Daily Update

Daily Update 11/11 – Issuing Stock

News Wrap:

  • Issuing Stock: Seeing its stock rise over 15% on Monday, American Airlines ($AAL) wasted no time getting on the phone with their bankers and was the first company to announce it would be issuing stock. The airline announced it would issue 38.5 mm shares, with an option to sell 5.775 mm more, at market price. This would raise $584 million in proceeds at Monday’s last close price. The company guided cash burn of $25 to $30 million/day in Q4 of this year. If completed and assuming the option is exercised, this offering would be ~8% dilutive.
  • Not to be outdone, Carnival ($CCL), after notching the biggest one-day gain since the cruise operator went public in July 1987, has announced another $1.5bn “at the market” equity raise, its fourth equity raise this year. This follows the $1bn ATM equity raise in September, the $0.9bn early conversion of the convertible bond in August, and the $0.6bn equity raise in April. CCL’s monthly cash burn was guided to be $530m in Q4 and it has $1bn debt maturing in Q4, signifying the need to raise more cash. If completed, this offering would be ~9.7% dilutive at the 11/10 closing price.
  • We can expect more stock issues from names like $RCL, $NCLH, $DAL, $UAL, $CNK, $AMC and others who have been burning cash due to forced curtailed business activity during the pandemic. This is the prudent thing to do for these beleaguered companies, but is not share holder friendly.

Grounded plans, closed movie theaters, docked cruise ships.

  • More Vaccine Details: A key consideration in administering the vaccine is the administration sites themselves. There is a view that many different sites would be used for administration, including pharmacies, doctor offices, and mass inoculation areas (pop-up tents in parking lots, for example). The nature of the vaccine’s handling requirements could dictate which sites are most appropriate, particularly given not all sites will have the equipment required for storage.
Australia Reports New Single-Day Coronavirus Death Toll | Voice of America  - English
Will we all be vaccinated in pop-up tents?
  • For all you urban millennial readers and listeners, you can expect to be able to receive your first dose earliest around April 1 and conservatively by July. Rural populations, however, will likely take longer to reach. The government has procured a significant amount of vaccine doses such that patients won’t be charged for either the COVID-19 vaccine or its distribution, though some providers could potentially charge an administration fee. Various plans are also under development with the objective of ensuring there will be no out-of-pocket expenses for the administration of the vaccine either.
  • Chinese regulator push-back on Tencent and Alibaba: In the latest development to curb the power of China’s internet giants, the anti-trust body issued an order seeking public comment to “ward off monopolies.” We see this as an ominous sign for $BABA and $TCEHY and more will surely come. Or perhaps the CCP is simply trying to remind Chinese tech billionaires who really runs the show, but will refrain from actual anti-trust actions. Time will tell. (link in Chinese)
  • Apple chip reveal: Apple unveiled its first Apple Silicon Macs at its event, marking the beginning of the end of Intel chips being inside Apple notebooks and desktops. The first in a family of Apple Silicon chips based on ARM is called the Apple M1 chip. Apple’s System on a Chip (SoC) will also be able to run iPhone and iPad apps on the Mac for the first time. More here: (link)
  • Herd immunity: The hypothesis of herd immunity being achieved in certain population centers like NYC as well as European hotspots like in Italy and Spain was debated fiercely. We think we can put the idea to rest and that no significant amount of herd immunity has been achieved anywhere. We also believe NYC and other past US hotspots are at risk of being hotspots once again when we look at what’s happening in regions in Europe.
The Northwest region (blue) which includes Lombardy, Piedmont, Liguria, and the Aosta Valley. This region was the most affected in the first wave and is leading the second wave as well. The Northeast (orange) and South (yellow) are also following similarly in the second wave as the first, signifying it’s the same regions being reinfected, not new ones.
In Germany we can see a similar result – North Rhine-Westphalia (brown), Bavaria (orange), and Baden-Wurttemberg (blue) are leading the second wave just like they led the first.

Tweets and graphs we like:

Millennials worried all those hours spent practicing that stupid dance was for nothing.
No solar panels to install on the ex-CEO, Trevor Milton’s house this quarter I suppose.
We like this distinction between *true* value (names with valuations at historical lows) and *anti-momentum* (Covid affected companies down >50% this year)
Say it with me – SOGU. Stocks Only Go Up.
Great to see some Gen X and Boomer participation in a millennial past time!

Things we are looking for:

  • Further developments on Chinese anti-trust regulatory actions. Expect further selling of large Chinese names like Alibaba and Tencent in the meantime. Remember, Asia trades on rumors, so any noise coming out is important for these stocks.
  • Will the rotation into *true* value continue over the next few days? We think it’s likely.

Thanks for reading and good luck!

Daily Update

Daily Update 11/10 – Dust Settles in Post-Vaccine Headline World

Dust settling on the road to a Covid vaccine

News Wrap:

