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Click Here to access the FSInsight COVID-19 Daily Chartbook. We are shifting to a 4-day a week publication schedule: MondayTuesdayWednesdaySKIP THURSDAYFriday STRATEGY: Last week's breakout a reminder US stocks still have capacity to a positively surpriseThe news continues to be very positive on US COVID-19 trends. The latest COVID-19 daily cases came in at 22,751, down -7,029 vs 7D ago and could be sub-20,000 before month end. - vaccine penetration growing = cumulative benefit- seasonally weather improving = helps The collapse in US COVID-19 cases is evident in the 7D delta chart below and you can see the sustained fall in US cases since early April. This is around the time US vaccine penetration hit 40%, which proved to be a key threshold in Israel. In Israel, that nation saw a leg down in cases following 40%. Vaccination efforts are stabilizing at 2 million per day, or 14 million Americans per week. - This is 4% incrementally per week- 34% of Americans have 2 doses, 45% 1 dose- By June, this should be 54% 2 doses and 65% 1 dose- The is about par with Israel, and Israel has like almost non-existent cases at this point. Broader issues --> Colonial Pipeline + Elon MuskThis is subjective, but the two notable events over the weekend, were: - the cyberattack on the Colonial Pipeline and- and secondarily Billionaire and businessman Elon Musk on SNL The cyberattack shutdown the largest US pipeline, with >5,500 miles and supplying nearly half of the fuel for the East Coast. So it is a sizable portion of infrastructure. There are mostly short term impacts, but we believe there is one longer term implication: - short term, gasoline/oil prices might spike/volatile, but this impact is transitory- could create short term distortions as gasoline surges would impact consumer wallets - longer term, this raises the question whether US policy of wanting to financially starve oil and energy infrastructure is misguided.- supply and stability of US oil supply is weakening given the White House anti-fossil stance and financial markets are hostile to Energy- last week, we highlighted the Rystad report that showed US production is set to fall >3mbpd in 2022 and beyond So this cyberattack could be a call to action to beef up US infrastructure.   Source: /2021/05/09/pipeline-hack-all-hands-on-deck-to-avert-disruptions-commerce-secretary-says. html Elon Musk's appearance is unique because he is one of only a handful of business owners who hosted -- Donald Trump, George Steinbrenner and Steve Forbes -- but Musk's appearance speak to the mainstream interest in many of things associated with Elon Musk: - stonks - Dogecoin + bitcoin - convergence of investment + entertainment In fact, I believe this is the first time ever that SNL actually broadcast this simultaneously on the internet for the global audience. ... India --> only 1 region of 10 largest, Tamil Nadu, is seeing cases rise India continues to face a healthcare and economic catastrophe due to the surge in COVID-19 cases. Based on the latest data, as pulled together by our data science team (led by tireless Ken), it looks like 9 of the 10 largest regions in India are seeing COVID-19 flat/rolling over: - 9 of 10 biggest regions seeing COVID-19 flat/rolling - only Tamil Nadu still rising, and driving higher overall cases - if most regions are seeing case levels plateau/fall, the tail risks to the healthcare and economy declining The impact and risk of India to US financial risk is probably also diminishing as well. While we do not want to minimize the healthcare tragedy, we think the US financial markets are less wary of those risks. In other words, this is one less major risk. And similar to the CDC call for 5th wave in May 2021 fear surge, India's downside risk to US markets is likely diminishing. Again, I want to reiterate that India remains a healthcare catastrophe and we hope the situation improves. As marked below by tireless Ken, there is now only 1 (of the 10 largest regions) with rising cases. - Karnataka was seeing surging cases last week, but now is flattening STRATEGY: Last week's breakout is a reminder that US stocks still have quite a capacity to a positively surpriseLast week, in my view, is a reminder how US equities still have the capacity to a positively surprise. Early last week, equities suffered a hammer blow and many viewed this as a sign of a top, but this was actually a pullback to touch support. I think the belief to return to normal is still not as widely held as it should be. So many people seem convinced that this economic recovery/equity gains will falter as: - we hit a wall due to inflation forcing Fed to panic - many pandemic-holdouts think world changed with COVID-19 and there is no normal And everyone was talking markets topping (until Friday surge). In fact, we did some zooms recently with technology investors and many were strongly of the view the stay at home trade would come roaring back. And many seemed sort of hopeful that new CDC forecast of a Summer surge would happen. It was a reminder to me that many of our clients are uncomfortably to long technology/hypergrowth/Growth stocks. Market leadership continues to be Epicenter and weakening in Growth, especially Technology... YTD, the outperformance of Epicenter (aka Cyclicals) vs Growth is stark and becoming even more bifurcated. Take a look below: - Epicenter stocks re-ignited this week, led by Energy - Energy is outperforming the S&P 500 already by 2,600bp - Our clients know we see far greater upside in Energy as well - Growth is weakening, Technology got hit hard last week - Technology is underperforming by 500bp YTD Our top 3 sectors for 2H2021 reflect first order Epicenter winners In case you missed our webinar last week, we made some Sector changes as highlighted below: - Top 3 now: Energy, Materials and Financials - Top 3 in Dec 2020 was: Industrials, Discretionary and Energy The change is to reflect our view that shortages are now appearing in first order companies: - move supply chains to America - commodities - all this requires capital = Financials We also downgraded Technology to Neutral, and FANG to Underweight. We think some of the growth money will rotate into Consumer Staples, hence, our upgrade from Underweight to Neutral. This is a summary of our webinar, so please tune into the replay for a more detailed rationale and explanation. Our 5 themes for 2021 are the same and described below. These are the basis for our thematic overlays (Granny Shots) and the general framework when we look at incoming economic data and financial market movements: - supply chain moving back to USA --> the semiconductor shortage is best example of this urgency - de-urbanization --> look at homebuilders... wow! - work from home --> this favors home furnishings, etc - buy USA --> small-caps, etc - violence in America --> anti-Asian crime surge is latest. Helps Bitcoin and defensive tools ... we see S&P 500 4,400 by mid-year and then a possible drawdown (~50% chance) In our webinar, we also believe the S&P 500 has a reasonable chance of revisiting the 200D moving average, or ~3,700. A rough roadmap is below, but this is only potential roadmap. We think the S&P 500 could avoid a 200D touch: - Drawdown would likely be Growth led as this is the crowded trade - Growth is 66% of market weight - But YTD, already 3 drawdowns - Reddit Massacre/GME drove record HF degrossing - Small-caps/Nasdaq crumbled on interest rate panic in Feb - Massive unwind by 6 prime brokers drove de-risking and VIX surge So in many ways, equities have already seen sizable shocks. So, I would give the risk of a move to the 200D in 2021 at ~50%. But we first see a move to 4,400. TECHNOLOGY: Supply-chain related Technology companies are outperforming While we are Neutral on Technology, parts of Technology are linked to two key themes: - global re-opening --> cyclical technology - supply chain moves to USA --> look at semicap equipment and EMS (contract manufacturing) As shown below, these groups have been outperforming Technology YTD and are above their 200D. But Technology itself is crowded and many parts of simply crowded trades (see the negative icons marked below). ENERGY: Oilfield Services is the most attractive, in our view So far this year, we have commented on Energy in 60 of our daily notes, or 40% of our comments (thanks tireless Ken), so this is the sector we see having the most urgent upside. For much of the year, institutions largely ignored the group, for several reasons: - sector too small at 3% --> more important to get AAPL right (bigger weight) - not ESG friendly --> but Energy cos are pivoting big time to ESG - nobody cares --> Energy was so bad for last 12 years, nobody cares But in the past week, we are seeing the first signs of institutional interest in these stocks. And this would be a very good sign, because inflows could be a sizable tailwind. And we have highlighted how Energy stocks have trailed the move in oil, so there is already sizable upside. Energy is broadly outperforming the S&P 500 YTD. And as shown on the leftmost chart, the outperformance is reaching a key level: - a few weeks ago, we commented that Energy/S&P 500 relative triggered a '13' combo buy signal on DeMark - now it looks like Energy is potentially completing a 'inverted head and shoulders' -- if so, we could see a further surge in $XLE - within Energy, the most attractive groups are: - E&Ps - Equipment & Services - Refiners --> the cyber attack might cause near-term volatility but not structural The best proxy for the most attractive groups it the Oilfield Services ETF, OIH (by VanEck). That chart is highlighted in the bottom right. ADDENDUM: We are attaching the stock lists for our 3 portfolios:We get several requests to give the updated list for our stock portfolios.  