Omigod, It’s The Omicron. What’s Next For Investors? [TFC 118]

So good… midnight, everyone! I welcome you to another day with The Financial Coconut. In our podcast, we are debunking financial myths, discovering best financial practices and discussing financial strategies that fit our unique life. You get it, ultimately empowering us to create a life we love while managing our finances.

My name is Reggie. I’m your Chief Financial Coconut and today is midnight and so I may be a little bit soft, not as exciting as usual because I don’t want to wake up my neighbours and yeah, we’re going to spend a little bit of time to talk about this whole new variant of Omicron and what do I think is going to happen going forward?

Okay, before we begin, I need to clarify that I’m not a virologist by any chance. I have not consulted any pharmaceutical individual, medical individual or what have you before coming onto today’s episode. I don’t practice medicine. I’m not some pseudo voovoo… amazing witchcraft, individual shaman that secretly knows what’s going to happen.

I don’t, so I cannot predict the future. I don’t understand medicine and virology and what have you. I make a living out of talking, talking to you guys and talking to other people. That’s the basis where I’m beginning with. What a low bar to hit, guys!

But what is important is there are certain rule of thumb that is out there already and one of the rule of thumb there’s very well documented is that the severity or the fatality of a virus is inversely proportionate to the virality of the virus, that means how much it can spread. The more the ability of the virus to spread, the less fatal it is. This is a rule of thumb. 

I’m not saying that there’ll be no anomalies. That are always anomalies in this world but there are underlying principles like the first principle. Most things will work this way. All the fear mongering that the media is trying to drive at is really trying to get your attention. I feel that they are really just trying to get your attention. 

Some of the politicians are jumping on it because they want to get political points and they need to run for office again like the UK, Israel. Israel just went through a very jialat (bad) election to push out Netanyahu, which is the original government. The extreme left and the right, they came together to form a government. What the hell, right? So they need to have something to fight for. They need an enemy. 

Also, in the UK… Boris Johnson, by now, he’s the PM and they exited the EU (European Union) so they need to do something different. Whatever the EU do, you must do something different to establish your legitimacy.

So you see these two government over-reacting a little bit. In my view, they are over-reacting. They are not following the WHO (World Health Organization). They are not very scientific in that sense. I would say the Singapore government is showing some restrain, so that’s good but (they) already come up and say narrative… already building the narrative to say “oh, if things goes bad, we will roll back” which is kind of fair because it’s aligned with the Singapore government’s strategy.

The strategy is to… endemic, but have as little fatality as possible. Following this situation, if the virality of this thing is very high and the fatality is equally high then yah lah. Against the strategy, they will roll back. 

But I really doubt a lot of things will change, going forward. I am not saying I let the cat out of the bag… oh, no need to listen already. End of story, go back to sleep. I think what is important is to understand some of these first principles of viruses, how do they work and understand the incentives structure of how governments work and how democracy work and with all these… how the media works. With all these ideas, you put together to better understand why certain things are being spun and certain things are being talked about.

By now, you should know that the media needs eyeballs. They need listenership. They need a hot topic which is why the media loves Trump. Like it or not, the media loves Trump because there’s a lot of things to talk about. There’s a lot of stupid things that you can talk about again and again and he becomes famous as a result of it. He will go down in history. 

Everybody would remember Trump. 30 years later, 20 years… 50 years later, you will still remember “wah you know that Trump guy ah… when we were young, he shook the world”, what have you. The media needs something to fry so that they get eyeballs, so that they can charge the customers more for advertising and for your attention, essentially. That is their business model. 

Understanding first principles of viruses, with the inverse relationship between fatality and virality, understanding the incentive structures of how media companies run, which is why I keep saying that for the future, if we want to be independent and continue to run the show on our own terms for our own community, then everybody needs to chip in. We need everybody to chip in $5, $10 a month then we can operate independently from any other vested interest of extra eyeballs, blah, blah, blah. But that’s a different story for another day… and of course, understanding how governments run, especially democracies. Why do they need to do certain things to unite the parliament or to win votes and all that. Understanding all these three fundamental facets will give you a better understanding why certain things sound scarier than they actually are. So that’s that. 

The other thing that you need to know before we discuss how Omicron affect you financially and what have you is that a lot of governments are in a lot of pain already by now. They are in a lot of pain. Going forward, it’s going to go to even more pain, but they are in so much pain that they have given up trying to control the pandemic. At least most governments have given up trying to control pandemic. Most governments have given up the whole zero Covid situation or zero Covid goal, maybe other than China. 

