Oil surges $9 to $130, but is 3% of consumer wallet, below 4.5%/6.5% in 2008/1980. $200 oil = 4%

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STRATEGY: Oil surges $9 to $130, but is 3% of consumer wallet, below 4.5%/6.5% in 2008/1980. $200 oil = 4%

Equity markets are still struggling to find equilibrium and footing given the Russia-Ukraine war and the associated spillover in commodities and economy. I had multiple conversations with portfolio managers over the past few days and the obvious issue is the substantial uncertainty in the continuing warfare and knock-on effects:

– oil and commodity prices given Russia’s central role
– payment systems given Mastercard, Visa and American Express cut off Russia
– risk of escalation of war beyond the Ukraine border
– inflationary and economic impacts of these collectively

The caution by investors is greater than we expected, but given the threat of escalation both geographically and weapons-type, is understandable. In periods like this, looking at market technicals is helpful. Mark Newton, Head of Technical Strategy, at Fundstrat notes the following:

– equities holding up remarkably well = positive surprise
– S&P 500 key levels are: 3/1 low of 4,279 and 4,250
– below 4,279 and test of 2/24 lows likely
– buyable low next 3-5 trading days
– upside levels 4,417, which could lead to 4,450

JPMorgan Economist shave 0.8% off global GDP due to Russia/Europe economic hit
In short, the technical picture is neither strong nor dire, but there is a roadmap for higher prices this week. But possibly a low first. As of Sunday evening, equity futures are under pressure as oil prices are surging +$9. In fact, the movement in commodity prices is prompting JPMorgan to make some changes to their GDP forecasts:

– cutting global GDP by 0.8% due to Russia GDP decline 12.5% peak to trough
– adding 0.9% to inflation in 2022
– risks for global energy supply are high
– drag is concentrated in Europe

More than anything, the surge in energy prices (both oil and natural gas) is highlighting the foibles of the policies pursued in the past 5 years, both in the US and Europe:

– limit drilling (more US)
– eliminate nuclear power plants, increasing reliance on natural gas
– ESG = prioritize green over fossil fuels

And now some strange initiatives are being pursued:

– seek deals for Venezuelan and Iranian oil = enriching “corrupt” regimes
– ban imports of Russian oil and natural gas = “cut the nose to spite the face”

…Oil surges $9 to $130, but is 3% of consumer wallet, still below 4.5% in 2008 and 6.5% in 1980
Oil surged yesterday and markets are naturally worried about this delivering more inflation and misery to US consumers. But the oil shock is diminished compared to prior oil spikes:

– oil spiked in 1980 and 2008
– both triggered a recession
– gasoline share of wallet was 6.5% and 4.5%, respectively

– yesterday, oil was at $130, gasoline is 3% of wallet
– this is 33% less than 2008 impact
– because the economy is larger and energy intensity is down

– even $200 oil is 4% of wallet
– this is less than 4.5% of 2008 and 6.5% of 1980

So, while the increase in gasoline prices is a shock, and certainly the “rate of change” is as well. This is a far lower hit to consumers compared to 2008. That said, this is still going to be painful for those who have smaller wallets, or drive gas guzzlers.

And as Elon Musk notes below, now is the time for Europe to restart nuclear power plants. And as is well known, Germany closed its last nuclear reactor in Dec 2021, to zero from a peak of 17.

…Risk of escalation of Ukraine-Russia war
The obvious primary concern for investors is the risk of escalation of the conflict. And as @DavidSacks below comments, there are conflicting characterizations of the risk. And he makes some great observations below:

– it is the “risk of escalation” that scares markets
– but it doesn’t mean we move closer to nuclear or widening conflict
– the rhetoric is what impacts markets

…Cuban missile crisis saw stocks bottom on Day 7 of 30
One might look back at the Cuban Missile crisis of 1962 to be illustrative of the current conflict. And this article by the Harvard Kennedy School talks about some lessons — although the context was the 2012 Iranian nuclear crisis.