We are including the links here: - Granny Shots  -->       core stocks, based on 6 thematic/tactical portfolios- Trifecta epicenter  --> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Technicals- Violence in USA --> companies that are involved in some aspect of home or personal security. We are not recommending these stocks, but rather, bringing these stocks to your attention. Granny Shots:Full stock list here --> Click here Trifecta Epicenter (*):Full stock list here --> Click here Power Epicenter Trifecta 35 (*): Full stock list here --> Click here Violence in USA:Full stock list here --> Click here(*) Please note that the stocks rated OW on this list meet the requirements of our investment theme as of the publication date. We do not monitor this list day by day. A stock taken off this list means it no longer meets our investment criteria, but not necessarily that it is neutral rated or should be sold. Please consult your financial advisor to discuss your risk tolerance and other factors that characterize your unique investment profile. POINT 1: Daily COVID-19 cases 22,751, -29,780 vs 7D ago... 7D delta start to accelerate to the downside again... _____________________________ Current Trends -- COVID-19 cases:- Daily cases 22,751 vs 29,780 7D ago, down -7,029- 7D positivity rate 3.4% vs 3.9% 7D ago- Hospitalized patients 32,011 down -9.5% vs 7D ago- Daily deaths 650, down 3.6% vs 7D ago_____________________________ - The latest COVID-19 daily cases came in at 22,751, down -7,029 vs 7D ago. Based on current speed of case decline, we could see daily cases to fall below 20k next week. - The US continues to see a steady decline in daily cases. The 7D delta has been negative in the past 3 weeks. In the past few days, the 7D delta has been accelerating to the downside again. If this speed of decline persists, we could see the daily cases drop sub-20k by mid-May. - As we wrote before, at this stage of pandemic, as long as vaccinations work, eventually the rollout of the vaccines will lead to a decline in the pervasiveness of the COVID pandemic. And according to the recent data, this decline seems to finally arrive. 7D delta in daily cases has turned negative in the past 3 weeks... The US continues to see a steady decline in daily cases. The 7D delta has been negative in the past 3 weeks. In the past few days, the 7D delta has been accelerating to the downside again. If this speed of decline persists, we could see the daily cases drop sub-20k by mid-May. US hospitalization still rolling over ... and even US deaths seem to be rolling over... Below we show the aggregate patients who are currently hospitalized due to COVID. After a mini-surge in March, the number of patients currently hospitalized starts to roll over again. Compared to the wave 3 peak, it has fallen significantly. POINT 2: VACCINE: all states reached ~60% infected + vaccinated... Over one-third of Americans have been fully vaccinated... _____________________________ Current Trends -- Vaccinations: Vaccinations ramping steadily - avg 2.0 million this past week vs 2.4 million last week - overall, 34.2% fully vaccinated, 45.5% 1-dose+ received _____________________________ Vaccination frontier update --> all states now near or above 60% combined penetration (vaccines + infections) Below we sorted the states by the combined penetration (vaccinations + infections). As we commented in the past, the key figure is the combined value >60%, which is presumably near herd immunity. That is, the combined value of infections + vaccinations as % population > 60%. - Currently, all states are at this level - RI, SD, MA, ND, CT, NJ, DE, NY, IL and NM are now above 90% combined penetration (vaccines + infections) - So gradually, the US is getting to that threshold of presumable herd immunity All states have reached 60% combined vaccination + infection. Besides, 92.7% of US states (based on state population) have seen combined infection and vaccination >70% and 65.2% of US states have seen combined infection and vaccination >80%. As the chart below highlights, the US is seeing steady forward progress and this figure continues to rise steadily. There were a total of 2,352,831 doses administered on Sunday, up 12% from 7D ago. The 7D moving average has been trending downward since mid-April. It could be caused by the pause of JNJ vaccines or/and the vaccine hesitancy resulted from the JNJ vaccines. As both CDC and FDA lifted the recommended pause of JNJ vaccines, the vaccination pace could re-accelerate again in the near future. 96.0% of the US has seen 1-dose penetration >35%... To better illustrate the actual footprint of the US vaccination effort, we have a time series showing the percent of the US with at least 30%/35%/40% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, 87.4% of US states have seen 30% of their residents fully vaccinated. However, when looking at the percentage of the US with at least 35% of its residents fully vaccinated, this figure is 39.6%. And only 7.8% of US (by state population) have seen 40% of its residents fully vaccinated. - While 96.0% of US states have seen vaccine penetration >35%, 73.4% of them have seen 1 dose penetration >40% and 48.6% of them have seen 1 dose penetration > 45%. - 87.4% of the US has at least 30% of its residents fully vaccinated, However, only 39.6% of US has fully vaccinated >35% and 7.8% of US has fully vaccinated >40%. - This is still a small figure but this figure is rising sharply now. This is the state by state data below, showing information for states with one dose and for those with two doses. The ratio of vaccinations/ daily confirmed cases is generally trending higher (red line is 7D moving avg) and this is the most encouraging statistic. - the 7D moving average is about ~50 for the past few days - this means 50 vaccines dosed for every 1 confirmed case This figure is rising nicely and likely surges in the coming weeks In total, about 151 million Americans have received at least 1 dose of a vaccine. This is a good pace and as we noted previously, implies 50% of the population by mid-May. POINT 3: Tracking un-restricted and restriction-lifted states We are changing Point #3 to focus primarily on tracking the lifting of restrictions, as states begin to ease various mandates. Keep in mind, easing/lifting restrictions can take multiple forms: - easing indoor capacity - opening theaters, gyms, salons, saloons - eliminating capacity restrictions - eliminating mask mandates So there is a spectrum of approaches. Our team is listing 3 tiers of states and these are shown below. - states that eased in 2020: AK, OK, MO, FL, TN - states that eased start 2021 to now: SD, ND, NB, ID, MT, IA, NC, MS, SC, AZ, TX, MD - states that announced future easing dates: GA, NY, WI, AR, CA, AL, CT GROUP 1: States that eased restrictions in 2020... The daily case trends in these states is impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases. Rather, the case trends in these states look like other states. GROUP 2: States that have eased all restrictions in 2021 to now... Similar to the list of states above, the daily case trends in these states are impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases. - we have previously written about how ND and SD, in particular, have seen an utter obliteration of COVID-19 cases in those states - that seems to be a function of vaccine penetration + infection penetration, leading to something akin to herd immunity GROUP 3: States that are still easing restrictions in 2021... These states have upcoming dates to ease restrictions. The dates are indicated on each chart. The cases trends in these states have been mostly positive, with perhaps the exception of NY state: - NY state case levels seem awfully stubborn at these high levels - weather is improving in NY area, so if weather has any effect on virus transmission, it should slow cases

