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STRATEGY: Price influences sentiment and recent weakness in equities, and as equities have no bid, pessimism growing into FOMC meeting
STRATEGY: Stocks caught on no-man’s land but 12-month risk-reward positive
Equities came for sale again Monday, with the major indices down 1%-2%. Stocks have taken on an entirely new character in 2022, with continuing weakness now putting stocks into a pronounced downtrend. This is a change of character compared to 2021 and the cumulative factors for this downtrend were visible late last year. Hence, our base for 1H was “treacherous” markets, but this is still far shakier than we anticipated.
– while we expected stocks to be “treacherous” in 1H2022, with a decline of as much as 10%
– we expect markets to see tailwinds in 2H2022
– possible drivers –> inflation rate of change “peak” + bad news priced in + Russia-Ukraine war inflects + Omicron passes
Markets have been steadily falling in a steady drip of pain and frustration and are now acting to turn market sentiment hostile. As we all know, price drives sentiment, hence, should we be surprised at the lucidity of the pinned tweet from @hmeisler, a widely followed market technician.
NASDAQ correction is the longest since GFC…
The NASDAQ has now been correcting for 115 days and as @bespokeinvest highlights, it is the longest correction since the Great Financial Crisis. Again, the key takeaway is financial markets have moved to price in a recession quickly and far faster than credit markets. And unless this unfolds into a larger economic downturn, the downside in stocks could be an “overshoot”
– this would be consistent with a “buyers strike”
– this could be consistent with funds selling to redeem funds allocated by PEP aka Oligarch capital
– this is consistent with markets fearful of war
And as such, price discovery is impaired during periods like this. And we affirm our view that the 12-month risk/reward is positive.
…the wall of worry is now a skyscaper
And it seems like this is at work today. An informal observation, but here are some comments/queries we received:
– yield curve is about to invert, so get ready for a recession
– stocks are down 13% and it won’t take much to push us down 20%
– WWIII has started, we just don’t realize it
– China is going to turn this into WWIII
– why won’t this be the worst inflation episode ever given the money printing
– $100 oil usually brings a recession
The primary risks to the market, in our view, are the following:
– inflation risks/ Fed
– Russia-Ukraine war escalating to global war
– economic sanctions driving further surge in commodity prices
– consumers retrenching due to soaring gas and food prices
– NOW China facing Omicron surge
The combination of these factors is driving a collapse in consumer confidence. Looking at the latest University of Michigan survey shows that consumer confidence about “expectations” is at decade lows:
– it is lower now than March 2020
– it is nearing GFC levels
– look at chart below
– this is almost always at the market bottom
Similarly, markets are now pricing in the heightened risk inflation accelerates further. The chart below from Goldman Sachs shows that the “risk premia” for accelerating inflation is stronger with Europe. This makes sense to the extent Europe has far greater exposure to natural gas price surges associated with Russia gas.
– this is a reminder the economic sanctions on Russia are delivering pain to the entire World
– this means sanctions are a “relative pain” story
– obviously, this is further contributing to market concerns
– add the PEP risk as Russian oligarch capital is now being subject to seizure
– thus, funds are redeeming capital they believe could be coming from PEP
– adding to selling pressure
…Equities have inverted correlation to oil in 2022
Stocks have inverted their correlation to oil in 2022. As shown below, oil and stocks were positively correlated as the rise in oil was due to reflationary drivers and thus, stocks could rise. But it seems the perception of oil has changed in 2022. The rise in oil speaks to a broader scarcity of reliable supply of commodities:
– the positive correlation peaked at 0.56 in early January
– the correlation has dropped and is now near zero
The obvious statement is reliable supply of oil, and its impact on oil prices, means oil and stocks are actually inverse in correlation. That is, until markets are comfortable that oil supply is not impacted by the Russia-Ukraine war, higher oil makes markets nervous.
Commodity prices are broadly rising. But the surge in commodity prices is not solely due to rising demand. The 500% surge in Nickel prices to $100,000 is an example:
– Nickel surged from $30k on 3/7 to > $100K by 3/8
– daily moves in nickel are typically in hundreds of dollars per day
– this move was $70,000 in 24 hours
As the Bloomberg article below notes, this is due mainly to a short squeeze of gigantic proportions:
– Xiang Guangda CEO of Tsingshan Holdings, a major nickel producer
– was bearish on nickel
– and prior to Russia war, assumed a supply shock
– but the war led to shortages
– this is creating billions of dollars of losses
– hence, markets are being roiled by commodity price surges
COVID-19: JPMorgan resumes hiring “unvaccinated” individuals — the surest sign of a return to normalcy
JPMorgan has been at the forefront of business decisions around COVID-19. JPMorgan has lifted its ban on hiring “unvaccinated” individuals.
31 million Americans over age 18 are unvaccinated…
According to the CDC, 15% of Americans are unvaccinated. There are 209 million American over age 18:
This is a huge figure. Given the known shortages of the labor market, it makes me wonder if some of the shortages stem from hiring practices and COVD-19 restrictions. That is, how many job opening require a vaccinated individual to qualify.
– how many individuals cannot qualify due to a required vaccination?
– how many Americans are discouraged from looking due to vaccine requirements?
– how many Americans are fearful to seek work due to COVID-19?
Of the 209 million Americans over age 18, it is a meaningful percentage. Hence, as COVID-19 fades, there is a chance that many more Americans might be willing to seek jobs. And this could be a positive surprise for labor supply.
