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STRATEGY: VIX -5.5% + S&P 500 down 1% = often bottom proximity
In the two weeks since the start of this “global shakeup” a few winners are emerging
The invasion and war between Russia-Ukraine is moving past its second week and financial markets have been roiled by the trifecta reinforcing risks of: (i) war risks; (ii) economic sanctions and associated soaring commodity prices and (iii) risk of escalation given Western fears of Putin. And for the most part, markets view this as solely a downside story. But that has not been entirely the case.
With two weeks of conflict observed, here are three things we see as “gaining” or “stronger” compared to pre-Russia-Ukraine war:
– Commodity producers benefit from higher prices
– Energy supply and security is national security
– US equities have been massive outperformers, reflecting the USA role as “safe haven”
Take a look at the relative performance of regional stocks vs MSCI ACWI (all world index). Of the 7 indices below:
– USA and Latin America clearly outperforming
– Europe and EM have been massive underperformers
– Latin America outperformance is due mainly to commodity exposure
– Russia equities have imploded, yet the value of Russia commodity infrastructure has risen in value
This shows a more detailed breakout and this regional bias is clear:
– countries with greater exposure to USA outperform
– Canada and Latin America
– Both regions also are commodity producers
– Why is the USA leading?
– USA is arguably the most energy independent of the G10
– The Tech-focused energy industry is primarily USA
– USA is the safe haven
So, the obvious point is the US has become structurally more attractive and it is reflected in the positive relative performance. I would say this makes a lot of sense to me.
40% of the nations are commodity exporters, so this surge in prices is a positive for many nations
We first published this map from the CIA World Factbook in 2018, which shows how commodity dependent much of the world is and the significant recovery in commodity prices is creating the equivalent of a boom. As we know, this is asymmetric as those regions suffered a depression during the downturn and this lift more than offsets higher costs from consuming nations. This recovery in prices only took place in the past 6 months, which means it is not yet reflected in overall global GPD growth. Commodity producers, exporters and those countries leveraged to higher commodity prices are estimated to be 40% of global GDP growth. The countries marked with red arrows are positively levered to higher commodity prices.
– the point is many nations are benefitting from the surge in commodity prices
– Russia, ironically, is gaining given their huge beta to commodity prices
VIX fell 5.5% and S&P 500 down 1% =10 of 10 times, S&P 500 higher 12 months later = proximity to bottom
Steve Deppe @SJD10304 posted an interesting tweet yesterday and triggered some work by our data science team. Steve notes that something unusual happened yesterday:
– VIX was red (down)
– S&P 500 down -1% (at a point during market hours yesterday)
– specifically, VIX down -5.5% and S&P 500 down 1%
– he said this could mark bottoms
…of 10 instances, avg 6M and 12M return is 16.8% and 3×5.2% = “can’t get hurt buying stocks here”
The results are displayed below. Tireless Ken found 10 instances of this dual combination:
– 10 of 10 times the S&P 500 higher 12 months later
– 8 of 10 times the S&P 500 higher 6 months later
– average gain 35.2% and 16.8%, respectively
In other words, stocks rallied hard eventually. This is consistent with our view that “one can’t get hurt buying stocks here” even if there remains downside risk.
…Every single instance was “proximity to low” and 8 of 10 at the lows…
Tireless Ken also plotted these instances below on a time series. It is apparent the emergence of these instances is at a market low. And 8 of 10 times it was the low
– hence, this is another reason
– to believe stocks “won’t hurt you in 12 months”
DATA ON RUSSIA-UKRAINE WAR: Tracking Russia-Ukraine war statistics — 1,506 Ukrainian civilian casualties so far
Our data science team, led by tireless Ken, is scraping data from several sources to track some high level data around the Russia-Ukraine war.
– Ukrainian civilian casualties
– Ukraine population movements
– Ukraine military losses, except personnel
– Russian estimated losses of personnel and material
The number of casualties is 82 on 3/10, and a total of 1,506 have been reported to the UN. This is after 2 weeks of information and could increase because there are simply lapses and lags in reporting.
The flow of migrations out of Ukraine had been steady at about 170,000 to 210,000 per day. And a total of 2.3 million have fled so far.
– 61% are entering into Poland
– curiously, 4% or 100k or so, have entered Russia
If one is wondering about reported losses of equipment, we are citing statistics provided by the opposing ministry officials.
– est. 107 Ukraine planes lost
– est. 986 tanks lost
– this seems like a lot of equipment
– I am wondering how many tanks and aircraft are in the Ukraine military arsenal
Russian losses are higher
– est. 12,000 Russian soldiers killed
– est. 335 tanks
– est. 49 aircraft
– est. 1,105 armored vehicles
Our team says this data is scraped and can be updated daily. So, we will post these figures for now. And that way, we can get a sense for the intensity of the hostilities.
Thomas Hu, of Kyber Capital, also shared this website which is a crowd sourced view of reported activities. There is a lot to the website, and I encourage you to check it out. The website URL is https://maphub.net/Cen4infoRes/russian-ukraine-monitor
For instance, if you click on one of the icons, a verified post is shown. There is geolocation and other data attached.
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 -1.99% GBTC -1.98% BITW 0.38%
– Energy
– FAANG FNGS 0.84% QQQ 0.97%
Combined, it can be shorted to BEEF.
PS: Homebuilders (Oct – Apr aka Golden 6 months) XHB
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 1.57% AMZN 1.41% NFLX 0.89% GOOG 1.00%
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_____________________________
POINT 1: Daily COVID-19 cases 32,989, down -8,790 vs 7D ago…
Current Trends — COVID-19 cases:
- Daily cases 32,989 vs 41,779 7D ago, down -8,790
- 7D positivity rate 3.7% vs 5.3% 7D ago
- Hospitalized patients 25,518, down -26% vs 7D ago
- Daily deaths 1,297, down -19% vs 7D ago
The latest COVID-19 daily cases came in at 32,989, down -8,790 from 7D ago. All states, except Texas and California, reported <2000 new cases. with the great improvement on covid-19 for each state, overall us daily cases, measured by 7d avg, have fallen below 40,000 and are currently at 34,671. The other metrics are also steadily declining. Current hospitalization fell nearly 30% compared to 7 days ago. Daily deaths have plunged to the pre-Omicron levels. Positivity rate is also approaching the all-time low we have seen in Summer 2021. More states are now transitioning from daily COVID updates to weekly. Hawaii is the most recent one. Starting Thursday (3/10), Hawaii State Department of Health will stop reporting COVID-19 data on a daily basis and switch to a weekly update. HI is the 5th state that recently changed its way of reporting from daily to weekly. The other four are AZ, DC, OK, and KY.
7D delta in daily cases remains negative. The steady decline persists…
While remaining negative, the 7D delta in daily cases has crept up recently. But, if looking at the case decline in percentage term, we can see the speed of decline has not really slowed much. The steady decline in daily cases persists.
All US states are seeing decline in daily cases now… 49 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 0.3 million this past week vs 0.3 million last week
- overall, 29.2% received booster doses, 65.0% fully vaccinated, 76.3% 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 354,781 doses administered, as reported on Thursday. 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, 556 million vaccine doses have been administered across the country. Specifically, 253 million Americans (76% of US population) have received at least 1 dose of the vaccine. 216 million Americans (65% of US population) are fully vaccinated. And 97 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.