China is a different story. If you think about it, China is a huge economy and a lot of the Chinese people are spending out of China so now that you can lock 1.4 billion people in and they can spend that tourism money in China, China is incentivized to lock down the country, right? Like it or not… but that’s not the government’s view. It’s my view, how I look at this thing. So that’s that 

Other than China, most countries have given up trying to control and they’re going to push down an endemic path and it’s going to continue this way because they’re in too much pain. They’re spending too much money, they are in too much debt and the people are too unhappy already. 

Like you and I, we are all very uncomfortable. I will not say we are unhappy and going to protest on the streets and what have you. But come on, guys. We’re really uncomfortable by now and that’s why I left. I’m not saying you need to leave but you get the idea. Maybe we are very uncomfortable already, so that’s that. 

With a brief touch on the different incentive structures, of the different parties involved: the virus, the government and media, and also a brief understanding of what is a forward move? Where is the world heading towards? It’s an endemic situation. Everybody is aligned on this already, right? It’s the same as saying “we are all going to go green… sustainable” and now you say “oh, we don’t want sustainable.” Impossible. You are the anomaly, everybody will hate you. 

Generally, everybody is aligned on the endemic future. With this backdrop set up, I’m going to share with you some pointers that I find very cute out there or some things that I think will happen going forward with Omicron… essentially, how it will affect you. 

Number one, Omicron will not cause a market sell-off. Everything also market sell-off, link to virus. Everything also like that. Whatever you can find, there must be a sell-off. A sell-off must find some causality. This is rubbish. Okay, let us wind back. Let me wind back a little bit. 

Recently, there has been little bit of sell-off in the market. A lot of things are happening. The Fed (Federal Reserve System) is indicating that they may adjust interest rates. Inflation numbers are up in the US. Oil prices are going frenzy. Some commodity prices are moving around. Even coffee futures are shaking. Is it really a pandemic thing? “Oh, pandemic suddenly affect oil prices, suddenly affect coffee prices?” 

Hello, guys. Really. Let’s be real. Most of the movement in the futures market is about volatility, it’s about liquidity and not about underlying demand. There’s no real serious change in the underlying demand of coffee. What, suddenly a lot of coffee drinkers… everybody at home want to drink more coffee, very stressed? Like me… drink more tea then end up cannot sleep.

Rubbish. All those things are media narratives. I say as if there’s a lot… very high certainty. Okay, I’m not coming from the ground of “oh, guarantee is like that.” No, no, no, no. I’m just trying to say that the media is so used to tying everything that now there’s an Omicron, it’s causing market sell-off.

The reality is it is not. I really think the current market sell-off is anchored on two things. Market sell-off is anchored on an increase in inflation, showing that inflation is no longer transient or transitionary. It may be here to stay and that’s given the high liquidity in the market. We’ll talk about that in a later episode where I review the year. 

So that’s that, and also the increase in probability of an increase in interest rates. I really think… my bets are the interest rates will come up. The governments of the world and the central banks… okay, I cannot speak for the central bank, but the governments sure feeling a lot of pain. A lot of inequality, a lot of descent, a lot of anger and it all built on some of these things and it’s all the result of a very low interest rate environment, very cheap so that people that can afford, they will spend more, they will buy more and they bid up and the inequality happens. You will see that happening. 

And so, with the increase in probability of interest rates going up and the increase of the clarity that inflation is here to stay, the markets are reviewing what is happening, going forward. It’s not suddenly some variant, viral… suddenly, the market sell-off. Delta never sell-off, why Omicron will sell-off? Because Omicron sounds scarier, is it? Omicron… rubbish! So don’t buy into the media narrative. It’s like they take correlation as causality. “Something happened, the other thing also happened… oh, it’s the cause!” 

放屁 (slang for bullshit). Rubbish. I don’t think that’s how it works. Important is to observe interest rates. If the Fed is going to increase interest, some of your growth stocks will sell-off, your high valuation stocks will sell-off, crypto will sell-off. Anything that is very fluffy and currently working in a high valuation environment will tend to sell-off quite seriously. 

Maybe the rest will also sell of but probably not as serious as these because firstly, it’s more expensive now. Capital is more expensive to hold into the future for these things because it compounds. You can see all the growth over time, blah, blah, blah. It would outrun. For all the growth investors, yeah, they will do it which is fine. That doesn’t matter if you’re a growth investor. 

But for everybody that is trying to be opportunistic with their capital and hoping that it will go up in the short period of time and can sell-off, you got to watch out. Also, in a high interest rate environment, bonds perform better so some of the risk capital that went into equity will actually move up. Because now bonds can perform better so they will reposition themselves and what have you. 

