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Friday
STRATEGY: Path of conflict uncertain, but stocks seemingly bottomed on “invasion”
The path of the war is uncertain, but like the 5 precedent examples, stocks seem to have bottomed on “buy the invasion”
Over the weekend, the global response to the Russia-Ukraine war is a serious escalation measured by the supplying of lethal assistance, restrictions on SWIFT, nuclear alert by Russia and the seeming stalled progress by the Russian invaders.
– with this uncertainty, the general rule is this should be downside risk for markets
– for a variety of reasons, probabilities are increasing the 1H bottom might be 2/24/2022
– over weekend saw a serious and surprising response escalation by Europe and USA, yet VIX not making new high
– institutional put buyer is > 25% above March 2020 levels (well hedged)
– retail investors more bearish than March 2020
– SWIFT restricts Russia and many predict a “Lehman moment” Monday
– markets are pretty stable
– No need for Fed/ECB to act
Overnight, Sunday futures were getting massacred, yet, markets Monday had a far better tone. It seems like a lot of bad news is priced into equities. The chart below highlights the performance of 3 of the major US indices:
– in past 5 days
– stocks made their lows on the “announcement” aka first trade
– and swiftly recovered
– both on 2/24 invasion and 2/28 SWIFT reprisals
In a way, this suggests that a lot of bad news is priced in — see our note from yesterday.
Not every market is performing well. Russian markets are in turmoil as the ruble fell sharply, banks lost access to SWIFT and the earnings of many of the companies will suffer from sanctions. And as this tweet by @HayekAndKeynes notes, the risk of debt default by Russia has soared. And the head of the Russia military Valery Gerasimov has been relieved of duty.
State of the Union (SOTU) is Tuesday…
Tuesday is President Biden’s State of the Union Address. And it will be timely, given the collective issues facing the US — COVID-19, inflation, Russia-Ukraine and rising energy prices. So this will be closely watched.
Tom Block, FSinsight’s Head of Washington Policy, notes that Russia-Ukraine will take center stage. And as Block notes, hopefully there is a chance to create bipartisan support for action. But there are the dual issues of the economy and COVID-19. I don’t have a preview of what he will say, but in my opinion, the key to COVID-19 is managing swiftly towards the “endemic” stage.
…VIX did not even approach the 2/24 highs
The VIX and S&P 500 often move inversely. This makes sense, to an extent, as the VIX is a measure of the future expected volatility. So, if markets sense higher future volatility, equities tend to be under pressure.
– inverse relationship is apparent below
– VIX did not manage to push to a “new high” on 2/28, despite the escalated actions (SWIFT, etc)
– many pundits expected Monday to be a “Lehman moment” and panicked across markets
– the fact VIX did not move to new highs, suggests investors already positioned for “bad news”
…Energy stocks remain resilient, but still recovering from “90-year lows”
We are revisiting our long-term Energy charts, which highlight Energy relative performance for the past 90 years. And our long-time clients know to find a time when Energy stocks underperformed this badly, one has to go back to Moby Dick days.
– Energy stocks lagged because investors saw crude oil as obsolete
– Similar to the extinction of “whale oil” as a primary fuel
But in 2021 and 2022, so far, Energy stocks have rallied back to the line where they historically found support
– this is why we see upside
– Energy supply is now becoming a sovereign security issue
– Energy equities are still cheap to the underlying commodity prices
The US is not the only nation that has overlooked the security issue of energy. Germany decommissioned the last of its 17 nuclear powerplants at the end of last year.
– Germany is now dependent on non-nuclear power
– which includes heavy reliance on Russia gas and oil
– which is now proving to be a hostile supply
And in the meantime, progressives are attacking the Energy companies for the high price of oil. This is the strange irony of this situation entirely.
STRATEGY: 2022 theme –> BEEF –> Bitcoin (B) + Bitcoin equities (E) + Energy (E) + FAANG (F)
As for sectors, the pleas by Ukraine and sanctions are strengthening the case for our “BEEF” strategy. That is, BEEF is
– Bitcoin + Bitcoin Equities BITO -0.78% GBTC -0.97% BITW -2.01%
– Energy
– FAANG FNGS 1.35% QQQ 1.15%
Combined, it can be shorted to BEEF.
PS: Homebuilders (Oct – Apr aka Golden 6 months) XHB 1.29%
Why is this making stronger BEEF?
– Energy supply is now a sovereign priority
– this helps Energy stocks
– Ukraine and Russia both want access to alternative currencies
– this strengthens case for Bitcoin and bitcoin equities
– if Global economy slows, growth stocks lead
– hence, FANG starts to lead FB AAPL -0.43% AMZN 3.74% NFLX 1.11% GOOG 0.88%
All in all, one wants to be Overweight BEEF
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33 Granny Shot Ideas: We performed our quarterly rebalance on 2/3. Full stock list here –> Click here
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POINT 1: Daily COVID-19 cases 79,063, up +31,140 vs 7D ago…
Current Trends — COVID-19 cases:
– Daily cases 79,063 vs 47,923 7D ago, up +31,140
– 7D positivity rate 5.5% vs 8.4% 7D ago
– Hospitalized patients 40,107, down -29% vs 7D ago
– Daily deaths 2,102, up +20% vs 7D ago
The latest COVID-19 daily cases came in at 79,063, up +31,140 from 7D ago. The positive 7D delta in daily cases is expected as the majority of US states did not report COVID cases 7D ago due to the Presidents’ Day holiday. Likewise, the same data distortion will apply to tomorrow’s 7D delta where we are likely to see a significant drop. Regardless of the data distortion, the overall case trend remains promising. We have not observed any post-holiday surge yet. And if comparing yesterday’s number of new cases to two or three weeks ago, the daily cases have dropped 62% and 79%, respectively. The decline in positivity rate also shows the improvement in the COVID-19 situation – the 7D average of positivity rate has fallen to 5.5%. And if maintaining current speed of decline, the 7D average could fall below 5% by the end of this week.
