Economic implications of a SARS/Coronavirus outbreak

Smurf1976 said:

The US tried it a long time ago in an attempt to get naturally occurring oil and gas to flow in situations where conventional technology couldn’t get out of the ground.

It was claimed that it worked as such but with a lot of cost and downsides as you’d expect.

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wayneL said:

Von Mises Institute view of proceedings, FWIW

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as slowly but slowly the virus progresses, the death rates falls as people who were going to die..are dead.
And people are more and more protesting against these stupid general lockdowns..obviously not on your ABC.....
deranged governments are not excused by the sheeples.I hope many will watch this video

I wouldn't bet on that for winter though frog - the cold effects lethality significantly.

But lockdowns etc aren't dictated by deaths, rather, they are dictated by case numbers, so it's kind of moot anyway.

Rotation now seems to be fully underway. I'm going to start posting the premarket futures vs close numbers to see if they remain in any way predictive - as I said in the other post, all the old rules of engagement go out the window now.

For those who don't know - the nasdaq is heaviest tech and the dow is the lightest. The dow is heavy industrials. The S&P is more balanced. So a tech run will pump the nasdaq the most. The dow being negative whilst the nasdaq being positive is a BIG divergence. It basically means that value & industrials are getting massacred whilst growth/tech is screaming.

over9k said:

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Nahhhhh... you think?


Expect stacks of headlines like this over the next few days.

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Exactly as predicted, and he's of course calling it all AFTER it's already in motion too. Any moron can tell you something AFTER the fact.

It's little wonder the institutions are doing so poorly.

Alright so the entire northern hemisphere is now past the point of no return:



I mentioned previously that I was going to compare futures vs close numbers and see how predictive they were, and here they are:



vs



Whilst all indices were down, you'll note that there's a sold divergence between the nasdaq & the dow, just like pre-market. Whilst almost everything was down for the day, tech was down the least, and so the tech heavy index remains the best.



Almost everything was massacred, especially the travel, crowd etc reopening stocks:



However, the work-from-home companies were deep into the green:



Signalling what I think I've made pretty obvious by now. Yes I hold all three and I'm very overweight zoom.

If there was any doubt left as to how defensive the market has now gone, the fact that bonds screamed should seal it:


Tech's actually done really well just for the month so far even with the monday-tuesday post-vaccine massacre and there's 17 days left yet:




I also mentioned infrastructure plays when governments inevitably announce massive infrastructure spends, and even the talking heads are now (finally) talking about that too:



Another thing that keeps getting mentioned is how house prices have kept running. Don't be fooled into thinking that this is indicative of a healthy economy or something. This is purely a function of how cheap credit (loans) now are. If you dump the interest rate, people can (and will) be able to borrow and therefore bid more for housing. If inflation was measured how it should be, this should have a major effect on the inflation rate and thus actually signal the fed to raise rates, but because it isn't, house prices can (and do, and have) skyrocket and interest rates will still be kept low, keeping house prices soaring:

Finally, I showed in the last post how there was a divergence in futures which was reflected in the closing numbers for the three major indices, and the same futures divergence again exists as of 11.30am AEDT, so we can expect to see the same divergence and thus continuation of what's obviously going on again tonight:

Alright so it was a funny day.

Let's dispense with the technicals first. This is the kind of stuff you get from quants after a vaccine announcement:



Apparently the models gave a 1 in 16 quadrillion possibility of monday occurring. Like yep, ok m9. Let's use a mathematical model when a literal complete & total game changer of a vaccine could be announced at literally any moment. You idiot.


The talking heads are also pointing to technical analysis like trading ranges etc:



If we were to believe them, the market is "stuck in a range" and we're going to see a pullback from here. We'll see how accurate this is. I actually think it might very well be, but not for the reason they think. The reason(s) why I think can be summarised as follows:











And consumers' gut feeling is right & reflecting all of this IMO:



And the people that do this kind of thing have even created metrics/indices of shutdown severity:

Now for the actual day itself:




Futures weren't predictive. Or at least, not for the day. You'll see that the R2000 index is way above the others. More on this in a moment.

Take a look at the fangs early in the day, as well as NIO (yes I hold both):




There are other graphs which look very similiar to this, but we'll stick with just these for now on account of the fact that I hold both so you can all know there's no funny business going on here.

Notice how both are well into the green both at and continuing from the open, before nosediving at almost the exact same time. Something triggered a run on both, and if you take a look at tesla, it follows a very similiar path as well:



What actually triggered these runs I have no idea and there's absolutely nothing on the news, no new batch of data, nothing I can find that's a smoking gun, which is just sometimes the way things are. But what's key to note is how everything that was hammered on the day pulled hard into the close. I suspect this was an awful lot of the smart money spotting a dip and buying right into it in anticipation of some pretty nasty virus news over the weekend. I tend to agree with that too.

