Click HERE to access the FSInsight COVID-19 Daily Chartbook.
We publish on a 4-day a week schedule:
Monday
Tuesday
Wednesday
SKIP THURSDAY
Friday
STRATEGY: Energy leadership + Tech turning > 50% market = base case 5,000 still possible
Unless a cure emerges, divergence in policymakers of COVID-19 “zero case” vs “endemic” is economically unsound
As Omicron burns its way across the World, it will soon make landfall in every nation. And many of these nations have previously deflected, contained prior strains. For much of the past 2 years (crazy that it is 2 years):
– some nations pursued “zero case policies”
– others shifted towards “managing the surges/ endemic”
– the divergence in policy approach mattered little in past two years
But as many nations are pursuing a return to normalization, others are still staunchly pursuing “zero cases” — but in 2022 and beyond, this will be increasingly viewed as a policy fracture:
– zero case nations will pursue lockdowns, causing supply chain disruptions with ripple effects
– monetary policy goals get impacted by these risks
– global trade is disrupted
So, unless a cure emerges, this policy divergence, in our view, will create economic divergences as well.
…Omicron is so contagious, it makes me wonder if it will defeat “zero cases” policies
The WSJ published this article in late December 2021 and it cited some scientists and their estimates for the increased transmissibility of Omicron. While these are simply estimates, the consensus was that the Omicron is roughly 3-5X more contagious than Delta. So, using the math cited in the article, below is the estimated reproduction rate, or R0 of variants. Consider these Fundstrat estimates.
Estimated R0 for COVID-19 variants:
R0 est** vs original
– original strain 3.0
– Delta strain 6.0 1.5X to 2X
– Omicron strain 18.0 to 30.0 6X to 10X
**R0 is the reproduction rate, or # new infections per infected individual
So Omicron might have an R0 of 18 to 30. That means each infected person spreads it to 18 to 30 others. Is it any wonder that this has caused a parabolic rise in cases?
…Omicron reminds me of the Israel wall from World War Z
In case you did not watch World War Z, the premise of the movie is a fast spreading virus (spread by bites) that turns people into zombies. And two nations, in the movie, were relatively unscathed:
– North Korea, because every citizen had their teeth removed (no bites, no zombie)
– Israel, which built a wall around the entire nation
And Israel was doing fine, until one day, some pilgrims started to sing with joy and this caused the zombies to swarm. Because these zombies are drawn to sound, the loud sounds resulted in a major frenzy.
– eventually, they overtake the wall, but forming a chain
Why am I bringing this up? I am wondering if Omicron is like a frenzied zombie mob. That the R0 is so high, that this could overwhelm nations trying to pursue zero cases.
Source: Skydance Productions
…Already Australia has given up on “zero cases”
Australia for much of the pandemic had a zero case policy and its closed borders prevented any major spread. In fact, life was pretty normal there, except for the fact nobody could enter the country. But with Omicron’s spread, primarily on the east coast:
– Australia has seen cases soar from <100 to 100,000 per day
– Policymakers have given up the “zero case” policy
– Except for Western Australia, which is in lockdown
…guess the key question is whether it makes sense for China to pursue zero cases…holding out for a cure?
The ultimate question, I guess, is whether the divergence between China and USA/Western World on COVID-19 containment is sustainable. Omicron has already reached the mainland:
– China already has 20 cases
– Lockdown has been ordered for Tianjin
– a city of 14 million
– There are 40 cases there
– The Winter Olympics is only a few weeks away
STRATEGY: Relief rally is a relief… Energy leadership + Tech turning = base case 5,000 still possible
Equities finally staged a positive session, the first “good day” of 2021. There are some reasons for this, but the main thing, in our view, is the de-leveraging associated with the Fed hike timeline, is largely done.
Notably, WTI oil is back to $81.
– this is higher than WTI was when the US and other nations announced the SPR release
– yup, it didn’t do anything
…Energy P/E is 12X 2022 compared to 20X the last time oil was in the $70s… +80% upside
Our top sector pick for 2022 is Energy and as we noted multiple times, it is due to the combination of:
– structural shortage of oil
– energy equities cheap vs oil
– energy companies managing capital better
With this trifecta of tailwinds, Energy stock P/E should expand:
– P/E is 12X
– was 20X when oil was last in the $70s
– these companies are managing capital better
Thus, we see continued upside
…another good sign, Nasdaq strengthening and possible confirming “buy” inflection
On Sunday, we flagged the possible inflection of massive underperformance Nasdaq vs S&P 500 based on the DeMark sequential count (version v1b) with the emergence of a “9” as shown below.
