Make that 10 of the last 2 (3?) Crises
COVID is such a pain in the butt for investing. It is always something. This new variant, Omicron, is confusing to say the least.
I saw a tweet last week mocking all the faux-virology experts that have again come out of the woodwork on news of a new variant. I responded that after two years of COVID we actually are all virology experts.
While that is not true of course, it is true is that I know more about virology then I ever wanted to.
I wrote a post last weekend talking about how confused I was about Omicron but I ran out of time and didn’t finish it. The week went by. Now, a week later, I’m a little less confused (but still pretty confused), and a little more worried.
What makes Omicron so tough is that whatever does happen, it is going to happen fast. We don’t have months to figure this one out. If something bad is going to happen (or not) it is going to happen in the next six weeks.
That is because the one thing we know is that Omicron is far more transmissible than any other strain.
In fact, it looks to be insanely transmissible. Puts Delta to shame. Transmissible to the point that you might get it standing in line at the supermarket behind someone.
I’ve seen numbers from a party of 150 people in Oslo. First reports were that 17 came down with the virus. Then I saw 50. This morning I saw 100. 100!!!!
Other worrisome is the data from South Africa. There is a tonne of data that has come out but this chart from FT kind of sums it up:
Or if you just want to look at cases.
This thing is in a whole other world.
We are also getting more data on immunity. This paper was published in medRxiv just today. It suggests that there is almost no immunity from previous COVID infections. In fact, in South Africa previous infection seemed to make it more likely you’d get Omicron.
No, we don’t have vaccine efficacy info. But this sort of data does not bode well for vaccines.
Putting that all together and I feel pretty confident that this thing is going to run through the population fast.
The only thing we don’t know at all is the thing that is the most important. Whether the symptoms are going to be mild, severe or somewhere in between.
This one is a bit weird. The anecdotes in news stories and on Twitter are almost all in the pro-mild camp.
There are anecdotes about the guy in Minnesota or the couple in Colorado or whatever, and how they got it and its mild. How no one is hospitalized so far. And the South African doctor that is all over every stream saying that the cases in South Africa are mild.
And then there is stuff like this.
He’s right – it would be wildly bullish if no one dies! Especially if no one goes to hospital.
Yet the data from South Africa does not look very mild. Hospitalizations are rising quickly.
I have seen other data on South Africa, that I cannot republish, that suggest Omicron is at least similar to Delta in terms of virulence.
And this is just bad:
So I just don’t know. It is not at all clear. Yet the stock market is still within a two-day rally of all-time highs. And quite honestly, I don’t think the correction we’ve had has much to do with Omicron.
I said on Twitter the other day that I was going to sit this out. That is what I’m doing.
This is just my opinion but I believe that one of the most underappreciated attributes of stocks is the ability to sell them. If you own a business, you gotta ride it out. If you own real estate, you gotta ride it out. But if iou own stocks, just click a button and you can wash your hands of them.
Diamond hands are anchors. You can always buy a stock back later. For the odd, illiquid stock that you can’t sell, you can short something else to hedge.
Now I don’t think the market has concluded what I am concluding. When the market is going down, its being led down by SaaS and software. If this was the market waking up to a worrisome mutation, it would not be led down by SaaS. SaaS should probably, much to my chagrin, go up.
So it is a strange time – the market is going down, which I kinda get, but not for the reasons I think it should.
The crazy thing is, finally, FINALLY, after so much tumult and false starts (and yes, many a loss), my SaaS shorts worked. Wouldn’t you know it. We finally get the big one. Collapsing SaaS stocks from towering multiples. 5-10% down moves a day. Utter carnage.
But instead of enjoying it, I’m stuck wondering if I should cover because if Omicron takes center stage, SaaS could go right back up.
Its poetic in a twisted way.
On Friday I did start to cover a few SaaS names. And I even went long Zoom, which has been decimated and if I am right about Omicron I would have to think it bounces. I went long LivePerson, which again may get a Omicron bounce and is about the most oversold stock I have seen.
But these are just small longs. Otherwise I really cut back my longs a lot. This all started before Omicron, when a few weeks ago I threw up my hands and sold a bunch of stuff that wasn’t working. Sold oil. Sold gold. Sold commodities. This week, I kept selling.
I also added a few more shorts this week. A couple airlines. Honeywell. Dick’s Sporting Goods. Just some names that will balance out my remaining longs if the market continues to tumble.
I’m not trying to make money right now. Only not trying to lose it.
The only thing that sucks about this is it is year end and net, I’m taking in capital gains, so this next tax bill is going to be a doozy. But what can you do? I’ve played the game before where I’ve kept stocks until after year-end for tax purposes and all it does is make you frustrated about losing money on something you know you should have sold.
