with a reduction of churn, resulting in upside to Q1 and a strong Q2 outlook, while longer-term COVID-19 should be a tailwind in the transition from legacy bundles to SVOD platforms." 



The CEO of a firm that trains 30,000 bankers each year explains how Wall Street is gearing up for virtual summer internships

Tue, 04/21/2020 - 2:39pm

  • Wall Street firms are delaying their internship programs, but they're not scrapping them entirely, according to Scott Rostan, the chief executive and founder of Training The Street. 
  • "The general consensus you're getting right now is that they're delaying the start of the intern program by four or five weeks" and planning for a fully virtual summer experience, Rostan told Business Insider.
  • Goldman Sachs, for instance, told many prospective summer interns earlier this month that the investment bank would delay and shorten its program but pay its full original offer.
  • Visit BI Prime for more stories.

The financial-services industry is grappling with how to structure its summer programs, including how to replicate training if junior bankers wind up working remotely. 

The novel coronavirus has ravaged New York, the main hub of American finance, and firms from big banks to small shops are scrambling to retool their monthslong summer training programs, which are critical talent pipelines.

Like many industries that have adapted to the situation that's shifting by the minute, financial firms are trying to shift their usual in-person internships to virtual experiences.

That comes with unique challenges that they're facing even with their most experienced employees: compliance, for one, and interns' handling of sensitive data like client information from home. Another hurdle is measuring interns' performance and engagement from afar.

"My gut feeling is clients understand that this is going to be a challenging experience, like the schools and universities and business schools that we coordinate with know as well," Scott Rostan, the chief executive and founder of Training The Street, said. 

On the whole, Wall Street firms are pulling back on their internship programs but not scrapping them entirely, according to Rostan.

"The general consensus you're getting right now is that they're delaying the start of the intern program by four or five weeks" and planning for a fully virtual summer experience, Rostan, whose New York company trains new finance professionals, told Business Insider in a recent interview. 

"It's all still very fluid," he said, adding that firms are largely planning for fully remote internships with the possibility that they might be able to flip to in-person ones at some point.

Many conversations Rostan has had with clients have focused on "when, not if," they're going to go through with internship training.

Training The Street was founded in 1999 and counts banks and other firms as clients to educate their intern classes. It hosts different courses on topics such as valuing companies, analyzing financial statements, and mergers and acquisitions.

It offers training to interns in different forms, like virtual sessions and in-person courses at training centers and sometimes at the firms' locations during the beginning of internships.

Citi, for its part, is guaranteeing its summer interns in New York, London, Hong Kong, Singapore, and Tokyo full-time offers before their shortened five-week program kicks off in July, Business Insider previously reported. Morgan Stanley was the first major bank to make most of its 2020 internship programs fully virtual, Financial News first reported earlier this month.

Meanwhile, Goldman Sachs told all of its prospective summer interns outside India earlier this month that the investment bank would delay and shorten its summer internship but pay its full original offer. The firm's summer internship program is set to start on July 6 and run for five weeks, and the bank is considering "virtual components" to the program.

JPMorgan, which is also headquartered in New York, has pushed back the start of its internship program to July 6 and is exploring the possibility of a virtual format, according to a Bloomberg report earlier this month.

The incoming class has more than 3,000 interns around the world, and they will still be paid for the full nine- to 10-week internship program, the outlet reported, citing a company spokesperson. 

For instructors at Training The Street, which counts some 200 active clients around the world in any given year, the pandemic has meant executing many demos with clients on how delivering a virtual internship program could work.

The company, which is more Americas-focused but has full-time instructors in cities including London and Madrid, trains about 30,000 participants each year.

Setting up on the living room floor, not the trading floor 

Some internships' features may not change much. 

Financial-services firms will still provide weekly milestones that interns need to meet and give out modeling exercises in Microsoft Excel, for instance. But they'll be done via videoconferencing or other approved methods.

It's also likely that some of the collaborative aspects of the internships will continue, with small groups of interns working together via video chats on projects.

Training The Street, for its part, has a web product that "looks like Excel and acts like Excel" but can grade activity in the platform and provide instant feedback on speed and accuracy, Rostan said. A tool like that may come in handy during virtual internships.

Some firms are taking the current environment and trying to learn what they might adopt once social-distancing measures are lifted. UBS, for instance, may be more open to remote work in its US wealth-management business even after working conditions normalize, Business Insider previously reported.

"I think people will be more comfortable with virtual learning," Rostan said.

SEE ALSO: Citi's head of campus recruiting explains why the bank just guaranteed full-time offers for interns, and shares its latest thinking on going virtual this summer

SEE ALSO: The head of UBS's US wealth business explained lessons learned from remote work, and how it landed on Skype as its preferred video-conferencing tool

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Private-equity owned Chuck E. Cheese is struggling under a massive debt load, and the company is gearing up for a restructuring

Tue, 04/21/2020 - 2:35pm

  • The parent company of Chuck E. Cheese is struggling under a heavy debt load and lenders are organizing and tapping restructuring lawyers.
  • On the creditor side, the law firm Akin Gump is working with a group of lenders, according to people familiar with the matter.
  • CEC Entertainment is a portfolio company of Apollo Global Management, the private-equity firm, which bought the company in 2014 for nearly $1 billion. 
  • During the first quarter, the company saw venue sales drop 21%, its CFO James Howell wrote in a securities filing dated April 10. 
  • The company has already cut operating hours and staffing; furloughed most of its hourly employees and some 65% of support-center staff, and deferred rental payments on its company-operated venues.
  • Visit Business Insider's homepage for more stories.

