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Wayfair skyrockets 41% after saying revenue doubled in March as coronavirus drove online furniture shopping (W)

Mon, 04/06/2020 - 4:14pm

Shares of Wayfair surged 41% Monday after the company said that business is going well amid the coronavirus pandemic.

Wayfair's gross revenue growth was about 20% at the beginning of March, similar to January and February, according to a statement. But by the end of March, the rate had more than doubled, the company said. Wayfair said the trend has continued in April.

"We are encouraged by our increasing sales momentum, yet remain highly focused on our plan to rapidly reach profitability and positive free cash flow," said Niraj Shah, Wayfair CEO. "The additional capital we are raising, though not strictly necessary, should only enhance our ability to successfully navigate through any market backdrop."

Now, the company expects to meet or exceed its previous guidance of 15% to 17% revenue growth in the fiscal first quarter of 2020. The company added that it's "making solid early progress" against initiatives to lead it to profitability. It reports earnings on May 5. 

The company also addressed its actions to curb the spread of COVID-19 and keep employees and customers safe. 

Read more: 14 Wall Street experts told us the single metric they're each watching to assess coronavirus market fallout — and give their portfolios a leg up

"We are closely monitoring the current market as we all respond to the threat of COVID-19. Wayfair's e-commerce model is uniquely suited to serving customers' very real needs at this challenging time," Shah said. 

Wayfair's employee base is working from home while "fulfilment, logistics and transportation facilities are fully operational," according to the statement. The company has implemented no-contact delivery, encourages drivers to wash hands, and has instituted temperature checks at several locations, it said. It also rolled out emergency paid time off for workers who are not feeling well, it said. 

The company also announced today $535 million in convertible notes as a step to "further strengthen its balance sheet and optimize its liquidity position to allow it to continue to serve customers from a position of operational and financial strength."

Even with today's gains, Wayfair is down roughly 21% year-to-date.

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Dow surges 1,627 points on growing signs the coronavirus death rate is slowing around the world

Mon, 04/06/2020 - 4:04pm

  • All three major US indexes skyrocketed on Monday after countries reported declines in new coronavirus deaths over the weekend, offering investors new hope for near-term containment.
  • The Dow Jones industrial average rallied in the final hour of trading and closed near intraday highs. All 30 stocks in the index climbed on the day.
  • Spain and Italy announced the fewest deaths in more than two weeks, while New York posted its first single-day decline in new virus deaths on Saturday.
  • Oil pared overnight losses after Russia's sovereign wealth fund's chief signaled that the country was nearing a deal with Saudi Arabia to cut production and cushion the sliding commodity market.
  • Watch major indexes update live here.

US stocks soared on Monday after countries reported declines in new coronavirus deaths over the weekend.

European markets led the charge, gaining after Spain and Italy announced the fewest deaths in more than two weeks. France and Germany reported their fewest deaths in days, signaling that the outbreak may be reaching its peak overseas.

New York posted its first single-day decline in new coronavirus deaths on Saturday, offering new hope for the virus outbreak's US epicenter after weeks of social-distancing measures and business closures. The White House also offered a slightly more hopeful tone during a Saturday press conference, highlighting signs of slowed contagion in highly affected areas.

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

Read more: A stock chief at $7.4 trillion BlackRock shared with us his coronavirus-investing playbook: How to keep money safe, what he's avoiding, and some surprising contrarian bets

Monday's stock-market rebound followed a negative week to kick off April. Major indexes slipped roughly 2% during the period as labor-market data trounced even the most bearish forecasts. Thursday's jobless-claims report notched a record and brought the two-week total of Americans filing for unemployment to 10 million.

Data released by the Labor Department on Friday revealed that the US had lost 701,000 jobs in the month ended March 14. Economists had anticipated a decline of roughly 100,000, as the report didn't include jobs lost after the strictest containment measures went into effect.

The end-of-week reports offered investors some of the first details about how hard the outbreak slammed the US and how deep the economy would slide into an all-but-certain recession.

Read more: 'I was a single mother with 2 small kids': How Ashley Hamilton flipped a $20,000 waitressing salary into real-estate-investing success and a 10-unit portfolio

Elsewhere on Monday, the much-beleaguered oil market slid 7% after declining as much as 11% overnight on news that a meeting between Saudi Arabia and Russia had been postponed. The resource pared losses after Russia's sovereign wealth fund's chief said the two nations were nearing a deal to cut production.

The commodity soared last week after President Donald Trump said he expected both nations to deescalate their efforts to flood the market with cheap oil.

Despite the market leap, several major market players warned of harsh economic troubles to come. Janet Yellen, the former Federal Reserve chief, said in an interview with CNBC that US gross domestic product could slip 30% this quarter, adding that the unemployment rate is likely near 13% already. A V-shaped rebound is still possible, she said, but a worse outcome worries her.

JPMorgan CEO Jamie Dimon chimed in with a similarly bleak forecast. The chief executive said in an annual letter to the bank's shareholders on Monday that he expected "a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008." The firm's board may even consider suspending JPMorgan's dividend, Dimon said, but only in an "extremely adverse scenario."

"If the Board suspended the dividend, it would be out of extreme prudence and based upon continued uncertainty over what the next few years will bring," Dimon wrote in the letter.

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The Fed will start buying debt backed by emergency small-business loans — giving banks more leeway to offer critical aid

Mon, 04/06/2020 - 4:02pm

  • The Federal Reserve announced Monday it will begin buying debt backed by the Small Business Administration's Payroll Protection Program.
  • The facility will create a new market for the SBA loans and allow lenders to shore up cash for additional aid.
  • PPP loans are meant to cover roughly two months' worth of payroll and business expenses, and accounted for roughly $350 billion of the government's $2 trillion stimulus package.
  • Additional details on the facility will be announced later in the week, the Fed said in a statement.
  • Visit the Business Insider homepage for more stories.

The Federal Reserve announced Monday it will begin purchasing debt backed by the government's emergency small-business loans.

The purchase program creates a new market for the debt and allows banks to shore up more cash for additional relief lending. The Small Business Administration's Payroll Protection Program loans accounted for roughly $350 billion of the government's $2 trillion relief measure.

PPP loans are meant to cover roughly two months of payroll and business expenses amid the coronavirus pandemic and related economic shutdown. The loans can be forgiven if participating firms maintain their current workforce.

Read more: A stock chief at $7.4 trillion BlackRock shared with us his coronavirus-investing playbook: How to keep money safe, what he's avoiding, and some surprising contrarian bets

The program will "facilitate lending to small businesses" beyond the current level seen since applications for PPP loans opened on Friday, the bank said. 

The Wall Street Journal first reported the new Fed program. Additional details on the facility will be announced later in the week, the Fed said.

Banks have pressured the White House to create such a program to ease lending conditions and form a new buyer for the debt, The Journal reported. The Fed will work alongside the Treasury Department to create the program.

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How $6 billion Balyasny trounced most hedge funds in the first quarter — and where it's focusing next after losing a top macro investor

Mon, 04/06/2020 - 3:49pm

  • Dmitry Balyasny's $6 billion firm posted returns of nearly 5% in its flagship fund in the first quarter, much higher than the average hedge fund and overall market.
  • One of the firm's macro investing heads, Tim Wilkinson, is set to leave the firm soon, and Balyasny has shut down trading in his portfolios. 
  • Going forward, Balyasny is focusing on more liquid markets in its macro strategy, "increasing our trading oriented macro strategies across rates, FX, and equities." 
  • Click here for more BI Prime stories.

Balyasny put up returns besting the average hedge fund and the overall market in the first quarter, but will soon have to grapple with the intense volatility caused by the coronavirus pandemic without one of its macro investing heads.

In the firm's first-quarter letter to investors, Balyasny wrote that Tim Wilkinson, the firm's cohead of macro investing in London, is retiring from the industry in early summer. He'll remain an advisor to the firm through 2020.

The $6 billion manager's flagship fund put up returns of 3.6% for March and 4.75% for the year so far, the letter states, as global stock markets have tanked. Hedge Fund Research's global index of hedge fund strategies is down 5.88% in March and 6.85% for the year.

"The portfolios under Tim have been closed from active trading," the letter states. It's unclear from the letter how many portfolios Wilkinson led. He joined Balyasny from rival multi-strategy fund Citadel in 2019, along with other former Citadel executives including Jeff Runnfeldt and Alex Lurye.

Peter McConnon, who joined the firm this year from Canada's main pension fund, will become the sole head of macro in London while Mayank Chamadia is still the head of macro in the US, based in New York. 

The firm's first-quarter results were driven by its equity book, a departure from some of the trends the industry has experienced during the coronavirus pandemic. Macro investors and commodity speculators have generally been outperforming stock-pickers, but at multi-strategy Balyasny, the firm's equity investors — specifically in healthcare and consumer stocks — reigned supreme, the letter states.

"Our equity teams performed well by quickly updating their bottom-up, fundamental views for the new environment. Teams identified the companies likely to outperform and underperform in a deteriorating economy without clinging to previously held ideas," the letter reads. The letter also points out that the firm held "a record number of group PM calls in March," which the firm believes helped performance. 

In the macro book, which made up just under 30% of the firm's book as of the end of March, performance was flat, and two portfolios were even closed for poor performance in the quarter. 

"We will continue to refine our strategy sets to capture the opportunities created by sustained low rates globally. Portfolios reliant on less liquid otc markets have been reduced or closed. As we expect a continuation of volatility, we are increasing our trading oriented macro strategies across rates, FX, and equities," the letter reads. 

