Click HERE to access the FSInsight COVID-19 Daily Chartbook.
We publish on a 4-day a week schedule:
Monday
Tuesday
SKIP WEDNESDAY (Traveling)
SKIP THURSDAY
Friday
STRATEGY: Stock sentiment so bad, it is good. The bond market is bullying the Fed, because a recession is the best case for credit markets.
Asia should be done with Omicron by late-February…
As the pair of headlines below show, the cases are exploding throughout Asia. This is not a surprise. Omicron has already swept through Africa, Europe and the US. And unless a nation is truly isolated, Omicron is going to be sweeping through Asia.
– South Korea is reporting new all-time high in cases
– Hong Kong cases have surged parabolically to 2,000 and no signs of a peak
But Omicron has been shown to burn through a region quickly and just as suddenly retreat. This is the reason we are seeing the lifting of mask mandates across the US. COVID-19 is retreating in the US and policymakers are behind the curve.
…Omicron has burned through a region in 21 days
The speed of the Omicron surge is remarkably similar in US and Europe and Africa. Check out the charts below:
– South Africa peak in 25 days
– UK peak in 21 days
– NYC/ NY state peak in 25 days
– CT peak in 21 days
There is a narrow range of 21 to 25 days to a peak. Is there a reason to expect this to stretch longer in Asia? Maybe, due to lockdowns. But this does not change the trajectory that within 2 weeks from now (Asia deal with Omicron since Jan), it should have largely burned through Asia.
STRATEGY: The bond market is bullying the Fed, because a recession is the best case for credit markets…
The stock market is fragile. Look at the intraday swings yesterday and it is evident, equity investors are on a “hair trigger” and the flash words (of panic) are:
– inflation
– Fed hike
– Russia
Sure there are more, but these words hitting the tape instill fear (even if uttered by a Chuck E Cheese commercial). The turmoil has been even greater in the high-yield and credit markets. After all, a strong economy means:
– strong economy
– rising inflation
– rising real rates
= bonds suffer
Take a look at the damage to the high-yield market so far in 2022. It has been a bad year already, and its only been 6 weeks. But as shaded in red shows, rising rates (10-yr) deliver a lot of damage to credit. After all, unless the “yield” is high (which it is not yesterday), a rise in rates causes bond prices to fall. And the coupon cannot necessarily offset this.
…Bonds and stocks want a different outcome
Hence, there is structural argument for why the bond market wants the Fed to tighten. The bond market complex suffers from higher rates:
– the bond complex is
– investment banks
– credit investors,
– hedge fund managers
See the grid below. Under 4 possible inflation and real interest rate scenarios, bonds perform poorly in 3 of 4. In other words, the bond market prefers:
– falling inflation
– falling interest rates
– which usually happens in a recession
In short, the bond market is clamoring for a recession. And stocks obviously are better off with robust GDP growth. Thus, the bond market and stock market want different things. The Fed is arguably more bullied by the bond market than stock market. Hence, the Fed is being pushed to tighten.
…under “guaranteed TINA” there is $53 trillion of bonds that likely see re-allocation
We have mentioned this notion of “guaranteed TINA” or guaranteed there is no alternative. The reason for this view is that under a scenario of strengthening global economy and normalizing inflation, bonds are likely to deliver negative returns.
What many investors may not appreciate is that there is a massive holding of bonds by US households. Our data science team, led by tireless Ken, pulled together the estimated holdings of bonds in the US. Take a look at the table below:
– US household net worth is $145 trillion
– US households own $53 trillion in bonds
– 37% of assets
These $53 trillion is likely to deliver negative real returns for the foreseeable future. If inflation strengthens, bad. If real rates rise, bad. If Fed hikes, bad. Only a recession really helps this position. And makes bonds look better than stocks.
– in a way, this is why the bond market is clamoring for Fed hikes
– Fed hike slow economy
– might tip US into recession
– bonds rally
…Is market too worried about inflation? Deep Macro, the macro research firm, thinks inflation already past peak
From time to time, we like to cite work by Jeff Young, founder of Deep Macro research. They use alterative datasets to gain some lead time on key economic indicators. Their latest report is interesting. They highlight multiple reasons why they see US inflation, measured as CPI peaking. There are 4 in their report, but I want to highlight two of the keys.