7D delta in daily cases turned positive Monday due to the data distortion 7D ago…
As we noted above, Monday’s positive 7D delta was not a surprise. And today, we are likely to see a significant drop in 7D delta due to the same data distortion from the Presidents Day holiday last week. Regardless of the data distortion, the overall case trend remains promising. And more importantly, we have seen any sign of post-holiday case surge yet.
All US states are seeing decline in daily cases now… 40 states have seen daily cases fall over 90%…
*** We’ve split the “Parabolic Case Tracker” into 2 tables: one where cases are falling (or about to fall), and the other where cases are rising
In these tables, we’ve included the vaccine penetration, case peak information, and the current case trend for 50 US states + DC. The table for states where cases are declining is sorted by case % off of their recent peak, while the table for states where cases are rising is sorted by the current daily cases to pre-surge daily cases multiple.
– The states with higher ranks are the states that have seen a more significant decline / rise in daily cases
– We also calculated the number of days during the recent case surge
– The US as a whole, UK, and Israel are also shown at the top as a reference
Daily deaths, positivity rates, and hospitalization rate are falling rapidly…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID
-Net hospitalization and positivity rates have plunged – both have fallen to the pre-Omicron levels
– Daily death finally started to decline after the daily cases peaked for a month. And as you can see below, daily deaths have also dropped rapidly, consistent with we have seen in other metrics.
POINT 2: VACCINE: vaccination pace has slowed recently… likely due to the improvement in COVID situation
Current Trends — Vaccinations:
– avg 0.4 million this past week vs 0.5 million last week
– overall, 28.8% received booster doses, 64.7% fully vaccinated, 76.1% 1-dose+ received
Vaccination frontier update –> all states now above 100% combined penetration (vaccines + infections)
*** We’ve updated the total detected infections multiplier from 4.0x to 2.5x. The CDC changed the estimate multiplier because testing has become much better and more prevalent.
Below we sorted the states by the combined penetration (vaccinations + infections). The assumption is that a state with higher combined penetration is likely to be closer to herd immunity, and therefore, less likely to see a parabolic surge in daily cases and deaths. Please note that this “combined penetration” metric can be over 100%, as infected people could also be vaccinated (actually recommended by CDC).
– Currently, all states are above 100% combined penetration
– Again, this metric can be over 100%, as infected people could also be vaccinated, but 100% combined penetration does not mean that the entire population within each state is either infected or vaccinated
There were a total of 209,780 doses administered, as reported on Monday. The vaccination pace has slowed from the recent peak of 2 million doses per day in mid-December to ~500,000 recently. The booster dose was the main driver of the vaccination campaign in the winter. However, it seems that the improving COVID case trend across the nation have influenced people’s desire and sense of urgency to get the booster doses. As a result, we have seen the speed of booster shot given has slowed. That said, as more and more states lift their COVID-19 restrictions, we believe vaccination remains a key to support us to smoothly transition back to “Normal”. Therefore, the daily number of vaccines administered is still one of the most important metrics to watch.
This is the state by state data below, showing information for individuals with one dose, two doses, and booster dose.
In total, 553 million vaccine doses have been administered across the country. Specifically, 252 million Americans (76% of US population) have received at least 1 dose of the vaccine. 215 million Americans (65% of US population) are fully vaccinated. And 95 million Americans (29% of US population) received their booster shot.
POINT 3: Tracking the seasonality of COVID-19
***We’ve updated the seasonality tracker to show figures from the last 9 months, from this calendar day, in each of the last two years***
As evident by trends in 2020 and 2021, seasonality appears to play an important role in the daily cases, hospitalization, and deaths trends. Therefore, we think there might be a strong argument that COVID-19 is poised to become a seasonal virus.
The possible explanations for the seasonality we observed are:
– Outdoor Temperature: increasing indoor activities in the South vs increasing outdoor activities in the northeast during the Summer
– “Air Conditioning” Season: similar to “outdoor temperature”, more “AC” usage might facilitate the spread of the virus indoors
– Opposite effects hold true in the winter
CASES
It seems as if the main factor contributing to current case trends right now is outdoor temperature. During the Summer, outdoor activities are generally increased in the northern states as the weather becomes nicer. In southern states, on the other hand, it becomes too hot and indoor activities are increased. As such, northern state cases didn’t spike much during Summer 2020 while southern state cases did. Currently, northern state cases are showing a slight spike, especially when compared to Summer 2020. This could be attributed to the introduction of the more transmissible Delta variant and the lifting of restrictions combined with pent up demand for indoor activities.
HOSPITALIZATION
Current hospitalizations appear to be similar or less than Summer 2020 rates in most states. This is likely due to increased vaccination rates and the vaccine’s ability to reduce the severity of the virus.
DEATHS
Current death rates appear to be scattered compared to 2020 rates. This is likely due to varying vaccination rates in each state. States with higher vaccination rates seem to have lower death rates given the vaccine’s ability to reduce the severity of the virus; states with lower vaccination rates seem to have higher death rates.