COVID-19 UPDATE:  Yikes.  US daily cases fall to 22,751 (29,780 7D ago) on Sunday.  Last week's breakout a reminder US stocks have a capacity to positively surprise

FSInsight 1Q21 Daily Earnings Update – 05/10/2021

Click HERE for a full copy of this report in PDF format. •  17 companies are reporting this week.•  Of the 440 companies that have reported so far (88% of the S&P 500), 85% are beating earnings estimates by a median of 16%.•  On the top line, 76% are beating by an average of 7%.

S&P 500 Ends Week at All-Time High Despite Mid-Week Turmoil

The S&P 500 closed at an ATH of 4,232.60 which was up from 4,181.17 last Friday. The big news on Friday was a pretty massive miss on non-farm payrolls. It came it significantly below expectations but markets shrugged it off and understandably so given that it takes a lot of pressure off the Fed to begin ‘thinking about thinking about’ Tapering. Jay Powell’s life was probably made significantly easier by this morning’s miss, particularly after Janet Yellen talked out of school on rates recently. Source: Page Six That being said, we think this number is usually prone to noise in normal circumstances and even more so in the anomalous times we live in. Normal markets are like the blues; steady, relatively repeatable, and predictable progressions. If you’re a musician you know that you can jam with anyone as long as you both know the 12 bar blues and your scales. This is not the case with jazz. In environments like this (blues-like or markets dominated by endogenous cycles) Wall Street that has a special advantage in a more normal environment as computing power and math are particularly valuable in these tamer cycles in making sense of data. The markets we’re living in today in the hopefully soon-to-be post-COVID-19 reality are much more like jazz. Staggered, changing tempos and things just happening when you might not expect it. The smooth consonance and steady back-beat of the blues stands in stark contrast to the sometimes dissonance or some might even say shrillness that can instantly grab your attention in an unexpected and pleasant way as the more erratic and random character of Jazz tunes are prone to rapid, sometimes uneven changes. We see this as an imperfect but useful metaphor in today’s markets. It should come as know surprise that dislocations in the labor market are occurring. Labor dislocations have happened in the wake of plagues since before the Black Death. Similarly, inflation in commodities has regularly occurred. The prices of lumber, steel, and many food items are surging. Another unique event where the Entertainment Industry and Wall Street are converging this week is the much-anticipated episode of Saturday Night Live which is featuring Tesla and Space-X CEO Elon Musk as the host along with Miley Cyrus as the musical guest and will air on May 8th. The price of some more speculative crypto assets may partially be surging in anticipation that Mr. Musk may give some shout out to the legions of retail investors who idolize him. The initial ad featured him and Miley Cyrus capitalizing on their somewhat mutually shared image as rebels and iconoclasts. However, as this video demonstrates of Ms. Cyrus, beyond all the hype and image she is an incredibly talented singer. You can take the girl out of Nashville but you can’t take the Nashville out of the girl. We think despite the hype of this Episode it will likely be two very talented people putting on an entertaining episode. We certainly don’t see it as anything more or less. This earnings season has been incredibly strong, so why have there been such lackluster performance in so many names that shatter expectations? My colleague Tom Lee will answer this delicate question below. Despite some stocks not moving as investors might like, strong earnings are strong earnings. Sell-side analysts are repeatedly upgrading earnings for the S&P 500. 87% of companies outperformed expectations which is significantly above the historical average of 65%. Energy lead in sales outperformance and was the only sector to have double digit surprise in the area. We held a webinar this week in which Tom Lee and Tom Block discussed how the re-opening of the world’s largest economy should affect stocks and which sectors should benefit most. The replay is available here. We want to thank our family of loyal and inquisitive subscribers for tuning into this event in droves. The whole team is honored by your support. The re-opening is here. Hilton’s CEO noted that “April bookings for the summer are exceeding 2019 peak levels by 10% in the US.” Folks are beginning to offices and retail properties are filling up again. This SNL episode is not a shoeshine boy moment but it does suggest Lorne Michaels might also being paying attention to on of our favorite investing themes which is the economic rise of millennials. Like Mr. Michael’s ratings, we are the stock market benefits from this rise and from the looks of it that is already occurring. Stock holdings are now 41% of household levels, the highest level on record. We think this is the beginning of a longer-term bullish trend for equities. Millennials don’t like bonds. They like crypto and stocks and as they inherit trillions of dollars they will increase holdings. Of 431 companies that have reported so far (88% of the S&P 500), 85% are beating earnings estimates by a median of 16%. On the top line, 77% are beating by an average of 7%.

Fed Financial Stability Report Highlights Risks

Federal Reserve Chairman Jay Powell ironically probably felt a tinge of relief upon seeing the non-farm payrolls number. Why? Because it gives him cover to continue the course the Fed has been pursuing of near-zero rates and copious asset purchases Minneapolis Governor and PIMCO veteran Neel Kashkari commented in the wake of the jobs number that now was absolutely not the time to be raising rates. He also poignantly added that he has ‘zero sympathy’ for Wall Street critics of the Fed. We sincerely hope from the bottom of our hearts that he didn’t hurt any of your feelings or dash your expectations for sympathy. This is all pretty well and good for the Fed given that by many other signs other than today’s jobs report the Economy is well within the stride of re-opening. First quarter productivity rose 5.4% which blew away the expectations of only 4.3%. US junk-bond yields dropped to an all-time low of 3.88% on Monday. Spreads hit their tightest level in well over a decade at (+289 bps). While the Fed got an immediate reprieve because of the jobs report, inflation expectations and bond vigilantes are unlikely to make the Central Bank’s life easy over the coming quarters as the economy continues to get red hot. The strong rally in credit continues across all buckets. Issuance is on track to be the busiest first half ever on record. Currently we are only $5 billion short of the $211 billion record and there’s two full months to go. Bullish indicators are so plentiful many had speculated the Fed would be forced to begin talking about raising rates. Secretary Yellen even said something to the effect, which was probably unwelcome uptown at the Fed. The Fed’s Financial Stability Report also showed an overwhelmingly strong picture in many respects. Banks remain very, very well capitalized. Leverage levels are very low among broker dealers. Household debt is manageable and loans are generally being paid back by households and businesses at historically high rates. The consumer balance sheet is very strong, buoyed by government stimulus. The Fed issued a report on Thursday that warned of the risks of rising asset prices, including the boom in stock prices. In a statement that seems rather obvious to us, the Central Bank stated that “Asset prices may be vulnerable to significant declines should risk appetite fall. The semi-annual Financial Stability Report shouldn’t be taken with too much alarm. The job of the regulatory agencies that compile this report is to assess potential threats to financial stability from multiple vantage points but also well in advance. The report of course also cited COVID-19 and the potential for the spread of variants as a major potential risk. Another strong point in the Financial Stability Report noted that many efforts have been taken to prevent contagion like occurred from the ABS market in 2008 from repeating itself. The Fed specifically mentioned that assets which may be considered speculative, like cryptocurrency, do not pose a significant risk to financial stability, outside the individuals who choose to take risk investing in this area. Asset purchases continued at a pace of $40 billion a month for MBS and $80 billion a month for Treasuries. The benchmark yield on the 10 year is 1.579%.

