(New York)

Morgan Stanley was due to make some big pay changes for advisors starting April 1st. The changes would mean a reduction in compensation for similar production levels. However, in light of the Coronavirus outbreak, the firm has said it is pushing the implementation date for the changes back to October 1st. Directly addressing the firms 15,000+ advisors, the head of field management said “We know that you are facing enormous challenges personally and professionally while at the same time taking great care of your clients in a very difficult environment”.

FINSUM: These changes are tough to begin with, and doing them right now would have been downright draconian (and might have caused some extra departures).

(New York)

All the predictions in the market are about how steep the recession in Q2 will be (we think people should also be considering the Q1 numbers!), but a new paper has been published looking back at the economic effects of the 1918 pandemic. The surprising finding is that strong shutdowns did not actually hurt the economy as much as thought. In fact, the areas that undertook the strongest and swiftest shutdowns, had the weakest drops in output and the quickest recoveries. The average US location suffered an 18% downturn from the pandemic. However, the researchers (two from the Fed, one from MIT) summed up their findings this way, saying “Cities that implemented more rapid and forceful non-pharmaceutical health interventions do not experience worse downturns … In contrast, evidence on manufacturing activity and bank assets suggests that the economy performed better in areas with more aggressive NPIs after the pandemic”.

FINSUM: While this is not the most compelling evidence (given it is 100 years old), it is encouraging to consider that those taking swift action might not see the worst consequences.

(Chicago)

Muni bonds have found their footing in the last few days. After experiencing some considerable selloffs as this crisis began to unfold, the recent stimulus package has put wind back in their sails. Munis are in the very unusual position of having yields significantly higher than Treasuries at the moment. Most investment grade munis are yielding from 1-2%, some up to 3%; while select high yield munis are seeing 5%. The bonds are definitely in a risky place right now given the potential for a long recession and a decline in revenue.

FINSUM: On a price/yield basis, munis certainly seem like a good buy at present; but they are facing some considerable risk, which accounts for yields being so much higher than Treasuries.

(Houston)

If there was ever a time to take a hard look at investing in oil, this might be it. Black gold just hit an 18-year low, falling under $20 per barrel. Evidently, in physical oil markets, barrels are already changing hands for $10 each. The market is grappling with a price war at the same time as a massive glut of excess oil at a time of sharply shrinking demand.

FINSUM: Two thoughts to weigh here. On the one hand, oil was recently at $63 a barrel (in January), so this is a very substantial fall, which means a potentially great buying opportunity. On the other hand, oil is not nearly as scarce as many thought at the start of the last decade, so it is not inconceivable that prices could stay low for a long time.

(New York)

The outlook for retail is bleak. Investors already know this, but separating those who might actually go bust from those who will muddle through is key. The US’ big stimulus package had little directly for retailers, but there is enough to throw them a lifeline. According to analysts 630,000 US retailers have had to shut their doors since Coronavrus erupted. Larger companies have responded by furloughing staff, delaying obligations, and tapping revolving credit lines. The retailers most at risk seem to be the mall-based chains that focus on clothing—who were already struggling against ecommerce. Think J.Crew, Neiman Marcus, other department stores etc.

FINSUM: Our team has considerable experience in retail, and in our view the coronavirus will be looked back on as the coffin nail in brick and mortar retail (especially for clothing). This lockdown is going to accelerate the shift to ecommerce, and brick and mortar shopping habits may be permanently reduced.