Why I'm Still Hedging Potential Omicron Impact
0November 28, I penned the article "Omicron: Why I'm Hedging With SP 500 puts ". I've since learned a lot about Omicron and believe the consensus characterization of this variant is that it "spreads fast but causes mild disease". I'm going to preface this by saying I'm not a virologist, epidemiologist, and instead just a mere speculator. I've been looking at data I could find to try and get an idea of where this is headed (a short time) before scientists and more capable people will publish their likely much better-supported findings. It looks to me like the Gauteng (South Africa) data paint a nuanced picture and I'm somewhat wary of the popular "mild" interpretation. In short, my view is the impact of Omicron on the global North could well be underestimated. Since November 28, the SP 500 has gone up (~1%) while the QQQ actually sold off (0.70%). I still favor a cautious approach and one way to do that is by picking up relatively cheap hedges. In my defense, the SP 500 is down some and the iShares Russell 2000 ( IWM ) actually sold off pretty hard (almost 4%). Since that public article, I've updated my views with around ~10 brief notes to subscribers as data emerged. Reviewing Gauteng data Gauteng (an urban area of South Africa with a population of 16 million) is viewed as the epicenter of Omicron and I've focused my analysis there on the theory that it would perhaps help find early indicators of what to expect. The picture isn't disastrous and I don't think it has to be for Gauteng or South Africa. This doesn't necessarily mean Omicron won't be problematic in Europe and/or the U.S. In fact, given the South Africa context, the data isn't as reassuring to me as it seems to be to so many. Here's a quote by Professor Shabir Madhi who's a clinical infectious disease epidemiologist and vaccinologist. A recent seroprevalence survey in Gauteng, where the Omicron variant was first identified, showed that 72% of the population had a previous infection with the coronavirus, said Shabir Madhi, a vaccinologist at Wits University. That compares with about 20% when the Beta variant emerged a year ago, said Madhi, who led trials of both AstraZeneca and Novavax's shots in SA. That compares with about 20% when the beta variant emerged a year ago. SeroTracker doesn't show it yet but it doesn't seem inconsistent with prior studies that covered different time frames. Then there's this thread by an engineering PhD at the University of Johannesburg. Streicher believes the rest of the world has nothing to fear. This is a conclusion I definitely don't want to underwrite at this point but he also argues natural immunity levels of 70%. I found that data point hard to assess, but with two South African sources, I'll assume it's about right. Vaccination rates are around 25% nationwide, but if you count 1 dose, this shoots up to ~35%. There aren't many old people in Gauteng, to begin with. The median age for the province is 27 years old. Gauteng province's age distribution is 23.6% under the age of 15, 19.6% from 15 to 24, 37.9% from 25 to 44, 15.0% from 45 to 64, and 4.0% who are 65 years of age or older. It is known that older people are vaccinated above the national average rate of ~27%. I've seen estimates claiming 50% of the over 60s. The figures are going to overlap to an extent. At the end of the day, it is likely at least 72% but possibly up to 93%+ of the Gauteng population will have had some kind of Covid defense. I went through all of that because this context is vastly different from the European context. In Europe, 20% of the population is over 65 years old. The median age in the EU is 43.9 years old. There are major gaps between seropositivity rates between Europe/U.S. and Africa: Source: SeroTracker If you consider the defenses present in the South African population and the widely acknowledged rapid rate of spread of Omicron, the Gauteng figures don't look so great. You see a lot of commentary along the lines of "Delta at the same stage caused a lot more deaths". Yeah, and if it didn't, we would have a huge problem. When Delta hit, people weren't vaccinated or had already experienced Delta. To create the following graphs I've just taken the Gauteng hospital data from the South African NICD. Admissions are rising but indeed not exponentially. At the start of the wave, there were a lot of incidental cases. At that time, relatively few people presented with advanced Covid. This may be because Omicron could spread widely before being detected as it's a mild disease (a popular read) but a number of other factors could be responsible or have contributed; Omicron seems to spread really fast, vulnerable people already died in one of the prior three waves, vaccination rates among vulnerable groups tend to be higher and 70% seroprevalence among the Gauteng population. Data: NICD High daily number yesterday but could be due to data catch-up. D