There is this hospital report out of Gauteng that has the media writing headlines left and right about how Omicron is mild.
I wrote in the comments of my last blog why I think that the data provided by that hospital isn’t saying what everyone is saying it is saying. I don’t think it is tell us much in fact.
But what is the actual data saying?
Below I have tabulated the data from Gauteng. Guateng is considered the epicenter. It should be where we see indications of severity first.
The data is in PDF on their website so it is a pain to put into excel tables.
Now there are a couple issues with this data.
First, something happened on November 19th – one of the hospital groups (Netcare) changed their reporting practices or something, because all the numbers for that hospital group dropped by like 50% overnight. There is a similar drop that mostly impacted ICU and Ventilated patients from Nov 10-11, all due to a change at the hospital group Lenmed. These sudden changes, all downward, make comparing apples to apples before and after November not possible. But you can still see trends.
(Note: there was actually a 3rd change on October 21st where Clinix hospital group numbers dropped suddenly)
And then to make it even more difficult, since December 3rd the National Institute for Communicable Diseases (NICD) stopped putting out full daily data surveillance report. So I had to cobble together what I can for the 4th – 6th.
Finally, the data is messy. It clearly isn’t always correctly reported. Take a look at May 21-24. The number of oxygenated people jumps around like a yo-yo. But those are the reported numbers.
This is the data from the most relevant periods. To make it so it isn’t a 5 page long table, the table just shows the daily for the two most relevant periods (the first few weeks of Delta, when hospitalizations began to rise on about May 3rd until May 24th, and the first few weeks of Omicron, which seemed to have began somewhere around the 23-24.
I’ll comment on this some time later. I don’t really understand what is going on here tbh. Everyone, including Fauci, is saying that the early indications are that this is mild. Is that what this data looks like? It actually makes me feel a little sick. But I’d love a more positive perspective on it.
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.
My tolerance for draw-downs has declined with age.
Ten years ago I used to say, irreverently: “you have to lose money to make money”. More often than not, I still do. It is far more common for a stock I buy to go down 20% before ever going up than for it to go straight up after I purchase it.
On individual names I have not changed – I still give lots of leeway. But when it comes to my portfolio as a whole, I do not have the patience for it.
What I deem to be an “acceptable” draw down has shrunk dramatically. 10 years ago I had no problem with a 10%+ move down. 5 years ago that had shrunk to around 5%. Now, at 2% I start getting worried.
2% is not a lot of leeway. It assuredly means that many times I am selling stocks that are simply in a lull. That I am not giving the ideas time to work out.
But investing in stocks is not the same as investing in real estate or a business. I can always buy back tomorrow.
I firmly believe that one of the biggest edges I have as a small retail investor is my ability to sell at will.
There aren’t many things a retail investor has an edge in. Research – no. Team – well (looks around the empty room) uh, no. Access to management – certainly not.
But the one thing I can do is sell. Free myself up and start over again.
Take this week for example. After mostly avoiding what has been a sort of crummy market for the last month or two – even as the indexes have gone up many (most) stocks have not – I was hit by the malaise of everything non-FANG, non-EV (of which my portfolio has neither group at the moment).
Energy got hit and while I don’t have big energy positions, I have enough. Commodities in general got hit, and Olin Corp, Westlake Chemical Corp and Chemtrade are all commodity plays. The biotech rally turned sour (again!). And then on Friday gold did what gold does and failed to hold its breakout.
Of all these names I only kept my chemical company positions and a few gold stocks. I sold all my energy positions, many of my biotech positions and some of my gold stocks.
I can always buy them back if I am wrong.
Consider Vertex , Ionis, Bristol-Myers and PTC Therapeutics. The idea was that these stocks had lagged and with drug price pressure off the table the stocks could run. And they did run – for about two weeks. Then they topped and started falling again.
I could stick with these names under the hope that this is just a retest of the lows and they are still in the early stages of a new bull market. I remain hopeful that is case.
