4/13/2020

Hello there,

Hope you are having a fantastic whatever day of the week it is. Time continues to become harder to track and 2020 is looking more and more like a myth. If 2020 happens, and no one is around to see it, then did it really even happen? It might be like that HORSE competition that the NBA did this weekend. It crossed my mind to watch it and then a couple hours passed and I totally forgot that it was happening. Kudos to the NBA for trying something at least. If they want real action, then they should tune in to me shooting on my kids little tyke basketball hoop in the living room, missing badly, and watching the ball crash into a couple full cups of water and seeing the liquid spray everywhere. Then I try to blame one my kids but never seems to work. Sports + reality tv. I don't see why ESPN hasn't called yet. I have started to "race" hot wheel cars down our driveway with my son and am debating on whether or not to try and gamble with him on that somehow. Like "winner gets 5 extra minutes of nap time" or something like that. There is no doubt I would try to pick all of the fast cars, win as much as possible, then look at my wife and tell her that I have won an hour extra worth of nap time, shrug my shoulders, and then go take a nap. Of course, this would all happen on a weekend day. That is, I would intend for it to happen on a weekend day but there is a chance it might be like a Tuesday or something because of how hard it is to keep track of days. Anyways, there are some really smart scientists out there, Kendrick Perkins and the US GDP have something in common, 1/3 of people said no thanks to paying April rent, Saudi Arabia pulls off a shady move, and then OPEC++++ or however many pluses we are up to when referring to OPEC plus the whole world came to a production cut over the weekend. All in this week's edition of the #bucketsblog.

April 13, 2020

Scientists are putting their capes on, saving the world

• Sometimes lab coats are really just superman capes in disguise. Researchers in pretty much every pharmaceutical lab across America have been hard at work trying to develop some type of vaccine that can effectively neutralize COVID-19. According to Informa Pharma Intelligence:

• When including drugs approved for other diseases, then the number of clinical trials underway increases to 254. Chief scientific officer at Johnson & Johnson (J&J), Paul Stoffels, said the industry has never moved this fast before. J&J has a vaccine prospect in the works already and plans to begin testing it on humans in September. According to the Wall Street Journal (WSJ), the time-frame that J&J, and other labs, are working in is "remarkable by usual standards." Drug developments, testing, and mass producing usually takes years to fully complete, but timelines have been decreased to months. COVID-19 is moving much faster at the moment, unfortunately. The U.S. hit 10,000 deaths due to the virus last week and the White House is projected that America will have between 100k-240k deaths in total. Globally, 1.2mm people have been infected with the virus as of April 5th. The need for some type of vaccine is significant and the development of one can't come soon enough. Moderna Inc., a biotech company in Cambridge, Mass., has already started testing a potential vaccine in humans. If all goes well, then it could be ready for use in the early parts of next year. Inovia Pharmaceuticals Inc., based in Plymouth Meeting, PA, started human trials on the 7th on an experimental vaccine. Chinese company, CanSino Biologics, started testing its potential vaccine on humans as well, according to the World Health Organization. Scientists are also studying existing drugs that treat health issues such as malaria, HIV, Ebola, and even rheumatoid arthritis. Companies that develop an in demand vaccine typically can realize a nice payday on the back end, but several are already indicating they will be offering their vaccines, if they work, at a low cost or free, at least until COVID-19 is under control - as much as it can be anyways. Gilead has a vaccine being manufactured currently and announced on the 4th that it will not charge for the first 1.5mm doses that will be used in clinical trials and emergency uses if the drug is approved. The National Institute of Allergy and Infectious Diseases (NIAID) has a particularly interesting story. Dr. Corbett is a researcher there and the institution has been bracing for a potential pandemic for years by studying bacteria and viruses that have popped up around the world in order to gain an understanding of their makeups in case one broke out and caused a pandemic in the future. Part of what she studied were viruses in the coronavirus family. Coronaviruses are named for their crown-like spikes that protrude from their surface. SARS and MERS were both a part of the coronavirus family. Dr. Corbett and her team pulled COVID-19's genetic sequence from a publication pushed out by Chinese scientists on January 10th and immediately began working on finding a vaccine. Spectacular when considering the virus was just starting to hit news cycles for the first time around then. By January 13th, NIAID had partnered with Moderna and had already agreed on a vaccine design that was based on a vaccine that was being developed to battle SARS, but was halted as that outbreak was contained fairly quickly. Dr. Corbett's team began testing it on mice on February 4th. Two weeks later, the vaccine started to show promising results. A positive reaction in a mouse does not always mean it will be successful in a human, however, but the positive results in the mice was enough to start targeting healthy humans. The NIAID began recruiting healthy volunteers to test the vaccine on by February 25th. Regeneron, based in Tarrytown, NY, has a similar story. This research firm received positive results on testing its vaccine on mice on March 14th and will begin clinical trials by early summer while preparing to manufacture hundreds of thousands of doses a month by the end of the summer. Researchers are in a race against COVID-19. The virus is winning the battle so far, but it looks like researchers are on their way to winning the war. The question is quickly shifting to not if, but when can a vaccine be proven to be effective, be safe, and be mass produced. It seems like only then can the world return to "normal." Below is a time-chart from WSJ that shows various companies and their progress on a vaccine:

US GDP goes full Kendrick Perkins in his prime and drops 25 points in a month

• Absolutely almost no one could stop a prime OKC Perk from dropping 2 points from the post on the first possession of every Thunder game he ever played in. Why OKC always opted to go to him on possession one of every game is confusing but Scott Brooks is gonna Scott Brooks by letting Perk, Perk. I do remember this one time early in the injury ravaged 2014-15 season when OKC legit had 8 healthy players for its home opener when Perk took current Thunder-er Danillo Gallinari to the post on 4 straight possessions and got #buckets. This lead to those in attendance, including me, to go crazy and think that Perk is the next Shaq. In that game, Perry Jones III didn't look like he was high and led the way to a win for OKC. Really thought OKC had a poor man's snake to go along with the actual snake after that game. All of this to say, there is a great reason why I'm not an NBA GM. I would make the Knicks look like the Raptors. Anyways, COVID-19 has shut down most of America as 8 in 10 U.S. counties are under some type of lockdown at the moment. These counties represent ~96% of national output. Out of all these counties, 3 account for 10% of the drop in national GDP: Los Angeles, New York County (Manhattan), and Cook County, Ill (Chicago). LA County output has dropped 35%, Manhattan 25%, and Cook 30%. Harris County in Texas, home of Houston, had its GDP drop by 27%. Smaller counties are taking a significant hit as well but they don't contribute to the national GDP as much. Gilpin County, CO, home of a few ski resorts and the legendary group of Black Hawk casinos, only has a population of 6,200 and is heavily dependent on tourism. This county has experienced the largest drop in GDP in regards to counties as it has dropped by 70%, but the massive decline only translates to 0.01% on the national scale. Still, unemployment could soon ravage the county and if there are local or regional banks that have a significant presence there, then liquidity could soon run out for them if not properly backstopped by state or fed government agencies. Economic Innovation Group (EIG), a tank of thinkers, attributes the slowdown in the New York, New Jersey, and Connecticut region to the real estate and retail industries. The group also found that restaurants and bars, arts, and entertainment output has fallen by 75% in some areas. EI(o')G head of research Kenan Fikri had this to say about the abrupt drop in activity:

• The economic havoc that COVID-19 is causing is unprecedented. It's not quite like the Great Depression or the Great Recession. A commentator on CNBC's Squawk Box morning show came out with the best name for it I have heard yet: The Great Cessation. That seems to make a lot of sense. There wasn't a fundamental flaw in the economy this time around that spurred this. A pandemic broke out and shut everything down in a matter of days / weeks. Will the economy return to what it was before the pandemic when a vaccine is available? At least maybe reach 90-95% of what it was? Will unemployment go back to being historically low? The Labor Department announced on Friday (3rd) that America lost 701k jobs in March which is good for the biggest one-month decline since early 2009. Most of the jobs were in restaurants, bars, hotels, construction, retail, and somehow healthcare and state governments. Keeping as many people employed right now seems to be the biggest key in keeping the hopes of a potential recovery a possibility.

1/3 of renters said Nay to paying their April rent

• The first week of April was a big week for real estate as rent for April was due for the majority of Americans. The WSJ reported that nearly a third of American apartment renters did not pay April rent. #Stats from the National Multifamily Housing Council:

• There are some caveats to this report however. It includes renters who might have made partial payments. Also, it did not take into account renters who may not have scheduled payments that fall between the 1st and 5th of the month like the majority of leases do. 13.4mm rental apartments made up the underlying dataset. These properties skewed towards higher-income renters who are less at risk of losing their jobs during the Great Cessation. Single-family homes, public housing. and subsidized housing were not included. It seems like those three categories would provide a better look as to how the real estate market is actually doing. A few federal and local laws will temporarily protect some tenants from being evicted for unpaid rent. Even without the laws, it would seem to be idiotic of landlords to evict anyone right now because there is likely no replacement tenant so what would the point be? If unpaid rent continues for a few months however, then this could lead to another housing crash as commercial mortgages could default which would destroy investments in bonds that are backed by mortgages. Getting to that point seems unlikely. I would imagine the federal government will try to "re-open" the economy in May. Hopefully it is done carefully and not recklessly. One can hope...