The parent company of Chuck E. Cheese, the family fun center known for its playgrounds and skee-ball games, is struggling under a heavy debt load and lenders are organizing and tapping restructuring lawyers, according to three people familiar with the matter. 

Private-equity owned CEC Entertainment had ramped up spending to overhaul restaurants in recent years. But the spread of the novel coronavirus has forced it to temporarily shutter some locations completely while only offering delivery and takeout at others, which has hammered sales.

The company, meanwhile, had disclosed in a filing that it is being advised by restructuring attorneys at Weil Gotshal & Manges and financial advisors at PJT Partners after having formed a restructuring committee on April 7, led by former Milbank partner Paul Aronzon. 

Reached by email, Aronzon declined to comment, directing questions to Matt Barr, a Weil Gotshal partner. Barr did not respond to requests for comment.

Some of the top lenders to CEC Entertainment include Prudential, Westchester Capital, and Octagon Investment Partners, according to a review of its debt on the Bloomberg Terminal, but it could not be determined which lenders had tapped legal counsel.

Numerous lenders contacted by Business Insider either declined to comment or did not respond to phone calls seeking comment. 

The stage of any restructuring talks is unclear, but one person familiar with the matter said that many parties are "lawyering up" and bondholders were reaching out to one another. 

This person said that CEC Entertainment needed to cover its bank debt before it paid bondholders and it was unclear what coverage would be for bondholders, and whether CEC would refinance or restructure outstanding debt.

According to an 8-K filing on April 10, CEC Entertainment's restructuring committee is authorized to explore strategic alternatives including financings and refinancing;, amendments, waivers, and forbearances;  asset sales; debt issuances, exchanges and purchases; as well as out-of-court or in-court restructurings.

Aronzon, an attorney who retired from Milbank in December, represented unsecured creditors in the bankruptcy of Pacific Gas and Electric Company, and represented Caesars Entertainment Corporation in the Chapter 11 bankruptcies of its subsidiary, Caesars Entertainment Operating Company, and its affiliated debtors.

His services now come with a monthly price tag of $45,00o, for at least four months. 

And he'll get paid an additional fee of $5,000 per day in which he is required to spend at least four hours addressing matters outside of routine and customary board matters, such as participating in court-related proceedings, according to SEC filings. 

Apollo Global Management, the private-equity firm that owns CEC Entertainment, did not respond to a request for comment.

Attempts to speak with CEC management were unsuccessful. 

On the creditor side, the law firm of Akin Gump is working with a group of lenders, according to people familiar with the matter. Reorg Research first reported the firm's involvement. 

An Akin Gump spokesperson did not respond to a request for comment. 

Coronavirus hits business

Some private-equity investments have been struggling as revenues evaporate in the wake of the coronavirus pandemic. Bloomberg News reported that Envision Healthcare, the KKR-backed company, had hired restructuring lawyers and bankers and was considering a bankruptcy filing. 

And economists are trying to assess the toll the past two months has taken on businesses, with more than 22 million Americans losing their jobs in the past four weeks alone. 

Still, even after coronavirus wreaked havoc on businesses worldwide, the bankruptcy bar has yet to see a complete flood of Chapter 11 filings, as companies have been able to successfully re-negotiate lending agreements given the circumstances.

"Everyone wants to see where the economy lands before pulling a bankruptcy trigger," said Al Togut, a New York City bankruptcy attorney who is not involved with CEC Entertainment.

Some companies, though, have filed for Chapter 11 in recent weeks, including Whiting Petroleum, the startup spring football league XFL, and high-speed internet company Frontier Communications

Attempts to revitalize Chuck E. Cheese

For CEC Entertainment, the sales hit caused by coronavirus came after the company had tried to reinvent itself.

Starting in 2017, but picking up throughout 2019, the company had gone on a mission to refurbish its venues, giving it a fresh, modern look with a pepperoni pizza wall-design on its exterior.

At the same time, it had planned to boost in-store guest sales, implementing dynamic pricing on select weekends and holidays, streamlining the order and checkout process, and improving birthday packages, according to SEC filings. 

And, it was gearing up for a merger that would turn CEC Entertainment into a public company. 

In April 2019, it had announced that the company would return to the New York Stock Exchange through a merger with a special purpose acquisition company.

Special purpose companies have no assets but use the proceeds from an IPO, along with bank financing, to buy and take privately held companies public.

The merger was to be done between Leo Holdings, the SPAC created by private-equity firm Lion Capital, and the parent of CEC Entertainment, Queso Holdings.

CEC Entertainment is a portfolio company of Apollo Global Management, the private-equity firm which bought CEC in 2014 for nearly $1 billion. Apollo would have remained a majority shareholder in the public company, according to reports at the time, and the new company would have been called, "Chuck E Cheese Brands."