The note to investors also touches on the response the firm has had to the pandemic, praising its IT team for allowing the firm to continue to invest from home, and detailing a donation of more than $1 million to help fight the coronavirus that included contributions from every office. 

"We believe the opportunity set across our market-neutral strategies continues to be very fruitful. Volatility will likely remain high, allowing those operating from a position of strength to take advantage of dislocations and generate consistent alpha."

SEE ALSO: A liquidity crunch for the hedge-fund industry's biggest backers could force redemptions on even top-performing funds

SEE ALSO: 'We are in an unprecedented moment of global distress': Read the full memo billionaire Ken Griffin sent to Citadel employees on the coronavirus crisis

SEE ALSO: Macro hedge funds are soaring while quants and stock-pickers tank. Here are the biggest winners and losers.

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Jefferies says now is the time to buy Tesla, which it says could surge another 35% this year (TSLA)

Mon, 04/06/2020 - 3:19pm

  • Jefferies upgraded shares of Tesla to "buy" from "hold" Monday while lowering its price target to $650 from $800 still implying a 35% upside from where shares traded at Friday's market close. 
  • Shares gained as much as 8% Monday. 
  • Tesla is the only auto original equipment manufacturer that is legacy free, engaged in a positive electric-vehicle sum-game, nearly doubling its market coverage with the Model Y, and leading the industry's technological transformation, wrote analyst Philippe Houchois. 
  • Watch Tesla trade live on Markets Insider.
  • Read more on Business Insider.

Tesla is looking like a good deal to Jefferies. 

The firm on Monday upgraded shares of the automaker to "buy" from "hold" while lowering its price target to $650 from $800. That implies a 35% upside from where shares closed at $480 per share on Friday. 

Jefferies views Tesla as the only automotive original equipment manufacturer that is legacy free, engaged in a positive electric-vehicle sum-game, doubling its market coverage with the Model Y, and leading the industry's technological transformation, analyst Philippe Houchois wrote in a note. 

Shares of Tesla gained as much as 8% Monday. 

The upgrade comes after Tesla's record rally at the beginning of the year was snapped by the coronavirus pandemic. While shares of the automaker are still up about 15% year-to-date through Friday's close, they have slipped more than 48% from their all-time high close of $917 per share in February. 

Read more: A stock chief at $7.4 trillion BlackRock shared with us his coronavirus-investing playbook: How to keep money safe, what he's avoiding, and some surprising contrarian bets

Tesla hasn't been untouched by the coronavirus pandemic. It had to close its new Shanghai Gigafactory for two weeks at the beginning of the year. Its factories in Fremont, California, and Nevada are also currently closed as employees have tested positive for COVID-19, the illness caused by the virus. 

Still, the company released better-than-expected first-quarter vehicle delivery numbers amid the crisis and despite "unfavorable seasonality" according to Jefferies. That should factor into a solid first quarter financial report — Jefferies expects revenue of $6.1 billion, an auto gross margin of 17%, and that the company will break even on an earnings-before-interest-and-taxes basis. 

Although Jefferies cut its full-year 2020 estimates for Tesla because of the coronavirus outbreak, it expects that the company will grow 27%.

"Early feedback on the Model Y is strong," Houchois wrote. In addition, Tesla could benefit after the coronavirus outbreak subsides, according to the note. 

"Post-crisis we would assume higher consumer support to energy efficient transport," wrote Houchois. "US gas prices drifting below $2 and the US loosening vehicle emissions rules create some headwinds to near term demand for EVs in the US, but a situation worse for peers." 

There is much riding on Tesla's upcoming battery day, which was slated to take place in April. "Tesla has demonstrated a durable edge over competitors in energy density, management, and connectivity, with incumbents facing new challenges in catching up," according to the report. Houchois thinks Tesla could grow into a supplier for other OEMs, a market that could be worth $235 billion by 2030. 

Jefferies reduced its price target to $650 because of revised estimates and "macro uncertainty," according to the note. 

"Looking further out, we see Tesla's ability to attract capital as a strong positive as pressure on the industry's transformation accelerates," said Houchois.

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Billionaire investor Bill Ackman posted an 11% gain in March after turning $27 million into $2.6 billion with coronavirus bets

Sun, 04/05/2020 - 4:36pm

  • Bill Ackman's Pershing Square made an 11.1% net gain in March after betting that markets would tank because of the novel coronavirus.
  • The billionaire investor's hedge fund spent $27 million on hedges that surged in value to $2.6 billion during the market sell-off, balancing out declines in its equity portfolio.
  • Pershing Square recorded a 3.3% net gain for the first quarter, a sharp rebound from its year-to-date loss of 7.1% at the end of February.
  • Ackman last month denied deliberately trying to scare investors to help his hedges, arguing that he was up front about Pershing Square's strategy.
  • Visit Business Insider's homepage for more stories.

Bill Ackman's Pershing Square posted an 11.1% net gain in March after betting that the novel coronavirus would tank the stock market, according to its latest monthly report.

The billionaire investor's hedge fund spent $27 million on credit-default swaps — which insure the buyer against an asset defaulting — on investment-grade and high-yield credit-default-swap indexes in February.

Those hedges ballooned in value to $2.6 billion after markets plunged last month, roughly offsetting Pershing Square's losses on its equity portfolio, Ackman said last week.

Read more: GOLDMAN SACHS: These 13 cheap stocks are poised for years of better-than-expected profits — and they're must-haves as the coronavirus wipes out earnings in 2020

Pershing Square plowed more than $2 billion of the windfall into equities by March 18, before the stock market rallied. Its strategy delivered a 3.3% net gain for the first quarter, marking a sharp rebound from net losses in January and February.

The fund performed especially well in the final two weeks of March, given it was down 6.5% for the year on March 17. Indeed, its net asset value swelled 10% — to $27.72 a share from $25.19 — during that period.

Read more: 'Still too high': Goldman's global equity chief lays out 4 reasons why the stock market will melt down further before it fully captures the coronavirus crisis

Critics accused Ackman of manipulating markets last month after an emotional CNBC interview in which he warned of mass casualties, industries collapsing, and a deep recession.

Ackman denied the claims in a letter to investors and a Twitter thread, arguing he had been up front about Pershing Square's hedges and buying equities.

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Billionaire investor Bill Ackman turned $27 million into $2.6 billion by betting that the coronavirus would tank the market

Sun, 04/05/2020 - 4:35pm

Pershing Square Capital Management CEO Bill Ackman minted a multibillion-dollar profit as coronavirus fears tanked US stocks.

The hedge-fund billionaire turned a $27 million position into $2.6 billion through defensive hedge bets, a Wednesday letter to investors said. The profit offset losses elsewhere in the firm's portfolio and helped Ackman's public fund land a 7.9% gain in March through Tuesday's close, The Wall Street Journal reported. The S&P 500 slid 17% over the same period.

Pershing Square used credit protection on investment-grade and high-yield bond indexes to land the massive profits. The assets rise in value as the odds of corporate defaults increase. As measures to combat the virus outbreak cut into economic activity, corporate bond ratings tanked, and investors feared the worst.

The fund was able to purchase the investment vehicles about a month ago "at near-all-time tight levels of credit spreads," so the risk of loss was "minimal at the time of purchase," Ackman wrote.

Read more: GOLDMAN SACHS: These 13 cheap stocks are poised for years of better-than-expected profits — and they're must-haves as the coronavirus wipes out earnings in 2020

The hedge fund began liquidating its protective bets last week after unprecedented action from the Federal Reserve and the Treasury Department shifted sentiment toward corporate credit health. Ackman fully exited the position on Monday, the same day the US central bank announced it would begin buying corporate bonds to prop up the battered market.

Ackman has since used the profits to bolster Pershing Square's investments in Berkshire Hathaway, Hilton, Lowe's, Restaurant Brands International, and Agilent. The fund also reestablished a stake in Starbucks after selling its position in January.

The fund founder used Twitter and an appearance on CNBC last week to predict that the coronavirus outbreak would cause economic turmoil if the US didn't institute a 30-day shutdown.

Ackman urged CEOs of his portfolio companies to take precautions as "hell is coming" and said a national stay-at-home order was "the only answer" for saving the economy. Markets slid further through the March 18 session during Ackman's emotional CNBC interview.

Read more: 'Still too high': Goldman's global equity chief lays out 4 reasons why the stock market will melt down further before it fully captures the coronavirus crisis

After commentators accused him of fearmongering and intentionally driving markets lower, the investor said that he was "confident the president will do the right thing."

Ackman said in his Wednesday letter that he still believes a monthlong shutdown is necessary and that the US "can be reopened carefully as China has so far successfully done" once the lockdown is over.

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Goldman Sachs: The stock market's biggest driver will plunge 123% in a brutal 2nd quarter

Sun, 04/05/2020 - 2:30pm

  • Profit growth for S&P 500 companies is set to slip 33% in 2020 as the coronavirus lockdown halts revenue streams, Goldman Sachs said.
  • Earnings-per-share growth is historically stocks' biggest upward driver, and the metric will slide by 123% on a year-over-year basis in the second quarter amid the strictest nationwide containment efforts.
  • Declines across the energy, consumer discretionary, and industrial sectors will weigh on the broad index, while tech, healthcare, and utilities companies are the best positioned amid the economic turmoil, the team wrote in a note to clients.
  • Visit the Business Insider homepage for more stories.

