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STRATEGY: Dudley OpEd “If stocks don’t fall, the Fed needs to force them” shook markets Wednesday… are we living in a simulation?
Dudley OpEd “If stocks don’t fall, the Fed needs to force them” shook markets Wednesday… are we living in a simulation?
On Wednesday, Bill Dudley, former NY Fed Reserve Bank President (2009-2018) penned an OpEd arguing “if stocks don’t fall, the Fed needs to force them.” This triggered a fierce day of selling Wednesday and created almost unanimous consensus from market participants that the Fed is going to force growth to slow so sharply, the stock market will crash.
We pay heed to the market adage “don’t fight the Fed.” While Dudley is no longer a Fed member, many believe he is communicating a message from the Fed. But here is the thing:
– it seems wrong headed to argue that
– the primary way for Fed to transmit its monetary policy of hikes
– is to force the stock market to fall
– this message of “stocks need to fall, Feds need to force it” seems more appropriately the voice of the bond complex.
– The $55 trillion industry is losing assets, seeing asset prices fall –> recession would re-invigorate the bond complex
While there are many issues that I have broadly with this OpEd, I just want to focus on 2 observations:
First, NY Fed published a study (July 2020) that argued equity ownership is limited to the “upper echelons” of US population
– inflation in the US is due to varying impacts of supply-chain, commodity shocks and labor shortage
– thus, how would causing a crash in stocks, which makes “rich people” less rich, drive a slow down in inflationary pressures
– this would seem to be the bluntest of bluntest instruments
“Einhorn is Finkle, Finkle is Einhorn”
Reading this OpEd made me think of the scene from Ace Ventura, when he realizes Einhorn is the same person as Finkle. I don’t want to explain the whole scene here, but if you watched the movie, it is funny.
– “Einhorn is Finkle, Finkle is Einhorn”
– Fed policy is the stock market
– The stock market is Fed policy
I never realized the stock market is the ultimate transmission mechanism of monetary policy. And if this is the case, then, we need to be sellers of stocks starting now. Of course, this is not our view
– however, if Dudley is speaking for the Fed
– then “Einhorn is Finkle”
…Yield curve 10Y less 2Y no longer inverted = recession over?
(Please click HERE for our guide to yield curve inversion)
As you know, investors treated the inversion of the 10Y less 2Y as Economic Dim Mak (death touch, ala Bloodsport). Look back at the end of March and when the yield curve inverted, there were prognostications of calamity:
– our base case, you might recall, is that inflation backwardation is distorting this signal
After 2.5 days of inversion, curve normalized…
After 2.5 days, the curve normalized. And since then, the curve has continued to steepen:
– does this mean the recession is over?
– obviously, this reflects the major challenges facing the global economy
– inflation backwardation seemed to be affecting nominal yield curves
…S&P 500 remains above the 200D = good
Similarly, the S&P 500 is still managing to hold above the 200D. We continue to see this as a good sign
– but the level is tenuous
– so we watch, with caution
COVID-19: Daily cases are up vs week ago, each of the last 3 days
COVID-19 cases are quietly on the rise again. As shown below:
– COVID-19 daily cases are up vs week ago, each of the last three days
– 6 of the last 7 days
The rise is primarily due to the Omicron sub-variant, BA.2. The good news is there is no detectable rise in hospitalizations.
And the 6 states with the most prominent increases are shown below:
– NY, NJ, CT, MA, RI and IL
– the rest of the COVID-19 stats updated for today are in the sections below
STRATEGY: We lean “bullish” into 2Q2022, but warn of jagged next few months… Stick with BEEF
To recap on equity strategy, we are leaning bullish into 2Q2022.
– this is in context to a challenging 1H2022
– so jagged next 3 months
– but > 88% probability that bottom for 2022 is in
Broadly, our existing sector strategy of BEEF remains valid. Even in war. Even with inflation. In fact, the last few weeks 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.
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
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33 Granny Shot Ideas: We performed our quarterly rebalance on 4/5. Full stock list here –> Click here _____________________________
DATA ON RUSSIA-UKRAINE WAR: Tracking Russia-Ukraine war statistics — 3,838 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
– Ukrainian military losses, except personnel
– Russian estimated losses of personnel and material
Ukraine has lost an estimated 91% of its tanks and 95% 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 1,987 tanks or 91% of its equipment
– Ukraine has lost 125 aircraft, or 95% 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.
