What an eventful weekend all around the country – here in Nashville protesters attempted to burn down our historic courthouse Saturday night. Let’s take a look and see how the riots are impacting our economy’s comeback –
Protests Derail Comeback Plans for Restaurants and Retailers
Macy’s delayed the reopening of some stores shut down by COVID-19. Apple stores that had recently unlocked their doors were boarded back up. Chains from Kroger to Popeyes cut back their hours. The CEOs of Starbucks and McDonald’s organized company-wide discussions of the social unrest that has disrupted efforts to restart business as pandemic lock downs ease.
Over the weekend, 30 Macy’s store and 75 Target stores closed their doors – and in cities where they haven’t closed yet, like Chicago, rioters broke windows and looted merchandise.
I hope the violence everywhere ends soon.
CBO Says Economy Could Take Nearly 10 Years to Catch Up After Coronavirus
A recent analysis published by the Congressional Budget Office marks down its 2020 – 2030 forecast for US economic output by a cumulative $15.7 trillion, or -5.3% when compared to predictions made just 6 months ago.
After you adjust this for inflation, you’re looking at an estimated -$7.9 trillion decline in cumulative GDP. Where does this gap come from? A sharp contraction in economic activity this year – something that was unforseen to the CBO when they last published their “10-year outlook in January”.
A good “economic comparison” for the future of the US is China – they had their country locked down for several weeks just like we did. Let’s take a look into their economy..
China’s Barely Begun Economic Recovery Shows Signs of Stalling
China’s economy hit a speedbump in May as COVID-19 began curbing the world’s demand for Chinese goods.
More and more Chinese factories have opened back up over the last 3 months, but now they’re facing the reality that orders from overseas customers just aren’t there. And below the surface, there is evidence that China’s economic recovery is beginning to stall. While the office PMI released by China shows continued expansion, the magnitude of the gains fell for a second-straight month.
China’s manufacturing surveys suggest that the pace of the economic recovery from COVID-19 disruption is slowing, due in large part to lackluster overseas buying. Which makes complete sense.
Short the Target: The Specialist Funds Betting M&A Deals Won’t Close
For all you hedge fund followers reading this – some hedge funds that wager on mergers and acquisitions are taking an unusual approach to navigating the uncertainty caused by COVID-19: they’re betting against the target.
What does this mean? Well these hedge funds usually make money by buying up stock of target companies in M&A deals. By doing this, they’re betting the share price will rise after a combination is announced and nears completion. But many are now finding themselves reducing their long position, or even shorting the target.
This switch is driven by the probability that deals won’t close jumping from 4% in January to 33% in mid-March. It has since fallen, but remains high (20%).
This is quite the strategy to make money. Hedge funds are always coming up with new and interesting ways to make money. My favorite story of a way a hedge fund made money was about this tiny South Korean hedge fund that invested ~$500k into the production of the movie “Parasite” and saw a return of 72.1% – how insane! The movie Parasite cost $11M to make and has raked in $165M in ticket sales as of February. That’s called profit baby!
Have any wild hedge fund money making ideas? Let me know in the comments below.