Infrastructure Debate Continues, Biden Intellectual Property Decision

Senate Republican Leader Mitch McConnell proclaimed in Kentucky this past week that his mission was to stop the socialist agenda of President Biden; while the White House looks for a bipartisan agreement on infrastructure. The President and his White House team continue to talk to a handful of Republicans who have put forward a $600B infrastructure bill that moves ahead with traditional projects such as roads, bridges, airports etc. Democrats are split with some supporting Biden’s outreach to Republicans and others committed to “going big” with only Democratic votes. In my view there is a chance that Congress may move forward on a two-track approach with a bipartisan traditional infrastructure bill, and a second program passed exclusively with Democratic votes under Budget Reconciliation rules. If there is going to be a bipartisan bill a stumbling block could be paying for the program. The Biden Administration has proposed using an increase in the corporate tax as the “pay-for.” Increasing the corporate tax is a non-starter for Republicans. The reduction of the corporate tax rate from 35% to 21% was the centerpiece of the Trump tax cuts. Prior to the Trump/Republican cut the US had one of the highest corporate tax rates in the world. President Trump and Congressional Republicans argued that the lower rate made American companies more competitive with global rivals and played a significant role in the robust economy pre-pandemic. Republicans will not support any bill that reverses this accomplishment. While increasing the corporate tax may be off the table for a bipartisan infrastructure bill it is possible that Republicans could support an increase in the gas tax, a user tax. The gas tax hasn’t been increased since 1993 and is only $.18.4 a gallon. As autos have become more efficient the tax has brought in less and less revenue, and an increase might make sense to pay for roads and bridges. A related issue is what to do about the expected increase in electric cars, EVs, which avoid the gas tax altogether. Republicans could expand that gas user tax in some form to capture revenue from EVs. A third possible bipartisan tax might be an initiative to give the IRS more money for audits to collect from tax cheats. It’s estimated that the US may be missing $1T in uncollected taxes. Republican controlled Congress have cut IRS funding, but as part of an infrastructure bill compliance might be an acceptable way to raise revenue. The White House is reportedly ready to give the bipartisan talks another month but at some point they will reach a decision to fish or cut bait. I continue to believe that there is a 75% chance that an infrastructure bill will pass by the fall; if there is no bipartisan bill infrastructure will pass using Reconciliation. West Virginia Democratic Senator Joe Manchin has expressed a preference to have a bipartisan bill; but West Virginia is a poor state that needs federal infrastructure dollars, it is my view that at some point he will agree to a Democrats only reconciliation approach. If it is a Democrats only bill increasing the corporate tax is back in play. Manchin, and a few others, have said they believe that the 28% rate proposed by the White House is too high; but there is support for a lower number such as 25%. Indeed when the Trump White House pushed for the lower corporate tax rate many thought the final figure would be 25%, and there was some surprise it ended up as low as 21%. There is considerable Democratic support for giving the IRS more money to go after tax cheats and this could become part of a Democrats only reconciliation bill. In any event I expect parts of the Biden infrastructure proposal to pass by fall Intellectual Property (IP) This past week the Biden Administration indicated that it would support an effort to waive the intellectual property protection given to the Covid 19 vaccine. I will be writing more about this in coming weeks; but as a former adviser to the US Government on trade issues it is my view that this is a mistake. Protecting IP is a cornerstone of US trade policy and to waive the protection undermines the government’s negotiating position. From negotiations with China to WTO the US has stood with the EU and others to insist on the protection of private sector breakthroughs. To blink and waive the protection for the vaccine is a mistake. There are other alternatives to ensure that the vaccine gets to poor nations and it can be done with the full cooperation of the vaccine manufacturers.

GRANNY SHOTS: Best bets in 2021 - Week 18

Below we’ve highlighted stocks that we recommend across at least two of our investment strategies for 2021. These companies could benefit from multiple themes and secular tailwinds – clear picks in our view. Figure: Granny Shots are the “best of the best”Stocks which appear in multiple themes. Source: FSInsight Figure: Granny Shots Portfolio PerformanceMonthly. Source: FSInsight. FactSet as of 04/30/21 Figure: Intersection of investment recommendations by strategyAs of 04/30/21, Source: FSInsight, FactSet The stocks in the Granny Shots portfolio collectively outperformed the S&P 500 by 6,130 bps since its inception (S&P 500 is up 63.0% during the same period).

Earnings Comps Distort Picture, Energy CAPEX Shortfall

In the United States a steady and persistent decline in cases continues. The 7D delta has been negative in the past 23 days. In the past few days, the &D delta has also been accelerating to the downside again. If the speed of this decline continues at its current pace then we could the daily cases drop below 20k by mid-May. As we wrote before, at this stage of the pandemic, as long as vaccinations work (evidence overwhelmingly suggests they do), eventually the successful rollout will lead to a persistent decline in cases. Based on the recent data, we think that decline has arrived. Despite what is clearly playing out in the data and the undisputable fact that with the dramatically increased immunity, particularly amongst the most vulnerable cadre, there is simply less places for the virus to go the CDC has provided a pretty strange forecast for a major spike from May to June. Their forecast is apparently due to the spread of dangerous variants that elude the immunity provided by the vaccines. However, our preferred forecaster for COVID-19 data the IHME shows no such rise. The CDC has been generally slow to lift recommendations. They are allowing sports and indoor dining but not cruises with all vaccinated passengers. Dr. Scott Gottlieb also pointed out that they were wrong on the science surrounding outdoor transmission. So, we are taking the CDC forecast with a grain of salt, while accepting that it is certainly possible that it could occur. If they are right it would be a headwind for markets. In mu opinion, and only my opinion, the CDC’s latest forecast seems to be borderline ludicrous. The IHME baseline is a continued collapse in US cases. If the IHME forecast is correct than Epicenter will rally. STRATEGY: 1Q2021 Earnings “Don’t Matter’ as Comps Not Realistic- 2Q2021, 3Q2021 Matter Way More Many clients are concerned that stocks are peaking, because stocks are not reacting to ‘strong EPS’ results, and in fact, are often selling off. I can think of at least 7 reasons that stocks do not have to react to ‘great results’- of which, only 2 are actually bad signs. But in my opinion, the main reason stocks are not ‘reacting to 1Q2021 results’ is that the year ago comparison is to March 2020 when the economy was six weeks into an unprecedented economic depression caused by a synchronized shutdown. Do comparisons vs the ‘first stage’ of the pandemic collapse, when revenues were often near zero, matter? We don’t think they matter all that much. Realistically I think the YoY vs 1Q2020 is simply going to look mental. So I would not place much weight on the results. And to me, it seems like equity markets are reacting as such. The next two quarters are more important than comps to the heights of COVID induced economic devastation. If you were wondering what the fuller list of possible reasons of why stocks do not react to EPS, here it is. Two potential bad reasons are that 1) good news is already priced in and that 2) no shorts have to cover. Two medium reasons could be 3) incremental buyer doesn’t care for earnings and thus doesn’t react and 40 market is trying to process hairs of inflation. Three good reasons for why stocks aren’t booming on good earnings could be that 5) people aren’t chasing earnings 6) which could mean retail is getting smarter and not gambling on earnings calls or 7) nobody cares about comparison to March 2020. 1Q2021 EPS had been beating estimates by 19% which would be considered extraordinary under normal circumstances. The upside has been strongest in Cyclicals (+27%) and Near-Cyclicals (+41%) as compared with Defensive (only +8%). The beats by even Defensives, let alone the others, would be considered very outstanding in normal years. STRATEGY: Structural Tailwind for Energy. Per Rystad, $300 bn of Oil Capex Taken Out Since 2020 This is one of the reasons why we continue to be so bullish on Energy. Epicenter is leading and performing very strongly. In fact, for the first time in nearly 6 months of being bullish on Energy we are finding institutional investors developing incremental curiosity about the sector. And as many readers know, Energy is a sector investors have largely ignored for the past decade and this was even more true since the beginning of the pandemic. Rystad Energy (rystadenergy. com) is an independent Energy research boutique, headed by Jarand Rystad, published a report today that points the E&P sector has cut investment (capex) by $300 bn since pandemic started. This will have lasting impact in their words. There is quite a lot of good material in this report and we hope to do a joint webinar with Rystad in coming weeks, so we can more fully explore their views an analysis. The dramatic cuts will result in a structural gap that can only be corrected by setting capex higher. North American oil production is set to fall by 3.0mbpd by 2022 alone. An additional 1mpbd will be taken off as well. That is a level on par with the annual oil production of Iraq and exceeds Iran’s and Kuwait’s production. This is a pretty stark deficit and would be hard to dismiss. This goes further to support our recently reiterated bullish call on the Energy sector. Bottom Line: Despite the diminished importance of 1Q2021 earnings due to anomalous comps, Epicenter is leading in terms of beating expectations. Energy is looking particularly appealing and has the best of alignment of supply/demand dynamics developing for a decade or more. We continue to recommend Energy and think it will be among the best, if not the best, performing sectors of 2021. Figure: Way forward ➜ What changes after COVID-19Per FSInsight Figure: FSInsight Portfolio Strategy Summary - Relative to S&P 500** Performance is calculated since strategy introduction, 1/10/2019

