Economic implications of a SARS/Coronavirus outbreak

[over9k]

Then:



Nek minnut:

 

[over9k]

Aaaand everything went well into the green again. Oil in particular after the saudi cut, though that has nothing to do with the virus.



Meanwhile, the senate runoff election has done this:



So tonight is going to be WILD.

 

[over9k]

This week's a total writeoff when it comes to coronavirus consequences as there's been both the big saudi production cut announcement as well as the election, but I'll still post the coronavirus info at close. It's been an absolutely mental day so far:



And the only longer term consequence is that the election result might mean that the expected rotation occurs far sooner than anticipated.

 

[over9k]

Alright so I suspect everyone's seen the news by now so today, if not a writeoff for coronavirus consequences before, sure is now, so I'll just leave this here:




And point out that this is a very intelligent way of saying they're really unsure whether this apparent rotation is going to continue or not, isn't it?


My personal holdings are now these:



Which obviously looked very different before this stuff in washington kicked off. I suspect we'll be back to where we were once everything calms down. It's just going to be a bumpy ride.

Microcaps are still an overwhelmingly good trade, it's just a question of whether our tech positions need to go yet. I've obviously trimmed a bit and bought spxl & udow.

 

[over9k]

Alright so after all this madness with the senate election, capitol building etc etc we've ended up here:



Earlier in the week it looked like the rotation had begun, but the election is there, so that's played merry hell with things.

Here's the week so far (all listings are triple levered):



You can see what's benefited from the election the most but you can also see how it was semiconductors in dark blue that were highest then the r2k in yellow/big banks in aqua that were 2nd before the election. The fangs were next best.

So we have an election that's fighting with the coronavirus stuff - you can see how the election favoured the banks the most but then semiconductors & microcaps, which were the best places to be beforehand, are 2nd & 3rd. So we can see how semiconductors & microcaps are a great place to be either way.

I trimmed a bit out of my fangs position (kept r2k and semiconductors) and into bnku, spxl & udow on 31st december in anticipation of a rotation to start the year and that didn't reeeally occur - fangs were doing better than the dow & sp500 until the election and then spxl/udow/bnku have taken off like gunshots after the senate flipped, which has just been a rare stroke of serendipity for me.

The question now becomes whether the election consequences have been priced in correctly. Either way, semiconductors & the r2k are excellent bets (and I have no plans to change either of them because of it), but keeping the fangs of our barbell spread is a bit iffy - the virus data likes the megatech but the election doesn't. I wouldn't be surprised to see a bit of a pullback in the big election winners tomorrow/back into megatech (classic profit taking friday) on account of the fact that whilst the election is over, the virus isn't.

But if the election means that the market no longer cares about the virus and the fangs are still in the doldrums next week, they go. Previously, our play was basically "ask the virus" but the election might have thrown that out the window. Only time will tell with this, so it's now just a waiting game.



Meanwhile, hospitalisations continue to climb:

 

[over9k]

December jobs report: Payrolls drop for the first time since April, unemployment rate steadies at 6.7%

The Labor Department released its December jobs report Friday morning at 8:30 a.m. ET.

finance.yahoo.com

Jobs are down for the first time since april, markets couldn't care less, futures are highest for nasdaq & r2k.

 

[over9k]

And yet:

You can see how the fangs outperformed the dow & S&P on the non-political days, and microcaps & semiconductors were head & shoulders above everything else all week (except the banks which went nuts on the political days).

Still too early to tell whether the fangs need to go or not but microcaps & semiconductors continue to be golden no matter what. The political stuff seems to be throwing the virus problems/consequences out the window at the moment.

Zoom's trailed the market significantly if that means anything to anyone.

 

[over9k]

Cross-post:

This was a headline three weeks ago:



And now:



I've held soxl since early september, still not selling:

 

[over9k]

Bloomberg - Are you a robot?

www.bloomberg.com

 

[sptrawler]

View attachment 118156

Bloomberg - Are you a robot?

www.bloomberg.com

I wonder if the Chinese manufacturers, are facing the same shortages? Any idea where the chips are sourced from? U.S, Japan, China?

