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Positioning Into Reopening


  • I don't agree with what I believe to be a cheerful consensus view of what the reopening is going to look like.
  • There is an edge in positioning better into the reopening.
  • Forming your own opinion on the battle between the virus and humanity can help with that.
  • Unfortunately, I think we're going to face a challenging environment for a while longer.
  • Looking for a helping hand in the market? Members of Special Situation Report get exclusive ideas and guidance to navigate any climate. Get started today »

I did not want to spend time anymore on the following COVID-19's exact development after obsessing over the outbreak, and potential implications, since the end of January. Well, that didn't work out.

Increasingly, I get the sense that I need to stay up to date on developments because these are informing government/central bank actions, psychology and have a huge practical impact on many businesses.

Because I've been closely following Gilead (GILD) and the remdesivir story (first FDA-approved treatment for COVID-19), recommending it publicly for the first time on February 17, I'm sometimes surprised how even professional money managers with billions on the line think about reopening and about cures and vaccines. More about that in a minute.

My general impression is that the market is interpreting the flattening curves of infection and the antibody data way too optimistically. This year of earnings has more or less been written off (at least H1), and "the market" believes we'll see a strong recovery when lockdowns are loosened with stimulus surging in.

To its credit, the market is perceiving balance sheet risk and has adjusted for it. Small businesses and businesses with constrained access to low-cost capital are marked down strongly. Meanwhile, the dominant forces in the market over the past 10 years, highly exposed to the passive investment trend, have recovered most of their losses.

The market treats this as a temporary headwind (which it ultimately is; it may just take an awfully long time to deal with it). I fear that the market is not adequately provisioning for negative second-order effects that will cascade through the economy.

Companies and governments were already fairly vulnerable (due to excessive debt) prior to the pandemic. Odds are that many companies (including high-flying software companies) will struggle in H2 and possibly beyond. Odds are governments will struggle to finance the required

I'm not bullish on the general stock market. However, market turmoil and chaos creates opportunities to pick stocks that can shine in this hyper challenging environment. In part II of this article exclusively available to subscribers, I discuss several specific stocks that I'm buying. 

This article was written by

Bram de Haas profile picture

Bram de Haas brings 15 years of investing experience to the table and has over 5 years of experience managing a Euro hedge fund. He is also a former professional poker player and utilizes his bundle of risk management skills to uncover lucrative investments based on special situations.

He is the leader of the investing group Special Situation Report where he offers his community several features, including: a portfolio of actionable special situations, weekly updates on current ideas, ideas across sectors for diversification, select foreign investment ideas in addition to the majority of US market ideas. Learn more.

Analyst’s Disclosure: I am/we are long GLD, SLV, GILD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Short SPY, QQQ.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (26)

MWinMD profile picture
I am overwhelmingly aligned with your thesis here. Markets are, for the most part, in a massive collective denial here, probably fueled by a toxic mixture of politics, desperation and (willful) ignorance of science.

I thought I'd quibble with a few details here, and see what you respond with:

"This is probably going to be an iterative and very dynamic process. Local circumstances can make a big difference in what is possible, and the more decentralized the execution, the better results I'd expect. "

Cyclic, more likely than just iterative. Almost like clockwork, governments will feel pressured by the "covidiots" and amoral industrialists to open up, vulnerable people be damned. And then the virus will do its thing, ramping up exponentially again, as long as we are well under herd immunity. Then shut down again, lather rinse repeat.

You speak repeatedly of the possibility of different "strains". While that's clearly on the table for the future, wouldn't DNA analysis be uncovering this? I wanted to know what you'd read.

"Children are probably relatively inefficient spreaders of the disease."

Other than the fact that most of the children who are infected being asymptomatic (which makes them less efficient) had you read anything specific about them being less efficient than say, asymptomatic 40-year-olds? Because just in terms of lifestyle dynamics, I would think they are the perfect vectors: meeting and mingling in large, close-quartered groups during the day, then dispersing widely to their various households and neighborhoods to seed potential clusters.

