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Crisis & Opportunity

Posted March 17, 2020

I had a dream last night that someone broke into my house and wiped the COVID-19 virus all over my door knobs. I’m not usually a worrier, but the constant stream of news from my friends and family coupled with the total lack of credibility from both the government and the press leaves me a bit concerned.

It doesn't help that the boy came home from college and plastered “How to Avoid COVID-19” printouts all over the house.  

Overreaction

Are we really closing down the entire economy over 6,606 global deaths? It reminds me of the weapons of mass destruction falsehood peddled by the Bush Jr. administration. At the time, I thought they must know something I don’t. It turns out they didn’t.

We won’t really know for five years, but I do know the economic and social costs due to unemployment, debt, loss of housing, suicide, divorce, and drug use will all eclipse any deaths caused by COVID-19. But I get that the "do something" brigade always wins no matter if that something is worse. So here we are...

Trump Speaks

Perhaps you saw Trump's CDC press conference yesterday. It was solid and conveyed useful information. However, when Trump said the emergency wasn’t going to wash out until August, I knew it was going to be a bad day in the markets.  

No way the market was pricing in five or six months of social distancing. It was thinking 14 days — 30 tops. So, when he said that, the market started to drop and didn’t finish until the close. Yesterday was a historically bad day. The Dow Jones Industrial Average (DJIA) fell 3,000 points or 12%. It was the worst trading day since 1987, when the Dow fell 22% in a day.

The S&P 500, which is a broader picture of the market, got creamed as well. It is down 29.41% over the last month and 15% over the past year. There are over 3,000 stocks traded on the NYSE, and on Monday none of them were in the green. I’ve never seen that in my 25 years trading and writing about the stock market.

FANG Farked

The biggest components of the S&P 500 — Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG), and Berkshire Hathaway (NYSE: BRK.B) were all down, though they bounced back today.

Berkshire, of Warren Buffett fame, was down from $231 to $181 over the last month. So, when the greatest investor of all time, despite having a huge cash position, drops 29% in a month, don’t feel so bad.

Out of those stocks, I'd really just want to own MSFT and BRK.B — Microsoft because it has so many work from home components (Xbox, the cloud, Teams (a Slack competitor), and Windows. There will be a lot of upgrades in both hardware and software as companies and individuals upgrade. When you work from home for a month, that old laptop with the cracked screen ain't going to cut it.

And Berkshire because they live for bottoms. Just hope that Warren doesn't get sick and die.

And then there is the oil patch.

WTI is at $28.75 today, down from $62 in January.

ExxonMobil (NYSE: XOM) went from $89 to $34. Chevron, COP, BP — all cut in half. And it is just getting started.

According to energy and restructuring law firm Haynes and Boone, a grand total of 50 energy companies filed for bankruptcy during the first nine months of the year, including 33 oil and gas producers, 15 oilfield services companies, and two midstream companies.

In contrast, 43 oil and gas companies filed for bankruptcy for the whole of 2018.

There is obviously going to be a much overdue washout of the oilpatch. Too many companies were producing at marginal levels just to support massive debt.

This, however, breeds opportunity. April gasoline price futures are at $0.69, down from $198 two months ago. This would suggest gas at the pump will drop to $1.55. It is already below $2 in many places.

Cheap Oil

Oil is cheap and companies that have oil as a major cost will benefit. These companies include airlines, cruise ships, makers of paint, plastics, chemicals, and even large producers of steel will see major cost savings.

Not that I’m saying to just jump into these. You first have to know which ones are hedged. Airlines that locked in future oil prices at $62 a barrel are in bad shape. American Airlines (NYSE: AA) does not hedge and will benefit from low oil prices once the bug passes away and people start flying again.

My friend and coworker, Keith Kohl, is working on a report that details the energy storage space. Tanker rates jumped 285% last week as companies bought up storage space to tuck away cheap oil with the idea they will sell it in a year at a much higher price. Keep an eye out for that report. Those stocks were crazy cheap before this happened. There is lots of upside.

More Good News

First of all, spring starts at 11:50 p.m. EDT on Thursday. This is the earliest spring in 124 years, and there is hope that the bug will fade in warm weather.

Secondly, new treatments are working. A company in China has developed a treatment for COVID-19 and put out a press release this morning:

Favipiravir, the influenza drug which was approved for clinical use in Japan in 2014, has shown no obvious adverse reactions in the clinical trial, said Zhang Xinmin, director of the China National Center for Biotechnology Development under the Ministry of Science and Technology, at a press conference.

More than 80 patients have participated in the clinical trial in The Third People's Hospital of Shenzhen, south China's Guangdong Province, including 35 patients taking Favipiravir and 45 patients on a control group. Results showed that patients receiving Favipiravir treatment turned negative for the virus in a shorter time compared with patients in the control group.

Furthermore, a Stanford University study said:

Recent guidelines from South Korea and China report that chloroquine is an effective antiviral therapeutic treatment against Coronavirus Disease 2019.  Use of chloroquine (tablets) is showing favorable outcomes in humans infected with Coronavirus including faster time to recovery and shorter hospital stay.  US CDC research shows that chloroquine also has strong potential as a prophylactic (preventative) measure against coronavirus in the lab, while we wait for a vaccine to be developed.  Chloroquine is an inexpensive, globally available drug that has been in widespread human use since 1945 against malaria, autoimmune and various other conditions. 


On top of that, and even bigger news, human trials of a coronavirus vaccine made by Moderna (NASDAQ: MRNA) have begun in Seattle. Moderna jumped 12% today to $29.54.

This thing could be over sooner than you think. It’s too late to sell but not too early to put together your buy list.

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Christian DeHaemer

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Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor's page.

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