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Friday
STRATEGY: Escalation over the weekend, while negative, potentially raise odds 1H low is in. Strengthens case for BEEF
Russia-Ukraine showing 3 things extremely useful
The Russian invasion of the Ukraine is a human tragedy and from the perspective of the Western World (and most of the World), an unjust and hideous action. Over the weekend, we have seen pleas by the Ukrainians and the Ukrainian government and actions taken by other nations. And I pray and hope we have a quick end to the conflict. That is not saying this is what we expect. It is entirely unclear how this conflict ends.
Over the weekend, as the conflict raged, 3 things have proven to be very useful:
– Bitcoin –> Ukraine asked for bitcoin donations, showing crypto usefulness once again
– Satellite Internet –> Ukraine asked Elon Musk to make Starlink available in Ukraine
– SWIFT –> the biggest punch pulled by the West is a financial war
…still think Bitcoin is not useful? Ukraine asked and received crypto donations
This tweet by Mykhailo Fedorov, Vice Prime Minister of Ukraine, asked twitter to send crypto donations. As of Sunday, it looks like more than $10 million in donations have been received. To those on twitter, be wary as there are now numerous fake accounts asking for donations to Ukraine. This is the problem with a digital world broadly.
– this highlights the strength of the case for Bitcoin and crypto as digital money
– a sovereign nation is not asking for USD donations
– but rather crypto donations
– WOW
Ukraine asked for Starlink satellite internet…
Another non-government aid request was Ukraine asking Elon to make Starlink available in Ukraine.
– Starlink is a consumer service, offering high-speed internet via a small satellite dish
– Elon responded that the service has been activated
– and terminals en route
This, along with Bitcoin requests, almost seems like the storyline from a science fiction movie.
If one is wondering what Starlink is, below is a screenshot from the website. It is a satellite receiver that provides high-speed internet service via low earth orbit (LEO) satellites. The service can offer up to 100-200 mbps connections, so it is useful in place without access to wired internet (or cutoff/isolated).
…using SWIFT is crippling Russia economy
Lastly, policymakers decided to move to the most crippling of measures, cutting Russia off from SWIFT (the global financial messaging network). Created in 1973, this is the backbone of the global financial system, used by 11,000 banks in 200 countries. Russia losing access to this is a complete isolation of the nation.
– US is completely disconnecting Russia
– Europe is “imposing restrictive measures”
Surely, this will force Russia to seek alternative ways to route and access capital. Perhaps Russia might seek its own crypto paths. China and other nations can still provide capital flow and even act as intermediaries (creating credit). So this is not entirely pure isolation. But it raises the cost of movement of money. And already burdens the Russia economy which is already being hammered by sanctions.
Is it any wonder that Russia itself decided to seek another escalation? As the headline below highlights, Russia is not messing around.
…SWIFT actions over the weekend + Russia-Ukraine conflict = lower GDP = Fed incrementally dovish
Lastly, economists are cutting their GDP forecasts. As Bruce Kasman, Chief Economist for JPMorgan, notes, the combination of geopolitical reverberations (uncertainty) plus altered Energy (away from Russia) plus rising Energy costs (oil) means global GDP will take a hit.
– Kasman does not see lasting damage
– but a hit to the short-term
In our view, this creates downside risk and thus reduces the need for the Fed to hike.
…Odds of a March Fed hike are collapsing and might be below 1.0 soon
Take a look at the odds of a March 2022 hike. It was 2.0 on 2/11.
– and now barely above 1.0
– odds are collapsing
And if there is market turmoil this week, one can expect the odds to further fall. What does this mean?
– the Fed put is coming into play, indirectly
– and it is not much lower than current S&P 500 levels, arguably
Hong Kong COVID-19 cases now 10X USA (per capita)
We wanted to post an update on the surge in cases in Hong Kong. Recall, Hong Kong’s population is 7.8 million, compared to 330 million in the US, or US is 40X larger. Thus, the case figures and even hospitalized need to be compared to equivalent US figures.
– Daily cases in USA is 65k per day vs HK at 13,200
– HK cases are 10X greater than last week
– Daily cases per 1mm, closer at 197 USA vs 1,757 in HK
– This figure is up nearly 10X vs a week ago and no signs yet of peaking
So the surge in HK is far greater than one might realize. And hence, HK is testing every citizen.