Corporate profit growth — historically the biggest booster for stock prices — will experience three consecutive quarters of heavy contraction as the coronavirus outbreak strangles revenues, according to Goldman Sachs.

The investment bank expects S&P 500 earnings-per-share to decline by 33% in 2020, with poorly performing energy, consumer discretionary, and industrial firms' underperformance weighing on the broad index. Profit margins that stood near record highs at the start of the year will fall to 8.7%, the team of analysts said, their lowest level since 2010.

The biggest hit to earnings will arrive in the second quarter, when mass unemployment, business closures, and quarantine activity plunge demand to an unprecedented low. The three-month period is expected to see a $10-per-share loss for the S&P 500, which would mark a 123% year-over-year decline, the team led by Ryan Hammond wrote in a note to clients.

Read more: GOLDMAN SACHS: These 13 cheap stocks are poised for years of better-than-expected profits — and they're must-haves as the coronavirus wipes out earnings in 2020

The consumer staples, healthcare, and utilities sectors offer investors a safe haven from more cyclical corners of the market, according to the bank. The tech industry will also weather most of the economic storm, "given the high share of recurring revenues for some of the largest stocks," the analysts said.

Before profit growth can rebound, the tanking economy needs to stabilize. Goldman revised its quarterly GDP estimates lower on Tuesday, calling for the US economy to shrink by 34% in the second quarter in a virus-induced trough. Recovery won't arrive until the third quarter with a 19% gain in GDP, the bank said.

Earnings growth will post a similar reversal in the fourth quarter and jump 27% through the period, according to the analysts. Next year will extend the rebound, as the bank sees 2021 S&P 500 earnings per share jumping 55%. Such forward estimates are still "unusually challenging," Goldman said, "given the unprecedented disruption to society caused by COVID-19."

Read more: 'Still too high': Goldman's global equity chief lays out 4 reasons why the stock market will melt down further before it fully captures the coronavirus crisis

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Warren Buffett's Berkshire Hathaway sold nearly $390 million worth of Delta and Southwest shares this week

Sun, 04/05/2020 - 2:29pm

  • Warren Buffett's Berkshire Hathaway sold nearly $390 million worth of shares in Delta Air Lines and Southwest Airlines this week, new SEC filings show.
  • The billionaire investor's company cut its stake in Delta by nearly one-fifth and its Southwest holdings by just over 4%.
  • Berkshire's stock portfolio took an estimated $5 billion hit on its airline holdings in the first quarter as the novel coronavirus hammered demand and led to travel restrictions.
  • Visit Business Insider's homepage for more stories.

Warren Buffett's Berkshire Hathaway sold nearly $390 million worth of shares in Delta Air Lines and Southwest Airlines this week, reducing its exposure to an industry being hammered by the coronavirus pandemic.

The famed investor's conglomerate slashed its roughly 11% stake in Delta by nearly one-fifth, from 71.9 million shares to 58.9 million, according to a Securities and Exchange Commission filing published on Friday.

Berkshire also sold about 2.3 million shares in Southwest, reducing its stake in the airline by just over 4%, another SEC filing showed.

It netted about $314 million from the Delta share sales, plus another $74 million from the Southwest disposals, for a total of about $389 million.

The news sent Delta's stock down 11% and Southwest's stock down 9% in after-hours trading.

Berkshire's stock portfolio took an estimated $5 billion hit on its investments in the four major US airlines last quarter as they plunged by an average of 52% in the period.

Read more: GOLDMAN SACHS: These 13 cheap stocks are poised for years of better-than-expected profits — and they're must-haves as the coronavirus wipes out earnings in 2020

But the disposals are surprising. "I won't be selling airline stocks," Buffett told Yahoo Finance three weeks ago. Berkshire also added to its Delta stake in late February, purchasing the shares at nearly twice the price it sold each for this week.

The sales come as the airline industry continues to endure heavy losses amid the coronavirus outbreak. Airlines have been forced to suspend routes, cancel flights, and ground planes as travel restrictions, border closures, and stay-at-home advisories lead to a near halt in air travel.

On Friday, Delta CEO Ed Bastian said in a memo to employees the airline was burning through more than $60 million every day as the crisis continues and that it had canceled about 115,000 flights for April, or 80% of its total schedule. Sunday saw just 38,000 passengers fly, compared with 600,000 on the last Sunday of March in 2019, he wrote.

Southwest has been similarly affected as travel demand has fallen. CEO Gary Kelly previously said that the airline was losing money on every flight it operates.

Both airlines have said they plan to file for payroll grants under the federal coronavirus aid package, which will help pay workers. Under the terms of the grants, airlines will be prohibited from buying back stocks or paying dividends to shareholders.

Airlines receiving aid through the payroll grants, or in the form of loans, are also required to continue flying despite the low demand, as part of an effort to maintain supply chains and connectivity for essential travel. 

Read more: 'Still too high': Goldman's global equity chief lays out 4 reasons why the stock market will melt down further before it fully captures the coronavirus crisis

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The legendary economist who predicted the housing crisis says the stock market is probably far from the bottom — in a video interview from his bee yard

Sun, 04/05/2020 - 12:35pm
  • Economist Dr. Gary Shilling says the global economy was already in a recession before the coronavirus pandemic started. 
  • Shilling expects this recession to run at least through the end of the year and says the stock market is probably far and away from the bottom.
  • Shilling thinks one of the most important things that has happened is the realization of how dependent we are on the rest of the world. As a result, he says, there will be a lot more protectionism which is much more inefficient and will probably lead to fewer domestic jobs.
  • He says the US is likely going to see big infrastructure plans but they are not going to pull the economy out of this recession because it will be too slow. 
  • Visit Business Insider's homepage for more stories.

Dr. Gary Shilling, the president of A. Gary Shilling & Co., spoke to Business Insider editor-at-large Sara Silverstein about the global recession. Following is a transcript f the video. 

Sara Silverstein: Gary, before we get into economics, tell us where you are right now.

Gary Shilling: Well, I'm in a bee yard. A bee yard is where you have more than one hive. In this particular bee yard, we have 31 hives. My colleague, Randy Gurling, and I are out here servicing them. We're doing all the things you need to do in the spring to get all these girls, and it's the worker bees, the females, that do all the honey gathering and the pollen and so on. We're getting them ready for the honey season, so this is the big time of year.

Silverstein: Later I'm going to have you show us around, but first let's talk economics. How healthy was the global economy before the coronavirus pandemic started?

Shilling: Well, they were slowing. I think a lot of people somehow thought that everything was just hunky-dory and then suddenly the virus came along and it collapsed. As a matter of fact, in our April newsletter, the monthly newsletter, Insight, which just came out, we cite a lot of statistics, the slowing of growth in China, the declining job openings in this country, declining growth in payroll, employment, in wages, and of course a lot of parts of the economy, capital spending and housing are going nowhere. You really had an economy that was slowing, and that's the point.

When you have an economy that is growing very slowly, it doesn't talk an awful lot to push it over the edge into recession, and that's what's happened with the virus.

Silverstein: You say that we're in a global recession now. How long and deep do you expect it to be?

Shilling: I think it's going to run at least through the end of the year. You not only have the problem of everybody staying home with self-isolation. I'm in a bee yard. You're at home. We're all trying to stay away from each other, but you've had a tremendous cut in production, and even if this thing gets handled within, say, the next month or two, it'll take a long time to restart the economy.

All the supply chains, they have been disrupted. I think that's one of the most important things that's happened out of this whole deal is the realization of how dependent we are on the rest of the world. For example, most of the basic chemicals that go into antibiotics are made in China, and you look at the face masks. They're made in China, a lot of these things. We're really seeing with this that show up in the supply chains just how difficult this is going to be.

I'll give you an analogy here because we're in the bees. Okay, in a beehive, and we're going to show you around here, in each one of these hives there are about 50,000 bees in each one of these 31 hives in this bee yard. There's only one queen, one queen.

Now, the queen is a laying machine. That's all she does. A good queen can lay 2,000 eggs a day, and she has to because the worker bees only live 28 days during the season. They work themselves to death or they get knocked off by a dragonfly or a bird or something. You have a very, very efficient mechanism for pollination and for gathering nectar for honey, but if you have any problem with the queen, you got a real mess.

I think that's a good analogy with the supply chain. You break one link in what's a very, very efficient system, and of course, supply chains are made to be efficient. As you produce things, you produce semiconductors in Korea, then you send them to Taiwan for assembly, and then to China to put in the cell phones, and they're exported to the west. You break that, and it's the same thing with the queen. The queen disappears, boy, you've got problems.

As a matter of fact, we're just putting in queens. We ordered queens yesterday from my supplier in Chico, California, a very good supply house for queens, and those queens we're putting in today. They arrived FedEx overnight. That's working still.

Silverstein: Who are the queen bees in this analogy on the economic side?

Shilling: I would say that the queen bees are probably essential links in the supply chain, but the analogy maybe breaks down there, or at least should be broader, because you do have many, many pieces in the supply chain, and you simply cannot duplicate them.

We see this in, for example, in the auto industry you have parts that can't be... Well, they were air freighting parts in from Taiwan, I think, in some cases. There's probably a lot more links there, but the whole point is you have a very, very efficient system.

Honeybees are the most efficient pollinators. They're all from the old world. They came here with the European settlers. There are native pollinators, but they're not nearly as efficient as honeybees. I think the same thing. If we produce everything in this country, yeah, we could go back to that, and maybe we will.