As for what's actually happened on the day, well the day itself was a total anomaly. You'd be forgiven for thinking that tech was smashed whilst industrials pulled hard, but that's not the case. Here's the day by sectors:



What really pumped was energy. In fact, aside from monday's madness on the vaccine announcement, this was energy's best day since april. You would think this very strange considering that we're going into winter now, but what's happened is that the vaccine news has meant that a tremendous number of companies have now been able to get the loans they've needed to ride the storm out now that lenders have some (any) assurance that there is actually a light at the end of the tunnel and when that tunnel endpoint will actually be. For those who don't know, energy companies have been going bankrupt one after another after another and so that had only made lenders even more reluctant to loan them money, ergo creating a positive feedback loop no different to when there's a run on a bank. As a result, energy, perhaps the hardest hit sector outside of aviation:



Can actually start to price a recovery in.

Let me be clear here: This is the market pricing in stuff that's not going to actually happen (i.e any decent increase in energy demand) for months. But I should hope I don't have to explain what opportunity cost is.

If you take a look at the airlines, you'll see that the exact same thing has also happened with them as well.

But the real winner for both the day and the week was/is small caps, which I'll cover in the next post.

Ok so the thing to remain cognisant of is that we're now in a post-vaccine market. The question we need to ask ourselves is what that announcement changes (or, doesn't change).

Prior to monday, it was total consensus to run what's known as a "barbell spread" - that is, something that's heavy on both ends. Heavy megacaps, and heavy microcaps. This was absolutely true.

The R2000 is an entire index of microcaps. No such index really exists of the inverse unless you count NYFANG, but this has a tiny number of stocks compared to the 2000 we're comparing it to. There are ETF's that focus on big companies though, and they are myriad.


Taking a look at the R2000, we can see that it was outperforming the other major indices massively pre-vaccine:



With the nasdaq in purple, which is mega-tech heavy, the only one ever getting above it and even then it was only briefly during the august madness, hence the aforementioned barbell spread being the play of the year (so far).

The question this post is about is whether this barbell spread is still the way to go.

Well, let's take a look at the week, which is perfect as the vaccine was conveniently (the conspiracy theorist in me says it was no coincidence) announced on monday:



As you can see, it's absolutely smoked the other indices, even beating out NYFANG. But there's more to it.

After monday's lunacy, we saw an awful lot of correction - the whole week's well into the green, but the dow for example has, aside from today's funny business with energy, been on a correction ever since monday and ended the week lower than its monday peak. This isn't so for the R2000. That kept climbing even after monday's post-vaccine bounce. Even when the megatech was slammed (so the other end of the "barbell" was hit), the R2000 kept pulling and pulling hard:



So in other words, not only were small caps the way to go before the vaccine announcement, but they've also run the hardest of everything even post vaccine/when everyone have been carrying on about a rotation being underway.

So microcaps are a winner either way, which is great - it tells us to load up on microcaps (even just an R2000 ETF) as they keep pulling whether this alleged rotation is actually occurring or not and it therefore also tells us to keep holding if we were already running a barbell spread pre-vaccine.

For anyone who wants to do so, the regular index-tracking ETF is RUT and the 3x leveraged is TNA.

Yep just link me to the thread you want them in and I'll post them

Oh, there was also a lot of chat in the FMG thread about iron ore, minerals etc going forward. I pointed out in that thread the same thing I have in this one about how governments go on infrastructure binges during economic downturns and iron ore demand will therefore remain very strong for years yet, and as if on queue:

Continuing my last post on the market, here's a bit of data on just how much money rushed into the R2000 this week:



And a bit of "no **** sherlock" analysis from david westin:

over9k said:

For anyone who wants to do so, the regular index-tracking ETF is RUT and the 3x leveraged is TNA.

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Please note, this is an error. RUT is the yahoo finance link shortcut. IWM is the 1x ETF.

A full article from the saltmine at bloomberg having a cry about retail traders showing the pro's up:


Retail traders have done well because they haven't been so stupid as to think that quantitative trading/financial modelling is actually valid/functional in an atypical market.

I've said it before and I'll say it again: Modelling only works under normal market conditions and if anyone wants a mind-blowing lesson on how this was learnt the hard way, look up what happened to "long term capital management" in the 90's.

over9k said:

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A full article from the saltmine at bloomberg having a cry about retail traders showing the pro's up:

Bloomberg - Are you a robot?

www.bloomberg.com

Retail traders have done well because they haven't been so stupid as to think that quantitative trading/financial modelling is actually valid/functional in an atypical market.

I've said it before and I'll say it again: Modelling only works under normal market conditions and if anyone wants a mind-blowing lesson on how this was learnt the hard way, look up what happened to "long term capital management" in the 90's.

