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STRATEGY: Markets are in the “eye of the storm” and remember, markets bottom on “bad news” not “good news”
DATA ON RUSSIA-UKRAINE WAR: Tracking Russia-Ukraine war statistics
There are several ways to track the Russia-Ukraine war, beyond watching cable news, twitter or newspapers. In 2022, there are many tools that provide better information and context. Our data science team is compiling data as well and we will provide some updates.
– the path of this conflict is unknown
– and this will be a source of uncertainty for some time
– this does not mean stocks only “bottom” when uncertainty ends
– we have some ways to track elements of the conflict
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.
– Ukraine civilian casualties
– Ukraine population movements
– Ukraine military losses, except personnel
– Russian estimated losses of personnel and material
Already there are are an estimated 368,000 Ukrainians who have fled Ukraine. This figure is lower than the 4 million figures I have seen in the media, but those might be the estimate for the ultimate number fleeing.
If one is wondering about reported losses of equipment, we are citing statistics provided by the opposing ministry officials. Thus, for Ukraine, data from the Russian Ministry.
– est. 36 Ukraine planes lost
– est. 395 tanks lost
Russian losses are higher
– est. 5,710 Russian soldiers killed
– est. 198 tanks
– est. 29 aircraft
– est. 846 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.
As mandates ease, still lots of room for demand to recover
Below is the latest update for TSA traveler throughput. This data is shown on a calendar “seasonal” basis so it is easier to compare 2022 to prior years:
– 2022 is tracking throughput at the highest levels since pre-pandemic
– look at the increase compared to 2021
– but it is still below 2019 levels
Thus, we see upside to economic growth as COVID-19 restrictive mandates ease. We have discussed this numerous times in the past. But the combination of:
– fearful individuals
– restrictions on capacity in buildings
– lack of face to face meetings
– no business travel
On the margin, there remains upside to growth as mandates ease.
STRATEGY: Markets are in the “eye of the storm” and remember, markets bottom on “bad news” not “good news”
Markets are in the middle of the maelstrom of uncertainty, for all the obvious reasons, and during periods of turmoil and uncertainty, risk appetite necessarily declines. And in a way, we are at the “eye of the storm”
– risks of escalation of Russia-Ukraine conflict
– inflationary signals “supernova hot”
– Fed getting bullied by the bond market into “hawk mode”
– Russia gets hit with SWIFT restrictions tantamount to “complete isolation”
So, is it any wonder that many investors are calling for a “bear market” and even “Lehman moment”? As our clients know, our base case has been that 1H2022 would be treacherous. And indeed, the market has been treacherous.
– do we think the current bull market has peaked?
– Nope
– do we think stocks have a lot of downside in the coming weeks?
– Nope. We think odds still favor markets bottomed on 2/24
– have odds increased that 1H low was 2/24/2022?
– yes, but this is far from certain, but the odds are incrementally higher
– is 1H2022 still treacherous
– yes, but we already know that
Even in the midst of the sell-off Tuesday, the 2/24 still stands as peak market anxiety.
– even with the VIX surge Tuesday to 34,
– the VIX did not push above 37 on 2/24
– S&P 500 took a gut punch Tuesday
– but still above 4,115 seen on 2/24
Despite continuing fallout from Russia-Ukraine war, markets are still holding above the 2/24 lows. And we know the repercussions are numerous:
– sanctions on Russians = economic hit
– sanctions on Russian banking = liquidity hit
– funds that have Russian investors = PEP scrutiny (politically exposed persons)
– funds return capital to Russian investors = selling pressure
– redemptions driving forced selling
– this is a bigger problem in Europe, in our view
– does this mean the S&P 500 has to enter a bear market?
– nope
From a technical perspective, Mark Newton, Head of Technical Strategy at FSinsight, sees this as a pattern of “two steps forward, one step back” and that is what we are seeing.
– markets are choppy
– but the path is incrementally higher
Markets don’t bottom on good news, but bad news…
We have been meeting with a considerable number of investors over the past week, both in person and via zooms. I have found few who are constructive on equities. In fact, in a way, investors’ negativity is similar to March 2020:
– many believe economy is late cycle
– Fed tightening was “peak of bull market” already
– Russia-Ukraine war has a high risk of dramatic escalation to include Europe and US personnel
– inflation war already lost with “Fed behind the curve”
– oil causing recession
So, the consensus is pretty concerned. And anyone listening to business news, twitter, or anything will find a steady drumbeat of pundits saying we are already in a bear market.