I think the reaction to this is going to be a lot more protectionism because of this idea of self-sufficiency, so we're probably going to see a lot more of that, but it's much more inefficient, and consequently, if you have an inefficient system, you don't have as much problem.

That's true of some of the native pollinators. There's a blue orchard, a mason bee, blue orchard bees. They pollinate. They were here before Europeans got here, but they're not nearly as efficient. If you [inaudible] efficiency in favor of a less fragile system, you'll have much less... You've got a higher cost. You've got much more inefficiency.

Silverstein: If we end up on the other side of this with more protectionism, will that mean more domestic jobs and more domestic income?

Shilling: Probably not. That's what the protectionists are saying. That's been the argument of Trump, of course. We return jobs to this country, but if you look at the last time that we had serious protectionism was in the '30s. What happened is it so slows down global economic growth that nobody gains, even... Oh, I got a bee here. Come on, girl. Come on, girl. Come on.

Silverstein: Oh. You want to put your hood back on?

Shilling: Nah, it goes with the territory. The protectionists, I think this does work in their favor, and so we're probably going to see a lot more pressure for self-sufficiency. There's that thing. I had to knock it off. Tough luck. I hate to kill my livestock, but sometimes they got to go.

Silverstein: Oh, my goodness. This is definitely...

Shilling: Hey, come out here. I'm going to suit you up. I'll show you what's inside a beehive.

Silverstein: Where could the stock market go? Could you give us a frame of reference for how much farther it could fall?

Shilling: Oh, gosh. If I really know, you and I wouldn't have to talk. I think it's probably far and aways from the bottom, because now we're getting the shock of the illness, and it's spreading, and the death rate. The thing about this is it's the fear factor, Sara, because flu normally kills 20 to 40,000 people in this country every year, but only half the people get flu shots. We started to take that in stride. That's a fact of life. This is new, rare, strange, and exotic. It's very contagious, and so there's a big fear factor. We're going through that.

Then once you get through that, and even if we do get this under control with more isolation and washing your hands... I hope you're washing your hands. I'm washing mine. My wife is telling me to wash them 20 times a day. My skin is wearing out, but when we get through that, then you see the effects of a slow down, the supply chain disruptions, and of course, everybody is talking about this. The longer you go, the more people are out of work, they lose their skills, the more people will get dependent on welfare and on government programs and so on. The more disruptive it is, the longer it takes to start the economy.

I think you really have two stages. One is the health aspect. When we get through that, then I think we've got the real economic problem.

Silverstein: In your note, you talk about the recession, the global recession, will knock a trillion dollars off of global GDP every month that we're in this. Comparing that to the two trillion dollar stimulus or relief package that Congress has put together, is that the appropriate size for the US?

Shilling: It depends on what you want to do. It's probably appropriate to stabilize the situation, to give people income in lieu of their pay, people who have been laid off, people who are self-employed, and so on and so forth. You have that piece. In terms of rekindling the economy, though, I don't think it is enough. This is a judgment call, but that's probably going to take a lot more.

Now, one of the things they're talking about is another couple of trillion dollars. What's a trillion dollars amongst friends? You and I could probably retire on it, but more serious, one of the things that I think it will take the form of — but we've been talking about this for years. I talk about it in my newsletter almost every month — is infrastructure spending.

Now, we had that in 2009. The only problem is it takes a long time to get really fueled up. You remember they had the so-called shovel ready projects? It turns out the shovels hadn't even been made and they were being made in China. The federal government allocates the money, but then it is spent by the states and they have to draw up all the contracts and the environmental impact statements and all that stuff and get it ready. Two years later, only 30% of that money was spent.

Now, that doesn't mean it's not going to happen, and we've got something coming up in the first Tuesday of November this year, to pick a random date. I think there will be a lot of pressure on Congress and the administration to do something, to tell the people we're doing something, so we probably are going to see big infrastructure plans, but they're not going to pull the economy out of this recession. It just takes so long to get that money out there and spent.

Silverstein: Great, and I don't want to keep you too long with your hood off, so I would love if you put your hood back on, because it would make me feel safer, and if you want to show us around. What are those called?

Shilling: Okay, Want to get my veil back on here?

Gurling: No, I think you should work like that.

Shilling: Yeah, I know. You're a friendly guy.

Oh, yeah, they got the bees off them. You've heard about having a bee in your bonnet?

Silverstein: Yes, I've heard of it. I've never had one.

Shilling: If you have any just a little opening of the zipper, those girls are right in there, but a lot of times they're just flying around in there. They're just visiting. They don't necessarily sting. I've got to get my gloves here. But sometimes they do.

You see these gloves here? These are gloves with long sleeves on them. That's because if you have any little opening, any little hole, boy, those girls will get in there in a hurry. 

Yeah, those are called hive tools.

Silverstein: Oh, wow.

Shilling: They pry the frames out of the hives.

Silverstein: I want you to know that I am in quarantine with my honey from Shilling Apiaries, which I...

Shilling: Well, if you need more, let us know. We've got plenty. We've got those girls working for you.

Silverstein: How much do you make every year?

Shilling: Oh, gosh. We make about 4,000 pounds, about 4,000 for those jars, and we give them all away. If we ever sold any, we'd have to start keeping the books, and I don't want to make myself cry, because it's so labor intensive. My time would probably end up being worth a dollar an hour with a minus sign in front of it. I just got a bee in my... Oh, come on.

Silverstein: Ah.

Shilling: I hate to kill a livestock, but I... Oh, she's buzzing around. She's not very friendly. I think I got her. I'm not sure. Anyway.

Silverstein: That is so scary.

Shilling: Well, again...

Silverstein: How many times do you get stung a year?

Shilling: 400-500 times.

Silverstein: I've never been stung by a bee in my whole life. I can't imagine.

Shilling: It's not the end of the world. Now, let's see. How are we going to do this? Randy, bring me a couple of frames with bees on them.

Gurling: I did.

Shilling: Oh, here we are, all right. Now, there's a... I got to hold this up here. Here's a frame with the bees on it. There are nine of those in each of the boxes in the hives, and these... Well, can you see these bumps here like?

Silverstein: Yeah.

Shilling: Those are drone cells, and the bees, they, in the two lower boxes, they call them hive bodies, the bees put the honey that they're going to use to get through the winter.

By the way, did you ever figure out why bees make honey?

Silverstein: Why?

Shilling: Because you like honey. Bees are off in their own world. I'm telling you more than you want to know. One of the interesting things about them is opposed to all the native bees, wasps, yellow jackets, hornets, is that they don't hibernate. The native species do. If you don't hibernate and in the winter there's no nectar, you've got to eat. You've got to keep warm. That's why they're making honey. But they're working fools. As long as there's nectar and a place to put their honey, they make more than they need, and that's where you and I come in. We leave what they need. In each of these hive bodies, we leave them 60 pounds per hive to get through the winter and take out the rest.

They put their brood in here. The queen lays an egg, and then in three days it turns into a larvae, and then they feed the larvae, the worker bees, for six days. Then they seal it over. It's a cocoon stage. We call it sealed brood, and in 12 days the bee, the adult bee, emerges. It's three plus six plus 12, 21-day cycle.

Now, they put the nectar and they make honey to get through the winter. They put the brood, and they put pollen. Pollen is their protein that they feed to the larva.

These, you have two of these boxes, and then on top of those you have what you call super. That's where's going to be the honey we're going to get. The bees are going to live in the bottom two boxes in what is called the queen excluder. Randy, you got the queen excluder there? Randy? You got a queen excluder? Yeah, let me show this. More than you wanted to know here.

Silverstein: No, it's great.

Shilling: This is a queen excluder, a piece of grate. It's a metal grate, and the worker bees can get through there, but the queen can't. We put that over the boxes so the worker bees can come up through it with the nectar and make the honey and put it on the cover boxes, but the queen can't because we don't want the queen down. We want the queen down there laying. We don't want her up there with the honey that we're going to take off and then strain and put in bottles.

By the way, honey is one of the few very pure products there is. You don't do anything to it. Well, you strain it to get the miscellaneous pieces of wax and stuff out, but that's it, and bottle it. Honey is a supersaturated solution. It has about 12% water and the rest is basically sugars. Because it has such a low water content, it's a lower water content than bacteria is. Bacteria will fall in there, they're desiccated.

See, the bees, they want that honey to last through the winter. They don't want it to ferment. They may also put antibacterial agents in there, and they're taking honey out of ancient Egyptian tombs which is just as good as the day the bees made it 5,000 years ago. You never refrigerate honey.

Silverstein: In my daughter's kindergarten virtual class today, it said, "Honey is the only food that never rots ever." Is that true?

Shilling: That's absolutely true. As I say, in ancient Egyptian tombs, they actually have taken that out, and it's just as good as the day the bees made it. It never ferments.

WATCH: More live interviews about finance and economics during the coronavirus pandemic.

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Economists think coronavirus could push unemployment above Great Depression levels. Here's why the pain won't be as prolonged this time.

Sun, 04/05/2020 - 11:52am

  • Bleak unemployment data and forward-looking projections suggest the US economy is doomed for a prolonged recession.
  • Some forecasts for unemployment have exceeded what was seen during the peak of the Great Depression. But some experts still see a path to a V-shaped rebound.
  • Demand can still bounce back in the virus's wake, according to Heidi Shierholz, director of policy at the Economic Policy Institute, said.
  • But the outlook isn't all rosy. The labor market's historic declines "suggest that productive capacity is being eroded," Seema Shah, chief strategist at Principal Global Investors, said.
  • Visit Business Insider's homepage for more stories.