And while the world was on the brink of a nuclear disaster, including a possible outright nuclear confrontation between Russia and USA. The crisis lasted about a month and the beginning and end dates are indicated below:

– not clear if markets had any “insights”
– but markets bottomed 7 days into that crisis

STRATEGY: Markets are soft and nervous but the economic spillover impacts on the US are more limited
I wish I could say that we are confident markets have found footing. But the weekend developments have weakened this case. That does not mean we think stocks have immediate downside, but it does mean stocks are caught in no-man’s land for now.

– some key things to keep in mind
– Energy supply will now be a national security priority
– Energy stocks are structurally attractive
– Pessimism is high, measured by both positioning and sentiment
– Markets may be less vulnerable to negative news

DATA ON RUSSIA-UKRAINE WAR: Tracking Russia-Ukraine war statistics — 1,123 Ukrainian civilian casualties so far
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.

– Ukrainian civilian casualties
– Ukraine population movements
– Ukraine military losses, except personnel
– Russian estimated losses of personnel and material

The number of casualties was 65 on 3/6, and a total of 1,123 have been reported to the UN. This is after 9 days of information and could increase because there are simply lapses and lags in reporting.

The flow of migrations out of Ukraine has been steady at about 170,000 to 200,000 per day. And a total of 1.5 million have fled so far.

– 58% are entering into Poland
– curiously, 3% or 50k or so, have entered Russia

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. 62 Ukraine planes lost
– est. 635 tanks lost

– this seems like a lot of equipment
– I am wondering how many tanks and aircraft are in the Ukraine military arsenal

Russian losses are higher
– est. 11,000 Russian soldiers killed
– est. 285 tanks
– est. 44 aircraft
– est. 985 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.

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 4.52%  GBTC 5.18%  BITW 2.35%
– Energy
– FAANG FNGS 1.83%  QQQ 2.13%

Combined, it can be shorted to BEEF.

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

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 5.94%  AMZN 0.82%  NFLX 2.52%  GOOG 0.29%

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 4,784, down -2,352 vs 7D ago…

Current Trends — COVID-19 cases:

• Daily cases 4,784 vs 7,136 7D ago, down -2,352
• 7D positivity rate 4.6% vs 6.2% 7D ago
• Hospitalized patients 31,206, down -27% vs 7D ago
• Daily deaths 1,490, down -19% vs 7D ago

On Sunday, 10 states plus Puerto Rico reported a total of 4,784 new cases, down -2,352 from 7D ago. All of these states (and territory) report a lower case figure compared to 7D ago. With the improvement in state COVID-19 situation, Alabama changed its way of case reporting from 7 days a week to weekday-only. For other states that recently lifted their the COVID mandates (such as NY, NJ, etc), we have not seen any case resurge yet, which is good news.

One major development on COVID-19 stats we are tracking is the positivity rate (7D Avg) fell below 5%. Recall, we view positivity rate <10% as “situation under control” and positivity rate <5% as “situation largely back to normal”. In fact, current level at 4.6% is one of the lowest levels since the Delta variant. Hence, It is not a surprise to see so many state and local governments have dropped their COVID restriction recently. Again, with all these positive developments, the absence of a new variant, and the relatively high level of immunity (from both infection and vaccination), it feels like now is the closest we have been to “normal” in the past two years.

7D delta in daily cases remains negative. The steady decline persists…
While remaining negative, the 7D delta in daily cases has crept up recently. But, if looking at the case decline in percentage term, we can see the speed of decline has not really slowed much. The steady decline in daily cases persists.

All US states are seeing decline in daily cases now… 45 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

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 0.3 million this past week vs 0.4 million last week
• overall, 29.1% received booster doses, 64.9% fully vaccinated, 76.2% 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 244,114 doses administered, as reported on Sunday. 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, 555 million vaccine doses have been administered across the country. Specifically, 253 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.