"Let's not discuss politics here." A friend of mine recently reminded me of this slogan, which is prominently featured above the bar at Jimmy's Corner, a watering hole in New York's Midtown West neighborhood. Jimmy Glenn, the owner of his eponymously-named bar, recently passed away, sadly, but given the craziness in the U.S. surrounding the recent election, his words ring as true as ever.
There's only one problem as an investor: politics matter in 2020. In prior years, the wisdom of Jimmy - a legendary boxing trainer who had worked with Ali, among others - were very applicable to investing. In 2020, that's not the case. The macro has overtaken the micro. Regardless of who eventually occupies 1600 Pennsylvania Avenue, local governments in the U.S. are going back to their policies from the spring. Just yesterday we had more news from Chicago and New York, and let's face it, we are heading for lockdown nation again.
Let's not be parochial about this. I am fortunate enough to be in the Southern Hemisphere now (bon dia!) but 88% of the world's population lives in the Northern Hemisphere. European governments are implementing spasmodic lockdown measures this week that make NYC and Chica seem tame in comparison. The experience of early 2020 has taught us that cold weather, and what is normally the flu season, has become "Covid season".
Winter is coming, major cities are shutting down, and how should investors play a second wave of Covid lockdowns? Easy, just do what worked last time. Jimmy worked with Ali and was witness to the self-created circus that surrounded the Greatest, led by his "hype man," Bundini Brown. In the 2020 stock market, no hype men are needed as there are constant prattling on about "stay-at-home" plays. Fine, that's their milieu.
But if you like shorting as I do you have to look at the companies that were decimated by lockdowns in the spring, and figure that, as so often happens in the markets, history is about to repeat itself.
There are three sectors that are just absolutely radioactive in a lockdown world, and wise investors will also look to make a buck or two by shorting them. It worked in February, there is no reason that it won't work again in November. Getting the Pfizer (PFE) -BioNTech (BNTX) vaccine news out of the way was a perfect touchstone for re-loading lockdown shorts for a second bite at the apple. Here are three sectors that - until there is a vaccine AND the governments around the world are able to successfully distribute it - look, once again, like great shorts.
New York City commercial real estate. Manhattan residential real estate figures don't look great now, but commercial occupancy rates and available rents are just plain shocking. In February my three names to short here were Empire State Realty Trust (ESRT) , SL Green Realty (SLG) , and Blackstone Mortgage Trust (BXMT) . Check out these numbers as they make shorts go weak in the knees
Stock Price 2/20, Price 11/12
SLG: $94.16, $52.13
ESRT: $13.79 $7.06
What's worse than owning NYC (or Chicago) commercial real estate now? Well, how about being in travel and tourism? Cruise lines are just absolutely decimated by Covid - my short pick has been (CCL) . Who in their right mind would get on a cruise ship now?
A more nuanced play comes in the airlines. There WAS an acceleration in TSA screening data starting in September (obviously the trend has been upward since the April lows,) but the most recent data I have seen - as of this morning - shows the beginning of another leg down as of last week. Always focus on the second derivative, and invest based on inflection points. Lockdowns would greatly strain (AAL) and (DAL) among many others. Initiate a short position in the airlines, and you'll be covered in case things in Covid-land get worse, not better.