  • We got the anticipated vaccine headline, now what? The exciting reality of distribution logistics and supply chains of course! Pfizer’s vaccine needs to be housed at an average of 103 degrees below zero Fahrenheit. The number of medical grade ultra-cold deep freezers in the United States is unknown, and it’s up to states to locate them. Specifically, the federal government has worked with 5 pilot jurisdictions (California, Florida, Minnesota, North Dakota, and Philadelphia) to utilize a basic plan for administration, which will then serve as a model for other jurisdictions. Other states and local governments will then use information gathered from these pilot jurisdictions to create their own plans, which will identify vaccination sites, and other necessary logistical considerations. Almost every state has submitted a draft outline for their distribution in their respective jurisdiction at this point.
  • There is no centralized effort for this kind of distribution effort, yet. Federal officials, which includes the CDC, are not working with hospital associations or medical supply chain experts on a national plan. It’s instead up to each of 64 vaccination jurisdictions to identify these freezers, according to an American Hospital Association spokesman.
Vaccine Product Flow and Distribution Challenges Source: Goldman Sachs Global Investment Rearch
  • There are fewer than 10 national suppliers of medical grade deep freezers, experts say and a recent market report identified nine major suppliers. More on How to Ship a Vaccine at –80°C from NYT – (link)
  • Luckily there’s also some good news – some hospitals have these specialized freezers even if they don’t realize it. Although their sizes vary widely “from the size of a table top or the top of a desk to the size of a TV tray.” Additionally, some concern about the freezers’ availability was relieved recently after Pfizer announced it designed a special short-term cooler for keeping its COVID-19 vaccine in dry ice at a cool -109.3 degrees Fahrenheit/ -80 degrees Celsius. Can we source enough dry ice for 1.3bn doses of the vaccine in 2021? Expect to hear more about these bottlenecks as we move forward. More here – (link)
A FedEx employee handling dry ice for boxes that would be used to ship vaccine. A looming shortage of dry ice could hinder shipments.
A FedEx employee handling dry ice for boxes that would be used to ship vaccine.
  • Who gets the vaccine first? Front-line healthcare workers, essential workers, and older adults could and probably will get vaccine first. Phase 1 will consist of a total around 45 million from these populations. Phase 2 will most likely be those who are at risk due to health conditions such as obesity and diabetes, as well as the remaining older population, teachers, and other essential workers. Phase 3 and Phase 4 will be children, young adults, and workers in important industries.
Source: National Association of Medicine, Goldman Sachs Global Investment Research
  • Will Americans take the vaccine? Polling is … inconclusive at best. Pew Polls ate 50/50 and polls from Engine Insights and CBS News are 25% would take/ 25% would not take/ 50% not sure and would wait. However, with the national mood being that of pollsters be damned, we have a better data point: 45% of Americans were vaccinated for the flu last year. Due to increased interest in Covid, I think we can conservatively expect 60% of Americans to take the vaccine, with a more optimistic assumption of up to 80%.
1. Gallup only accepted yes/no answers
Source: Pew Research, Engine Insights, CBS News, Gallup
  • There seems to be some confusion on whether Pfizer accepted federal funds. From what I can see, Pfizer was not a part of Operation Warp Speed, but did accept federal money. Pfizer’s partner in develolping the Covid vaccine, BioNTech, also was given $445 million from the Germany government. See more details below:
  • Enough about the vaccine, how about some Market Mayhem – Beyond Meat fell as much as 11.1% on the news, released around 10:30 AM, that McDonald’s unveiled its own meatless burger, the aptly named McPlant. However, a few hours later, at around 1:30PM, Reuters ran a piece where it was reported that Beyond Meat co-created the McPlant, leading to BYND spiking over 20% on the news. BYND ultimately ended the day -4.05% because it was unclear what role the company would play on the McPlant (if any) and their role was probably thin at best. The stock then promptly dove another 20% after its third quarter revenue missed the lowest estimate. My grocery store has always been fully stocked with Beyond Meat, just saying.
Beyond Meat, Beyond Volatile.
  • And finally, the most important news of the most eventful day for the markets in a long time:

Tweets and Charts I like:

Will the rotation out of stay-at-home names and into back-to-normal names continue?
No one *wants* to own this stuff. The stage is set, what’s more important – that the tech powerhouses continuing to churn out more cash or is the promise of energy demand/airline capacity/vacation bookings/movie tickets sold back to 2019 levels despite near-term expected horrendous earnings.
The number of data points is small (and Obama inherited a crashed market so a recovery was expected in hindsight) but let’s dispel this myth once and for all.
SOGU – Stocks Only Go Up
Daily Update

Daily Update – 11/9 Vaccine Headline

COVID-19 vaccines from Pfizer

News Wrap:

  • What’s Next? Look for safety and manufacturing headlines to hit within 2 weeks. “Pfizer and BioNTech are continuing to accumulate safety data and currently estimate that a median of two months of safety data following the second (and final) dose of the vaccine candidate – the amount of safety data specified by the FDA in its guidance for potential Emergency Use Authorization – will be available by the third week of November”
  • How many people will be vaccinated? Pfizer expects 50 million vaccine doses by the end of the year to be produced. These will most likely be given to healthcare workers and high risk individuals and seniors at first. They expect 1.3 billion doses in 2021.
  • DOW and S&P up big pre-market. Nasdaq up slightly, signifying rotation into beaten down cyclical stocks vs tech which has rallied significantly this year. Expect big moves today.

Tweets and Charts I like:

Remember when oil was within striking distance of $100 a barrel and rates weren’t 0%? It was only two years ago.
Our friends in Japan may finally break out of their main index’s 20 year trading range. Still they would need another 56.6% increase (from levels this morning after the vaccine news was released) to hit the heights achieved in 1989.
Trump should’ve hired Quantian as senior advisor instead of Jared.

What I’m looking for:

Biden released his Coronavirus task force this morning too amid the vaccine headlines. Former surgeon general Dr. Vivek Murthy and former Food and Drug Administration commissioner David Kessler will lead the task force. Yale University professor Dr. Marcella Nunez-Smith will also help guide the group. I look forward to learning more about these individuals and their guidance on how to handle the pandemic from now until a vaccine is widely distributed.