 

[over9k]

No idea about the manufacturers specifically, but a huge chunk of the world's chips are produced in taiwan & korea by TSMC & samsung respectively.

You'd be surprised just how many chips, memory modules etc etc are just rebranded samsung items. Something like 98% of the world's LCD panels are samsung for example, even though there's a zillion different TV brands.

The other big manufacturer is micron, but they're kind of everywhere: https://www.micron.com/about/locations


I have no idea which manufacturer uses who but reality is that a car needs *all* its chips/parts before it can be sold so even if 1 chip out of 30 or whatever isn't available, that's all that's necessary to bring the whole production line to a screeching halt.

I made a post a while back about how all of TSMC & Samsung's manufacturing capacity has been running at 100% since april with chips on backorder until at least Q2 of this year so I guess even car orders (the rest were just games consoles, iphones, laptops etc) are now coming in faster than we can make the chips needed for them.

Not even I was expecting car orders to outpace chip manufacturing capability. I mean iphones or playstations, which are only a few hundred bucks at most, I could understand, but cars, which are tens of thousands of dollars each? That's nuts.


Not selling my position in SOXL

 

[over9k]

And wouldn't you know it, NIO & SOXL on a tear today even when the whole market (including tesla) is deep into the red:



Not selling either.

 

[over9k]

Covid-19 wipes out nearly a quarter of US coffee shop market value

Operators remain resilient in the face of sustained trading pressuresAllegra World Coffee Portal estimates the US branded coffee shop segment to be valued at $36bn, a decline of 24% over the last 12 months predominantly due to Covid-19 disruptionThe total US branded coffee shop segment comprises...

www.worldcoffeeportal.com

Reflecting the huge challenges all US café businesses face, just 38% of industry leaders surveyed by World Coffee Portal believe current trading is positive – down from 65% in 2019. Those operators reporting losses due to Covid-19 estimate the cost at approximately $32,500 per store, per month.

That's a lot of coffee.

 

[over9k]

Close numbers:



Really choppy day. The trump banning etc off social media and all that stuff has sent a lot of stuff reeling. Coronavirus once again completly ignored, despite the numbers having actually dropped a bit:


So expect AU tech to get slaughtered today.

More news tomorrow!

 

[Balder]

And wouldn't you know it, NIO & SOXL on a tear today even when the whole market (including tesla) is deep into the red:

View attachment 118189

Not selling either.

You made me look at SOXL, convinced me to have a flutter, so far so good bud.

 

[over9k]

I'm not selling. Like I said, everything, just normal chips, are on backorder until April. And that was before the car demand stuff I've just posted.

I'm actually considering adding to my position as car chip demand is only going to increase from here on out and that's just chips for normal cars - imagine the demand once we add electric car chip demand (electric cars have way more electronic wizardry/chips in them than regular cars for what I hope are obvious reasons) to it as well.

 

[over9k]

And as if on cue:

TSMC Profit Surge Cements Kingpin Role in Global Chip Crunch

(Bloomberg) -- Follow Bloomberg on LINE messenger for all the business news and analysis you need.Taiwan Semiconductor Manufacturing Co. likely chalked up its fastest pace of profit growth in a decade, after the Taiwanese company cemented its role as chipmaker of choice to the world’s technology...

au.finance.yahoo.com

The world’s largest contract chipmaker is projected to report a 48.6% rise in 2020 net income Thursday, its speediest rate of expansion since 2010. Investors have sent its stock soaring 70% since the start of 2020, betting that the likes of Apple Inc. will continue to lean on its widening technological lead over Samsung Electronics Co. On Tuesday, Bernstein analysts raised their target on its shares to NT$800, anticipating a further gain of more than 30%.