But honestly, I have no idea. Sentiment in biotech is awful. We are in tax-loss selling season. There is no immediate catalyst for either of these stocks. And my original thesis – a run off of the drug-price news, it simply has not played out. Pivoting to anything else is thesis creep.
And with all of these stocks, I can buy them back any day I want. They are not illiquid microcaps. When biotech does have another leg of its bull market Ionis is probably going back to $60 or higher. Whether my cost basis is $31 or $35 is not a big concern.
This is the perspective I used on all these sales. I can always buy them back. I may buy them back Monday if conditions change. But let’s see how the biotechs act the next few days. While the charts of the bigger one’s like Bristol-Myers, Vertex, Ionis, PTC Therapeutics and Incyte Corp look roughed up, but some of the smaller one’s look downright awful.
With that in mind, let’s look at some charts.
I have a chart deck of about 50 biotechs I step through at least every weekend. And quite honestly, it looks like a disaster right now. Many of these charts have broken down to new lows or on the verge.
Consider Lyra, a name I have owned and written about before. I was kicking myself for selling the stock on its first pop to $7.50, after which it promptly went all the way up to $9.
Well since that move to $9 Lyra has been a steady road down to $5.75 now. No news. Where does it end?
Or Arca Biopharma. This is a name I mentioned early this year. It is, admittedly, a shitco. But it is a shitco that is now trading at a -$25 million EV. That is negative twenty five. How negative can it go?
Checkpoint Therapeutics was one of the immunology stocks I bought in August. I was lucky enough to not believe the rally and sell a bunch of it above $4. The company has readouts in the next month or two that could be game-changers. But it takes a lot of courage to buy this chart.
I thought genomics was the future. That might be the case but in the short-term, I was just wrong.
Clearpoint catches a whole lot of hell on twitter but honestly? This chart is no different than 90% of the other biotechs out there.
I could go on and on and on.
I know the biotech stocks are setting up for an incredible run at some point. But I’m not sure that comes before a good, old fashioned panic. A day where they open way down and everyone is freaking out. I want to be on the right side of that – with cash ready to buy.
So that’s where I’m at. I”ll end with the one biotech I have kept a piece of. Eiger Pharmaceuticals. I have sold some of my position, but I’ve held a good chunk of it.
Eiger is the one risk I am willing to take in biotechland right now. Eiger’s Interferon Lambda molecule is in a large COVID trial in South America, called the Together trial.
There are many signs that this drug works. It is not perfect – its not the pill that Merck and Pfizer have, but it is a single injection as opposed to a daily regime. Stocktwits actually has a very good Eiger board, complete with posters that provide the journal data on Lambda and their other molecule, lonafarnib, both of which are in trials for HDV – which is really the main story with Eiger.
Having read through all of the literature I can get my hands on, I come away thinking there is a fair chance Lambda will have good results. I don’t believe that is priced in the stock. We’ll see.
Orbit Garant is a micro-cap (~$38 million market cap) contract driller. Not for oil, for metals.
If you want a picks and shovels play, this is literally a picks and shovels play. When a mining company wants to drill out a deposit or explore a new area, they call on Orbit to do the drilling.
They own 231 drills, 75% of them in Canada. They operate in Canada, Africa and Chile.
Customers include (from the AIF): Glencore PLC, Agnico-Eagle Mines Limited, Newmont Goldcorp Corporation, and intermediate mining companies, including Eldorado Gold Corporation, Hecla Mining Company and Tahoe Resources Inc.
Their fortunes are driven by miners looking for: gold, base metals and iron ore.
There is a decent chance that metals are in a long-term bull market. Old arguments apply: the lack of new deposits, the need for exploration, the rise of EVs, and then on the gold side all that stuff about central banks and money printing. As Greta would say: blah, blah, blah.
Orbit Garant is the beneficiary, whichever poison you pick.