Saudi's buy up cheap European producer stocks while gaming oil markets

• Saudi Arabia pulled off a savvy, albeit shady, move over the past month after they cratered oil markets by launching a price war with Russia. Saudi's sovereign-wealth fund has bought roughly $1B in equity stakes in four European oil companies in the last few weeks. Equinor, Shell, TOTAL, and Eni SpA were all bought by Saudi's Public Investment Find (PIF). In summary, Saudi wrecked world oil markets and then used the carnage to buy up cheap stakes in some of the world's largest producers. If that was an American or European company doing that, then there almost certainly would be severe backlash and some jail time being dished out for market manipulation. It would make Enron's gaming of the California power market look like Sam Hinkie trying to game the NBA draft system. The PIF manages about $300B so that is quite a bit and makes the $1B snap up of producers look like a $100 bill that Warren Buffett found tucked away in his wallet. Although Buffett probably didn't find it himself. His wallet cleaner person probably found it and told him about it and then Buffett was shocked that such a low denomination bill was still in circulation so he threw it in his brokerage account, bought some stock, and turned it into another billion. PIF became Equinor's 12th largest shareholder in a span of 8 days as it accrued 14.5mm shares in the company between March 30th and April 6th, good for 0.43% of the company, according to WSJ. Shell, TOTAL, and Eni stakes were not as easy to track down. The PIF is controlled by Prince Mohammed and run by Yasi al-Rumayyan. This fund also recently amassed an 8.2% stake in Carnival Corp, the world's largest cruise operator, which has seen its value hemorrhage since the COVID-19 outbreak and has lost 75% of its value this year. Saudi and Russia met on Thursday (9th) to discuss production cuts. Following the tea leaves here and it appears likely that the Saudis have plans to take action that would increase oil prices soon so their new investments will pay off rather quickly. Speaking of which..

Russia and Saudis agree to production cut while on Zoom

• "Not 5, Not 6, Not 7, Not 8," Lebron James when he first joined the Heat in 2010 talking about how many millions of barrels of oil per day that Russia and Saudi planned to have cut from the world supply in 2020. Some people believe he was referencing how many championships that him, D-Wade, and Bosh were going to win together in Miami but they are wrong. The two oil heavy-weights are shooting to have 10mmbpd of oil taken offline in May and June as they finally came together on this decision in their virtual meeting last Thursday (9th). Then OPEC will continue to curb at least 6mmbpd through April 2022. That is in line with the 10-15mmbpd that was expected. The additional 5mmbpd is expected to come from sources outside of OPEC. Saudi will take 3.3mmbpd offline and Russia will remove 2mmbpd. The two countries are expected to immediately begin working with other OPEC and OPEC+ members on reducing their production over the weekend. The cuts will help prices, but demand is collapsing by as much as 30mmbpd in April so there is still a massive glut being built worldwide in a very short period of time. Saudi was pretty firm on their desire to see North American producers scale back, specifically America, before they agreed to do any type of cut. America has ~9,000 oil and gas producers however and is not a top-down oil production system so regulating from the federal or state government is basically impossible. The free market dictates things most of the time and the majority of larger scale producers in the U.S. began cutting CAPEX a few weeks ago. The Saudis did not see that as enough for a while. Then leaders from major companies such as Continental (CLR) and Devon met with the Trump administration on April 3rd to discuss America's strategy. Nothing really seemed to "officially" come out of that meeting, but the following Monday (6th) saw CLR and Exxon have major announcements. CLR has already reduced its CAPEX but announced on the 6th that it would be shutting in 30% of its April and May production. Exxon announced it would be cutting 30% of its 2020 CAPEX with the majority of the cut being in Texas' Permian Basin. Seems likely that both of these were messages being sent to Saudi Arabia that America is participating in production cuts but has to do it on its own terms via spending cuts and voluntary shut-ins due to market dynamics. That seemed to assuage the Saudis enough to go ahead and agree to a production cut with Russia and temporarily cease the price war. Total American production taken offline is estimated to be between 1-2mmbpd at the moment when comparing 2019 vs 2020 avg production. The U.S. had become the largest oil producer in the world over the past couple of years thanks to the shale boom and that has not gone over to well with oil superpowers Saudi Arabia and Russia. Both have been trying to balance markets and keep oil prices up since 2016 but they kept seeing their global market share being taken by American producers and production in the States kept ramping up while they kept cutting production. Eventually both countries grew tired of this and ultimately this is what caused the price war to start in March 2020. Then COVID-19 curb stomped demand and that's how the world arrived at ~$20/bbl oil prices which is down from ~$60/bbl to start the year.

Thoughts of the week

• Day twenty-whatever of lockdown and the more I stay in my home the more it looks like I live in the woods full time.

• I am really hoping the NBA decides to finish its season out at some point. There are questions that needs answers. My top 5:

1. Can Giannis make the Finals? If so, can he win it?

2. Which LA team will reign supreme and represent the city? Can Kawhi master LeBron or will LeBron reclaim the ultimate dude status?

3. Can the absurd / all-in small ball style that Houston went with where it kind of plays RUSS at center actually work in the playoffs? Can RUSS get into the second round for the first time post-snake?

4. How will the upstart Thunder perform in the playoffs? Can CP3 stay healthy?

5. Which player, or players, will take that magical step into dude range? Pascal Siakam? Jayson Tatum? Nikola Jokic?