We have a new Grinch for Christmas. It’s called the Omicron variant. The doctors and virus specialists don’t seem to like the look of this current dynamic.
What’s that, exactly?
This new bug is cutting loose just as all the restrictions lifted. It’s likely we get a big dose of daily cases in January. Christmas Day could become a super-spreader event.
What nobody is sure of is just how severe or not Omicron is in terms of deaths and hospitalisations. Should we worry or press on as we are?
I don’t know.
But I get the sense the market isn’t happy about it. The news from Europe isn’t encouraging. The Dutch are locking down again. Ireland is putting a curfew on. Winter is coming.
The so called ‘reopening’ trades are starting to look sick. Take Webjet Ltd [ASX:WEB], for example.
It rallied 44% from late August to an October high. It’s now nearly given back all those gains.
I didn’t take the trade. I took a look into the stock a while back.
The thing that bugged me was that it’s not yet back to profitability. I wasn’t so sure I liked this business anyway. In other words, I had no conviction on it.
From memory, it has a reasonably high exposure to Europe too, plus North America. Neither look too flash if Omicron cuts loose.
It may still be a problem even if Omicron is not as murderous as some fear. The problem is people are scared that it might be.
We have family over in Spain. They’re not as dismissive of COVID as we can be here. They certainly seem to temper their behaviour at a personal level more than we do.
We also know that the driving force of international travel now — Chinese tourists — are under huge restrictions at home.
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I find it hard to get excited about travel stocks, except perhaps domestic.
In fact, it’s hard to get excited about much in the short term. My read of the market is that most stocks are flat.
There is one small exception: BHP, RIO, and FMG are all lifting off the lows they hit after iron ore was carted for six.
Somewhat surprisingly, iron ore is now back at US$120. All three stocks, arguably, have not priced this in.
There is one other thing to like about the iron ore business currently. WA and China are two of the most COVID-secure places on the planet.
We know WA has been fanatic about securing its border. They barely know COVID exists as a reality over there. But China is even more extreme from all accounts.
Suffice to say, that (hopefully) allows for trade between the two to keep flowing uninterrupted.
The longer term is more nuanced. China has made it clear that it wants to diversify away from Australia.
I noticed last week that a small iron ore developer recently inked an early ‘memorandum of understanding’ with a couple of Chinese steel players. The stock, Genmin, is listed here on the ASX but operates in Africa.
It’s early days yet, but it does seem to be in accord with the relations between the two countries currently.
We’ll follow this more next year. For now, this is my last note to you before 2022 rolls around. Thanks for reading, and here’s to more Daily Reckoning in the next 12 months!
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
PS: While we’re on a break, don’t forget to check out my podcast on Spotify or Android here.
We’ve got a great back catalogue brewing already of timeless wisdom. It’s not just me saying this. My colleague Sai (from accounts) came up to me at the Christmas party on Friday full of enthusiasm for it.
I’ve also got one of my favourite men in finance on today: Gary Norden. He wrote a fantastic book on trading called An End to the Bull. His commentary is always insightful.
And you know what? It’s all free. Check it out now!