TSMC is 3.49% of SOXX (direxion semiconductor ETF), but I hold (and have no plans to sell) SOXL, which is the triple levered version.

If TSMC reports high earnings then that bodes (indicates) well for the whole sector, so we can expect the whole etf to scream tomorrow if the earnings are as good as anticipated.

 

[over9k]

Meanwhile, basically everyone are now projecting europe to have a double-dip recession:

Bloomberg - Are you a robot?

www.bloomberg.com

I don't know if there's any forex traders on here but this means that at the exact moment that the senate flipped/gave the USA a complete democrat sweep of the house/presidency/senate, i.e political nirvana for the USA has happened, economically speaking, the proverbial has hit the fan in europe, giving the USD tailwinds and the euro headwinds at the same time and so several months of USD decline is now well on its way to reversing:



This economic armageddon is actually exactly what we were expecting for the entire northern hemisphere's winter, i.e both USA and EUR, (the vaccines have just put a bit of a floor in place on account of the fact that they give the markets some assurance of a light at the end of the tunnel) but the presidency and senate both flipping in the U.S has made the USD the overwhelmingly best port in this particular storm.

 

[over9k]

found the info you wanted about chip sources for the chinese manufacturers @sptrawler



Part 1 of post:

Bloomberg - Are you a robot?

"Carmakers’ predicament is exacerbated by the fact that chips are crucial for the latest features they are touting, be it assisted driving, large displays or connectivity. Semiconductor-based components are set to account for more than 50% of a car’s manufacturing cost by 2030, up from about 35% now, and in semiconductors, China has only one company in the top 20, and less than 5% of automotive chips are made in the country. For some key components, carmakers rely 90% on imports".

So yeah. They're VERY exposed to foreign sources of chips.

The USA is as well as a lot of chips are produced in south korea & taiwan but at least the americans have some production onshore. I know this is a bit outdated but I've managed to find at least SOME numbers:

1. U.S. semiconductor companies lead in global semiconductor market share, accounting for 51 percent of total global semiconductor sales in 2014.

2. U.S. semiconductor companies do most of their manufacturing (52 percent) in the United States.

https://www.semiconductors.org/wp-content/uploads/2020/04/SIA-White-Paper-Made-in-America.pdf

So about 25% of america's chip production is onshore, vs 5% of china's. Or 1/4 vs 1/20th. Quite the difference.




Part 2:

Here's some updated info about just how much car production has ground to a halt:

https://www.bloomberg.com/news/arti...s-snarl-car-production-at-factories-worldwide

So it looks like things are now on backorder until Q3, but a lot of vaccines will be deployed/the economy will well & truly be back on the increase by then so that might actually add to car demand even more.





Part 3:

What all this means is that due to the tech now in cars, we now have a situation in which an increase in car demand thus also means a commensurate increase in chip demand at the same time as cars becoming ever more technical/chip reliant by the day. In other words, we have a double-whammy increase in chip demand from both an increase in car demand in and of itself combined with a chip-per-car saturation increase at the same time. Either of these factors alone would be increasing chip demand significantly but when you put them together at the same time you end up with a multiplier effect in demand increase.

I'm actually seriously considering selling my UDOW position off and pumping it all into SOXL in light of this. If an increase in demand for industrials gives a commensurate/follow-on increase in demand for microchips at the same time as chip saturation in said industrials is increasing, you have a singular demand increase for industrials vs an amplified or multiplied increase in demand for microchips, making microchips the much better place to be.

The only question from here is whether the rest of the market has already figured this out and thus already priced it in. SOXL is already very high.


Hmm. Looks like a busy day ahead.

 

[over9k]

Bloomberg - Are you a robot?

www.bloomberg.com

"While pursuing its unusual strategy, Sweden questioned other nations’ decisions to lock down. Its path to mandatory restrictions has left the Nordic country with more than three times more virus deaths per capita than Denmark, the closest regional peer in terms of fatalities".