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Brace for impact
Every Thursday, the Labor Department releases data about the previous week’s new claims for unemployment insurance. The numbers typically draw little attention outside economics circles. But all eyes are on today’s report, due at 8:30 a.m. Eastern, which will be one for the record books.
Most analysts expect between two and four million people to have applied for jobless benefits last week, as shutdowns driven by the pandemic led to widespread layoffs. To put that in context, the most recent reading showed 281,000 new claims, and that was one of the biggest weekly rises in years. If the predictions come to pass, today’s figures would dwarf anything seen before.
• The previous record was 695,000 new claims, in October 1982.
States are struggling to keep up, with California fielding more than 100,000 applications per day. Bolstering unemployment insurance and shoring up states’ funds to pay for it are key aspects of the emergency stimulus bill that the Senate passed last night, with the House expected to vote by the end of the week.
• “The main focus in the U.S. seems to be helping people who have already lost their jobs,” said Paul Donovan, the chief economist at UBS Global Wealth Management. “That is essential, of course, but perhaps preventing people from losing their jobs in the first place would be a better strategy.”
The fine print
The 880-page bill passed by the Senate last night lays out the terms of some $2 trillion in stimulus. Intense lobbying efforts got special deals for certain industries — like community banks, retailers and for-profit colleges — while strict conditions attached to other aspects of the aid will change how recipients operate for years to come.
Airlines, cargo carriers and contractors could get around $60 billion in loans and grants, subject to a ban on buybacks and dividends for up to a year after the loans are repaid; an order to retain at least 90 percent of staff on full pay through the end of September; a freeze in pay for high-earning employees; and a continuation of routes “deemed necessary” by transportation authorities.
• Beyond loans, the Treasury Department may also take “warrants, options, preferred stock, debt securities, notes, or other financial instruments” in these companies, if that’s considered “appropriate compensation” for the rescue funds.
Cruise lines and oil companies won’t get special treatment under the bill, which has no direct aid earmarked for either industry. But they could apply for some of the general-purpose assistance for businesses, and President Trump has said that both industries are important to the U.S. economy and need help.
Financial firms are set for big fees from helping manage the rescues. The Fed has hired BlackRock to help oversee its efforts to stabilize the bond market by buying up billions in commercial debt, an assignment similar to what the investment giant did for the government in the 2008 crisis. And the Senate bill gives the Treasury the power to hire banks as “financial agents” of the federal government, with $100 million available for advisory fees.
The NYT’s personal finance hub has waded through the details of the bill’s provisions for ordinary taxpayers.
Now read this
We get a lot of research reports from banks, consultancies and lots of other commentators. This has not made for happy reading of late. Here’s a taste of these increasingly gloomy outlooks, as reflected in the titles of analyst reports that have landed in our inboxes over the past week or so. A play, in five acts:
• “Roaring into Recession” (Goldman Sachs)
• “And So the Recession Begins, but When Will It End?” (Pantheon Macroeconomics)
• “Coronavirus Crisis is Crushing Global G.D.P. Growth” (Fitch Ratings)
• “Bottomless Pit” (Swissquote)
• “Can G.D.P. Be Saved?” (UBS)
Bill Ackman wins big
The hedge fund mogul got attention for his impassioned, panicky appearance on CNBC last week. But his worries about coronavirus-induced market mayhem appear to have paid off.
His firm, Pershing Square, reported $2.6 billion in proceeds from hedges against falling bond prices, the WSJ’s Corrie Driebusch reports. The hedge fund spent just $27 million on those financial instruments, known as credit default swaps.
Thanks to those gains, Pershing Square’s public fund is up 7.9 percent for March through Tuesday’s close. The S&P 500 lost 17 percent during that period.
• “There happened to be a way to hedge that was almost riskless,” Mr. Ackman told the WSJ. “If the world stayed stable, we’d lose about $25 million in a month, and if it didn’t, the hedges would protect the entire portfolio.”
Billion-dollar paydays for other hedge fund moguls
Hedge funds had a great 2019, which translated into giant paydays for their top executives. According to Institutional Investor, the 25 top earners made a combined $20.2 billion last year — the most since 2013. That’s an average of $808 million for each manager in the magazine’s top 25.
The top earners were Chris Hohn of TCI and Jim Simons of Renaissance, who each made an estimated $1.8 billion. They run very different funds: TCI is known for activist shareholder positions, while Renaissance is one of the most famous algorithm-driven quant houses.
Falling several spots was Ray Dalio of Bridgewater Associates, the biggest earner in 2018. Last year, the magazine speculates, he made $1.1 billion, likely because Bridgewater’s main fund reported flat returns. (His personal gains were aided, however, by the hefty fees the firm charges.)
Other top earners in 2019 included:
• Ken Griffin of Citadel and Izzy Englander of Millennium Management, who were tied for third with $1.5 billion
• Chase Coleman of Tiger Global Management, who came in fifth with $1.4 billion
• And Steve Cohen of Point72 Asset Management and David Tepper of Appaloosa, who tied for sixth with $1.3 billion
The speed read
• For banks, busy trading desks are making up for the steep drop-off in mergers and I.P.O.s. (FT)
• Funding for seed-stage start-ups fell 22 percent in the first quarter, according to CB Insights. (WSJ)
Politics and policy
• Kosovo is the first country in Europe to vote out its government in reaction to its coronavirus response. (Bloomberg)
• Silicon Valley entrepreneurs’ new obsession is devising unconventional ways of responding to the pandemic. (WSJ)
• Marc Benioff of Salesforce called on C.E.O.s to pledge not to lay off workers for 90 days. (Business Insider)
• A venture capital firm promised its investors quick access to coronavirus tests — then revised its claim after facing a backlash. (Recode)
Best of the rest
• More on the financiers who want people to get back to work sooner than public health experts recommend. Says Dick Kovacevich, the former C.E.O. of Wells Fargo: “Do you want to take an economic risk or a health risk? You get to choose.” (Bloomberg)
• The Swedish billionaire Jacob Wallenberg makes the same argument: “We have to weigh the risks of the medicine affecting the patient drastically.” (FT)
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