If you go read the MD&A, just about the first thing Orbit talks about is how mining finances are trending. That is because Orbit is simply a bet on the bullishness or bearishness of investors on the mining sector. The more money investors pile in, the more companies drill. The more they drill the more they need Orbit.
In the last real mining bull market, so 2011-2012, Orbit Garant was a $7 stock. Really, the company is not all that different now.
In 2012 there were 33 million shares and $26 million of long-term debt. Today there are 37 million shares and $32 million of long-term debt.
That increase in debt has been to facilitate growth. Over the last 11 years Orbit has increased the number of drills they own from 155 to 220.
If you make a spreadsheet of the financials for the last 11 years of the business, you will see that G&A expenses have been pretty flat, dilution has been minimal and debt increases have been reasonable. The company makes money when margins are good and does not when margins are bad.
In a bull market Orbit has pricing power and in a bear market it does not. In the bull market of 2011-2012 Orbit had enough pricing power to increase gross margin % to the low 20’s. In the ensuing bear market gross margins dropped to mid-single digits. This last fiscal year gross margins rose again, to 12%.
Right now, the main pressure on gross margins appears to be the large increase in work. Orbit said in the last MD&A that they are seeing a shortage of experienced drillers in Canada and are having to train them up. This is not good for margins in the short-term. But it should be “transitory”.
They are also upgrading their drill rig technology so that fewer workers are needed.
If this was a SaaS company, the market would cheer the margin compression that comes from growth. With a drilling contractor, the market sells the stock off even as revenues increase from $20 million to $50 million year-over-year because margins are still weak.
I said this was a simple story and here is the reveal. In 2011 and 2012 Orbit did $25-$30 million of EBITDA. Right now the stock trades at a market cap of $38 million and an EV of $67 million.
The trend back towards that level of EBITDA is already well on its way. In fact, the top-line is already there. Orbit did more revenue in its last fiscal year (ending June) than it did in 2012 (because they have more drills). They just don’t have the margins yet (gross margins were 12% versus 22%).
FCF is also already strong. Ignoring working capital changes the company did $12+ million of cash flow this last year and generated $6 million of free cash. Their free-cash margin this last year (ex-working capital changes) was actually about the same as it was in 2011-2012 (though at that time they were adding to their fleet so capex was much higher).
I bought Orbit too soon. I started a position at $1.20. This is one of those cases where I broke my rules and added to a losing position at $1.
With these dinky little Canadian venture stocks you kind of have to add on weakness. The stocks go down not because anything is wrong but because nobody cares. It has nothing to do with the business. Look at Apollo. I had that stock in my portfolio for almost a year now and all it did was go down. I should have added to it.
Unlike Apollo, Orbit has improving fundamentals, which makes it easier to add to. It also has zero liquidity, which means you can’t make a position too big no matter how much you like it.
Nevertheless, at a buck it seems worth breaking a rule or two.
PS: Just some general thoughts:
The biotechs have worked and the gold stocks seem to be working so far (though who really knows)… I’ve kept most of my index short positions through this melt-up, which certainly hasn’t helped my performance… I did cut loose some of the single name shorts, mostly before they reported earnings, and surprisingly, even into a melt-up this has turned out to be a mistake more times than not. Even as the market has gone up many single names that I was short but covered have been trashed. Which is interesting if not unfortunate… Last week I started to scale back longs: I sold CENX (which has not worked), GRIN (which has not worked this time around), CLBT (which I only held a couple days), and cut a couple of my spec bio’s in half after a nice move: EIGR and SGMO… My overall thought for the coming week is to scale back more so that I don’t get smoked on a drop from this crazy run-up… Wondering if I should be cutting these bank stocks a bit – CUBI, BSVN, TBBK but I like holding bank stocks for the long run… I bought two new positions: SBEA and SID but I’m not going to write about either unless I’m sure I will keep them and I’m just not sure yet.