I only added one other new position, Biocept, which is going to get a short-term bump from testing if I’m right. Biocept is not a good company in many ways, but they do COVID testing and they have a new test and you know how the market can get about these sort of plays.
I also kept Eiger, which goes up and down like a yo-yo. Again, this TOGETHER COVID trial, if they show efficacy, could really move the stock. Of course if it doesn’t show efficacy I’m sure the stock is going straight to $4.
I also added a VIX position when I first heard about Omicron last week. VIX is a guaranteed money loser over the medium term, but if this thing is going to go south it will offset inevitable losses in my remaining longs. Again, trying to not lose money here. If I could easily go cash, I would just do that.
Lastly, let me be clear about where I am standing on this. I am not getting this defensive because I am convinced of the trajectory we are on. I’m just very unsure about the trajectory and the market is not pricing in that downside probability here.
I hope that I am being too cautious (again) and selling the 10th of the last 2 crises. I hope that symptoms turn out to be “mild” and this becomes the “natural vaccine”.
But…
One, I don’t see “mild” in much the data I’m looking at. And two, selling is easy.
There are 5,000 stocks out there. If you sell one another will come around when you are ready to buy. There is no reason to get attached. Being a hero in the stock market is generally a losing proposition.
Maybe this is a nothing-burger and I’m buying back in a few weeks. Because I do not want to go through the worst case scenario all over again.
Reminiscences of a Stockblogger 
This hospital report of 166 patients seems to point to mild. And most Covid patients were not hospitalized for Covid (hospital tests all patients as policy). But yeah, range of outcomes very wide here at this point as this isn’t greatest sample size.
https://www.samrc.ac.za/news/tshwane-district-omicron-variant-patient-profile-early-features
Yeah, i don’t know. IMO all this is telling you is how fast its spreading. They are saying there are all these patients coming in to hospital that test positive for covid but that aren’t there for covid and then, no surprise, they don’t need oxygen. And we did not see this in previous waves.
I would say that this is because previous waves haven’t spread this quickly. It simply is illustrating how fast people are getting it compared to prior waves.
If you look at SA hospital admissions divided by prior week cases, they are going up.
To put it another way, lets take this line of reasoning to its extreme. Lets say a wave occurs where everyone in the country gets covid at the same time, on Day 1. Then on Day 4 or Day 5 we look at hospitalizations and say wow, there are all these admissions to the hospital that are testing positive for covid and none of them have any symptoms and even the few who do are mild. So then we compare this to prior waves and conclude, well this wave is no big deal, its asymptomatic or mild even for almost all the people going to hospitals. But that would be wrong. The people going to hospital are incidental to covid. It is just that everyone got covid at the same time. We would be tricked by the steepness of the rise and the lag in developing symptoms.
I think we have to be really careful about the data because the speed of infection is so much faster and that obfuscates what is happening.
Good points. It is scary for sure. Maybe that is why a lot of people try to spin this in a positive way to kind of comfort themselves.
Although, from that same Twitter thread that you posted:
and:
Another scenario is, if Omicron so infectious that it cannot be stopped, that could mean it will quickly burn through the population, lock downs or not. So at most a few months of economic damage, although possibly at a great human cost.
That said, airlines actually look fairly expensive here? They are basically near pre pandemic highs in terms of enterprise value. With more debt this time around. With lower profit margins too, on the same amount of revenue (looking at analyst estimates for 2022). Might not be a bad short, regardless of how this will play out. Could still be a lot of weak hand retail investors in it as well.
Yeah I saw those tweets too. I certainly hope that is the case. If its been around and prevalent 3+ weeks then the lack of ICU is very reassuring. If its really just started to gather steam in the last week or two then its too early to say. Sigh, this is so hard to figure out.
This would be the best news about it I think and probably the reason for optimism from the reporter. It seems to suggest vaccine works? Though it runs counter to the paper I linked to in the post that suggested immune escape from natural infection.
“Of 38 adults in the COVID wards on 2 December 2021, 6 were vaccinated, 24 were unvaccinated and 8 had unknown vaccination status. Of 9 patients with COVID pneumonia 8 are unvaccinated, 1 is a child. Only a single patient on oxygen was fully vaccinated but the reason for the oxygen was Chronic Obstructive Pulmonary Disease.”
Maybe they mean with immune escape that people still get it, but not severe?
And I agree, this is hard at this point. In a month we know a lot more. So options look fairly interesting here. Might buy some airline puts on monday.
Yeah that could be it.