Displaying items by tag: coronavirus

(New York)

Many RIAs across the country are worried right now. With fee levels often tied to AUM, revenue seems likely to take a ~30% hit this year. That is enough to break many RIAs, especially those who were previously running only 10% profit margins. So how can RIAs cope? Firstly, those who have been very tight on budgets are in better shape. Those who were operating at 30% profit margins should be okay. A few of the key aspects to consider right now are: reaching out to vendors to “share the pain”, changing compensation structures towards lower fixed pay and more incentive-based pay, and switching to a quarterly budget, which will better align expenses and income.


FINSUM: We might go through a long period of lean times, so RIAs need to act fast to get their fixed costs under control.

Published in Wealth Management

(San Francisco)

Investors have made cash the only thing that matters in markets. The Dollar is surging and investors are fleeing assets in favor of cash. Cash is a scarce and valuable asset in this downturn, and which companies have a ton of it—tech companies. While the Silicon Valley giants will take a hit from lower consumer spending, the reality is that the shutdown of normal life is pushing things ever more online—their domain. As this crisis eventually abates, giants like Apple, Microsoft, Google, and Amazon, have huge cash reserves (currently $350 bn) that will help them attract shareholder capital, and also grab market share as competition gets weeded out.


FINSUM: Tech is probably going to be in a stronger position in a year than it was six weeks ago. Their fortress balance sheets will be key.

Published in Eq: Tech
Friday, 20 March 2020 09:57

There is a Huge Credit Crunch Coming

(New York)

If anything is becoming clearer about coronavirus’ effects on the economy, it is that job losses are going to be staggering. But what will be the knock-on effects? One of the many looks likely to be a serious credit crunch. Without income flowing in, many borrowers are going to be late or default on payments, which means lenders will run short on money and everyday companies will not get their normal cash flow. Not only will this hurt earnings and weaken credit ratings and corporate solvency, but it will likely cause a serious decline in consumer credit scores that will have a lingering effect on credit for years.


FINSUM: Everyone seems to be trying to mitigate this threat. Banks are suspending mortgage payments, credit bureaus say they won’t report delinquency etc. This is unprecedented, but it remains to be seen how it plays out (and for how long).

Published in Bonds: Total Market
Thursday, 19 March 2020 11:24

Coronavirus Could Lead to an Economic Depression

(New York)

This week has a very worst-case-scenario vibe to it, and thus we wanted to examine what the worst economic effects of the coronavirus outbreak might be. With a recession seemingly a foregone conclusion at this point, the question on economists’ minds is whether a depression could occur. A depression is an economic contraction that lasts for a long time, as in years, not a couple quarters. Since 1854, there has been 33 recessions and only one depression—by 1933 the US economy was only half the size that it was in 1929.


FINSUM: Many factors led to that huge downturn, and it takes a perfect storm for them to lead to a depression (e.g. the Fed raising interest rates at the same time as a huge drought in the Midwest). That multitude of factors does not seem to be in place right now.

Published in Eq: Total Market
Thursday, 19 March 2020 11:21

“Hell is Coming”

(New York)

In what was one of the most emotional and scary markets-oriented interviews possibly ever, famed hedge fund manager Bill Ackman gave some very stern warnings to America yesterday. Ackman favors a complete shutdown of the US economy for 30 days, instead of a gradual rollout of measures. “America will end as we know it. I’m sorry to say so, unless we take this option”, he argues. He continued “Capitalism does not work in an 18-month shutdown, capitalism can work in a 30-day shutdown”. He further warned companies to stop buybacks because “hell is coming”.


FINSUM: Whatever you may feel about the health threat of the virus itself, the economic situation with the coronavirus has escalated so quickly that it is hard to know what forecasts are outlandish and which need to be taken seriously. What we do know is that there is no end in sight to the contain measures (and thus the economic damage), which means there is going to be a huge wave of unpaid bills by consumers and a resulting financial crunch for many companies.

Published in Eq: Total Market
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