Curiously, hospitalizations are high in HK both absolute and relative to the US. Take a look below:
– US hospitalized 44,000 versus 36,000 in HK
– The figures on an absolute basis are pretty close
– Despite USA being 40X larger
– on per 1mm residents
– US is 134 versus 4,791 in HK
– startling difference
STRATEGY: Escalation over the weekend, while negative, potentially raise odds 1H low is in…
Markets finished last week with solid gains back to back on Thursday and Friday. And over the weekend, there were mostly positive incremental surprises, much of which was discussed above:
– Ukraine putting on a tenacious defense
– Russia progress slower than expected
– Major responses by Europe including providing lethal assistance
– and above
– Pleas for Bitcoin, wow
– Pleas for Starlink, wow
– SWIFT restrictions, near catastrophic for Russia
All of this adds several layers of concern to the existing “wall of worry” (actually a mountain).
And there is considerable uncertainty. One cannot predict the future path from here. Who wins? How long? What does post-conflict look like? What about Fed? So there is just only uncertainty.
…are markets already positioned for worse case? $1 trillion of puts bought daily…wut?!!
Goldman Sachs strategy team had an interesting chart over the weekend. It shows notional put volume (in billions of USD). Put options provide profits to an investor making a bearish bet. Thus, high put volume means the market is positioned for a downside event:
– Put volume reached $1 trillion last week
– this is an incredible figure
– this exceeds to $800 billion bought during the height of pandemic panic in March 2020
So markets are more fearful now than anytime in the past 10 years. Granted, global conflict is scary. But this is an extreme measure for investors. And as such, the key question is whether markets become incrementally more negative:
…Retail sentiment is already reaching one of the lowest readings ever
And moreover, AAII retail sentiment (American Association of Individual Investors) % bulls less % bears is now -30.
– This is even worse than reading March 2020
– This is the lowest since April 2013
– Prior to that, one goes back to July 2010
What does this tell us? Retail sentiment is staggeringly low.
In fact, look below. And we have listed the 30 instances where AAII reading is below -30. Since 1987, there have been 1,850 weeks.
– So this is 1% of instances
– look at 1M and 3M and 6M returns from this reading
– gains are +2.3%, +4.1% and 14.7%, respectively
– far higher than expected for markets in other periods
– it only failed during the GFC (Jan to July 2008, markets kept tanking)
So, if one thinks this is GFC level or worse, meaning a recession, stocks have not bottomed.
But otherwise, this raises odds that the low of last week was the low for 1H. Yup.
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
_____________________________
33 Granny Shot Ideas: We performed our quarterly rebalance on 2/3. Full stock list here –> Click here _____________________________
POINT 1: Daily COVID-19 cases 7,136, down -11,638 vs 7D ago…
Current Trends — COVID-19 cases:
- Daily cases 7,136 vs 18,774 7D ago, down -11,638
- 7D positivity rate 6.2% vs 8.2% 7D ago
- Hospitalized patients 42,642, down -28% vs 7D ago
- Daily deaths 1,832, down -14% vs 7D ago
On Sunday, 12 states + Puerto Rico reported a total of 7,136 new cases, down -11,638 vs 7D ago. All states (and PR) reported a lower case figure compared to 7D ago. Arizona did not report COVID stats yesterday because the state department of health decided to shift the daily updates of the dashboard to weekly due to the improvement in COVID trends. In fact, in the announcement, Dr. Carmona (former US Surgeon General and currently advising AZ Gov Ducey and AZ Department of Health Services) wrote, “Changing such a widely used resource isn’t something to be done lightly. But now, with all COVID-19 metrics steadily declining and many other states doing the same, I join with the hospital representatives below in sharing that it’s the right time for a change.” Arizona is one of the 43 states where COVID cases have fallen over 90% from the peak. As the pandemic gradually transitions into the endemic stage (we hope), we could see more states follow Arizona. Although we would like a timely data update, this, ultimately, is a very positive development.
7D delta in daily cases remain negative…
7D delta in daily cases remain negative, but has been gradually creeping upwards. As we noted in prior notes, this is primarily due to the case level is much lower now vs. few weeks ago. In fact, if we look at the case decline in percentage standpoint (% decline from 7D ago), the speed of decline has not slowed.
All US states are seeing decline in daily cases now… 43 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 significantly from the Omicron peak
- 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… Still more than half of eligible people have not received their booster shots…
Current Trends — Vaccinations:
– avg 0.4 million this past week vs 0.5 million last week
– overall, 28.7% received booster doses, 64.7% fully vaccinated, 76.0% 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 501,862 doses administered, as reported on Saturday. 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 is 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.