First, as shown below, the broad measures of inflation are rolling over:
– producer prices
– trader
– inflation sentiment
But CPI is still rising. CPI, as Young points out, is a lagging indicator:
– The Fed looks at CPI
– CPI lags producer prices
– PPI is peaking
Hence, US inflation should be cooling. Yet, the Fed is talking about tightening because of a “hot Jan CPI”
– is this a policy error in the making?
– the future is uncertain
Similarly, wait times for truck drivers is collapsing
Deep Macro also shows the collapse in waiting times for truck drivers:
– collapse in Newark, Miami, Houston and Savannah
– down in CA but not collapsing
– is this due to CA maintaining overly strict protocols?
If this data is to be correct, there are two implications:
– supply chain tightness is easing
– COVID-19 protocols are contributing to tightness
– as COVID-19 eases
– inflationary pressures cool
Hmmm… this argues the Fed talk of 50bp is simply a result of the bond market being a bully.
Stocks are so bad, and investors so glum, this is usually good
As for equities, the thrashing of stocks in the past few weeks has weakened sentiment. And the nervousness of the bond market is amplifying investor fear. But this is arguably a set up of:
– things are so bad, it is good
Take a look at the 30-minute chart of the S&P 500 below. There are signs that things are so bad, it is good:
– DeMark combo count (v1b) is registering a “13 buy set up”
– this was last seen on January 24th
– S&P 500 rallied from 4200 to 4600, or +10%
– 14 period RSI fell to 27
– this last happened 1/24
– see above
In other words, the “buyers strike” on equities is so severe, that it is good.
Mark Newton, Head of Technical Strategy for Fundstrat, also sees a possibility of a rally to 4,500. As he notes below, the put call ratio is reaching extreme negative levels. This is a sign of a bottom.
– it will help if the VIX settles down
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 -2.33% GBTC -2.28% BITW 1.05%
– Energy
– FAANG FNGS 0.89% QQQ 0.36%
Combined, it can be shorted to BEEF.
– Homebuilders (Oct – Apr aka Golden 6 months) XHB -0.76%
__________________________
Granny Shot Ideas: We performed our quarterly rebalance on 2/3. Full stock list here –> Click here
___________________________
POINT 1: Daily COVID-19 cases 206,951, down -170,180 vs 7D ago…
_____________________________
Current Trends — COVID-19 cases:
– Daily cases 206,951 vs 377,131 7D ago, down -170,180
– 7D positivity rate 10.9% vs 16.0% 7D ago
– Hospitalized patients 76,299, down -22% vs 7D ago
– Daily deaths 2,377, down -8.9% vs 7D ago
_____________________________
The latest COVID-19 daily cases came in at 206,951, down -170,180 vs 7D ago. Only five states — MO, KS, IL, AR, and OK — reported a higher case figure. But most of them did not report COVID cases last Friday in observance of Lincoln’s birthday. Therefore, the higher cases are more likely a result of data distortion
Overall, the decline in daily cases persists. The 7D delta in daily cases has been negative in 25 of past 26 days. While the 7D delta has crept up (less negative) recently, the speed of decline in daily cases has actually not slowed. Below we plotted the 7D % change in daily cases. As you can see, in term of percentage change, the decline is quite steady. The chart also illustrated the symmetry of Omicron surge vs. decline – when Omicron cases were surging, the daily cases doubled every week or so (up 100% vs. 7D ago); and when Omicron cases were falling, the daily cases halved every week (down 50% vs 7D ago).
7D delta in daily cases has been negative in 25 of past 26 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 few days, the 7D delta has shrank slightly, but this is primarily because the daily cases have fallen so much. And as we shown above, the actual speed of decline has not slowed in term of percentage change.
All US states are seeing decline in daily cases now…
*** 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 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.
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 0.5 million this past week vs 0.6 million last week
- overall, 28.0% received booster doses, 64.2% fully vaccinated, 75.6% 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 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 333,631 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 ~600,000 recently. The improving COVID case trend across the nation may have influenced people’s desire and sense of urgency to get the booster doses. 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, 547 million vaccine doses have been administered across the country. Specifically, 251 million Americans (76% of US population) have received at least 1 dose of the vaccine. 213 million Americans (64% of US population) are fully vaccinated. And 93 million Americans (28% 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.
