The Daily Alpha - 10.20.15

The Daily Alpha - 10.20.15

Garrett Baldwin

Alternative Thinking on Postal Banking, DraftKings' Mess, Yum Brands' China Spinoff, Asset Declines, and Why Alternative Assets Matter...

First off, welcome back. Personally, I apologize for the delay, but when a concept goes into a beta role, and you combine October baseball with a magazine editorial schedule, priorities had to be shaped. Moving forward, the Daily Alpha will arrive around 3 p.m. EST, an hour before market close.

It's an ideal read after the bell, and you'll always be able to find it in the morning.

Anyway, let's get to it...

"Over the last 2 to 3 years the percentage of our client portfolios invested in alternative investments has increased from 10 percent to around 30 percent."

This is the opportunity that the Alpha Pages envisions, a concrete editorial platform designed for alternative investors seeking alpha in areas outside of traditional bonds or stocks. 

Of course, the question remains: Why invest in alternative assets? 

Whether you're new to alternative investments or you've managed a private equity firm for more than a decade, it's always valuable to remind yourself of why they matter and how they differentiate from the traditional world.

That's Eric D. Mancini's piece at the Huffington Post offered value today when he explained why individuals should investment in alternatives. It comes down to three simple points... and they're hard to refute.

"This is Not a Gambling Site."

Something easy to refute, however, is the comical fine print that is now being run in FanDuel's "One-Day Fantasy Contest" advertisements that have been swirling across every single television screen during Monday Night Football and the MLB playoffs.

The claim that FanDuel is not a gambling site. 

The State of Nevada has already banned it, joining several others. 

Now, an FBI investigation could freeze daily fantasy payouts for years, according to the Washington Post. This doesn't bode well for angel and private equity investors. But perhaps the biggest loser is ESPN, who has done a pretty miserable job at pretending that they don't have a financial interest in this.

Be sure to read the Washington Post piece.

"The separation of these two businesses gives shareholders the choice to own a growing annuity-like franchise cash flow stream, as well as the leading restaurant concept in a country with the fastest-growing consumer class."

An activist wins again.  

In the wake of a miserable earnings report, Yum! Brands has caved to the pressure of activist hedge fund manager Keith Meister. 

The firm will spinoff its flailing Chinese business into a separately trading company, although it's certainly not out of the woods. 

This is an interesting development considering that others had been pushing for a spinoff of its more successful Taco Bell franchise as a way to boost shareholder value. 

But Corvex Management, which is run by a former Icahn protege and owns 5% of the company's stock, successfully pushed the spinoff. Roughly 57% of Yum's total revenues come from China, where sales have fallen in four of the last five quarters. The combination of a slowdown in the world's second-largest economy affected the macro-picture, while marketing implementation and lingering concerns about a tainted meat scandal, affected the branding. 

Here's Finalternatives on today's spin-off announcement.

“Hedge funds are reeling from a relentless rout that has all but killed a year’s worth of alpha in a matter of two weeks."

Bad news for our friends in the hedge fund sector...

Investable assets fell by $95 billion for hedge fund managers in the third quarter of 2015, according to data from HFR.

Nine of the top 10 most popular stocks owned by hedge funds... lost more than 20% over the quarter.

As the New York Times reports, it doesn't get much better from there...

"Yeah, I think that’s a great idea. In fact, I just spoke to a postal union this morning. I want to see our post office be reinvigorated."

Finally, here's a terrible idea.

Democratic Socialist Presidential Candidate Bernie Sanders -- and Grandpa Simpson impersonator -- says that he wants to add banking services to the United States Postal Service in order to combat the high fees of payday loan companies and to provide banking options to low-income Americans. 

It'd be a great idea, if the Post Office didn't already quit banking in the 1960s, the costs of entry and regulations into the sector weren't extremely costly, the USPS' own Inspector General didn't already warn against this proposal in May, and... oh yeah... the USPS didn't already hemorrhage billions of taxpayer dollars every single year. 

If the USPS sold company stock, no one would touch it. In 2012 alone, the quasi-government run money pit lost $16 billion. How is that even possible?

But Sanders wants to compete against the private sector and provide loans... sub-prime loans, because... well... "We gotta do something!!!"

Taylor Millard does a pretty good job at explaining this absurdity...

Twelve more months of this America...


The trains will be running on time tomorrow... Mets. V. Cubs game three...


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