There’s a lot of complexity into those things, but generally the observation is when interest rates move up, some of these big growth stocks or the highly… or the companies with valuations way above their PE (Price-to-Earnings) ratios and what have you will have a discount. They will sell down. Depending on what’s your strategy, you can play accordingly, but it’s definitely not due to Omicron. “Stupid Omicron!” 

Okay, okay but there’s this one thing about this recent Omicron situation is that you are seeing mutation of the spike protein. By now, I’m expecting all of you to know what is a spike protein, if not the government has failed in their campaign. Go and watch some YouTube video. So yes, the spike protein is mutating. In other words, the mRNA vaccines can very readily prove useless. 

This brings me to point number two and that is if you are betting big on some of these vaccine providers and pharmaceutical companies, you really got to revisit your thesis. Not all of them are not, all of them are the same. I’ll expand a little bit on this after a word from our sponsor. 

Currently, there are two broad class of vaccines out there. One is the mRNA style vaccine. The other one is the weakened virus vaccine. Pretty much… this is the two camps. Your Sputnik, your Sinovac… I think Taiwan also has one new one, I can’t remember what’s that but all of them are using the old technology which is a weakened version of the virus. A lot of the existing vaccine that we take are actually dose. 

Essentially, they weaken the virus, it is inserted into you and then your body will build up immunity against that virus. But mRNA is only focused on the receptor… only focused on the spike protein. In other words, your body is really building up its immunity against the spike and not the whole virus. Okay… I stand corrected. I’m not a virologist but this is what I’m hearing from what is out there and what WHO is putting out to say that we are seeing some variant in the spike protein and preliminary understanding is it will affect the kind of mRNA-specific vaccines in terms of the efficacy. 

These are the two main vaccines out there… at least the two main camps. Even with all the “old technology” which is a weakened version of the virus, there are a few camps. Whatever technology platform that they use is all the same idea or similar idea. 

The mRNA is a whole new parallel, a whole new way of doing. These two are pretty much it. You see Pfizer, Moderna, some of these guys, their share price are flying off the shelf, right? The longer this drags out, the more money they’re going to rack up, or at least that’s why people believe in. That is one thing that’s being peddled out there. 

But I think with the formation of Omicron, you will start to question: is this a straight line trajectory or are we seeing it that even this thing can change. It can change so much that some of the vaccines is no longer working. If that’s the case, then you are pressing in a lot of risk into a particular stock like Pfizer, like Moderna. Do you really want to do it? 

I think that’s the thing that will potentially affect… so for all of you listening that you have decided to bet big on somebody’s vaccine providers or bet big on pharma, you might want to think about it. You might want to revisit and think about it because hey, if this thing flips, your risk reward is high. 

I’m always out of pharma. I wanted to say… I can say so far, I’ve not really bought any direct pharma companies. I don’t know enough about it. It’s very complicated. I don’t really want to participate in it, but if so happen, you have a big size in Pfizer, Moderna… some of these mRNA vaccine providers, you really gotta think about it because you may have listened to some Tik Tok-er, some financial YouTuber, some fin-fluencer, what have you… it’s a fundamental risk to some of these business, especially Moderna.

Pfizer at least has a wide spread of different vaccines that they are providing but Moderna only has one product essentially. They have other products in development but so far, the only cashflow mechanism is the Covid vaccine. If this renders useless, that is a very big risk. There’s core product risk that it’s not working at all so think about it. 

Omicron shows that there is a very big chance that some of these early vaccines that we were creating may not be as efficient or as useful going down, so will governments continue to spend this kind of money? That’s a big question mark. I think that is something to observe.

Which brings me to our third point: how Omicron will potentially affect you financially and that is some of your “recovery play”, or your post-pandemic play will take a longer time to happen, will take a longer time to recover. 

You already see the share price all fly up already, whether is it your airlines, your hotels, your cruises… a lot of your tourism play. Wow, all the share price all fly… all flying already and it all took off. Some of them were already back to pre-pandemic times but the reality is from 2019… start of the pandemic, all the way to now, a lot of these companies have really racked up a lot of debt. I don’t know if investors are writing off the debt situation. That’s one thing. But with interest rates potentially moving up, debt is going to be more painful for a lot of these companies that are more debt-laden than they were, pre-pandemic. 

The other part is that with the Omicron variant, whether or not it actually poses a very serious new wave of spread and all, all the governments will be more cautious. They may roll back some of these things and the media is going to double down because they wanted to make money. As the media double down on this whole Omicron thing, it’s going to slow down people’s travel plans. I already hear my friends say “oh maybe because of Omicron, we don’t want to travel to Europe anymore.”