– consensus could be right
– this sell-off is the start of a broader market decline
The tweet below is from nobody of significance, but this sentiment is common and a consensus view. Inflation going to hit earnings, thus, stocks will go down.
But the yield curve did not get this memo. As you can see below, the long-term yield curve is pushing higher, quietly:
– the long-term yield curve is largely unaffected by Fed policy
– our prior analysis shows Fed has enormous control on 1M to 5Y rates
– beyond 5Y is “market based”
– steepening curve is often a sign of strengthening economic outlook
– this could be a result of falling inflation
– higher growth expected from “wartime economy”?
– other factors
In any case, this takes us back to markets. Markets don’t bottom on “good news” coming. They bottom on bad news. That is, the bottom is when stocks favorably respond to negative events.
– the obvious is therefore whether 2/24/2022 was the bottom
– in our view, this is the key date
Central banks are incrementally turning dovish = Fed put coming into play
There are several general principles at FSinsight, which we detail below (see our “2022 outlook” or any prior outlook for this list). And as you can see, the most important of these rules:
– Don’t fight the Fed
– and
– if in doubt, check the rule “don’t fight the Fed”
And in 2022, this rule #7 was in play, because the Fed made a “hawkish” pivot, citing the need to move aggressively. And this was one of the reasons we expect 1H2022 to be treacherous.
– however, the odds of a Fed hike in March 2022 are dropping drastically
– it is now below 1.0 hikes for March and at 0.90
– lowest odds since Jan 2022
– 10-yr yields also falling, confirming this
– 1 and possibly 2 hikes are coming off in March
– that is a “DOVISH” pivot
Yes, dovish.
Same story with ECB. In February, the futures markets saw 5 hikes by ECB by Dec 2022.
– the number of hikes is quickly approaching zero
– yup, 5 hikes coming off the “table”
– that is a “DOVISH” pivot
So, the central banks are becoming incrementally dovish
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 -2.44% GBTC -2.48% BITW
– Energy
– FAANG FNGS -0.48% QQQ -0.78%
Combined, it can be shorted to BEEF.
PS: Homebuilders (Oct – Apr aka Golden 6 months) XHB -2.47%
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 -1.66% AMZN -0.75% NFLX -0.67% GOOG 3.17%
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 42,666, down -85,889 vs 7D ago…
Current Trends — COVID-19 cases:
– Daily cases 42,666 vs 128,555 7D ago, down -85,889
– 7D positivity rate 6.1% vs 7.7% 7D ago
– Hospitalized patients 38,739, down -27% vs 7D ago
– Daily deaths 1,876, down -1.4% vs 7D ago
The latest COVID-19 daily cases came in at 42,666, down -85,889 from 7D ago. The big drop in 7D delta is expected as we noted in Monday’s note. Despite the data distortion, the decline in daily cases has been steady. If we combine the total new cases over the past two days and compare it to prior two weeks, the downtrend is more obvious:
Mon (2/28) 85,555
Tue (3/1) 42,666
Total 128,221
7D ago:
Mon (2/21) 47,923
Tue (2/22) 128,555
Total 176,478
14D ago:
Mon (2/14) 209,093
Tue (2/15) 96,508
Total 305,601
As you can see, the number of new cases continues its downward trend and the speed of the case decline has been steady. And more importantly, we have not seen any sign of post-holiday case rise yet. These continuous improvements in the COVID-19 situation endorse policymakers’ decisions of dropping mask/vaccine mandates. It also shows the end of the pandemic is probably in sight.
Btw, for those who were watching Biden’s 2022 SOTU, did you notice almost no one was wearing a mask? During his speech last April (which technically is not called the State of the Union), the capacity was limited to 20% and everyone was wearing a mask.
7D delta in daily cases fell significantly as expected. The overall trend is still promising…
As we noted Monday, Tuesday’s big drop in 7D delta is expected. Regardless of the data distortion, the overall case trend remains promising. And more importantly, we have seen any sign of post-holiday case surge yet.
All US states are seeing decline in daily cases now… 40 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 0.4 million this past week vs 0.4 million last week
– overall, 28.8% received booster doses, 64.7% fully vaccinated, 76.1% 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 209,780 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 ~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, 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 96 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.