But the deal never went forward.

News emerged later in the summer that the merger fell apart, with neither party sharing any reason. 

Coronavirus sets in

According to a filing in March, the company, as of December 2019, had 16,400 employees, 555 venues, along with 186 others operating under franchise arrangements, across 47 states and 16 foreign countries and territories. 

When coronavirus hit in the first quarter of 2020, it sank sales by 21 percent, CEC Entertainment CFO James Howell wrote in the filing, dated April 10. 

Howell wrote that CEC "cannot reasonably estimate" the impact of COVID-19 on its business.

He pointed to several actions it had taken to mitigate the impact of venue closures.

This included operating 520 of its 550 Chuck E. Cheese and Peter Piper Pizza Company venues in a third-party delivery and take-out capacity; reducing hours of operation and staffing levels at its venues; furloughing most of its hourly employees and roughly 65% of its support center personnel; suspending discretionary spend; deferring rental payments on its company-operated venues; and reducing capital expenditures. 

"The Company has suspended all operations in 30 of its Company-operated venues primarily due to sales performance and mall closures stemming from the pandemic," Howell added. 

It was a dramatic reversal, as it has been for many companies that rely on in-person sales. But for CEC Entertainment, it came with something else: lots of debt.

The risk factors section of its 10-K filing dated March 12 referred to CEC as a "highly leveraged company."

As of December 29, the company had $975.7 million face value of outstanding debt, excluding its lease obligations, as well as $105.5 million available for borrowing under a revolving credit facility at that date.

According to the filing, for the fiscal year ended December 29, 2019, the company made total debt service payments of $109.1 million, which excluded finance leases, sale leasebacks, and debt issuance costs related to its 2019 secured credit facilities.

Howell, the chief financial officer, did not respond to a request for comment for this article. 

If you have a restructuring or private-equity tip, contact the reporter at csullivan@businessinsider.com, DM on Twitter @caseyreports, or Signal message at 646-376-6017.

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From Microsoft to Home Depot, Stifel says these stocks are poised to surge in the coronavirus aftermath

Tue, 04/21/2020 - 1:25pm

  • The coronavirus pandemic has sent a jolt through the global economy, essentially shutting down businesses both large and small.
  • While uncertainty remains high during this time of crisis, analysts at Stifel tried to assess which companies are best positioned to thrive in a post-coronavirus world.
  • From Home Depot to Microsoft, here are the stocks that are best positioned to thrive once the coronavirus is past, according to Stifel.
  • Visit Business Insider's homepage for more stories.

With the coronavirus grinding the global economy to a halt, investors are focused on companies that have strong enough balance sheets to weather the storm, and that could come out stronger and thrive on the other side of the pandemic. 

In a Monday afternoon note, analysts at Stifel wrote that while uncertainty still remains high, "people are resilient and adaptable. Although we don't know the depth or duration of the pandemic, we know that optimism and prosperity will eventually prevail."

Stifel asked its equity research analysts to hypothesize what a post-coronavirus world would look like for the companies they cover, and highlight which companies are poised to thrive.

Read moreOne of the world's best small-company fund managers tells us how he finds 'hidden growth' that others miss — and shares his 3 top picks for the year ahead

Markets Insider calculated the implied upside of each stock using their closing prices on Monday and the price targets in the report.

Here are Stifel's 12 stocks to buy to endure the coronavirus downturn and thrive in the aftermath.

1. Delta Air Lines

Ticker: DAL

Price Target: $43

Implied Upside: 81.9%

Stifel's Take:

"Delta is likely to be the biggest beneficiary of the changes that come from COVID-19 as the company was already building sub-entities with less exposure to typical airline competition (loyalty, MRO, private travel) that should be quicker to rebound on the other side of the pandemic. Further, given its financial position is among the best in the industry and its hub structure is the most fortified, we see Delta as being in a strong position to take high quality route share once the pandemic concludes."

Source: Stifel



2. Salesforce.com

Ticker: CRM

Price Target: $220

Implied Upside: 35.2%

Stifel's Take: 

"Salesforce has cobbled together a broad suite of products via M&A over the past several years, some of which have the opportunity to outperform going into a recession, and others that are the quintessential 'rocket fuel' applications that are appealing purchases coming out of a recession. We particularly see the company's Service Cloud and MuleSoft offerings as having the potential to be outperformers because both offer a means of accelerating digital transformations in the enterprise. MuleSoft, in particular, is aimed at enabling large enterprises to extract legacy information from legacy applications and share that data with modernized Cloud applications."

Source: Stifel



3. Peloton Interactive

Ticker: PTON

Price Target: $38

Implied Upside: 22.3%

Stifel's Take:

"Peloton is well positioned to provide a wide range of consumers with at-home fitness content and equipment through its core products and low-priced digital app. The company's platform has strong retention characteristics, with minimal churn and a highly engaged user base. Peloton can leverage its industry-leading premium content to capture share as consumer trends increasingly favor at-home fitness content and equipment."