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Another way to see it is to acknowledge that trading is first of all a psyche game
Fear greed etc
Follow the lemmings, jump before the cliff is how to win
Anyone applying sciences or stats to the covid based reset will fail lamely
So you need to be excited when a vaccine has shown some success..on an illness so mild thar 75% of affected people are not even aware, and you need to be scare when the number of positive tests jumps.
And it will carry on, worse in winter..we have known that for 6 months, until it run its course vaccine or not
Lockdown delaying the inevitable but not suppressing it, it seems governments will carry on this game for a while.
So models,stats are irrelevant now so the Robin hood wins
The scare tactic targets the populace,which invests accordingly and win?
Based on these premises, what will be interesting will be the asx response in oz next winter.april 2021 or so when surprise..covid might restart here but without the experience and immunity gathered overseas.
We might see a split then from the US market.
In the meantime my systems are running...

Done some digging into vaccines. This took far too long to find out than it should have:

The pfizer one is about the worst kind possible. It has to be stored at -70, which is an absolute nightmare to actually deploy. Even the first world will have major difficulties with it.

But the moderna one, results due out this week, only needs to be stored at -20, which means we can use our existing freezer infrastructure (cold rooms, refrigerated trucks etc etc) to deploy that so, so, SO much easier.

So the powers that be are sitting on their hands waiting for these results because we obviously don't want to start building an entire global supply chain of -70 degree (so we're talking liquid nitrogen/dry ice temps here) infrastructure when we have something that will work with every cold room/refrigerated truck on earth just around the corner.

If the moderna one is successful, that's obviously going to be the one that will be rolled out. Those results are due this week and I have an order in to buy some moderna at open tonight.

Additionally, zoom's earnings are due out in a fortnight and the last ones were 400% of estimates. Obviously if the moderna news is good, zoom will plummet and moderna will skyrocket, so I'll be nuking my moderna position and buying some zoom in the period between moderna news & zoom news as I expect zoom to skyrocket once earnings are reported. I'll obviously be doing the same thing if the trial fail as I expect a zoom bump on earnings either way, it's just that i'll have a lot more to pump into it if my moderna position goes stratospheric.

Fingers crossed!

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over9k said:

Done some digging into vaccines. This took far too long to find out than it should have:

The pfizer one is about the worst kind possible. It has to be stored at -70, which is an absolute nightmare to actually deploy. Even the first world will have major difficulties with it.

But the moderna one, results due out this week, only needs to be stored at -20, which means we can use our existing freezer infrastructure (cold rooms, refrigerated trucks etc etc) to deploy that so, so, SO much easier.

So the powers that be are sitting on their hands waiting for these results because we obviously don't want to start building an entire global supply chain of -70 degree (so we're talking liquid nitrogen/dry ice temps here) infrastructure when we have something that will work with every cold room/refrigerated truck on earth just around the corner.

If the moderna one is successful, that's obviously going to be the one that will be rolled out. Those results are due this week and I have an order in to buy some moderna at open tonight.

Additionally, zoom's earnings are due out in a fortnight and the last ones were 400% of estimates. Obviously if the moderna news is good, zoom will plummet and moderna will skyrocket, so I'll be nuking my moderna position and buying some zoom in the period between moderna news & zoom news as I expect zoom to skyrocket once earnings are reported. I'll obviously be doing the same thing if the trial fail as I expect a zoom bump on earnings either way, it's just that i'll have a lot more to pump into it if my moderna position goes stratospheric.

Fingers crossed!

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Pfizer CEO Albert Bourla raked in more than three times his base salary when he sold about 60% of his stock on Monday, shortly after trumpeting the stellar performance of his company's COVID-19 vaccine in a late-stage trial.

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Sounds like he has faith

I see on the news there are calls to substantially increase ventilation rates in buildings so as to reduce the spread of the virus.

On one hand that’s interesting to say the least since the same was done, in the US most notably, during the Spanish Flu a century ago and later debunked as an ineffective measure which simply wasted fuel.

I’ll pass on the medical side but if it happens then economically it’s good news for the electricity, gas and to a lesser extent oil industries given that it’ll boost energy consumption.

Not good news for the climate change issue though since it’ll also boost CO2 emissions indeed keeping energy use down is the reason ventilation rates are kept low in the first place.

Moderna vaccine announced: 94.5% effective, only needs to be stored at -20 degrees. Also dramatically reduces the effects of the disease if it doesn't work completely. Can be stored in a normal freezer for 30 days and does not require dilution when administered. It can be administered at hospitals, pharmacies, basically everywhere. Military is going to be deployed in massive field hospitals etc as well. Due to being an MRNA-type vaccine, they also reckon it'll only take them about a month to tweak it to any mutations that the virus has, should it have any.

Study will be fully complete and in for FDA fast track/emergency approval within a fortnight.

Excellent news.

I'll post the interview once the news puts it on youtube.