We publish on a 4-day a week schedule
Monday
Tuesday
Wednesday
SKIP THURSDAY
Friday
As many states are reducing the frequency of COVID-19 reports, we will only publish COVID-19 updates on Thursday.
STRATEGY: Even as credit markets remain “hawkish” Nasdaq is already in a “bear market” = lots of bad news priced in
Removing “COVID-19” from daily FLASH subject line… updating COVID-19 data only Thursday weekly
COVID-19 is moving to the endemic stage and the resulting easing of restrictions means life in the US is gradually returning to normal. And 17 states have reduced the frequency of reporting COVID-19 statistics. The list, compiled by our data science team led by tireless Ken, is below.
– with 1/3 of states no longer reporting daily
– we are reporting COVID-19 statistics only weekly
– every Thursday (Wed evening) we will update COVID-19 statistics
With the easing of restrictions, much of daily life in the US is returning to normal. Sure, many Americans will continue to use masks and practice social distancing for some time (PTSD-like). But one element of daily life that is still under pandemic-level restrictions is interstate travel. The TSA federally requires mandatory use of masks at the airports and on flights.
– this was originally set to expire on March 18th, but the TSA extended this for another month
– Will April 18th be the date this mask mandate ends?
Credit markets are hawkish, but a reminder –> markets consistently “over-estimated” Fed hikes past 15 years
Without question, to me at least, over the past few months, credit and fixed income investors have become quite pessimistic about the risks of inflation and downsides to the economic outlook. Bond markets often lead, so these warnings should not be ignored. And while many are not necessarily warning of an outright recession, many credit investors point to the heightened risk of a recession.
– But more urgently, they see a Fed “behind the curve” and needing to hike aggressively
For instance, after the March FOMC meeting, JPMorgan sees:
– 7 hikes in 2022
– 25bp at each of the next 6 meetings
Similarly, Goldman Sachs sees the Fed “capitulation” on inflation with committee members raising their views on inflation while downgrading their views on economic growth:
– in essence, when looking at “incremental” moves
– this is “stagflationary”
– higher inflation, incrementally
– lower GDP growth, incrementally
REMINDER: Bond market has “over-estimated” Fed hikes in the past 15 years, consistently
Are investors over-estimating the amount of Fed hikes, and by implication, the inflation risks?
– if history is a guide
– yes
– we re-post this “squiggles” chart below, created by tireless Ken
This chart shows the implied Fed funds rate 24-months out:
– compared to the actual Fed funds rate
– since 2008, the bond market has consistently “over-estimated” the number of Fed hikes over the next 12-24 months
– In late 2019, for instance, Fed futures saw 3-4 hikes by end of 2020
– instead, Fed slashed rates
So will 2022 be any different? We are monitoring this closely. But as we have analyzed in past reports, much of the rise in CPI is “goods” categories, compared to services. And “goods” CPI, about half of the rise in inflation in the past 12 months, stems primarily from supply chain issues. If currency debasement becomes central, then we could see inflationary pressures rising. But the dollar has been relatively stable/strong.
STRATEGY: With NASDAQ already in a “bear market,” the risks of a recession are already substantially discounted
Even with the bond market signaling substantial economic risks, we don’t think this means we need to sell equities here. Our clients know that we have show multiple studies in the past few weeks showing that:
– “one cannot get hurt owning stocks over the next 12 months”
– meaning, we think a lot of bad news is priced in
– BofA Fund manager survey shows “recession”-level cash positions = contrarian buy signal
– Consumer confidence is already at 2009 levels = historically bullish equity signal
– VIX soared to nearly 40 = tactical buy signal
– Nasdaq is already in a “bear market” = bad news priced in
So, while our base has been that we see 1H2022 as treacherous, we also believe we are at the lower-end of this “treachery” range. Thus, while visibility will improve in 2H2022, we believe stocks have already discounted a lot of bad news.
…recent 4 consecutive day rally > 1% (each day) underscores “one cannot get hurt here”
Moreover, I love this statistic posted by Ryan Detrick @RyanDetrick on twitter last week:
– S&P 500 gained 1% for 4 consecutive days
– happened 5 times previously
– 5 of 5 times S&P 500 higher 6M and 12M later
– median gain 17%/ 28%, respectively
So, again confirming the view that one cannot get hurt owning equities here.
…Goldman Sachs chart underscores need to “own” equities + value if stagflation (incrementally)
Lastly, I found this chart by Goldman Sachs useful. This is by their macro team and looks at historical allocations under different market conditions:
– I highlighted “stagflation” or “financial bubble” periods
– equities outperform bonds handsomely in stagflation (or inflation)
– Value trounces Growth
These are not a surprise. But think of it this way:
– if one is worried about stagflation
– should one be selling stocks or bonds?
– history says own equities, not bonds
DATA ON RUSSIA-UKRAINE WAR: Tracking Russia-Ukraine war statistics — 2,316 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
Ukraine has lost an estimated 68% of its tanks and 85% 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 1,467 tanks or 68% of its equipment
– Ukraine has lost 112 aircraft, or 85% 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.
The number of casualties is 212 on 3/19, and a total of 2,361 have been reported to the UN.
The flow of migrations out of Ukraine had been steady at about 100,000 to 200,000 per day, but dropped to about 60,000 over the weekend. And a total of 3.4 million have fled so far.
– 56% are entering into Poland
– curiously, 5% or 185k 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. 112 Ukraine planes lost
– est. 1,467 tanks lost
– this seems like a lot of equipment
Russian losses are higher
– est. 14,400 Russian soldiers killed
– est. 466 tanks
– est. 95 aircraft
– est. 1,279 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 GBTC BITW
– Energy
– FAANG FNGS QQQ
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 AMZN NFLX GOOG
All in all, one wants to be Overweight BEEF
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33 Granny Shot Ideas: We performed our quarterly rebalance on 2/3. Full stock list here –> Click here _____________________________
POINT 1: Daily COVID-19 cases
This data will be updated every Thursday.
POINT 2: Vaccination Progress
This data will be updated every Thursday.
POINT 3: Tracking the seasonality of COVID-19
This data will be updated every Thursday.
