When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

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STRATEGY: Stocks still go up even if bonds have a negative year

COVID-19 continues to retreat across the US, as the Omicron surge has passed
The trends in COVID-19 are overall improving in the US, and as evidenced by the steep rollover in the 7D cases (below), Omicron is disappearing as quickly as it has appeared. Moreover, at this pace, COVID-19 cases could be down more than 95% from its peak by late-Feb/early-March.

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year
When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

Looking at the last 4 variants, possible next variant breakout is April 2022…
We are all curious about the window for when we might see the next variant emerge. And one of our research analysts, John Bush, pulled some data together, measuring the interval between the emergence of variants. The analysis below is pretty interesting:
– Classic COVID
– Epsilon +225 days
– Gamma +117
– Delta +146
– Omicron +138

So there has been a somewhat steady interval between the emergence of new dominant variants. This is easier to see in the chart below:

– avg of last 3 variants +134 days
– implies future variant
– emerges around April 2022

This is not a forecast. As we have learned, COVID-19 is unpredictable. And hopefully Bill Gates is correct and this Omicron wave infected so many Americans that COVID-19 is largely turning into the seasonal flu for the remainder of 2022. However, if we are to be mindful of the risk of a new variant, it looks like April 2022 is the next possible window.

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

…Study highlights factors increasing risk of “long COVID”
Previous studies highlighted that about 1 in 12 COVID-19 infected see persistent symptoms, known as “long COVID” — these symptoms include headaches, racing heart, etc. The WSJ had a decent summary of the possible risk factors:
– asthma
– unhealthy gut bacteria
– autoantibodies (autoimmune disease)
– Type 2 diabetes
– Epstein-barr virus aka mononucleosis (usually dormant)

This list sort of highlights most people, since it seems like the vast majority of the US has one of the above risk factors. But this study is interesting nonetheless.

STRATEGY: Stocks still go up even if bonds have a negative year
In the context of a 1H “treacherous” view, we believe stocks will rally in February, and possibly a bit longer. The rationale is multiple but it comes down to a few simple factors:

– COVID-19 is retreating = upside confidence = upside data surprise
– Inflation fears are already high = less bad = good
– Fed hike hysteria already high = hike fears priced in
– Market saw 11% waterfall = symmetry = fast bounce ahead
– sentiment is worst in 8 years = contrarian buy signal

On the last point, check out the data from Rydex (shared by @sentimentrader). Assets in “leveraged bearish funds” soared:

– 10X increase in leveraged bear assets
– highest levels in more than a decade

Implication? Investors got very bearish. And we know that when consensus gets to an extreme, it is time to counter-trade that.

…negative returns on bonds does not mean negative return equities
Investors have also become cautious because interest rates have risen. The 10-year has surged to > 1.9% and is nearing 2%, a level not seen since pre-pandemic. So this naturally has investors nervous. In fact, as @charliebilello notes, the Barclays aggregates index (total bond market) is on track for its worst year since 1977:

– the loss of 3% YTD is the worst since inception of that index (1977)
– pre-2022, the worst was 1994
– these are “nominal” returns and not adjusted for inflation

The fact that US bonds are having negative returns is not entirely a surprise. These are nominal. But the rise in rates means the price of bonds is down. Take a look at the chart below and you can clearly see the inverse relationship.

– And unless the interest paid is sufficient, the total return is negative
– On a “real basis” (adjusted for inflation), there are many more years with negative returns
– The bigger the increase in rates, the worse the return for bonds

– Tireless Ken calculated the total return of bonds pre-1976 as well (orange plots)
– These are only years of interest rates higher (not declining years)

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

…Negative bond returns does not mean negative equity returns
There are 4 years, prior to 2022, when bonds had a negative total return. Those years are:

– 1994
– 1999
– 2013
– 2021

And one might wonder if there is any connection between return of bonds and returns on stocks. The chart below is a scatter showing the relationship (x-axis is bond return, y-axis is equity return). And you can see a generalized positive relationship:

– when bonds do well
– stocks do well

– BUT when bond have negative years
– 4 of 4 times, stocks posted positive returns

So, there is a curious break. Stocks can return positive even if bonds have a negative return.