Source: Stifel



4. Wendy's

Ticker: WEN

Price Target: $22

Implied Upside: 21.8%

Stifel's Take:

"Wendy's was already focused on building a comprehensive digital platform, including a loyalty program, before the crisis and will benefit from incremental EBITDA growth into 2021 following the launch of a new breakfast daypart in early March. Much of its sales are generated outside of the dining room, and it generally rates as among the more craveable brands in fast-food."

Source: Stifel



5. Spotify

Ticker: SPOT

Price Target: $175

Implied Upside: 21.0%

Stifel's Take:

"Spotify is arguably the best pure play on the secular shift toward digital audio consumption, which we believe has an extremely long runway. Streaming music should continue to grow adoption as awareness of services grows, bandwidth speeds improve, and legacy music formats struggle. Podcasts and spoken word consumption are much earlier on the adoption curve, but they are showing signs of disrupting talk radio and traditional news programming. A hybrid subscription / ad-supported business model allows Spotify to thrive even in emerging markets where advertising is more challenging."

Source: Stifel



6. Waste Management

Ticker: WM

Price Target: $115

Implied Upside: 17.1%

Stifel's Take:

"Waste Management took the lead on fleet conversion to CNG – 65% in FY20 when the industry average is 20%. We look for it to push the envelope on technology advances to leverage labor productivity, improve operating efficiency in recycling and improve employee safety. The outcome could be $150 million in total cost and cash savings over three years. Leverage is not an issue, whether Waste Management closes or does not close the ADSW merger."

Source: Stifel



7. Snap Inc.

Ticker: SNAP

Price Target: $15

Implied Upside: 16.1%

Stifel's Take:

"With most young people at home spending an increased amount of time using social media, Snap's audience metrics will likely benefit materially in the coming months. In addition, it could also attract older demographics as people have shown a greater willingness to try new services to pass the time. Snap's focus on building better tools for direct response advertisers better positions its ad platform to ride out the looming disruption to ad budgets, while its business should be stronger on the other side of COVID 19 with advertisers seeing battle-tested ROI."

Source: Stifel



8. Microsoft

Ticker: MSFT

Price Target: $200

Implied Upside: 14.2%

Stifel's Take:

"We believe Microsoft should remain a strong share gainer in coming years, given its hybrid compute (Azure + Server) offerings and its growing platform of productivity and security offerings. As we have previously written, we expect Azure to become Microsoft's largest revenue stream in the coming years and represent the largest gross profit pool a few years after that. Additionally, with about $140 billion of gross cash, we expect management to take advantage of the current volatility and increase its share repurchase activity as well as explore potential acquisitions."

Source: Stifel



9. Facebook

Ticker: FB

Price Target: $200

Implied Upside: 12.2%

Stifel's Take:

"Facebook is seeing accelerating usage across its core app, Instagram, Messenger, and WhatsApp during the COVID-19 crisis, and consumption will likely remain elevated in a post COVID-19 world. Facebook will likely take significant share of ad budgets during the coming months as marketers are more careful about ROI on ad spend. And, when industry revenues recover, Facebook's growth should rebound faster than most. A target of much criticism since the 2016 election, Facebook is gradually rehabilitating its image through the COVID-19 crisis by creating awareness of the virus, supporting local businesses and news outlets, paying employees who cannot come into work, and maintaining its aggressive hiring plans for 2020."

Source: Stifel



10. Home Depot

Ticker: HD

Price Target: $220

Implied Upside: 6.7%

Stifel's Take:

"Home Depot has not completely closed its stores (at least as of this writing), and is no doubt a relative beneficiary of DIY projects, given the time the average consumer has at home. The company had a good online business before the pandemic, and we imagine online activity has increased dramatically during this period. Home Depot should benefit from consumers taking on home improvement projects, especially those who wouldn't have otherwise attempted to do so."

Source: Stifel



11. Nike

Ticker: NKE

Price Target: $90

Implied Upside: 2.4%

Stifel's Take:

"We see NIKE positioned to benefit from both secular shifts to casualization and health and wellness and structural shifts to ecommerce. NIKE's strong core offering, investments in digital and analytics, and increasing digital engagement/dialogue with consumers positions the business for global growth and a mix to a higher margin, higher return model."

Source: Stifel



12. Amazon

Ticker: AMZN

Price Target: $2,400

Implied Upside: 0.3%

Stifel's Take:

"Amazon is seeing rising demand for household goods and grocery delivery as traditional retailers remain severely challenged throughout the current crisis. The prolonged nature of the pandemic and the associated social distancing measures are likely to accelerate long-lasting eCommerce adoption, particularly in Fast Moving Consumer Goods (FMCG) categories. Amazon will also benefit as companies and institutions invest in expanding their cloud and remote access capabilities, given the need for distributed workforces and remote education."

Source: Stifel



The battered $700 billion US energy industry is now worth roughly half of Microsoft amid oil's record plunge

Tue, 04/21/2020 - 1:11pm

  • The S&P 1500 energy sector is now worth about $700 billion, roughly half of Microsoft's $1.4 trillion market value, a development first reported by Bespoke Group on Monday.
  • The US energy sector has shed hundreds of billions in market value as the price of oil has plummeted this year.
  • On Monday, oil contracts expiring in May fell into negative territory for the first time ever, dragged down as the coronavirus pandemic tanks global demand.
  • Technology companies, on the other hand, have outperformed the broader market this year.
  • Watch oil trade live on Markets Insider.