Dire unemployment forecasts are sending a shock through the already-pummeled economy and garnering comparisons to the Great Depression. But experts are still holding out hope for a sharp, V-shaped rebound.

A New York Times column published Friday pegged the current unemployment rate at 13%, roughly 9 percentage points greater than its latest reading. Meanwhile, Johns Hopkins University's Center for Financial Economics said Thursday that the rate could soar to 20% over the next six months as layoffs continue and plunge the country into labor-market turmoil not seen since the 1930s.

Nobel Prize-winning economist Paul Krugman issued one of the most ominous forecasts yet on Friday. He deemed CFE's timeline projection for 20% unemployment "wildly optimistic," adding "we may well be there in two weeks."

And the most jarring estimate so far has come from the St. Louis Federal Reserve, which says unemployment could spike all the way to 32%. That would be far above the highest rate seen throughout history: 24.9% at the height of the Great Depression in 1933.

In fact, even the 20% near-term forecast from the likes of Krugman would be eerily comparable to what was seen throughout the first half of the 1930s as America tried to claw out of recession.

Read more: GOLDMAN SACHS: These 13 cheap stocks are poised for years of better-than-expected profits — and they're must-haves as the coronavirus wipes out earnings in 2020

Current gloomy projections aren't without their foundations. Weekly jobless claim data released Thursday showed 6.6 million Americans filed for unemployment benefits in a single week, pushing the two-week total to roughly 10 million as coronavirus brought activity to a sudden stop. Then the Bureau of Labor Statistics revealed Friday that nonfarm payrolls shrank by 701,000 in the month ended March 14.

Job loss accelerated in late March as cities instituted stricter business closures and social distancing measures, leaving the bulk of the labor-market damage out of Friday's report. Unemployment filings are poised to surge higher as well, with states blaming website outages and flooded phone lines for potential undercounts.

Yet as economic data begins to paint a picture of a deep economic recession, optimism remains. Features unique to the coronavirus-induced plunge suggest demand is primed to spring back once the pandemic fades — a luxury the economy didn't enjoy during the Great Depression era, which lastest much of the 1930s.

Others point to the US government's expedited policy response as a critical support for bringing the economy back online.

The case for a sharp, V-shaped recovery

The current downturn is critically different from the US's last in how it's affected spending behavior, according to Heidi Shierholz, director of policy at the Economic Policy Institute. During the 2008 financial crisis and the following recession, for example, Americans weren't spending money because the $8 trillion housing market imploded.

People "were actually less wealthy than they thought they had been" as their lives' biggest investments instantaneously lost value, Shierholz said. The coronavirus pandemic and resulting shutdowns place similar pressure on demand in scope, but spending power hasn't been diminished in the same way, she added.

"In this case, for many people, that's not true at all. My demand has plummeted. For restaurants, it's gone to zero. For travel, that's gone to zero," the director said. "When the economy goes back online, I will get out there and go to restaurants and go to shops."

Read more: 'Still too high': Goldman's global equity chief lays out 4 reasons why the stock market will melt down further before it fully captures the coronavirus crisis

The government's $2 trillion relief package also bettered the odds of a swift recovery, Seema Shah, chief strategist at Principal Global Investors, wrote in a March 26 blog post. Legislators "have the power to make this recession one of the briefest" through stimulus targeted at the most battered areas, she added. 

If country learned any lessons from its last recession, it knows where additional aid is needed. State and local governments became "a huge drag on the economy" and its recovery in 2009, Shierholz said, as budget deficits forced cost-cutting across the board. Unemployment programs sputtered, government employees lost their jobs, and the rebound lasted far longer than it needed to, she added.

The threat is "easy to solve," Shierholz said, as "Congress could, in 10 minutes, write legislation to do that."

Their commentary lends credence to the idea of a V-shaped recovery.

Krugman echoed Shierholz's call, telling Business Insider that the "huge fiscal time bomb" states' budgets represent must be addressed in a new stimulus bill. State budget risks will persist months after the pandemic abates and they remain the next battlefield for a swift economic rebound, he added. 

"What happens is that just as the economy is ready to recover, mass layoffs of school teachers, mass cutoff of unemployment benefits undermine the nation's recovery," Krugman said. "Even though this is a very different kind of crisis, we could have the same kind of story."

Why a V-shaped bounce is still no guarantee

Obstacles remain in avoiding a failed economic reboot. For some, the unemployment data on its own cuts away at the odds of a sharp uptick when virus cases cool. Efficiently bringing businesses back online is impossible without a workforce, and the millions of Americans laid off in March will face obstacles in reentering the job market. As the unemployment rate continues to increase, so do the odds of a prolonged, or U-shaped, rebound, Shah said.

"Rising jobless numbers suggest that productive capacity is being eroded, so when self-isolation measures are eventually lifted, economic activity will take that much longer to get back on its feet," the strategist said in an email to Business Insider. "The chances of a V-shape economic recovery are fading."

Read more: Stocks are technically back in a bull market, but Wall Street experts don't trust it. 6 of them explain why we're doomed to fall further — and share what traders should do as turmoil continues.

For others, the country's lethargic public-health response likely dragged the economy into a prolonged downturn. Countries employing the most effective containment methods such as South Korea and China have already seen economic activity stabilize or, in the latter's case, resurgence.

A soaring economic rebound in the US has "a very low probability" due to the country being "a little late to the game with the testing case," Jack Janasiewicz, senior vice president at Natixis Advisors, said in an interview with Business Insider.

The nation also faces a possible W-shaped recovery without a coordinated plan for containment, Janasiewicz said. Individual states, counties, and cities have issued shutdowns on different timelines and of different intensities throughout recent weeks. The lack of a singular shutdown strategy could fuel new outbreaks and a second economic collapse, Janasiewicz warned.

"You've had some areas that have done the full quarantine, and you've got some other areas where they're saying 'I'm not going to force anyone to stay home, just use your discretion,'" he said. "That risks the idea that this thing becomes a much more prolonged epidemic."

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NOW WATCH: We tested a machine that brews beer at the push of a button

A Wall Street trading bonanza, how to benefit from the stimulus bill, and Silicon Valley steps up

Sun, 04/05/2020 - 9:31am


I want to start this newsletter with an extract from an internal memo Citadel founder and hedge fund billionaire Ken Griffin recently sent to staff. Here goes: 

In recent months, we have all been impacted by the coronavirus pandemic. We are in an unprecedented moment of global distress as the entire world faces this common invisible threat. And when the chaos settles, we will be measured by the character we exhibit in our work and in our communities.

In the blink of an eye, we now find ourselves juggling countless new demands on our time, mental capacity and emotional energy. Amid great uncertainty, it is natural to feel thrust into a tailspin. Few of us have ever faced this level of uncertainty in our lifetimes, and the weight of a myriad of new demands will impact each of us differently. We will all have our moments.

That feels right. We will all have our moments. I hope you and yours are doing as well as can be expected given the circumstances. For those interested, you can read the full memo here:

'We are in an unprecedented moment of global distress': Read the full memo billionaire Ken Griffin sent to Citadel employees on the coronavirus crisis

Two quick programming notes:

Read on for more on a Wall Street trading bonanza and how to navigate the stock market uncertainty, how to benefit from the stimulus bill, and how Silicon Valley is stepping up. 

A Wall Street trading bonanza

Alex Morrell and Dakin Campbell this week reported on Wall Street's coronavirus-fueled trading frenzy, where historic shocks of volatility are creating massive paydays


I've written before that there will be no going back to normal. The finance team had two great stories on that theme this week. 

And for those looking for help navigating the current market turmoil, here are some highlights from our investing team:

How to benefit from the stimulus bill

Our team of reporters focused on entrepreneurs and small businesses has been hard at work this week covering the government's $349 billion relief program. 

In related news, Kimberly Leonard got her hands on a leaked document from Senate Democrats that provides clues on how the federal government will allocate $100 billion from the coronavirus stimulus to hospitals.

Silicon Valley steps up

While Wall Street has been adjusting to wild market moves while WFH, and small businesses have been poring through the stimulus bill to see a way to survive, big tech has been positioning itself as the solution to some of the challenges we're now faced with.  

Stay safe, everyone.

-- Matt

Join the conversation about this story »

NOW WATCH: Pathologists debunk 13 myths about the coronavirus, including why face masks won't help

GOLDMAN SACHS: These 13 cheap stocks are poised for years of better-than-expected profits — and they're must-haves as the coronavirus wipes out earnings in 2020

Sun, 04/05/2020 - 9:15am

  • David Kostin — the chief US equity strategist at Goldman Sachs — says some of the largest S&P 500 companies are going to post better earnings over the next five years than their stock prices suggest.
  • As the global economy sinks into a deep recession, there's little hope of earnings growth this year, which might make the long-term bargains Kostin is identifying more valuable. 
  • Goldman thinks S&P 500 profits will plunge 33% this year as a result of the coronavirus pandemic and the widespread economic shutdowns and other damages associated with it.
  • Visit Business Insider's homepage for more stories.

Wall Street forecasts from early 2020 look like they could have come from another world.

As recently as mid-February, David Kostin — the chief US equity strategist for Goldman Sachs — thought S&P 500 companies would report 6% earnings-per-share growth in 2020. At that time, corporate America had just completed a better-than-expected earnings season.

That's ground much of the global economy to a halt. The world is trying to stop the coronavirus pandemic, and experts are trying to figure out how bad the job losses and sudden recession will get — as well as how companies will hold up. As a result, Kostin's firm now expects profits to plunge 33% this year.