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

STRATEGY: 2022 theme –> BEEF –> Bitcoin (B) + Bitcoin equities (E) + Energy (E) + FAANG (F)

Our 2022 themes are shown below. And in not in any order:

– Bitcoin + Bitcoin Equities  BITO -1.14%   GBTC -0.86%   BITW -3.13%
– Energy
– FAANG  FNGS -0.39%   QQQ 0.39%

Combined, it can be shorted to BEEF.

– Homebuilders (Oct – Apr aka Golden 6 months)  XHB

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

__________________________

33 Granny Shot Ideas: We performed our quarterly rebalance on 2/3. Full stock list here –> Click here
___________________________

POINT 1: Daily COVID-19 cases 44,513, down -38,480 vs 7D ago…

Current Trends — COVID-19 cases:

  • Daily cases 44,513 vs 82,993 7D ago, down -38,480
  • 7D positivity rate 16.5% vs 23.4% 7D ago
  • Hospitalized patients 105,151, down -19% vs 7D ago
  • Daily deaths 2,484, up 2.8% vs 7D ago

The latest COVID-19 daily cases came in at 44,513, down -38,480 vs. 7D ago. All states/territories reported a lower case figure vs. 7D ago except PR. The chart below shows the steady decline in daily cases over the past four weeks – daily cases almost halve every week compared to prior week. The 7D average of daily cases has been down nearly 60% from its peak of over 700,000 to 289,000. The 7D delta in daily cases have been negative in 17 of past 18 days, and the overall trend is stable. The positivity rate has been plunging and the 7D average is currently at 16.5%. If the speed of decline persists, we could see positivity rate falls below 10% within two weeks.

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

7D delta in daily cases has been negative in 17 of past 18 days…
The 7D delta in daily cases remains in the negative regime and the overall trend has been stable. This reflected the steady decline in daily cases. Over the past two days, the 7D delta has shrank slightly, but this is primarily because only a few states report COVID stats, and also the daily cases have fallen so much.

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

Only 5 states are still seeing a rise in cases while 45 states + DC are seeing cases falling…
*** 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
When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

Daily deaths are still rising, while positivity rates and hospitalization are falling now…
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 started to roll over. And more importantly, the daily mortality did not follow the same pattern as hospitalization, which shows Omicron is less deadly compared to other variants (at least so far).
  • Positivity rate finally started to fall after plateauing for two weeks. It also confirms the recent decline in daily cases.
When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

POINT 2: VACCINE: vaccination pace has slowed recently… Still more than half of eligible people have not received their booster shots…

Current Trends — Vaccinations:

  • avg 0.6 million this past week vs 0.8 million last week
  • overall, 27.4% received booster doses, 63.9% fully vaccinated, 75.3% 1-dose+ received

Vaccination frontier update –> all states now near or above 80% 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 near or above 90% combined penetration
– Given the 2.5x multiplier, all states besides MS, WA, OR, TX, ID, MI, MO, and GA are now above 100% combined penetration (vaccines + infections). 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

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

There were a total of 526,729 doses administered, as reported on Sunday. The improving COVID case trend across the nation may have influenced people’s desire and sense of urgency to get the booster doses. The vaccination pace has been falling over the past month. That said, given the benefits that vaccination provides:

– reduce severity –> reduce hospitalization –> prevent healthcare crisis
– reduce the transmission of virus
– we believe the daily number of vaccines administered remains the most important metric to track.

And as we noted previously, there are still half of booster-eligible people (more than 80 million) who have not yet received their booster dose. Hence. to convince these people remains the key.

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

This is the state by state data below, showing information for individuals with one dose, two doses, and booster dose.

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

In total, 543 million vaccine doses have been administered across the country. Specifically, 250 million Americans (75% of US population) have received at least 1 dose of the vaccine. 212 million Americans (64% of US population) are fully vaccinated. And 91 million Americans (27% of US population) received their booster shot.

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

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.

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

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.

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

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.

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year
When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year
When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year
When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year
When will see next variant? Maybe April 2022? Stocks still go up even if bonds have a negative year

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