The US energy sector is now roughly half the size of Microsoft as plummeting prices put pressure on shares of oil producers.

The combined market capitalization of energy companies in the S&P 1500 energy sector is $700 billion, compared with Microsoft's $1.4 trillion market cap, Bespoke Group first reported on Monday.

The beleaguered energy sector's total value also sits at just over half of Amazon's and Apple's, both of which are valued at about $1.2 trillion.

Read more: A top strategist for JPMorgan's $2 trillion asset management arm shares his 4-part strategy for a coronavirus recovery — and breaks down a surprising bond-market bet

Energy stocks have been weighed down by sharply declining oil prices. At the beginning of the year, the S&P 1500 energy sector boasted a combined market value of $1.27 trillion; the recent sell-off has wiped out 46% of that.

On Monday, the price of oil futures expiring in May closed at a record low of about -$37 per barrel. It was the first time the price of oil fell below zero. Investors are worried about a supply glut and lack of storage options as the coronavirus pandemic craters global demand.

On the other hand, technology companies have outperformed the broader market since the coronavirus outbreak spurred a large sell-off beginning in mid-February. Microsoft was up 11% year-to-date through Monday's close, while Amazon gained nearly 30% over the same period. Apple has declined nearly 6%, outpacing the S&P 500's 13% fall this year.

The energy sector is now the smallest of the 11 major sectors in the S&P 1500 index, according to Bespoke Group. Energy makes up 2.63% of the index, lagging behind the next-smallest sector, materials, at 2.65%.

Technology is the largest sector in the S&P 1500, making up nearly 25% of the index, or about 10 times the energy sector.

Read more: An expert at Boyar Research lays out the Warren Buffett-inspired investing approach that's helped the firm crush the market for 7 years — and offers 4 stock picks for a coronavirus-battered market

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Many of the world's airlines could be bankrupt by May because of the COVID-19 crisis, according to an aviation consultancy. These airlines have already collapsed because of the pandemic.

Tue, 04/21/2020 - 1:00pm

  • The aviation consultant CAPA warned that "most" of the world's airlines could be bankrupt by the end of May, due to the ongoing coronavirus pandemic.
  • Although President Donald Trump signed a $58 billion bailout for the airline industry into law on last month, it's possible that it won't be enough — while other airlines around the world remain in jeopardy, particularly as credit markets seize up.
  • Several airlines have already collapsed due to COVID-19 outbreak, including in the US and UK, and elsewhere.
  • The latest was Virgin Australia, which declared bankruptcy but is continuing to operate.
  • Visit Business Insider's homepage for more stories.

Air travel has been one of the hardest-hit industries in the early days of the COVID-19 pandemic. 

Almost as soon as news of the virus became widespread in late-January, travel demand to Asia from the rest of the world plummeted. Even before the containment was adopted across the globe, airlines began to drastically cut flights to China, and other locations in Asia as coronavirus-related anxieties led passengers to avoid travel to the region.

Within weeks, however, it became apparent that flights to Asia were not the only routes to see lower demand.

As the virus spread to Europe, followed by the Americas and Africa, passenger demand plummeted across the board. People were second-guessing trips anywhere away from home, and were trying to avoid anything involving air travel, given the inherent close proximity to other people, some of whom could be carrying the virus.

Notably, people were also delaying buying tickets for future travel, due to the uncertainty surrounding the outbreak.

The scale of the carnage for airlines became apparent when British regional airline Flybe ran out of cash and entered administration the first week of March.

While Flybe had ongoing financial difficulties and was already on the brink, the coronavirus situation, and the associated decrease in bookings, served as the final nail in its coffin.

As countries around the world have closed their borders, and many states and nations have locked down, air travel has declined significantly, with airlines suspending routes, grounding planes, and seeing low load factors on their few remaining flights.

While many US airlines would be safe for now thanks to the bailout bill working its way through Congress, several other airlines have already collapsed, and many more around the world are on the brink as the crisis drags on.

Although President Donald Trump has signed the stimulus bill that includes $58 billion in aid for airlines — $29 billion in payroll grants for workers, and $29 billion in loans for the airlines — several airlines have already collapsed. And it is likely that other airlines, both in the US and abroad, will be forced to consolidate or shut down, International Air Transport Association (IATA) director general Alexandre de Juniac has warned.

IATA estimates that airlines globally will lose at least $314 billion due to the outbreak.

Similarly, aviation consultancy CAPA said earlier this month that by the end of May, "most airlines in the world will be bankrupt" without coordinated government and industry intervention. 

Here are the airlines that have collapsed, declared bankruptcy, or suspended operations so far:

SEE ALSO: American Airlines flight attendant dies of COVID-19, highlighting risks that airline workers have faced while helping get passengers home

Flybe (UK): March 2020

UK regional airline Flybe entered administration — a practice similar to declaring bankruptcy — on Thursday, March 5. Although Flybe was already on the brink of collapse — despite a major investment by a Virgin Atlantic-led consortium the previous summer — the coronavirus crisis pushed it over the edge. Flybe operated about 40% of domestic flights in the UK.