He and his team are trying to help investors make sense of it all by identifying companies that could outperform in the years ahead. They're doing that by finding companies with underappreciated earnings growth.

With little hope of growth in 2020, Kostin's group examined the 80 largest S&P 500 companies and focused on their relative earnings-per-share growth compared to the growth of the index. They calculated the implied growth rate that would be required to justify the price of each company's stock.

The analysis is intended to find the companies that are the most undervalued based on their expected growth over the next five years.

The list the Goldman team produced includes two types of earners. Some have posted much stronger profit growth than the average S&P 500 company over the past 10 years, but are being traded as if they'll beat it by a much narrower margin in the future. Others have underperformed, but are trading as if they will fare much worse over the next five years than they have in the past. 

Here are the 13 companies that are the most undervalued based on Kostin and company's analysis. They are ranked from lowest to highest based on the size of the gap between their past and current implied earnings growth rates.

SEE ALSO: Stocks are technically back in a bull market, but Wall Street experts don't trust it. 6 of them explain why we're doomed to fall further — and share what traders should do as turmoil continues.

13. Wells Fargo

Ticker: WFC

Sector: Financials

Market cap: $117.8 billion

Implied relative EPS growth rate, 2010-2020: -8.8%

Current relative growth rate: -19.7%

Growth rate gap: 12.5%

12. AbbVie

Ticker: ABBV

Sector: Healthcare

Market cap: $108.9 billion

Implied relative EPS growth rate, 2010-2020: -9.1%

Current growth rate: -21.6%

Growth rate gap: 12.6%

11. Bank of America

Ticker: BAC

Sector: Financials

Market cap: $181.5 billion

Implied relative EPS growth rate, 2010-2020: -10.7%

Current growth rate: -19.7%

Growth rate gap: 13.2%

10. Crown Castle International

Ticker: CCI

Sector: Real estate

Market cap: $59.6 billion

Implied relative EPS growth rate, 2010-2020: 43.7%

Current growth rate: 29.2%

Growth rate gap: 14.5%

9. Altria Group

Ticker: MO

Sector: Consumer staples

Market cap: $68.4 billion

Implied relative EPS growth rate, 2010-2020: -7.6%

Current implied growth rate: -22.8%

Growth rate gap: 15.2%

8. Citigroup

Ticker: C

Sector: Financials

Market cap: $83.9 billion

Implied relative EPS growth rate, 2010-2020: -10.7%

Current growth rate: -26.1%

Growth rate gap: 15.5%

7. Amazon

Ticker: AMZN

Sector: Consumer discretionary

Market cap: $956.9 billion

Implied relative EPS growth rate, 2010-2020: 52.8%

Current implied growth rate: 36.6%

Growth rate gap: 16.2%


6. Allergan

Ticker: AGN

Sector: Healthcare

Market cap: $57.2 billion

Implied relative EPS growth rate, 2010-2020: 0.9%

Current implied growth rate: -16.4%

Growth rate gap: 17.8%

5. Bristol-Myers Squibb

Ticker: BMY

Sector: Healthcare

Market cap: $123.4 billion

Implied relative EPS growth rate, 2010-2020: 0.4%

Current growth rate: -17.4%

Growth rate gap: 18.3%

4. Netflix

Ticker: NFLX

Sector: Communication services

Market cap: $160.3 billion

Implied relative EPS growth rate, 2010-2020: 53.1%

Current implied growth rate: 34.8%

Growth rate gap: 18.3%

3. Vertex Pharmaceuticals

Ticker: VRTX

Sector: Healthcare

Market cap: $60.5 billion

Implied relative EPS growth rate, 2010-2020: 31.7%

Current implied growth rate: 12.5%

Growth rate gap: 19.2%

2. Charter Communications

Ticker: CHTR

Sector: Communication services

Market cap: $100.5 billion

Implied relative EPS growth rate, 2010-2020: : 34.6%

Current implied growth rate: 13.7%

Growth rate gap: 20.9%

1. Salesforce

Ticker: CRM

Sector: Information technology

Market cap: $119.4 billion

Implied relative EPS growth rate, 2010-2020: 51.1%

Current implied growth rate: 23.5%

Growth rate gap: 27.6%


If we don't protect small businesses during and after the pandemic, corporate America will swallow them whole

Sun, 04/05/2020 - 8:22am

  • If our government doesn't act now to prevent it, corporate America will swallow our country's small businesses whole when the coronavirus pandemic is over.
  • We saw that happen during the financial crisis. The banks that survived were the big banks, which got even bigger, and now we have less competition in the banking industry.
  • The $349 billion in government aid to small businesses Congress passed last week is being given out on a first come first served basis, which favors businesses with accountants and lawyers who can advise on the process. 
  • Finally, protecting small businesses means not only giving them money now, but also blocking anti-competitive mergers and acquisitions when this is over.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit Business Insider's homepage for more stories.

Let me remind you what happened during the financial crisis as our banking system started swirling down the drain.

Not just small banks went bust, but also big brand names like Washington Mutual and Bear Stearns. Banks of all sizes were swallowed by even bigger banks — which got huge — and now instead of having 14,500 banks like we did in the 1980s, we now have around 5,500.

This is story of consolidation and near-monopoly building, and if we aren't careful, after the coronavirus pandemic it could happen all over the economy.

Small- and medium-sized retailers could get swallowed by Amazon and Walmart — companies that have the resources and cushion to get through disaster. Pharmacies will continue to get devoured by CVS and (to a lesser extent) Walgreens. According to US Chamber of Commerce poll, one in four small businesses says that they're two months or less away from closing forever.

This isn't the way capitalism is supposed to work. We're supposed to have competition and choice. And in a perfect world, that problem would fix itself in the market. But this isn't a perfect world in the best of times. And a perfect world certainly wouldn't include the coronavirus.

On Friday the government started disbursing $349 billion in aid for small businesses. Basically the deal is the government will loan you payroll for you for a few months. If you don't fire people, that loan turns into a grant — basically a cash infusion like the $1,200 check a majority of American households are getting.

But there are already problems. Right before the program was about to roll out, JPMorgan — the most giant of all the giant banks that won the financial crisis — admitted that it simply wasn't ready to process and service these loans. And if the house of Morgan was having problems, it's not hard to imagine everyone else was having them as well.

On Friday the program opened to a chaotic first day, according to reports. Bank of America said that by mid-day, 58,000 businesses had asked for $6 billion in loans.

These loans are being given out on a first-come, first-served basis, which means the companies with the time and resources — meaning accountants and lawyers — to understand how to apply will get their first. Smaller businesses with fewer employees will have a harder time. It's also likely that they'll have less time to wait before things go south than bigger companies too.

All that said, this bill is just where the work starts. After the pandemic is over policymakers will need to consider how to keep small business that may be still struggling from getting consumed by big businesses that have recovered faster.

A fighting chance

What this means is what I've been advocating from the beginning — more money for small businesses faster — but that's just part of the story.

Once the dust settles companies that had to wait longer for money, or are located in parts of the country hardest hit by the pandemic, will be weaker. And that will undoubtedly give big corporations that want to get bigger the opportunity to pounce.

We could argue about this until the cows come home, but there are obvious parts of our economy where corporate consolidation has led to poorer outcomes for customers.

The airline industry is the perfect example. 20 years ago there were around 10 major carriers. Now there are four. These mergers were supposed to making things more efficient, but what they've really done is left customers with fewer choices, forcing them to put up with mediocre service and borderline collusive fee increases. 

At the same time, as you've probably heard, instead of using their money and power to invest in improving their services, the four airlines that remained mostly bought back their own stock to made their shareholders (and consequently their executives) richer.

Consolidation has made it harder to fight the coronavirus too. This week the New York Times reported the story of the US government's failed attempt to building a cheaper, easier-to-use ventilator to build its stockpile.

It started back in 2006, when the government hired California-based Newport Medical Instruments to build a better ventilator. The effort stalled when a larger competitor, Covidien, bought Newport in 2012 and scrapped the project. Covidien claimed the US was asking too much, but it's more likely they simply didn't want to make a product that competed with the more lucrative ventilator it already had in the market.

The US has the tools to block anti-competitive mergers like this, we just haven't sharpened or used them in decades. It's one of the reasons why companies like Facebook and Google have gotten so big.

This issue was already starting to gain steam in Washington because of anger at the tech giants coming from both sides of the aisle.

Now, in the face of coronavirus, it's even more important that we use antitrust regulation to protect not just individual small businesses, but also the existence of competition in our markets entirely.

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These 7 charts show how brutal the March jobs report was, and signal further economic pain ahead

Sat, 04/04/2020 - 10:50am

The March jobs report released Friday showed that the early impact of the coronavirus pandemic was much worse than economists expected, signaling further damage to the US economy ahead. 

The US economy lost 701,000 jobs in March, according to the Labor Department's report out Friday. That was much steeper than the 100,000 loss consensus estimate from economists. The unemployment rate jumped to 4.4% from 3.5% in February. 

"These numbers were quite a gut punch," Martha Gimbel, an economist at Schmidt Futures, told Business Insider. "What the report tells you is that the economic pain started even earlier than people thought it did."

Friday's report is backward looking, as it only includes data through March 14. That means it leaves out the last two weeks of the month when 10 million Americans filed for unemployment insurance as strict social distancing guidelines to curb the spread of coronavirus were ramped up across the country, fueling layoffs. 