S&P 500 Ends Week at All-Time High Despite Mid-Week Turmoil

The S&P 500 closed at an ATH of 4,232.60 which was up from 4,181.17 last Friday. The big news on Friday was a pretty massive miss on non-farm payrolls. It came it significantly below expectations but markets shrugged it off and understandably so given that it takes a lot of pressure off the Fed to begin ‘thinking about thinking about’ Tapering. Jay Powell’s life was probably made significantly easier by this morning’s miss, particularly after Janet Yellen talked out of school on rates recently. Source: Page Six That being said, we think this number is usually prone to noise in normal circumstances and even more so in the anomalous times we live in. Normal markets are like the blues; steady, relatively repeatable, and predictable progressions. If you’re a musician you know that you can jam with anyone as long as you both know the 12 bar blues and your scales. This is not the case with jazz. In environments like this (blues-like or markets dominated by endogenous cycles) Wall Street that has a special advantage in a more normal environment as computing power and math are particularly valuable in these tamer cycles in making sense of data. The markets we’re living in today in the hopefully soon-to-be post-COVID-19 reality are much more like jazz. Staggered, changing tempos and things just happening when you might not expect it. The smooth consonance and steady back-beat of the blues stands in stark contrast to the sometimes dissonance or some might even say shrillness that can instantly grab your attention in an unexpected and pleasant way as the more erratic and random character of Jazz tunes are prone to rapid, sometimes uneven changes. We see this as an imperfect but useful metaphor in today’s markets. It should come as know surprise that dislocations in the labor market are occurring. Labor dislocations have happened in the wake of plagues since before the Black Death. Similarly, inflation in commodities has regularly occurred. The prices of lumber, steel, and many food items are surging. Another unique event where the Entertainment Industry and Wall Street are converging this week is the much-anticipated episode of Saturday Night Live which is featuring Tesla and Space-X CEO Elon Musk as the host along with Miley Cyrus as the musical guest and will air on May 8th. The price of some more speculative crypto assets may partially be surging in anticipation that Mr. Musk may give some shout out to the legions of retail investors who idolize him. The initial ad featured him and Miley Cyrus capitalizing on their somewhat mutually shared image as rebels and iconoclasts. However, as this video demonstrates of Ms. Cyrus, beyond all the hype and image she is an incredibly talented singer. You can take the girl out of Nashville but you can’t take the Nashville out of the girl. We think despite the hype of this Episode it will likely be two very talented people putting on an entertaining episode. We certainly don’t see it as anything more or less. This earnings season has been incredibly strong, so why have there been such lackluster performance in so many names that shatter expectations? My colleague Tom Lee will answer this delicate question below. Despite some stocks not moving as investors might like, strong earnings are strong earnings. Sell-side analysts are repeatedly upgrading earnings for the S&P 500. 87% of companies outperformed expectations which is significantly above the historical average of 65%. Energy lead in sales outperformance and was the only sector to have double digit surprise in the area. We held a webinar this week in which Tom Lee and Tom Block discussed how the re-opening of the world’s largest economy should affect stocks and which sectors should benefit most. The replay is available here. We want to thank our family of loyal and inquisitive subscribers for tuning into this event in droves. The whole team is honored by your support. The re-opening is here. Hilton’s CEO noted that “April bookings for the summer are exceeding 2019 peak levels by 10% in the US.” Folks are beginning to offices and retail properties are filling up again. This SNL episode is not a shoeshine boy moment but it does suggest Lorne Michaels might also being paying attention to on of our favorite investing themes which is the economic rise of millennials. Like Mr. Michael’s ratings, we are the stock market benefits from this rise and from the looks of it that is already occurring. Stock holdings are now 41% of household levels, the highest level on record. We think this is the beginning of a longer-term bullish trend for equities. Millennials don’t like bonds. They like crypto and stocks and as they inherit trillions of dollars they will increase holdings. Of 431 companies that have reported so far (88% of the S&P 500), 85% are beating earnings estimates by a median of 16%. On the top line, 77% are beating by an average of 7%.