Trans States Airlines (US): March 2020

Trans States Airlines is a Missouri-based regional airline that flies routes for United under the United Express brand.

The airline had already been planning to shut down by the end of 2020, consolidating its operations with ExpressJet Airlines, another of United's regional carrier.

However, due to the "unforeseen impact of the coronavirus," the airline will cease all operations on April 1, Trans States Holding CEO said in a memo to employees.

Trans States operated a flight of Embraer ERJ-145 regional jets.



Compass Airlines (US): March 2020

Compass Airlines — also owned by Trans States Holdings — will also shut down in April.

Compass is another regional carrier, which operates flights for American Airlines under its American Eagle brand. With American cutting domestic capacity by up to 80% by May, it's had less of a need for contract airlines.



Virgin Australia (Australia): April 2020

Virgin Australia entered "voluntary administration," the Australian equivalent of Chapter 11 bankruptcy, on Tuesday, April 21.

Although the Brisbane-based airline had suspended most of its operations and furloughed most of its employees, it was still losing money operating about 65 daily flights. 

The airline said it would continue operating during the restructuring process. It entered administration after a request for aid from the Australian government was denied.



An expert at Boyar Research lays out the Warren Buffett-inspired investing approach that's helped the firm crush the market for 7 years — and offers 4 stock picks for a coronavirus-battered market

Tue, 04/21/2020 - 12:58pm

  • Jon Boyar, the president of Boyar Research, employs a methodology to his stock-selection process that borrows heavily from Warren Buffett's strategy.
  • Stocks profiled by Boyar Research have outperformed the broader market by 6.9% on an annual basis over the past seven years.
  • Today, Boyar sees plenty of opportunities in stocks that have been battered by an indiscriminate coronavirus-induced sell-off.
  • Click here for more BI Prime stories.

When Jon Boyar, the president of Boyar Research, looks to buy stocks, he channels the tactics of the most famous investor, Warren Buffett, to help with his decisions.

"We look at everything the way an acquirer would," he said on the "ValueWalk" podcast. "Would you want to own the entire business at this price?"

Like Buffett, Boyar employs a value-centered investment strategy. He's laser-focused on the strength of a company's balance sheet, management, capital allocation, cash flows, valuation multiples, competitive advantages, durability, and intrinsic value. To top it all off, he has a long-term holding period.

It's safe to say that his methodology, which involves thinking like a business owner and buying at a discount, has been paying off. Since 2013, stocks profiled by Boyar Research have widely outperformed the S&P 500.

The degree to which they've dominated is outlined in the table below:

In the middle of a coronavirus-induced stock sell-off, Boyar is seeing plenty of opportunities that look primed for the picking.

"The amount of uncertainty is unbelievable, but since the 1950s, there's been 37 corrections, I believe. And after each one, they've been eliminated by a new bull market," he said. "If history is any guide, we'll be fine. It's just a question of duration."

But before we dive into his selections, it's important to note that these stock picks are meant to be held long term. What's more, Boyar recommends that investors scale into these positions slowly. There's too much uncertainty surrounding the virus' proliferation to hop into the market with both feet right now.

"In the next six months, nine months, who knows how well these things can go," he said. "It's a question of how bad the crisis gets. But I think people who buy these things and take two-, three-, four-year time horizons are going to be pretty excited — pretty happy." 

Here are four stocks that Boyar thinks are great opportunities. All quotes below are attributable to Boyar.

1. Madison Square Garden (MSG)

"This is a business that we're really attracted too. At current values, the enterprise value is roughly $4 billion, a little over that — and what you're getting for that are the Knicks, the Rangers, Madison Square Garden — the building of Madison Square Garden, the air rights above it, a valuable entertainment business.

"You can make an argument that you're basically — for that price — purchasing the Knicks and getting everything else for free.

"They're going to be able to get through this — and at some point in time, life is going to get back to normal.

"Mr. Market is giving you the opportunity to buy stocks like this for discounts for taking — what I think  — is a pretty reasonable risk."

2. The Liberty Braves Group (BATRA)

"Same thesis — you own the Atlanta Braves baseball team as well as a valuable real-estate development.

"Basically, at this valuation, you're buying a professional baseball team and a valuable real-estate development for a billion dollars. So if you look at what these things have traded for in the past, you're getting this at a 50-cent dollar — and we think they have liquidity to withstand this."

3. eBay (EBAY)

"I think that's an interesting company. You have two activists involved. They sold StubHub for $3, $4 billion recently, so they got a bunch of cash on their balance sheet.

"They have basically a Craigslist-type business that really isn't under the eBay name, so most people don't know that they own it. The rumors before this crisis was they were going to sell for $10 billion. We think they'll still be able to sell it. It's just a question of 'when.'

"If you back all that out, you're getting the underlying eBay business for eight or nine times earnings."