Read more: Jefferies says these 15 stocks make the perfect buy for investors seeking quality, defense, and recovery as the coronavirus sends markets spinning

Still, the report was affected by the coronavirus pandemic. The Labor Department wrote that the decrease in employment and hours worked versus the increase in unemployment can be attributed to effects of the coronavirus and efforts to contain its spread. 

It also noted that data collection for the report was impacted by the crisis. The household survey response rate (which collects data for the unemployment rate and labor force) was 10 percentage points lower than in recent months, while the establishment survey (which gathers data for the headline payrolls number) was about 9 percentage points lower than usual, the Bureau of Labor Statistics said

"Non responses make it more difficult for the BLS to get an accurate picture of the labor market," Bank of America economist Joseph Song wrote in a Friday note. 

Here are seven charts that show just how bad the March report was.

The unemployment rate rose by 0.9 percentage points to 4.4%.

The unemployment rate may also have been impacted by how some people responded to the household survey, according to the Bureau of Labor statistics. That's because a large number of people surveyed recorded themselves as employed but absent from work, and many of those likely should've been counted as unemployed on temporary layoff. 

If those workers were recorded as unemployed, the over unemployment rate would have been almost one percentage point higher than reported — over 5%, according to the BLS. 

The number of people who marked themselves as employed but absent from work is "heartbreaking," Gimbel said. 

"That number reflects people really clinging on for hope in this current economic situation. If businesses can survive, their job may be there for them," she said. "But a lot of businesses are in existential trouble right now."

Read more: RBC polled 185 investors during the worst first quarter in stock-market history. They revealed what they're buying and selling as the coronavirus crisis persists.

A broader measure of unemployment, which includes people out of a job but who are not actively looking for work and people with a part-time job who want to be working full-time, also spiked in March.

The U6 is a broader measure of employment that includes those unemployed and not actively looking for a job as well as those who are working part-time but would like full-time hours. 

The uptick in this measure shows that companies are not only laying off workers as business slows, but are "also taking pretty strong action on ours, particularly in leisure and hospitality," Gimbel said. 

Read more: 'The whole world's f---ed': A former Goldman Sachs hedge fund chief says coronavirus fallout will cause the 'largest insolvency event in all history' — and warns of another 20% plunge in stocks

The share of adults in their prime working years — aged 25 to 54 — fell at a rate not seen since the Great Recession.

"It's your prime working years right before you might retire and it just plummeted really brutally," Gimbel said. 

"Normally economists prefer to look at the prime age employment population ratio because we have an aging population. It's a way of controlling for that demographic," she said. 

She continued: "A different way of looking at that is that if you control for demographic differences, we wiped out in one month the entire recovery." 

Read more: 'Absolutely zero money out of my own pocket': How Jared Holland turned a little-known real-estate-investing strategy into screaming business — and nabbed a $120,000 profit on a 'free house'

The share of Americans in the labor force — that is, either working or actively looking for work — also sharply declined.

The plunge in the labor force participation rate shows "disengagement in the labor force," Song at Bank of America wrote. The drop is "consistent with workers staying put at home as 'stay-at-home' orders went into effect in March," he said. 

Later in the month, those orders to stay at home and practice social distancing were ramped up across many states, meaning that the March report is "an ominous signal of what is to come," Song said. 

Based on the monthly survey of employers, the number of jobs in the US fell by 701,000 between February and March, ending a 113-month streak of net job creation.

Today's job losses were much wider than the consensus economist estimate that the US economy would lose 100,000 jobs in March, showing the earliest days of the coronavirus pandemic in the country. 

The report followed a second week of record layoffs due to the crisis. On Thursday, the Labor Department reported that 6.6 million people filed for unemployment insurance in the week ending March 28, adding to the 3.3 million who filed in the week ending March 21.

This week, there have been "two days of employment releases where the data was so much worse than people were expecting," Gimbel said. "That's just so scary looking forward."

Read more: Buy these 14 stocks flush with the cash reserves to survive a prolonged coronavirus crisis, BTIG says

Most sectors were hit hard, but the leisure and hospitality industry lost 459,000 jobs in March.

About two-thirds of the overall drop in payroll employment occured in the leisure and hospitality industry, mainly in food services and drinking places, according to the BLS. 

Other notable sectors that took a hit were health care and social assistance, professional and business services, retail trade, and construction, according to the report. 

Healthcare workers facing layoffs in the coronavirus pandemic is an "unusual feature of the crisis," ZipRecruiter labor economist Julia Pollak told Business Insider. It shows that no sectors are truly recession-proof, she said. 

The bulk of the job losses in the hospitality industry came from restaurants and bars.

"This was a report that was really about the leisure and hospitality industry," Gimbel said. "We're going to have to wait for the next one to see everyone else get hit." 

Despite the March report being out-of-date, "today's data provide some important information about the early days of the labor market crisis we are now in, including which sectors were the very first-affected, most vulnerable sectors," wrote Economic Policy Institute economist Elise Gould, pointing to the losses in leisure and hospitality. 

She continued: "Further, both average weekly hours and aggregate weekly hours are down for March, as employers began to reduce hours worked and lay off their staff." 

In leisure and hospitality, average weekly hours fell to 24.4 in March from 25.8 in February. 

Wall Street's new disaster playbook; top restructuring lawyers

Sat, 04/04/2020 - 9:04am


Welcome to Wall Street Insider, where we take you behind the scenes of the finance team's biggest scoops and deep dives from the past week. 

If you aren't yet a subscriber to Wall Street Insider, you can sign up here.

Wall Street had to quickly adapt to a new work-from-home reality, and firms are already thinking about how the coronavirus will transform the way they work in the long run — Tradeweb's CEO called the shift to remote work a "fundamental game changer" when it comes to business and personnel impact.

Banks have been forced to rewrite continuity plans, including testing and deploying remote-working capabilities to their vast trading ranks. Dakin Campbell and Alex Morrell talked to more than a dozen insiders about the exact steps firms have taken to replicate trading floors at home.  

Read the full story here:

Wall Street's disaster playbook never included work-from-home trading. Insiders explain how banks rapidly adjusted during one of the most chaotic markets in history.

And as Casey Sullivan reports, top law firms are seeing a "great reset" that could reshape office needs and how they use tech to interact with clients. That's not to say everyone is looking to redefine business as usual — Dan DeFrancesco talked with NYSE's COO about how the exchange is thinking about its iconic trading floor.

Wishing everyone a healthy and safe weekend. As always, my line is open at


'Hope for the best, but plan for the worst'

CB Insights research pegged fintech funding for the first quarter at around $6 billion — the lowest quarterly total since 2017. Dan DeFrancesco asked backers including Bain Capital Ventures, Index Ventures, and Goldman Sachs what advice they have for startups as the coronavirus throws global economies and markets into turmoil.

Read the full story here:

As fintechs face their first funding drought in 3 years, we talked to 11 top investors about what young companies should do to survive the downturn Project MBD ARGO

Dakin Campbell gave a play-by-play on how Mount Sinai Health Systems secured a shipment of 130,000 N95 masks, with collaborators including senior Mount Sinai and Chinese healthcare execs, a senior partner at Goldman Sachs who serves as the chairman of the hospital chain, and a call to Warren Buffett. On the Goldman side, the project was code-named MBD ARGO — a reference to Goldman's merchant banking division as well as the 2012 film starring Ben Affleck. 

Read the full story here:

How a massive New York hospital secured 130,000 N95 masks from China with help from a senior partner at Goldman Sachs, private jets, and a call to Warren Buffett Top restructuring lawyers gear up

As the novel coronavirus sweeps the globe, it will fall on a cadre of elite attorneys at the nation's top law firms to help guide companies through an unprecedented hit to revenue. Casey Sullivan talked with attorneys, consultants, and recruiters to identify 10 restructuring and bankruptcy lawyers to keep tabs on as the business landscape shifts dramatically in 2020.

Read the full story here: 

10 lawyers who navigated the biggest bankruptcies in history are set for a huge boom in business as the coronavirus fuels a restructuring surge Hedge fund winners and losers

March was a month of pain for investors in market-tracking index funds and sophisticated quant hedge funds alike, as a stock selloff knocked several hedge fund categories. Bradley Saacks rounded up the winners, losers, and those in between in the $3.3 trillion hedge fund industry.

Read the full story here:

Macro hedge funds are soaring while quants and stock-pickers tank. Here are the biggest winners and losers. On the move

Morgan Stanley hired a top trader away from Deutsche Bank in distressed credit— an area primed for a boom as corporate debt gets crushed. Deutsche Bank had tied with JPMorgan Chase for first place in credit-trading revenues in 2018, according to the most recent league table available from Coalition, and is home to one of the top distressed-debt houses on Wall Street. 

Hedge funds and investing Careers

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Private-equity giant Carlyle bought a stake in a startup that uses AI to judge how much you smile in interviews, and now it's offering the tech for free to its portfolio companies

Sat, 04/04/2020 - 8:17am

For finance and tech firms, spring recruiting will look a bit different this year.

As the coronavirus pandemic has universities shutting down and recruiters working under shelter in place conditions, companies that are looking to hire have to rethink their traditional methods of finding talent.

HireVue, a Utah-based startup that private-equity giant The Carlyle Group owns a majority stake in, offers employers the ability to evaluate candidates and conduct interviews online. And as more Americans are staying home to prevent the spread of the virus, industries in need of workers are using HireVue to recruit from afar.

"Customers are trying to virtualize every part of the hiring process," said Kevin Parker, chairman and CEO of HireVue.