($MUDS) Mudrick Capital’s Topps Deal Is A Sensible SPAC with Cheap NFT Upside

What was your first experience with valuation and markets? Was it a college finance class? Perhaps if you're a millennial, the Global Financial Crisis aroused your interest. Some may have grown up in the shadow of the world's financial center, and this industry has been at the core of their parents’ or grandparents’ livelihood. However, suppose you think back as far as you can. In that case, there's probably a decent chance that the very first 'market activity,' and we're being philosophical, not literal,  you might have experienced was haggling over baseball cards. Generations of people grew up coveting, trading, and purchasing baseball cards. They were initially given out accompanying cigarettes. When children began flocking smokers for the cards, a perennial trend was born. Topps Chewing Gum sold the first modern baseball cards with packs of gum in 1952. Their popularity grew with baseball and has since blossomed into a virtual alternative asset class. Our Signal From Noise column is predicated on finding alpha for our subscribers, and given the changing composition in methods by which companies  float their equity, we thought it was time to highlight a SPAC. Some of these deals have deserved notoriety due to aggressive forecasting, concept-driven rather than cashflow-driven investment, and more imagination than financial soundness. The name we found is not one of these SPACs. Source: Topps Investor Presentation The Topps deal with Mudrick Capital mixes a very traditional, conservative asset with exciting blockchain technology in  a way that is game-changing for profitability, yet this is not the lynchpin on which being a viable investment depends. Growth assumptions are not fantastical like some SPACs have become known for. An example would be that many EV SPACs predict to be worth $10 bn on a timeline that not even Google, one of the most successful companies in human history, could pull off. We urge you to reserve your pre-conceived notions (as is always desirable when evaluating a potential investment) of SPACs derived from facts like this to evaluate the idiosyncratic case for this particular investment. Source: Topps Investor Presentation An Iconic Brand With Valuable Consumer Connection Meets The Blockchain We have stumbled across a deal that meets many modern themes that we like while also having some very conservative aspects that reliably produce steady cash flow.  It pairs what might get a reputation as an entirely speculative element by some assessments or an indispensable tool for monetizing digital scarcity depending on who you talk to, Non-Fungible Tokens (NFTs), with a brand that can evoke emotion in the hearts of millions of consumers on par with Disney in their former CEO Michael Eisner's words. At the 30,000 feet, this deal is reminiscent of Barry Diller’s efforts with $MGM in capitalizing on a strong and well-established physical business’s transition from the analog world to the digital one. Source: Topps Investor Presentation This is a particularly special opportunity if you love baseball or grew up collecting cards. Still, even if you didn't, we try to demonstrate why we think this is a reasonably priced investment with significant upside and multiple growth opportunities that aren’t over modeled on or required to attain solvency like many SPACs. The underlying business of selling physical cards is in a definite upswing. In the first quarter EBAY saw the market for trading cards eclipse $1 billion and even more importantly active users doubled. This bodes very well for this SPAC. Also, there’s no bubble in selling  bubble gum. The company has a respectable confectionary business with margins and brand recognition that are pretty appealing. This accounts for over a third of revenue. An accretive merger here is another potential sweet surprise for shareholders and could materially contribute to growth. All the businesses are at least competitive and in many cases exceed peers by many metrics. Source: Topps Investor Presentation Despite Reputation of Aggressive SPACs, It Is An Important Trend In The Equity Asset Class Special Purpose Acquisition Companies have grown in popularity recently. They are a less cumbersome way than Initial Public Offerings (IPOs) of taking firms public, resulting in publicly traded equity shares. Some could describe the process as the result of a squabble between Wall Street and Silicon Valley, the latter of the two quite sick of paying steep fees. So far, in 2021, 84 companies have announced they will float using SPAC mergers, and 123 are using IPOs, so this is becoming more consequential for the equity asset class. On the bright side they give retail investors access to businesses they might not otherwise be able to invest in and have lower fees, which can in turn lower Weighted Average Cost of Capital (WACC). The other side of the coin is the reckless techniques in promotion and valuation that have been seen in some SPAC deals sometimes to the detriment of investors. The company’s established and defensible position and unique niche in Sports and Entertainment significantly mitigates risk in our view. Also, we believe there’s no way a ‘shakeout’ in the high-growth area of NFTs topples Topps. Not going to happen. It’s all upside, in our opinion. Source: Topps Investor Presentation SPACs tend to involve two types of candidates; strong companies with established businesses that have traded in private markets for years and exciting companies that could often more reasonably be called concepts whose valuation is dependent on the realization of pretty aggressive growth assumptions. The company being taken public via merger, in this case, makes real money selling chewing gum, ring pops, and sports collectibles/trading cards. The brand is synonymous with baseball cards in the American psyche but its sources of revenue and brand partners are diverse and steady. Source: Topps Investor Presentation  It posted sales of $567 million in 2020, which was up 23% YoY. This was the third consecutive year of growth. This was all before the firm started expanding its prowess in physical products into the digital world by offering NFT cards. The success so far has been pretty incredible after only weeks of being live. While some may consider NFT the epitome of hype, others like Michael Eisner see serious opportunity. The success of NBA Top Shots is an example of consumers developing an organic market. The same is already occurring with Topp’s NFT efforts. What is pretty cool about this opportunity is that this management team has managed to get you some pretty impressive upside in the NFT space in an incredibly lucrative and capital-light fashion. Source: Topps Investor Presentation Collectibles Boom When Consumer Balance Sheets Do (80s and 90s) The initial numbers on collectibles and trading cards are suggesting we are in the biggest bull market for these alternative assets since the boom in the 80s and 90s. If you are to purchase share in $MUDS, they will eventually trade on a share-for-share basis under the new $TOPP ticker when the deal is complete in a few months. The thing we like about this investment is that without the exciting upside and growth areas in its Digital Sports & Entertainment, Gift Cards, and upside potential in NFTs, it would still be a robust and steady business with desirable cash flow. CAPEX is next to nothing (about the cost of a decent house in California per annum), and this company has a fortress of content that it regularly monetizes and a significantly durable advantage in exclusive partnerships and contracts. Source: Topps Investor Presentation This company’s proverbial fortress of content is paired with eight decades worth of experience in monetizing it. Though best known for its physical baseball cards, it offers a vast spectrum of content to a very internationally diverse audience through partnerships and licensing. In addition to everything else this company is, it is a nuts and bolts content and licensing entertainment play with very credible plans for international expansion and the clout, relationships, and experience to implement a plan that rewards shareholders. Remember this is not in the high-growth side, it has profitable existing business growing in its own rite separate from grand plans.  There are more intangible assets than trust-building exercises or whatever happens on the Google campus. The old-fashioned kind comes with having an irreplaceable brand and a direct connection to the heartstrings of dedicated consumers. Topps is chock-full of that kind of intangible value and we think when a conservative asset like this is mixed with a high-risk, high-reward one the risk/reward profile becomes appealing. One of the benefits of this deal is also that unlike many SPACs, the financial success and interest of shareholders is not solely dependent on NFTs taking off. In fact, these things are so new that they are not included in the forecasts in a meaningful way despite their game-changing implications for the business. So, you’re getting this upside basically for free. The Topps NFTs have only been available for less than a month and the volume and amount of users so far indicates their foray will be immensely successful. This is probably why Michael Eisner has decided to keep all his shares despite nearly tripling his 2007 investment. Let us explain why it is so consequential. Right now when they release physical baseball cards, all in after all costs they are getting about a 20% profit margin. The cards they sell then go on to sell for multiples of the original price on the secondary market. In the physical market, they do not get a piece of this side of the business that has remained elusive to them but where prices are significantly higher. With NFT’s they will get perpetual royalties from every subsequent secondary market transaction. Their revenue literally just grows as the market does and it’s a much higher margin segment. With the additional revenue and reduced costs the profit margin triples and goes to 60% when selling NFTs. This is game changing even if it takes a while to successfully migrate the physical business to NFT. When you think of it that way and pair the exciting growth opportunities, this seems relatively cheap. The most similar recent play would be PLBY and look at how it has performed. We're thinking for monetization purposes, particularly since PLBY completely abandoned its legacy business, the Topps brand is just as compelling if not more so since its existing business segments are profitable and growing. Also, virtually no CAPEX is required, which means this name is trading at only around 13x un-levered FCF and about 14x the adjusted 2021 EBITDA target. Topps Recent History and Michael Eisner’s Involvement The year 2007 was pretty instrumental for the investing world. Far away were the days of SPACs and NFTs. A little-known saga of this year was that hedge funds on Wall Street were besieging a true American darling, baseball card, and confectionary making Topps. A mighty white knight organized a way to save the beloved company. A private equity firm called Madison Dearborn Partners LLC partnered with freshly former Walt Disney CEO Michael Eisner to purchase the iconic baseball card maker Topps for $385 million. Many have never been in the position of tripling an investment of such a prodigious size, but it stands to reason that not cashing in would require great confidence in the plan going forward. Their partner is required by covenant to exit, but as we noted Eisner isn’t selling a share. Even more impressive is that his partner Mudrick Capital is voluntarily committing an additional $100 million of its own money to the investment, a rarity for SPAC deals in which partners usually want to take the money and run! The insider enthusiasm bodes well for this fixture of Americana. Risks And Where We Could Be Wrong It is possible that the upside in NFTs never materializes and that it proves to be a passing fad. However, we and our very experienced crypto team think is unlikely. Scarcity is scarcity and it is the same thing that makes one nearly identical glossy baseball card printed on cardboard worth significantly more than the other. Its application in the digital realm is important and nascent and we think the model that Topps and Mudrick Capital have developed going forward is incredibly lucrative and will likely be beneficial to shareholders. As we stated, we think downside risk is significantly mitigated by the entrenched position of the legacy businesses and powerful brand value and recognition. Even more so, like many Epicenter names this company has a special relationship with its consumers that has persisted through all the turmoil the 20th century could muster. We think it will last well into the 21st in a reinvigorated, and more profitable fashion as well. There is of course also the risk that the height of interest in trading cards and sports collectibles has for some reason passed and the company’s revenue will slowly fade. We find this unlikely. We think there are definitely risks to the cycles of valuation in what can be a wild market. As Topps begins to get more revenue from secondary market transactions it will become more exposed to the underlying cyclicality of the pricing of the digital collectibles.