 4. Starbucks (SBUX)

"It's a high-quality name that you can get at a reasonable multiple that has great growth prospects ahead of it — and what happened with Luckin in China recently is only going to help it. A lot of people were saying that they were going to have trouble competing with them, and it turns out that that company was a fraud." 

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Dow tumbles 600 points as oil's historic plunge worsens

Tue, 04/21/2020 - 12:32pm

  • US stocks slid further on Tuesday as oil continued to trade below $5 a barrel.
  • West Texas Intermediate crude contracts expiring in May traded as low as -$16.74 a barrel on Tuesday before trading at $4.25 around midday. June contracts slipped as much as 42%, to $11.89, amid the turbulence.
  • Stock futures erased premarket gains after reports said the North Korean leader Kim Jong Un was in critical condition following surgery.
  • Watch major indexes update live here.

US stocks plummeted on Tuesday amid escalating strain on the oil market.

All three major indexes extended their downturns from Monday's session as West Texas Intermediate crude contracts expiring in May continued to trade below $5 a barrel. The commodity market faces unprecedented pressure from a severe lack of storage capacity and weak demand amid the coronavirus pandemic.

Here's where major US indexes stood at 12:30 p.m. ET on Tuesday:

Read more: Experts at Boyar Research lay out the Warren Buffett-inspired investing approach that's helped them crush the market over 7 years — and offer 4 stock picks for a coronavirus-battered market

West Texas Intermediate oil futures expiring in May traded as low as -$16.74 a barrel on Tuesday before trading at $4.25 around midday. That's up from Monday's close of -$37.63. Selling pressure seeped into WTI crude contracts for June, which fell as much as 42%, to $11.89 a barrel. Brent crude slid 29%, to $18.10 at intrasession lows.

Goldman Sachs sees stabilization taking weeks to arrive. "Shutting down a well is extremely expensive," Jeff Currie, the firm's global head of commodities research, said in a Monday CNBC interview, adding that producers are unlikely to react quickly and bring rapid aid to the battered market.

"We don't think this is the end of it," Currie said. "You're likely to see this continue to go on at least through the middle of May."

Equities futures erased gains in early trading following reports that the North Korean leader Kim Jong Un was in critical condition after surgery. The news added uncertainty to a risk market already marred by pandemic fears, gloomy economic data, and tumbling oil prices.

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IBM's first-quarter report added fuel to the stock-market fire. The company announced a 3% decline in year-over-year revenue and pulled its 2020 earnings forecast amid heightened uncertainty. Shares slipped 4% in early trading.

Netflix, Chipotle, and Snap are set to announce their quarterly results later on Tuesday.

The back-to-back market slides are a sharp reversal from recent moves. After two straight weekly gains, Monday's session saw the Dow drop nearly 600 points amid the historic oil slump. Tuesday's decline is poised to wipe out nearly all gains made in the previous week.

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A popular $3.7 billion oil ETF plunges 20% as crude prices hit historic lows

Tue, 04/21/2020 - 12:27pm

  • United States Oil Fund shares slipped as much as 20% on Tuesday after a trading halt and continued pressure on the oil market.
  • The ETF's manager, USCF, said in a regulatory filing it issued the last of USO's registered shares and required SEC approval to create 4 billion more.
  • The vehicle's connection to oil prices is now in jeopardy, as shares will exclusively trade on the secondary market and can't be created to water down prices.
  • Watch USO trade live here.

United States Oil Fund, a popular exchange-traded fund for the commodity, dove as much as 20% on Tuesday as crude prices remained stuck at record lows.

Trading of USO was paused early Tuesday morning after the fund's manager, USCF, said in a regulatory filing it issued the last remaining shares and required approval from the Securities and Exchange Commission to register 4 billion more. When trading resumed, the $3.7 billion ETF slid further before paring some losses.

Assets tied to oil are positioned to endure extraordinary market turbulence. West Texas Intermediate crude contracts for May delivery reached negative prices for the first time in history on Monday. While those contracts rebounded in Tuesday's session, June contracts slid as much as 42% as the market braced for a prolonged demand slump.

Read more: Investors overseeing $37 billion outline the 5 criteria they seek in trades that are 'almost impossible to compete with' — and share 3 stocks they've been buying amid market mayhem

The inability to immediately issue new shares leaves USO with the qualities of a closed-end fund, with little ability to keep its value tied to that of its underlying asset. Traders known as authorized participants typically keep the ETF's value closely tied to oil by buying or selling shares in accordance with the commodity's price changes. With share issuance paused, the traders are unable to maintain the value connection.

Trading will now take place exclusively in the secondary market and could push prices higher amid the supply freeze. However, a "create-to-lend" process could mint new shares for traders to short-sell and offset the demand surge, Bloomberg reported.

USO was likely insulated from Monday's negative price event, as the fund typically sells front-month contracts two weeks before they expire. Yet the downward spiral for June and July contracts likely pushed investors away from the vehicle.

Pressure could also come from market makers being less likely to trade with the fund. Since no new shares can be created in the near-term, entities that buy oil futures to exchange with USO will likely slow their purchase activity until issuance rebounds.

Tuesday's plunge likely upset a record number of traders. Investors piled $1.6 billion into USO last week for its biggest inflow since its 2006 creation, Bloomberg reported. Since Friday's close, the ETF's price has declined roughly 30%.