As Omicron sweeps across China, Omicron took just 17 days to peak in Hong Kong
China is the last major nation to hold onto zero cases. And Omicron is now raging across China. The obvious issues for China is the fact that few individuals there have natural immunity. And there are known issues with the efficacy of Sinovax which is widely used in China.
Already, China is seeing cases soar
– and cities nearest to Hong Kong are already announcing shutdowns
– Hong Kong shows that Omicron can evade lockdowns and vaccinations
– so it seems like “zero cases” policy will lead to significant restrictions and suffering
– but may not necessarily arrest the spread
This is not all bad news as Omicron sweeps through a region quickly.
Omicron took just 17 days to peak in Hong Kong
As shown below, Omicron swept through Hong Kong, starting Feb 16
– surge started Feb 16
– peaked March 4
– surge lasted 17 days
That is only 1 city. So perhaps it will take 17 days to peak in each city in China. Hopefully, there is not a “ping pong” effect and there are successive waves across cities.
…Ford adapting to supply chain tightness by delivering cars without critical chips
And companies are adapting to chip shortages. For instance, as shown below, Ford is now shipping cars without chips governing non-critical safety features. They will be installed later. But this is an adaptation that will allow Ford to deal with chip shortages.
Ukraine has lost an estimated 58% of its tanks and 76% of its aircraft
Our data science team, led by tireless Ken, has been tracking the casualties and losses associated with the Russia-Ukraine war. And while Ukraine has staged an impressive resistance, the reported losses of equipment show that Ukraine has lost a substantial share of its equipment:
– by our team’s analysis, using reported data
– Ukraine has lost 1,267 tanks or 58% of its equipment
– Ukraine has lost 100 aircraft, or 76% of its fleet
By these measures, the armament of that army is rapidly depleting. I am not sure if this is a well known fact. But this also highlights why the nation is seeking to replenish its equipment.
With each passing day, Ukraine is experiencing further losses of critical equipment.
DATA ON RUSSIA-UKRAINE WAR: Tracking Russia-Ukraine war statistics — 1,761 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
– Ukrainian population movements
– Ukrainian military losses, except personnel
– Russian estimated losses of personnel and material
The number of casualties was 98 on 3/14, and a total of 1,761 have been reported to the UN. This is after 2 weeks of information and could increase because there are simply lapses and lags in reporting.
The flow of migrations out of Ukraine had been steady at about 170,000 to 210,000 per day. And a total of 2.9 million have fled so far.
– 62% are entering into Poland
– curiously, 4% or 100k or so, have entered Russia
If one is wondering about reported losses of equipment, we are citing statistics provided by the opposing ministry officials.
– est. 100 Ukraine planes lost
– est. 1,267 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. 12,000 Russian soldiers killed
– est. 389 tanks
– est. 77 aircraft
– est. 1,249 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 -2.33% GBTC -2.28% BITW 1.05%
– Energy
– FAANG FNGS 0.89% QQQ 0.36%
Combined, it can be shorted to BEEF.
PS: Homebuilders (Oct – Apr aka Golden 6 months) XHB -0.76%
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 0.39% AMZN -0.20% NFLX 0.72% GOOG -0.57%
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 51,681, down -12,104 vs 7D ago…
Current Trends — COVID-19 cases:
- Daily cases 51,681 vs 63,785 7D ago, down -12,104
- 7D positivity rate 3.2% vs 4.8% 7D ago
- Hospitalized patients 21,526, down -26% vs 7D ago
- Daily deaths 1,214, down -15% vs 7D ago
The latest COVID-19 daily cases came in at 51,681, down -12,104 from 7D ago. After being positive for one day (slightly), 7D delta turned negative again – it once again showed the overall COVID condition in the US continues to improve and the one-day spike in 7D delta was just due to some data fluctuation in a few states.
At state level, only a handful of states reported a higher case figure. KY had the largest “case rise”, but it was primarily because it recently changed its way of reporting COVID data from daily to weekly. Actually, more states adjusted daily COVID updates to weekly. Starting Monday, SC, NV, and OH will report COVID data only once a weekly. WY also changed its way from daily to twice a week (Tue/Fri). Since the full retreat of Omicron wave, we have seen 9 states lower their COVID reporting frequency (besides above 4, other 5 are AZ, DC, OK, KY and HI). As we noted above, this is a good sign as the policymakers positively respond to the improvement in COVID condition. And we will see more states make similar arrangement as COVID transitions into an endemic.
7D delta in daily cases turned negative…After being positive for one day (slightly), 7D delta turned negative again – it once again showed the overall COVID condition in the US continues to improve and the one-day spike in 7D delta was just due to some data fluctuation in a few states.
All US states are seeing decline in daily cases now… 49 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 0.3 million this past week vs 0.3 million last week
– overall, 29.2% received booster doses, 65.0% fully vaccinated, 76.4% 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 158,015 doses administered, as reported on Monday. The vaccination pace continues to fall and now is the lowest level since the mass rollout of COVID-19 vaccines. But it is also understandable that less people are seeking vaccination given the improvement in overall COVID situations..
This is the state by state data below, showing information for individuals with one dose, two doses, and booster dose.
In total, 557 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. 216 million Americans (65% of US population) are fully vaccinated. And 97 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.
