Hey Snackers,
Excellent news out of New Zealand: the Prime Minister just confirmed that the Easter Bunny and the Tooth Fairy are, in fact, considered "essential workers."
US markets rallied again as positive comments from Dr. Anthony Fauci raised national optimism. Stocks also popped after Bernie Sanders dropped out of the 2020 presidential race. The Dow closed above 23K for the first time in almost a month.
BTW — this is our last newsletter of this week since markets are closed tomorrow for Good Friday.
Recover
Which (alphabetic) shape will an economic recovery take? Depends on how long we're shut for
How many letters in an economic recovery?... Apparently, four. We know the economy has tanked since February — the COVID-19 pandemic spelled an abrupt end for the longest economic expansion in US history. Now economists are sifting through alphabet soup to determine what shape a recovery from this looming recession will take. The four main contenders:
- V Shape: A quick and dramatic decline (check), followed by an equally quick recovery (not check). The economy needs to reopen ASAP if we want this best-case scenario to happen — and we may already be too late.
- U Shape: More gradual than V shape — the economy finds a bottom and stays there for a while (up to 2 years before recovering). Most recessions since 1945 have been U shaped.
- W Shape: AKA, a "double-dip" recession. This would happen if, after a V recovery, we have another big outbreak and the economy has to shut down again.
- L Shape: Worst-case scenario — more like a non-recovery. A steep decline followed by a long stay at the bottom (could take up to 10 years to recover). That's the (depressing) letter Barclays bank just highlighted.
Which one will it be?... It depends on how long the economy is shut down for. And that largely depends on how quickly we can get the virus under control. Each day the economy is closed means more unemployment and more business losses — so recovery time increases daily.
The Multiplier Effect is a powerful thing... Your spending (or lack thereof) = someone else's income (or lack thereof):
- You spend $50 on a jean jacket at a local store. The store owners makes $50.
- They pay their salesperson, then order more jackets from Levi's, which in turn pays its own employees and the fabric suppliers.
- The Levi's employees and the supplier's employees spend that money for their own purchases, and the cycle continues.
- Right now the multiplier effect is working against us — the longer that's true, the longer a recovery will take.
Owe
Slack's spot at the Wall Street lunch table — Airbnb's not invited (unless it pays for everyone)
The risky table is at the back... Airbnb and Slack just sealed 2 nearly identical deals, with two very different deal terms. Slack's office messaging, email-crushing biz model is thriving in the corona-conomy. Airbnb's travel-centric pad rental biz? Not so much. Despite these differences, they both decided it was time to borrow some cash.
- Slack offered $750M in debt, which it'll have to pay back in 2025 (either in cash, shares, or a combo). Slack will only have to pay 0.5% interest on the loan.
- Airbnb offered $1B for similar debt, but it'll have to pay investors back at a whopping more than 10% interest rate.
What's your risk premium?... Not a Hinge-appropriate question. Slack is borrowing cash because it's growing (to thrive) — Airbnb is borrowing because it's sinking (to survive). That makes it way more risky. Investors can smell desperation:
The virus premium is unavoidable... for Airbnb, WeWork, and any travel/rental company unable to operate right now. Most are affected by this risk premium, because we're living in risky times. And companies that are faring well in the corona-conomy — like Slack, Zoom, and Netflix — can't pat themselves on the back either. They're just lucky that their businesses weren't as affected as others by unforeseeable circumstances.
What else we’re Snackin’
- Emoji: Use of the 🏀 emoji on Venmo payments fell 98% (compared to March 2017), while 😷 emoji use grew 2000% — a neat emoji tracker from Quartz.
- Share: Jack Dorsey will donate $1B worth of his Square stock (around 28% of his net worth) to fund COVID-19 relief and other charities — track donations on this Google sheet.
- Served: Zoom is hit with a class-action lawsuit from a shareholder who claims the company exaggerated its privacy standards.
- Pivot: Panera is now selling and delivering groceries — like bagels, bread, and milk — as its restaurant sales plunge.
- Build: GM will make 30K ventilators for the US under a $490M contract with the government, the first under the Defense Production Act.
- Mickey: Disney announces that Disney+ now has over 50M subscribers — 2X as many as it had on February 4th.
Thursday
- Weekly jobless claims
- Earnings expected from Rite Aid and Shaw Communications
Disclosure: Authors of this Snacks own shares of Slack and Square. The debt securities mentioned were for illustrative purposes, and not a recommendation'.
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