When we hear Russia has deployed 150,000 soldiers in Ukraine, this is not 150,000. As many military people know, for every front-line soldier, there are 4 support soldiers:
– 1 frontline soldier
– 4 support, fuel, ammo, logistics, supply lines, etc, cooks
Thus, if there are 150,000 Russian soldiers in Ukraine, about 30,000 are doing the actual fighting.
– Using data from Ukraine’s Ministry of Defence, estimates of Russian casualties are about 18,900
– Presumably these are front-line soldiers
– Unless Ukraine soldiers are “attacking from behind” and hitting supply lines
This implies over 50% of the frontline soldiers are casualties.
The number of casualties is 62 on 4/6, and a total of 3,838 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 continues to gradually decline and is now around 30,000 per day. And a total of 4.3 million have fled so far.
– 54% are entering into Poland
– curiously, 7% or 350k 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. 125 Ukraine planes lost
– est. 1,987 tanks lost
– this seems like a lot of equipment
Russian losses are higher
– est. 18,900 Russian soldiers killed
– est. 698 tanks
– est. 150 aircraft
– est. 1,891 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.
POINT 1: Total COVID-19 cases 189,030 over past 7D (avg 27,004 per day), up +10,581 (+1,512 per day) vs same period 7D ago…
Current Trends — COVID-19 cases (past 7 days vs. 7 days prior):
– Total new cases 189,030 vs 178,449 7D prior, up + 10,581
– Avg daily cases 27,004 vs 25,493 7D prior, up +1,512
– 7D positivity rate 4.4% vs 3.5% 7D prior
– Hospitalized patients 11,843, down -7.2% vs 7D ago
– 7D Avg daily deaths 475, down -29% vs 7D ago
Over the past 7 days, a total of 189,030 new cases (avg 27,004 per day) were reported in the US, up +10,581 (avg up +1,512 per day) compared to the same period 7 days prior. As BA.2 gradually becomes the dominant variant strain across the nation, the overall US case counts are ticking upward. The 7D delta in daily cases has turned to positive in 8 of the past 9 days – the only “negative” day was also because CA changed its reporting schedule and no cases were reported on that day. That said, although the future is uncertain, we are not too worried about the COVID situation in the US at this moment
– as the case rise vs. 7D ago is still at a relatively slow pace
– and the absolute level of case counts remains low
In addition, the overall hospitalization and mortality trends are still falling.
– current hospitalization has fallen 7.2% vs 7D ago and currently is at the all-time low level since the pandemic
– daily deaths are still plunging, down 29% vs. 7D ago
By the way, another good news is that Europe seems to be able to manage the recent BA.2 mini-surge and the cases are falling again.
7D delta in daily cases has been positive in 8 of the past 9 days. But the absolute level remains low…
The 7D delta in daily cases has been positive in 8 of the past 9 days. It shows that the daily cases in the US are rising again. But as the level of 7D delta suggests, the rise in daily cases is at a very slow speed. And more importantly, as we noted above, the hospitalization and mortality trends (measuring the severity) are still falling.
6 states (NY, NJ, CT, RI, MA, IL) have shown clear trends of cases rising.
*** 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 death and current hospitalization continue to fall, while the positivity rate has risen slightly…
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 daily deaths have plunged – both have fallen to the pre-Omicron levels. In fact, as shown below, current hospitalization is at an all-time low since the pandemic.
– Positivity rate has risen modestly. Actually, as more states reduced their frequency of reporting, the positivity rates are distorted at some degree. But in terms of the absolute level, the current positivity rate is still relatively low.
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 0.2 million last week
– overall, 30.0% received booster doses, 65.4% fully vaccinated, 76.7% 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 456,364 doses administered, as reported on Wednesday. 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, 563 million vaccine doses have been administered across the country. Specifically, 255 million Americans (76% of US population) have received at least 1 dose of the vaccine. 217 million Americans (66% of US population) are fully vaccinated. And 100 million Americans (31% 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
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.
CASES
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. 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.
HOSPITALIZATION
DEATHS
