Vaccines look promising

I previously said that there is a very good chance that a coronavirus vaccine won’t save the economy.  With the interim vaccine results from Pfizer and Moderna, it seems likely that a silver bullet vaccine is on the horizon.  The issue of mucosal immunity (more specifically- whether or not the vaccine will slow down the spread of the coronavirus) is not important if the vaccine will be highly effective (e.g. 90%) in preventing serious complications from the coronavirus.  There is still a small chance that the first vaccines won’t save the economy:

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Don’t bet on a coronavirus vaccine saving the economy

While there is a lot of talk about a vaccine saving us, much of that talk isn’t supported by scientific evidence.  Some key points:

  • Most vaccine candidates are not designed to prevent the spread of coronavirus.  The virus would still spread even if it causes less serious disease.
  • There are mixed indications about whether or not a highly-effective vaccine for the coronavirus will emerge.
  • There are now highly credible reports of re-infection cases.  It is unlikely that herd immunity is possible.  As far as a vaccine goes, it is likely that a vaccine would need to be frequently re-applied so that immunity does not fade.

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Woke culture is a pandemic that we need to talk about

Woke = being pretentious when pretending to care about a social issue.  Or, a way of seeing the world as oppressors and victims based on race, class, gender, etc.

More than ever, social media has allowed outrage to spread quickly in a way that makes it easy for people to be cancelled.  This has given birth to what I call ‘Woke activists’- charlatans who exploit others’ fear of being cancelled.  They use physical violence, bullying, doxxing, and cancellation campaigns to get what they want.  Many are afraid of standing up against Woke politics because they are afraid of being bullied themselves.  The ‘civil unrest’ in the United States is actually the work of Woke activists pushing their different agendas.  Some of these Woke activists intentionally agitate police with violence so that the Woke activists might end up in a viral video showcasing police brutality.

Many journalists have chosen to actively embrace and enable Woke politics through misleading journalism.  Such journalists talk about ‘mostly peaceful’ protests while standing in front of a burning building.

The rise of this fraudulent political movement is one of the most important events of 2020.  It has completely hijacked major mainstream media outlets.  Free speech and press freedom have been undermined, making it hard to find insightful news with a diversity of viewpoints.  Emboldened liberals are actively discriminating against Trump supporters, creating a persecuted group that will eventually push back hard.  Democracy is under attack as Woke corporations are censoring opposing viewpoints and Wokes are punishing critics for their political beliefs.  Journalists are afraid of talking about these issues… so let’s talk about them.

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The path out of this coronavirus mess

All countries are now realizing that some degree of restriction needs to be in place to keep the virus suppressed.  While South Korea has a sophisticated contact tracing program in place, the country learned the hard way that it cannot re-open nightclubs without allowing the virus to explode.  To break out of this dilemma, countries should look at taking aerosol (“airborne”) transmission seriously.  If we are willing to reject scientific dogma and believe in real science, then fighting the virus’ main route of transmission will give us our best shot at normalcy.

Personally, I’ve been quite frustrated at the world’s pathetic response to fighting the coronavirus.  Most politicians and scientific leaders have not been trying.  They are failing to employ tools such as CT scans and government-run quarantine centers.  It is embarrassing that most developed countries have failed to suppress the virus while Thailand, Cuba, and other developing countries have succeeded in doing so.  We as a society should demand that our leaders act responsibly and start using the tools available.

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Understanding China

China has a highly unusual business environment- the government is currently holding 2 Canadians hostage to benefit a private company (Huawei).  Those with the right connections regularly use government resources for their own benefit.  As far as investing in Chinese stocks go, it is a trap for foreign capital:

  1. Massive fraud.
  2. The CCP encourages mainlanders to be racist, nationalist, and xenophobic.
  3. Because of state-sponsored racism and xenophobia, there are far fewer (or no) consequences when somebody cheats a foreigner versus an ethnic Han Chinese citizen.
  4. The CCP often exploits foreign capital and sponsors the theft of intellectual property.
  5. Relations between the CCP and most developed countries will deteriorate because the CCP has been increasingly antagonistic towards other countries.  The resulting trade wars will hurt China’s economy and make the environment sketchier for foreign capital.

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Hong Kong is dying

Hong Kong is a place where its residents have previously enjoyed economic prosperity and civil liberties.  That is coming to an end.  Through the proposed “national security” law, the CCP (China’s ruling party) has pretty much announced that it has given up on trying to win over Hong Kongers and will now proceed to act against them without their consent.  The CCP has indicated that its weird obsession with control will trump sensible economic decisions.