US Oil Fund shares traded at $3.04 as of 11:45 a.m. ET Tuesday, down roughly 76% year-to-date.

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A top strategist for JPMorgan's $2 trillion asset-management arm shares his 4-part strategy for a coronavirus recovery — and breaks down a surprising bond-market bet

Tue, 04/21/2020 - 12:12pm

  • John Bilton, the head of global multi-asset strategy for JPMorgan's $2 trillion asset-management business, broke down how investors should build their portfolios for an eventual economic recovery.
  • Bilton and his firm think it's going to take a little more than a year for the global economy to get back to where it was a couple of months ago and are taking a careful approach for that reason. 
  • He explained how investors could tweak his recommendations if they're more bullish or bearish than he is — or if it becomes clear the post-coronavirus recovery is happening faster or slower than expected.
  • Visit Business Insider's homepage for more stories.

These are very unusual times, and JPMorgan's $2 trillion asset-management business says investors are going to have to try some unexpected strategies to succeed.

John Bilton, the bank's head of global multi-asset strategy, and his firm think it will take until late 2021 for the global economy to recover the strength it had in mid-February. But the number of possible outcomes is clearly huge: The COVID-19 pandemic could end months earlier if efforts to stop it work, and if not, lockdowns could continue for far longer.

Evaluating those scenarios is complicated as the world deals with the biggest pandemic in a century, so Bilton sees betting on a much-better or much-worse outcomes as an unnecessary risk.

"One of the things that we don't want to do is operate in an environment where we've got significantly strong risk-taking," Bilton said in a recent conference call with investors and media. "Our upside case and our downside case, they're basically predicated on how rapidly we're able to restart activity."

With that in mind, here's Bilton's four-part strategy for constructing a balanced portfolio for his baseline scenario, as well as for more positive and negative developments. Each section includes a suggested adjustment.

(1) Stocks: underweight

"I personally feel that equities have run up a long way, and we continue to be somewhat cautious about the outlook," Bilton said about the huge rally over the past month. "So as a result we would operate with a modest underweight to equity."

With that rally more or less done, investors are moving into an evaluating phase that's likely to result in more up-and-down stock performance for at least a few months.

"We do favor the defensive sectors, but crucially, at the moment we're still favoring those assets, those sectors that performed well in the last cycle," Bilton said. "Growth sectors like technology, and of course the bond proxies, which respond well to lower interest rates."

That comes with an emphasis on US stocks as well. The government stimulus packages are starting to shape the eventual next economic expansion, he said, looking out past about a year or so of recovery.

"We believe that we could see the ingredients being formed today for more reflationary cycle," he said. "As we enter the new expansion, the curves could be steeper, and the type of styles of equity investment that we saw underperforming in the last cycle — things like value, international equities, etc. — could begin to have that day in the Sun." 

Adjustments: His recommendations are fairly traditional, as he said signs of a slower recovery should be met with a more pronounced underweight to stocks and a more defensive orientation, while more bullish developments imply an overweight toward stocks that would involve more cyclical and non-US exposure.

(2) Bonds: long duration

"It might seem crazy," Bilton said of his suggestion that investors target longer-dated bonds, as they provide almost no yield as a result of repeated interest-rate cuts. But he said there were two powerful arguments in favor of picking those bonds over higher-yielding shorter-duration options.

"It provides a hedge around the risks of the economy," he said. "Central banks around the globe continue to have a very strong demand for duration, both domestically within the US and also internationally."

Adjustments: If you're more concerned about a severe or prolonged recession, stick with duration and developed markets, including countries with negative-yielding debt, like Germany and Japan, Bilton said. But if you're more optimistic, take a neutral stance on duration and bet on the US.

(3) Cash: overweight

Cash is rarely the best choice for investors, and with savers getting very little reward for it, it's not going to get them very excited today. But it's time for them make it a larger part of their portfolios than usual for safety and to take advantage of a recovery that will be unprecedented and potentially slow, he said.

"It will allow us to, No. 1, have some portfolio balance today and, No. 2, be opportunistic as things change over the coming weeks and months as policy changes come in and different asset opportunities open up," Bilton said.

Adjustments: If things are headed in a more bearish direction with a slower economic recovery, maintain that allocation to cash. In case of better developments, a neutral position holds.

(4) Credit: high quality

This is a classic "don't fight the Fed" style tip, as Bilton said investors should look for credit securities that central banks are buying. While the Federal Reserve is trying to save more companies by buying lower-quality debt securities, he's telling investors to be very selective because of the risk of a longer recession.

"It's certainly an area where the longevity of any downturn will create issues with regard to deleveraging," he said. "There are opportunities certainly opening up in the higher quality ends of credit."

Adjustments: An investor with a bearish state of mind should underweight credit and stick to higher-quality types, while an investor who is optimistic or seeing signs of a rapid recovery should consider an overweight to credit and emphasize non-US markets.

SEE ALSO: BANK OF AMERICA: Buy these 12 under-the-radar stocks that have balance sheets perfectly built to weather coronavirus turbulence

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