COVID-19 UPDATE: CDC forecast for a surge in US COVID-19 through June seems "off base". 1Q2021 Earnings "don't matter" as 1Q2020 not realistic comp -- 2Q2021, 3Q2021 matter way more

Click HERE to access the FSInsight COVID-19 Daily Chartbook. We are shifting to a 4-day a week publication schedule: MondayTuesdayWednesdaySKIP THURSDAYFriday STRATEGY:  1Q2021 Earnings don't matter as 1Q2020 not realistic comp -- 2Q2021, 3Q2021 matter way moreCDC projecting a surge in COVID-19 cases through June 2021 and then a collapseThe CDC has provided updated projections for COVID-19 cases and it is an interesting forecast:- CDC sees a surge in US cases, nearly doubling vs today's level from May to June- this is due to the spread of more contagious variants- then July to Sep, an utter collapse in COVID-19 to near zero levels- this is due to the cumulative impact of the vaccination effort Source: /health/cdc-projects-sharp-decline-coronavirus-cases-by-julyThe forecast from the CDC report is below.  And the most eye catching is the forecasted double of USA cases from today to early June.- do we think this could happen?- maybe, but this is an out of left field projection- is the CDC trying to scare people into compliance? Whatever the case, if the CDC forecast is right, this will be a headwind for equity markets.   But do we think this is credible?  The following is my opinion, and only my opinion --> No and it seems almost borderline ludicrous.- CDC has been slow to lift recommendations- CDC is restricting cruises, but allowing sports and indoor dining- CDC was ignoring science around outdoor transmission and requiring masks, until Dr. Scott Gottlieb commented Source: /mmwr/volumes/70/wr/mm7019e3. htm?s_cid=mm7019e3_wFor a sanity check, the IHME, which is one of the principal forecasters for the White House sees no future surge in infections.  In fact:- the IHME baseline is a continuing collapse in USA cases- if IHME is right, Epicenter will continue to rally Source:  1Q2021 Earnings don't matter as 1Q2020 not realistic comp -- 2Q2021, 3Q2021 matter way moreMany clients are concerned that stocks are peaking, because stocks are not reacting to strong EPS results, and in fact, selling off.  I can think of at least 7 reasons that stocks do not have to react to great results -- of which, only 2 are actually bad signs. But in my opinion, the main reason stocks are not reacting to 1Q2021 results is that the year ago comparison is to March 2020.  That was 6 weeks into the economic shutdown:- do comparisons vs the first stage of pandemic collapse matter?- like do we think EPS beats/growth vs that horrific period matter? Realistically, I think the YoY vs 1Q2020 is just simply going to look mental.  So I would not place much weight on the results.  And to me, it seems like equity markets are reacting as such. - 2Q2020 and 3Q2020 are more important year ago periods- thus, 2Q2021 and 3Q2021 are more important EPS comparisonAnd if you are wondering what the fuller list of possible reasons of why stocks do not react to EPS, this is the list below:On earnings, it could mean a few things:1. bad —> good news priced in2. bad —> no shorts have to cover3. medium —> incremental buyer doesn’t care for earnings thus no reaction4. medium —> market trying to process hairs of inflation5. good —> people aren’t chasing earnings6. good —> retail getting smarter and not chasing earnings7. good --> Nobody cares about comparisons to March 2020...1Q2021 EPS has beating by +19%, which any other time period, is considered extraordinary1Q2021 EPS results have come in +19% above Street consensus -- clearly strong results.  And the upside has been strongest in the Cyclicals:- Defensives         +8% - Near-Cyclicals  +41%- Cyclicals           +27%In any other year, the beats, even by Defensives would be considered extraordinary.  But as many know, stocks have not necessarily outperformed despite these strong beats. ... since 1Q2021 EPS season started, Epicenter has been leadingFor us, earnings season really starts with JPMorgan, which reported on 4/13/2021 -- might just be tradition, since I worked at JPMorgan for >15 years.  And the performance of sectors is shown below since 4/13/2021:- Leading have been Energy, Materials and Financials +9%/+8%/+7%, respectively- Worst are Technology/Discretionary down -4%/-2%, respectivelySo, there have been strong responses by stocks to EPS results, but it has been the Epicenter groups. STRATEGY:  Structural tailwind for Energy.  Per Rystad, $300 billion of Oil capex taken out since 2020 = 4mbpd deficit by 2022So Epicenter is leading and performing very strongly.  In fact, for the first time in nearly 6 months, we are also finding institutional investors becoming incrementally curious about Energy stocks.  And as many of our clients know, energy is a sector investors have largely ignored for the past decade and this was especially true since the pandemic started.   But the building structural tailwinds are simply too hard to ignore. Rystad Energy --> Oil sector cut $300 billion in capex since COVID-19Rystad Energy (rystadenergy. com), and independent Energy research boutique, headed by Jarand Rystad, published a report today that points out the E&P sector has cut investment (capex) by $300 billion since the start of COVID-19.  And in their words, this cut in capex will have lasting impact There is quite a lot of good material in this report and we hope to do a joint webinar with Rystad in coming weeks, so we can more fully explore their views and analysis.  But among the key charts, it is this capex model below:- post-COVID-19, global E&P capex was but by $145 billion in 2020 and $140 billion in 2021- this level set lower is creating a long-term structural gap of lower spendingThis has not been reversed -- and thus, the structural deficit is set to cumulatively increase over the next several years.  This will only reverse when capex spending is level set higher. ... North American oil production is set to fall by 3.0mbpd by 2022 = one OPEC producerThe global impact on production will become staggering over time.  Take a look at the impact on North America production alone.  By Rystad's estimates, the decline in 2021 production could be 3.0mbpd.- this exceeds the production of OPEC members Iran and Kuwait- and is roughly equal to the production of Brazil, UAE and Iran The top 10 largest oil producers is shown below (2020 figures, per EIA.  And you can see, the 3.0mbpd drop forecast is equal to losing a top 10 producer. - let's not dismiss this- this is a huge structural deficit forming ... who benefits from higher Capex? Oilfield Services (ETF proxy OIH)So this is a sizable gap being created in 2022 and beyond.  The only fix to this is a jump in capex.  By the way, what companies benefit from a rise in capex?  It is pretty much the entire Energy complex:- Integrated --> higher oil prices + higher expected return on capex- E&P --> benefit from higher capex- Oilfield services --> benefit from higher capexSo, this is an obvious statement.  But if this structural deficit is correct, the entire Energy sector is a buy.  This is the first real alignment of supply and demand for the sector in more than 20 years:- for past 10 years, US production ramped up --> supply excess- now capex deficit since 2020 creating deficit --> and existing production facing declines- White House make expanded production heading --> less supply- financial capital dwindling for sector --> private equity bailed out sector in 2016 and lost their shirtsBut we know that the equilibrium is a rising oil price and higher value capture of existing companies. This is an environment for Energy stocks to continue to surge.  We have shown the comparative price of oil (WTI) vs OIH:- at $70 oil, OIH never <$450- at $80 oil, OIH never <$600 In fact, if OIH were simply to reset to end of 2019 levels, OIH would be $269, or ~30% upside.  In other words, OIH risk/reward, to us, seems very attractive.- stay overweight $OIH and $XLE ADDENDUM: We are attaching the stock lists for our 3 portfolios:We get several requests to give the updated list for our stock portfolios.  