The Hong Kongers who choose to stay will almost certainly make the CCP burn with them.  The CCP will never control the Hong Kong people and turn them into obedient mainlanders who sing the Chinese national anthem instead of the Hong Kong anthem.  At the same time, the Hong Kong people will suffer a terrible price at the hands of the CCP much like the Uyghur Muslims, Tibetians, Falun Gong, etc.

The loss of freedom is in many ways worse than COVID-19.  Tanya Chan, a pro-democracy lawmaker, has described the day of the national security laws being introduced as the “saddest day in Hong Kong[‘s] history”.


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When life gives you lemons, make lemonade

COVID-19 is going to be awful.  Society will have plenty of assets (e.g. cruise ships) and unemployed people that will be fairly unproductive in the next few years.  But, while I’m extremely scared of what COVID-19 will do to most stocks, I think that now is the time to invest in stocks (*that won’t get killed by COVID-19).  What worked in the past will likely continue to work in the future:

  1. Buying high quality businesses
  2. …at reasonable prices…
  3. …that aren’t in shrinking industries.

COVID-19 has dramatically changed #2 and #3.  Many industries that were previously stable or booming may see a wave of bankruptcies.  But that’s ok.  I don’t have to own those stocks.  Nobody is holding a gun to my head forcing me to own airlines, movie theatres, department stores, etc.  There is still a small universe of stocks with low COVID-19 risk that I will concentrate my portfolio in.

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Excesses in the mortgage REIT and securitized lending space

Here are the excesses that I see in the lending markets:

  1. When investors put money into securitizations, they don’t pay attention to the underwriting quality of the loans that they own a piece of.  They allow charlatans to unload low-quality loans into securitizations.  Investors are ultimately buying into a pile of loans with inflated values.  Unfortunately, yield-chasing investors gravitate towards assets that they don’t understand.  This may be a desirable feature for the yield chasers- they will look smarter if others also don’t understand what the yield chasers own.
  2. Certain instruments such as Credit Risk Transfers (CRTs) and the lower tranches of CMBS have a significant chance of being completely wiped out.  While the riskiest tranches of CRTs and CMBS have seen their prices drop 30%+, it doesn’t seem like investors are sufficiently scared about the senior CRT tranches in a COVID-19 environment.
  3. The system of yield-chasing mortgage REITs financing themselves almost entirely with short-term debt does not work.  There are currently liquidity issues because lenders do not want to continue providing short-term debt (via repos / repurchase agreements) and the lenders also don’t want to sell the collateral.  A key reason why problems exist is because the banks accepted highly leveraged investments as collateral.

I don’t think that the mortgage REIT stocks are very interesting because (A) none of them are good longs and (B) it’s not a good use of time to research them as shorts.

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A coronavirus vaccine may not save us

If you read up on coronaviruses that affect livestock, you will quickly discover that some viruses remain a problem despite vaccination.  Chickens continue to die from IBV (Infectious Bronchitis Virus) despite being vaccinated.  While vaccines improve the chickens’ health overall, they are not good enough to fully solve the problem.  If a SARS-Cov-2 vaccine would be similar to our vaccines for IBV, then we will have to deal with the limitations of vaccines.

The simplest way to think about the current COVID-19 situation is that there will be a range of outcomes, with the worst outcome being a prolonged economic depression where a vaccine doesn’t exist (or that people die despite being vaccinated).  You can make your portfolio robust against COVID-19 risk by ensuring that you own “safe” stocks that will do fine in a world where social distancing is the new normal.

I apologize for my recent blog posts because they’re uncomfortable.  I want to believe that the world will be ok.  But the further I go down this rabbit hole, the more I realize that health authorities spread misinformation and ignore scientific evidence.  The most disturbing element of the current situation is that many Western scientific authorities promote bad science so that companies have a chance of profiting from the situation via drug treatments, the experimental use of invasive ventilators, and vaccines.  They stand in the way of science saving us.

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Safe stocks to own in a coronapocalypse

Currently, the stock market is in a weird situation where most stocks have exposure to the systemic risk of COVID-19.  As it is highly likely that social distancing will become the new norm, a long list of businesses will be badly hurt: airlines, restaurants, movie theatres, music events, conventions, lenders, etc.

If the COVID-19 situation drags on for 3+ years, you don’t want your portfolio to blow up because of it.  It would make sense to put a good portion of your portfolio into less risky investments that will survive.  Because individual stocks can blow up, it is a good idea to diversify (e.g. 10-30+ stocks).  It’s also a good idea to avoid owning too many stocks with similar risks (e.g. stocks in the same industry, too much COVID-19 risk, etc.).

Stocks discussed: CNC, UNH, CHTR / LBRDA, TSN, HRL, COST, PGR, V, MA, MCO, SPGI, FB, GOOGL, IAC / MTCH, VRSN.

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