People will slow down their travel plans so the whole re-opening play will get affected and then you’ll be like “hey Reggie, I thought you say the share price would not come down or the stock market is not coming down because of Omicron. Then now you say pharma can get affected. Now recovery play can also get affected.”

Okay, let me clarify. What I’m saying is Omicron is not a direct reason why the whole stock market is coming down because that’s what all the media players are saying. “Omicron… there will be another sell-off, there’ll be another dip.” It’s not but there are certain sectors that are more sensitive to this.

The recovery play is very sensitive to this because suddenly no recovery, no re-opening… of course sensitive. Moderna, Pfizer is of course very sensitive because that iss their core product not working, especially Moderna. Those are very specific. It’s not a market broad sell-off. The market movements should… in my view, should be a lot due to interest rates and inflation, okay?

I think this is the importance of trying to understand what’s happening and not just blindly pick the next thing. I think that’s where it is so all your recovery play will take a longer time to recover from their business fundamentals. If interest rates move up, that means the debt that they have taken through this pandemic is going to be more expensive going forward. Really? Do you want to do that? Those are some things to think about, some things concerned about. 

Thanks for tuning in to my midnight rant about this Omicron and I hope you learnt something useful. Of course, all the other things about whether or not you can keep your job, whether or not you’re financially stable, it depends on the sector they are in and I will not repeat the same things going forward. 

But I would say mostly… the narrative that’s going to happen over the next few days. I’m recording this on Sunday midnight. The narratives that’s going to come out over the next few days will really be about market sell-off, potential dip again… will this be a double dip situation or will this be a re-happening of the March 2020 drop? The media will always cover this same shit again and again. They need something to cover and politicians will join in here and there, wherever it’s incentivised for them. The market is going to move down because of other reasons, not because of this.

I think these are important clarification of what’s going to happen and I hope this gives you more clarity as to how you can play this thing and how you should see this Omicron variant, how it will affect you financially.

 Number one is the recent dip is highly unlikely to do with Omicron. Delta didn’t have a dip, why Omicron suddenly have a dip? It’s highly unlikely. It’s a lot more due to interest rates and inflation so if you want to observe whether there’s a perpetual dip in the market going forward, then you want to see the Fed’s numbers which are coming out… mid December. 

Number two is Moderna and Pfizer, the mRNA viruses are fundamentally at risk if Omicron changes this whole ball game of the spike protein. You want to observe this, especially with the WHO, and if you can and if you’re not a virology expert, then you probably should stay out of some of these companies. Up to you, you decide. I’m not telling you how to play this but this will affect some of their core business and your core product doesn’t sell, of course it affects the whole business. 

And of course, the third point is that some of your re-opening play will take a longer time to play out and in a higher interest rate environment… as if confirmed higher interest already, right? To me, very high probability. Not saying definitely will happen, but yes. Given a high interest rate environment at a longer reopening, it will affect all these companies from a financial standpoint and also from their share price. So think about it, see how they will play it out. Be more aware and don’t always get smoked by the media, okay? I hope you learnt something useful today. See ya!

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Okay, thanks for tuning into my random rant. Next week, regular programming will happen. We’ll continue. It will either be a SRS (Supplementary Retirement Scheme) game plan or phases of getting out of the rat race. Either way, they are all content that I think are pretty good. I hope you find them useful and find them interesting and invigorating. 

Of course, as you can tell over the past two months, I have been trying to recalibrate our content for Tuesdays because I’ve been getting feedback, different kinds of feedback and one of the main feedback that I’m getting is we are a bit too chim (difficult to understand) so I get it. 

For all of you that want to geek out and be chim, go to Stock Geekout… Market Updates, listen to Geekout. We do the chim chim stuff there. I want to keep TFC accessible. I want to keep TFC, the main podcast accessible so that we can welcome more people into this discussion. We don’t want to be all high and mighty and be like “oh, you don’t know? You never manage your money, blah, blah, blah, blah.” 

Rubbish, all those things not important. Important is we recognize that there are a lot of people (who) are uncertain about their financial future, uncertain about how to look at finances. When you are uncertain, you will fear. You will even resent it. I think that’s the part that we are trying to curb as a company, as a community. We’re trying to get more people to talk about money, try and get more people to participate in the conversation and create better conversations.

I’m gonna make sure Tuesday is going to be continuously accessible. From time to time, there will be a little bit more geeky stuff here and there because of markets and what have you, but I’m going to keep it a lot more accessible and I will appreciate your continued feedback to help us stay relevant and create content that will work for you and work for us. Of course lah, because you listen then we can sell sponsor mah. So yes. Thanks for supporting the podcast. We’re coming to the end of the year and take care. See you soon. Bye!