This is the Data – Part 2 – It looks like a Nothing-Burger to Me

Last night I wrote:

Question is how many asymptomatic. If a week ago I had been given a list of 20 things that could happen with omicron in the next week and I could pick 19 of them, the one I wouldn't have picked would have been cases start dropping in gauteng

— LSigurd (@LSigurd) December 10, 2021

This week has been a roller coaster of data for me. I entered the week concerned about Omicron. I needed more data and I knew the week would be important for that.

The first few days of data this week didn’t look great. What was concerning to me came from the hospitalization side. When I looked at those admitted to hospital and the oxygenated patients, the trends were above where Delta was at the same time period in the wave:

That was concerning.

But… then something else happened. Beginning on Wednesday, the week-over-week increase in new cases in Gauteng began to decelerate. It had actually been decelerating for a couple days before that, but I figured you could chalk that up to weekend data and the very low base we were starting at.

But on Wednesday the new case number for Gauteng came in surprisingly low. It was 11,703, which, while up 90% week over week, was no higher than the highs the previous week.

Hmmm – my first thought was this must be testing limitations. And sure enough, if you went back to the Delta wave you could find articles saying that at the peak (when cases were in the 11k to 15k range), getting enough test kits became a problem, lines became a problem, waiting 5 days for your results.

So my working thesis on Wednesday was let’s hope its slowing but I don’t trust those numbers.

I carried that into Thursday, when the new case number for Gauteng came in at 11,791. Same kind of ceiling, so maybe it is the test limitations right?

But then Friday’s number came out. 9,250. That was down 20% week over week! And positivity declined, at least for the country as a whole, from 29.5% the previous day to 21%.

While I can only go on a few data points, there is no two ways around it, these numbers imply that cases are peaking, which means this Omicron is not going to amount to much.

How does this variant pop out of nowhere, cases go straight up for 2 weeks at a rate that dwarfs Delta, and then that’s it?  And this is in Johannesburg, a city of 12 million people, so its not like it ran out of people to infect.

Good question.

There is only one way I can make sense of it. The scenario that would create this sort of huge spike and fast peak is if the variant was not just mild, but incredibly mild. Maybe 9 out of 10 people that got it felt nothing, or even 19 out of 20. That, plus being incredibly contagious, could allow it to circulate extremely quickly, infect like a million or two million people in Gauteng in a few weeks, with the vast majority never knowing they had it.

Only a few 10s of thousands of people actually go to get tested, some for completely non-related reasons. A bunch of them have it, which gives a massive rise in cases and a subsequent, very quick, fall.

If that is the case, then the rising hospital numbers are really not that concerning. They will peak shortly as well. And Omicron will indeed be a nothing-burger.

So what am I going to do about it – investing wise? I don’t think I’m going to do much.

Here’s the thing. When I go through all the stocks that I have sold over the last 3-4 weeks, nearly all of them are actually lower then when I sold them.

Stelco – lower. Algoma – lower. Westlake – lower. Olin – flat. Every biotech name – lower. Every oil name – lower. Every gold name – lower. Banks – some lower, like BMTX, some flattish. SaaS names I thought were oversold (LivePerson, PagerDuty, Telos) – flat to lower.

Remember, when I started selling (as I wrote here) it had nothing to do with Omicron. It was just that things weren’t working. Stuff was going down when it felt like it shouldn’t. Stocks felt heavy.

But how can I say that stocks feel heavy? The S&P is at an all-time high. It just rallied another percent on Friday.

Well, I think the following chart sums that up quite well. This is Nasdaq with and without Microsoft, Nvidia, Apple Tesla, Amazon.

It’s a bear market folks. Unless you own those 5 names. In fact, if you look at it from the top instead of the beginning of the year, it is a complete disaster – the Nasdaq-ex-these-names is down almost 40%!!!

No wonder I have felt like I have been battling up hill since the summer. Quite honestly, if it wasn’t for Aehr, a couple biotechs that I fluked out with, and some sharp trading (sell the pops and buy the dips even if you like the name for the long-term) I’d be in much worse shape.

This all feels very much like the second half of 2015 to me. The chart of that time, which I reproduced below, maybe does not look like a great comparison on the surface, but the spirit of it is.

The comparison starts in May or June 2015, when the market was trucking along at its highs, but I was feeling like the stocks I owned and followed were not really doing very well. They felt heavy.

One difference between then and now is that the market sold off big in August 2015 because people got worried China was imploding. You can read about it on wiki. Obviously we haven’t had anything quite like that this year.

(Note: Oh, and btw the Fed had just ended its quantitative easing in October 2014, which is not too different than now, where we are beginning to stop as we speak)

But the real comparison for me is that time after the China panic. I remember how the market rallied from September through to the end of that year and I remember thinking at the time, how is the market going up, because the stocks I watch sure aren’t? My portfolio did not do great, I was down about 6% even as the market matched its highs.

You can see the performance gap I’m talking about in the small-cap index, the Russell. The Russell did not go back to new highs.

Even less surprisingly, the XBI just kept going down.

Now… I made a point of creating all these charts to year-end 2015. Guess what happened January 2nd? The market as a whole finally gave up the ghost:

And when it did, small-caps, biotechs and all that speculative stuff I tend to own really went south.

I will never forget that first week in January. While it does not hold the memory of investors like the big financial crashes, it holds a memory for me. I could not believe the speed with which my portfolio went down. I think I lost close to 10% in like 5 days. And I thought, at the time, that I was reasonably protected. It is not like I had one big position that got creamed. Everything did.

I was in a state of shock. It was at this point that I started looking into hedges and shorting, because I was like, this is crazy, I can’t let myself lose this much money this fast.

But back to my analogy of today. The comparison I want to highlight is that small caps, biotech, actually a lot of things are very weak right now, even though the market is at all-time highs. And I feel like that bodes poorly. The big index is often the last soldier to fall. But that doesn’t mean that the other stocks, which have been falling for months, will relent. Like this 2015-2016 analogy, they can just fall some more.

Or just to make it simpler, to repeat what I said back in November: Things aren’t working. Best not to force it. I’m going to cautiously say that my concern about Omicron appears unwarranted. But I’m not going back in the pool just yet.