– a confirmation of this “buy setup”
– would be a green “1” (sequential)
Yesterday, the NASDAQ also saw a “1” sequential emerge. So it is the first confirmation that the Nasdaq has likely bottomed. After 8 consecutive days of decline and a more than 9% peak to trough, that is a welcome turn.
…January rally possible given the turn of Nasdaq higher
Our base case remains the S&P 500 rallies to 5,000 in late Jan before suffering a larger drawdown of as much as 10%. This base case has been tested by the awful move at the start of the year and by the advancement of the Fed timeline for hikes (See our earlier notes).
– but the the dual strength of Energy and NASDAQ 100 is promising
– Nasdaq QQQ is a proxy for Technology
– Tech is > 40% of S&P 500
– If Energy and Tech are working, that is 50% of the index
Thus, rally to 5,000 still possible. But the future is uncertain.
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 GBTC BITW
– Energy
– FAANG FNGS QQQ
Combined, it can be shorted to BEEF.
– Homebuilders (Oct – Apr aka Golden 6 months) XHB
__________________________
30 Granny Shot Ideas: We performed our quarterly rebalance on 10/25. Full stock list here –> Click here
___________________________
POINT 1: Daily COVID-19 cases 726,423, down -84,907 vs 7D ago…
_____________________________
Current Trends — COVID-19 cases:
– Daily cases 726,423 vs 811,330 7D ago, down -84,907
– 7D positivity rate 28.1% vs 26.4% 7D ago
– Hospitalized patients 138,871, up +25.0% vs 7D ago
– Daily deaths 1,654, up +28.3% vs 7D ago
_____________________________
The latest COVID daily cases came in at 726,423, down -84,907 vs 7D ago. The 7D delta in daily cases turned negative first time since the Omicron surge. Although it is partially due to the data distortion we have seen in California (CA reported large amount of new cases 7D ago due to holidays), there is no doubt the speed of case surge has slowed and the overall trend in 7D delta has turned downwards. Going forward, we could see more negative 7D delta days (without data distortion). Eventually 7D delta will turn negative completely and cases start to fall. Our base case remains that Omicron surge will peak by early/mid-January and we could have a better view on the case trend in the next few days.
`
7D delta in daily cases starts to roll over…
The 7D delta in daily cases have been flat over the past few days and seems to roll over now. As long as 7D delta remains positive, the daily cases will continue to rise. But rollover in 7D delta means the speed of case rise is slowing down, which is good news.
42 states are seeing a rise in cases while 8 states + DC are seeing cases falling or about to roll over…
*** 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
Hospitalizations, deaths, and positivity rates are rising…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID.
– Both net hospitalizations and daily death have turned upwards.
– Positivity rate climbed to > 10%. This could be partially because of the data distortion due to holidays – case numbers were reported, while numbers of tests were not. But if the positivity rate remains high, it tells us that there might not be enough tests performed.
POINT 2: VACCINE: vaccination paceacceleratesas boosters become more widely available…
___________________________Current Trends — Vaccinations:
– avg 1.2 million this past week vs 1.1 million last week
– overall, 23.0% received booster doses, 62.2% fully vaccinated, 73.8% 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
There were a total of 985,923 doses administered reported on Tuesday. Daily number of vaccines administered seems to start to rise again (evidenced by the 7D average line in blue). This is good sign. With the surge of the Omicron cases, we expect more people to receive their booster shot. Also, the same catalysts remain in place:
– Proof of vaccination required by many US cities and venues
– Booster shots
– Israel study shows efficacy of vaccines against Omicron variant (although reduced)
The daily number of vaccines administered remains the most important metric to track this progress and we will be closely watching the relevant data.
This is the state by state data below, showing information for individuals with one dose and two doses.
In total, 521 million vaccine doses have been administered across the country. Specifically, 245 million Americans (74% of US population) have received at least 1 dose of the vaccine. 206 million Americans (62% of US population) are fully vaccinated. And 76 million Americans (23% of US population) received their booster shot.
POINT 3: Tracking the seasonality of COVID-19
***We’ve updated the seasonality tracker to now include 2022 alongside 2021 and 2020.
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.