We are including the links here: - Granny Shots  -->       core stocks, based on 6 thematic/tactical portfolios- Trifecta epicenter  --> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Technicals- Violence in USA --> companies that are involved in some aspect of home or personal security. We are not recommending these stocks, but rather, bringing these stocks to your attention. Granny Shots:Full stock list here --> Click here Trifecta Epicenter (*):Full stock list here --> Click here Power Epicenter Trifecta 35 (*): Full stock list here --> Click here Violence in USA:Full stock list here --> Click here(*) Please note that the stocks rated OW on this list meet the requirements of our investment theme as of the publication date. We do not monitor this list day by day. A stock taken off this list means it no longer meets our investment criteria, but not necessarily that it is neutral rated or should be sold. Please consult your financial advisor to discuss your risk tolerance and other factors that characterize your unique investment profile. POINT 1: Daily COVID-19 cases 42,014, -12,347 vs 7D ago... 7D delta start to accelerate to the downside again..._____________________________Current Trends -- COVID-19 cases: - Daily cases    42,014 vs 54,361 7D ago, down -12,347- 7D positivity rate   3.7% vs 4.1% 7D ago- Hospitalized patients   34,056  down -9.5% vs 7D ago- Daily deaths    670,  up +1.5% vs 7D ago_____________________________- The latest COVID-19 daily cases came in at 42,014, down -12,347 vs 7D ago.- The US continues to see a steady decline in daily cases. The 7D delta has been negative in the past 23 days. In the past few days, the 7D delta has been accelerating to the downside again. If this speed of decline persists, we could see the daily cases drop sub-20k by mid-May.- As we wrote before, at this stage of pandemic, as long as vaccinations work, eventually the rollout of the vaccines will lead to a decline in the pervasiveness of the COVID pandemic. And according to the recent data, this decline seems to finally arrive. 7D delta in daily cases has turned negative in the past 23 days... The US continues to see a steady decline in daily cases. The 7D delta has been negative in the past 23 days. In the past few days, the 7D delta has been accelerating to the downside again. If this speed of decline persists, we could see the daily cases drop sub-20k by mid-May.   US hospitalization still rolling over ... and even US deaths seem to be rolling over... Below we show the aggregate patients who are currently hospitalized due to COVID. After a mini-surge in March, the number of patients currently hospitalized starts to roll over again. Compared to the wave 3 peak, it has fallen significantly.    POINT 2: VACCINE: all states reached ~60% infected + vaccinated... Nearly one-third of Americans have been fully vaccinated..._____________________________Current Trends -- Vaccinations: Vaccinations ramping steadily- avg 2.1 million this past week vs 2.6 million last week- overall, 32.6% fully vaccinated, 44.7% 1-dose+ received_____________________________Vaccination frontier update --> all states now near or above 60% combined penetration (vaccines + infections)Below we sorted the states by the combined penetration (vaccinations + infections).  As we commented in the past, the key figure is the combined value >60%, which is presumably near herd immunity.  That is, the combined value of infections + vaccinations as % population > 60%.- Currently, all states are at this level- RI, SD, MA, ND, CT, NJ, DE, NY, IL and NM  are now above 90% combined penetration (vaccines + infections)- So gradually, the US is getting to that threshold of presumable herd immunity All states have reached 60% combined vaccination + infection. Besides, 92.7% of US states (based on state population) have seen combined infection and vaccination >70% and 60.7% of US states have seen combined infection and vaccination >80%.  As the chart below highlights, the US is seeing steady forward progress and this figure continues to rise steadily. There were a total of 2,391,083 doses administered on Thursday. The 7D moving average has been trending downward since mid-April. It could be caused by the pause of JNJ vaccines or/and the vaccine hesitancy resulted from the JNJ vaccines. As both CDC and FDA lifted the recommended pause of JNJ vaccines, the vaccination pace could re-accelerate again in the near future. 95.5% of the US has seen 1-dose penetration >35%... To better illustrate the actual footprint of the US vaccination effort, we have a time series showing the percent of the US with at least 25%/30%/35% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, 97.6% of US states have seen 25% of their residents fully vaccinated.   However, when looking at the percentage of the US with at least 30% of its residents fully vaccinated, this figure is 72.3%. And only 25.3% of US (by state population) have seen 35% of its residents fully vaccinated.- While 95.5% of US states have seen vaccine penetration >35%, 73.2% of them have seen 1 dose penetration >40% and 48.6% of them have seen 1 dose penetration > 45%.- 97.6% of the US has at least 25% of its residents fully vaccinated, However, only 72.3% of US has fully vaccinated >30% and 25.3% of US has fully vaccinated >35%.- This is still a small figure but this figure is rising sharply now. This is the state by state data below, showing information for states with one dose and for those with two doses. The ratio of vaccinations/ daily confirmed cases is generally trending higher (red line is 7D moving avg) and this is the most encouraging statistic. - the 7D moving average is about ~40 for the past few days- this means 40 vaccines dosed for every 1 confirmed caseThis figure is rising nicely and likely surges in the coming weeks In total, about 148 million Americans have received at least 1 dose of a vaccine.  This is a good pace and as we noted previously, implies 50% of the population by mid-May.   POINT 3: Tracking un-restricted and restriction-lifted statesWe are changing Point #3 to focus primarily on tracking the lifting of restrictions, as states begin to ease various mandates.  Keep in mind, easing/lifting restrictions can take multiple forms:- easing indoor capacity- opening theaters, gyms, salons, saloons- eliminating capacity restrictions- eliminating mask mandatesSo there is a spectrum of approaches.  Our team is listing 3 tiers of states and these are shown below.  - states that eased in 2020: AK, OK, MO, FL, TN- states that eased start 2021 to now: SD, ND, NB, ID, MT, IA, NC, MS, SC, AZ, TX, MD- states that announced future easing dates: GA, NY, WI, AR, CA, AL, CTGROUP 1:  States that eased restrictions in 2020... The daily case trends in these states is impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases.  Rather, the case trends in these states look like other states. GROUP 2: States that have eased all restrictions in 2021 to now... Similar to the list of states above, the daily case trends in these states are impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases.  - we have previously written about how ND and SD, in particular, have seen an utter obliteration of COVID-19 cases in those states- that seems to be a function of vaccine penetration + infection penetration, leading to something akin to herd immunity GROUP 3: States that are still easing restrictions in 2021... These states have upcoming dates to ease restrictions.  The dates are indicated on each chart.  The cases trends in these states have been mostly positive, with perhaps the exception of NY state:- NY state case levels seem awfully stubborn at these high levels- weather is improving in NY area, so if weather has any effect on virus transmission, it should slow cases

FSInsight 1Q21 Daily Earnings Update – 05/07/2021

Click HERE for a full copy of this report in PDF format. •  136 companies are reporting this week.•  Of the 431 companies that have reported so far (88% of the S&P 500), 85% are beating earnings estimates by a median of 16%.•  On the top line, 77% are beating by an average of 7%.

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