And HireVue offers more than just video interviewing. It also has AI-driven candidate evaluation tools, which can help hiring managers review candidates more efficiently.

HireVue is used by companies like Goldman Sachs, Hilton, and Intel to conduct both pre-recorded and live interviews, all online.

Carlyle offers portfolio companies a way to hire through the crisis

With new deals paused because of economic turmoil, a near-term challenge for private-equity firms is helping out with operations at their own businesses. PE firms have been busy communicating with their existing portfolio companies about how to maneuver the fluid situation, Business Insider has reported

Carlyle bought a majority stake in HireVue last October. Financial terms of the deal were not disclosed, but Carlyle currently controls HireVue's board. Prior to Carlyle's investment last October, HireVue had raised $93 million in VC cash from investors including Sequoia Capital and TCV.

During the pandemic, HireVue is offering its platform for free to fellow Carlyle Group portfolio companies.

HireVue's platform will come in handy for Carlyle's finance and business services companies, like NetMotion, TCW Group, and Veritas Holdings. Now's the time when they're typically doing undergraduate and MBA recruiting, but for now, they're not unable to conduct spring interviews on campuses.

"Clearly no one's on campus, so it's really hard to do campus recruiting right now. But campus recruiting has been an area where HireVue has a lot of great customers," Ashley Evans, principal in the technology, media, and telecom group at Carlyle and member of the HireVue board.

In 2016, Goldman Sachs announced it would no longer travel to college campuses to conduct interviews. Instead, all first-round interviews for undergraduates are now conducted via HireVue's pre-recorded video platform.

"There's been a very measurable transition from that in-person experience on campus to more of a virtual experience," said Parker.

Goldman Sachs said that by using HireVue, the firm is able to interview a broader range of candidates outside of its typical Ivy League recruiting network.

And Parker thinks that online interviews will continue to catch on.

"I think the vast majority of campus recruiting for corporate America will transition to a video-based solution," said Parker.

In addition to its video platform, HireVue offers AI-driven assessment tools for recruiters and hiring managers to evaluate candidates. The startup, which facilitated 4.5 million interviews last year alone, also uses its own store of data to suggest effective interview questions.

"It's not enough just having a video connection to someone. You need intelligence and you need structured interviews," said Anderson. "You need ways to help recruiters and employers and interviewers deal with the scale of demand for jobs."

HireVue is currently free for hospitals, and it's supporting thousands of interviews daily

While the coronavirus pandemic has left a record number of Americans jobless, some industries, like healthcare and grocery stores, are rushing to hire.

Hospitals will also be offered HireVue's platform at no cost during the pandemic. 

"With as many people that are going to be looking for work as are right now, it was an easy decision for us," said Parker. 

The platform supports over 1 million interviews on a quarterly basis, and now, it's seeing those numbers climb.

"The business has the ability to deploy quickly and scale quickly," said Evans.

Grocery stores, the company said, are interviewing 15,000 candidates a day, using both live and pre-recorded interviews, for jobs like stocking shelves. And telecom providers whose call centers have been shut down due to the pandemic are hiring to re-insource things like customer service, and they're using HireVue to conduct interviews.

While candidates are typically given a few days to complete their interviews, HireVue has seen a 40% increase in the number of candidates sending in their videos the same day an employer offers an interview.

Remote interviews enable companies to hire during a lockdown

As unemployment rises due to coronavirus-related layoffs and business closures, more people are looking for jobs online.

While there's no shortage of candidates for jobs in hospitals, call centers, and grocery stores, companies may struggle to assess workers' transferable skills, said Matt Anderson, chief digital officer of Carlyle.

"Hourly workers make up the vast majority of the jobs in the country, and many don't have resumes," said Anderson. 

And this issue is made more acute in the current environment where hospitality and restaurant workers are largely out of work. They're turning to places like grocery stores to find new jobs, and while the skills can be transferable, it can be hard for hiring managers to sift through individual applications. 

"Suddenly you have grocers and healthcare systems that need people to come and do different work," said Anderson. "But a lot of the skills and abilities and underlying ways that we work can be extended into those types of applications."

HireVue's AI-driven platform can help companies scan candidates' skills and evaluate their potential, even without an exact match in prior experience.

Online recruiting will continue to grow as it enables job mobility

"As the familiarity with tools like this increases, I think the willingness to adopt them will go up," said Evans. 

But a shift in our norms takes time, and HireVue needs to make sure that companies understand the benefits of moving recruiting online.

"A big underpinning of our investment thesis was to break apart some of those preconceived notions that exist at employers and have people acknowledge that this is actually a great, more fair, more efficient way to acquire talent," said Evans.

Efficiency is a big selling point of HireVue, as recruiters can spend less time in transit and more time evaluating candidates online. What's more, recruiting online can also broaden a company's talent pool and increase mobility for workers.

"Even before the crisis, I think there was a belief that any worker could go and apply for any job and that just really wasn't true," said Anderson.

"Labor mobility and wage mobility, those were concepts that we talked about but they weren't really a reality," Anderson said.

For many, finding a new job requires not only dedicated time for the job search but possibly time off from their current jobs to sit interviews.

With HireVue's pre-recorded video platform, candidates get the flexibility to record their interviews at any time.

"Virtual interviewing is going to play a key role and I think it will probably play a key role from this point forward," said Anderson.

SEE ALSO: The coronavirus is a 'watershed moment' for how people want to get paid, according to 4 wage-advance startups that raised hundreds of millions from top VCs

SEE ALSO: How the 2020 MBA class can make itself marketable in the middle of any crisis, from a Columbia dean who guided students through the Great Recession and turned anxiety into action

SEE ALSO: We talked to 14 private-equity insiders about how they're planning to play the coronavirus turmoil. They identified 2 huge opportunities.

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'The whole world's f---ed': A former Goldman Sachs hedge fund chief says coronavirus fallout will cause the 'largest insolvency event in all history' — and warns of another 20% plunge in stocks

Sat, 04/04/2020 - 6:05am

  • Raoul Pal, the former hedge fund manager who founded Real Vision, thinks the fallout from the coronavirus will have immense, far-reaching impacts on the global economy. 
  • The duration and severity of the pandemic is something that Pal thinks hasn't yet been accounted for properly.
  • Pal thinks a further 20% decline in stocks is on the horizon.
  • For context, in October, Pal called the Federal Reserve cutting rates to zero and the US having negative rates. In late February, Pal said to buy bonds and that the impacts from the coronavirus would be "meaningful and real." 
  • Click here for more BI Prime stories.

"The whole world's f---ed."

That's what Raoul Pal, the former hedge-fund manager who founded Real Vision, said on the "Lindzanity" podcast when he initially learned the coronavirus was uncontrolled and spreading rapidly. 

"The moment the spread hit Iran ... and then Italy — that all happened over the span of three or four days — I was like: 'time to panic before everybody else,'" he said. "It's human behavior function. If the Chinese closed every single border and every city, everybody's going to do it."

To bring you up to speed, Pal retired at 36 after quitting jobs at Goldman Sachs and GLG Partners. He lives comfortably on a 140-person island in the Cayman Islands and spends his days writing market research, which comes with a hefty price tag of $40,000 per year.

"I said: 'Listen, this is the biggest economic event of all of our lifetimes — and it's coming'" he added. "And that was, in retrospect, the greatest call I've ever had."

But this isn't the first time Pal's nailed a prescient call. Back in October, he said the Federal Reserve needed to cut interest rates to zero and warned of negative interest rates in the US, both of which have materialized.

What's more, as the market was topping out in late February, Pal expressed his affinity for owning bonds — a trade that would've immensely rewarded investors who took his advice. He also warned that the implications from the coronavirus would be "meaningful and real."

That was before things really started to fall apart.

Today, Pal thinks the coronavirus will cause "the largest insolvency event in all history." And given his track record as of late, that's not reassuring.

"I think the balance of probabilities are that this is a much longer event — in terms of economic impacts — than anybody is pricing in," he said. "I think it's a huge societal change that's coming from all of this."

To Pal, the duration of the fallout stemming from the coronavirus is the key factor here — one that he thinks investors aren't paying enough attention to. In his mind, those who are a projecting sharp V-shaped recovery in the third and forth quarter are incorrect in their assumptions. 

"Isolation is going to be a real event for a significant period of time," he said. "You've got a world that's going to be much more closed, and that's leading to complications in supply chains."

He added: "It makes people become more local."

Pal's prognostication echos that of billionaire "bond king" Jeffrey Gundlach. In a DoubleLine webcast earlier this week, Gundlach said "we're going to be getting much more, less-connected to globalization" and "we're going to be bringing manufacturing back and thinking about things in very different ways."

But the changes that Pal and Gundlach highlight don't happen overnight, which is why Pal thinks the fallout could worsen. Every day that the pandemic drags on is one less day without production and consumption. Then that, in turn, heightens bankruptcy risk.

With all of that under consideration, here's how Pal is positioning his portfolio to weather a deeper equity rout. Ideally, he'd like to get to the allocation below.

  • 25% Bitcoin
  • 25% gold
  • 25% cash
  • 25% trading opportunities

"So I'm now in the point of thinking we've got another 20% downside or so to come before we get the 3-, 4-month bounce of hope," he said. "For the average guy, this is a very, very, very difficult world we're going to go into — and I can't sugarcoat it because there is no nice answer."

SEE ALSO: A notorious market bear says stocks are still historically expensive after tumbling on coronavirus — and warns a plunge 'of about 50% from here' is still coming

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