Anyway, these points aside, "zeer goed artikel"!
MWinMD profile picture
Postscript: Sorry to ask about the "strains" - I think I know what you're referring to. It's probably part of the explanation for the differences between countries (sometimes neighboring ones) that have been observed. And I just saw this:


This is a mess, and it will NOT be over soon I fear.
This is one of the best, most well reasoned articles I have read about how we will likely emerge from this global pandemic. Thank you, Bram.
Case fatalities is a weak leg to stand on for 2 reasons: who is being tested? Those believing they have covid. And mortality is being attributed to covid when the overwhelming majority of deaths have at least comorbidity. It’s like labeling the 30-year Tupe 2 diabetic who fell down the stairs and died. Yes he fell and died, but if he hadn’t been complicit in his own demise for 30 years, he most likely would have survived. Good article though. I believe the road ahead is rocky, but for different reasons.
MWinMD profile picture
Your discussion of how cause of death data is attributed is... problematic. Most people who die of major diseases die of "a stopped heart". If you want to re-catalog them accordingly, you can magically make Cancer, Diabetes, Parkinson's and a whole host of illnesses "disappear" into this "stopped heart" cause. Only not really. But it made you feel smart for a moment I guess?
Hey! I think we can have a spirited conversation. Maybe I can explain my opinion in a way that doesn’t trigger you: I take issue with the way deaths are being catalogued. And I believe the way that deaths are being catalogued provide an incorrect lens of how to gauge Covid. Thanks!
Ramy Taraboulsi, CFA profile picture
@mdbischel , research has shown that the best way to calculate the death rate when the pandemic is still on-going is based on the closed rates (currently 17%). This has been proven during the SARS pandemic.

If you want the academic reference for this, I can provide it, but would you be interested in reading a mathematics/statistics paper?
Are you short SPY based on valuation?
Kisame profile picture
Remember.. when you get back to work you will have a legitimate excuse to physically stay away from your boss and your co - workers.

No human contact within 5 feet!
MWinMD profile picture
This commonly-repeated "6 foot rule" was arbitrary. Droplets can travel much further than that. And there is transmission on surfaces.
There are many reasons to hate the equity / bond markets, but only two reason to love them.....

US Death rates are still spiking
US Infection rates are still spiking
There are not enough FDA approved test kits
There is no FDA approved treatment
There is no FDA approved vaccine

Don't fight the Federal Reserve
Hope for a vaccine to treatment soonest
Chris Valley profile picture
Personally I am very suspicious of any investors who talk about this virus as though the virus itself is Still capable of moving markets more than men.
I have spent great time as all thinking about the coronavirus. My conclusion is that the worse is behind us. Forget remdesivir or treatment. Contaiment is feasible. Check out sweeden with no lockdown and is starting to decline
There will be waves of infection but i believe the first wave we have been through was the worse for a few reasons.
1 we were completely unlrepared and no measures were set in place.
2 More and faster testing
3. some partial immunity has been achieved and with time
Yes cases in Sweden are declining, but at a higher death rate per 100,000 than the USA.
Higher death rate only means that not all cases are accounted for... no country is actually measuring the exact number of cases... when they do they will find a death rate of around 0.5% ... not 1~4 % that is currently what the different nations are showing...
Anw deathrate is not relevant. There is peaking of deaths also, which only shows that no lockdown is required.
Mark the words of the future, there will be other waves but not so serious in nature as what we have experienced, there will be no second lockdown, and life will get on as usual except with social distancing until vaccine.
Most of the businesses except those affected by social distancing will get back to normal. So for those stocks who are still lagging in price expect i 2 years to reach previous levels.
My guide to picking stocks as long as there are still some bargains there.
Trade In Mexico profile picture
Great article!
Ramy Taraboulsi, CFA profile picture
"Masks are likely to become a necessity until a vaccine is found."

The Flu vaccine is 41% effective, and the death rate of the flu is 0.1%. COVID-19 so far has a death rate (closed cases) of 17% and it spreads much faster than the flu.

We don't even know how effective the COVID-19 vaccine will be but I can tell you for sure it will not be 100%. People who got cured of the virus got infected again, and getting infected is usually far more effective than any vaccine...

Is it possible that masks will be the way for living in the foreseeable future?
We actually dont know the death rate because we dont know the infection rate (we cant and dont test everyone so we dont know the top line number) - therefore death rate per head of population is the stat we should be looking at. Then compare that to other illnesses - the reveal is alot less frightening.
Holy Toledo Ramy!!! 17% mortality rate!! I suggest you keep reading. Try 0.17%
Ramy Taraboulsi, CFA profile picture
The 17% is based on the closed cases.

I agree that we don't know what the mortality rate is, but we need to learn from the past. During the SARS pandemic, the closed cases mortality rate was the best estimate that reflected the actual mortality rate while the pandemic was ongoing. The SARS mortality rate ended up being around 15%.

Whether COVID-19 is more or less deadly than SARS is still debatable. What scientists agreed to is that it spreads faster than any other virus, maybe with the exception of measles.

I can provide you with references if you want them.

@vtfut , the closed case mortality rate is currently the best (and maybe the only) figure that cannot be debated as we have no idea about the prognosis of those that are currently infected.

Of course, once we find a cure, this number will drop significantly, so let's pray for this to happen soon...
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