A new word has entered our lexicon since last week. Most of us might have never even heard of it before. It is the 15th letter of the Greek alphabet named Omicron. We were so comfortable with delta the fourth letter of the Greek alphabet but now Omicron comes along.
Delta is the most widely used Greek alphabet. The word has different meanings depending on what you want to communicate. Predominantly, it means something to do with change.
For options trades, delta means how many options contracts are needed to hedge a long or short position in the underlying asset. For other businesses, it refers to the carry. In nature, it means an area of low flat land shaped like a triangle, where the river splits out into several branches before entering the sea. In a Covid situation, it’s a variant that mutates. So its applications vary widely.
Even before we could understand what omicron is, America has closed its borders for most African countries especially South Africa. In pure Wild West style, shoot first and ask questions later. The horses have left the barn but we have decided to bolt the barn.
In a Thanksgiving week where Fridays are typically uneventful, the markets dropped more than 2%. It was a major move considering it was a holiday-shortened week. It was no doubt caused by a market that was looking for an excuse to take profits. The long holiday weekend and low volumes aided the fall further. It was not a referendum on COVID-19 but excessive fear and a bit of overvalued stocks. Having said that things are getting dicey and a wee bit too heavy.
The concerns here have less to do with the virus but more to do with how governments would respond. Are we going into lockdowns again and more restrictions? The WHO’s concern is that this new variant first discovered in South Africa could be more transmissible, more virulent, and less resistant to the vaccine. Less resistant to the vaccine, it might be. It is mighty difficult in most parts of the world these days to get on a plane without being vaccinated. So how did 16 passengers landing in Holland with symptoms of Omicron travel undetected or are we missing something here?
The truth is we do not know much about this variant so far. Scientists are focused on three aspects of Omicron. How quickly it spreads, whether it can cause serious symptoms, and if it is able to get around the immunity offered by vaccines. While there are a lot of unknowns, at this point we also understand the basic contours of the virus. How it spreads, how to fight it and how to stay safe.
As for us who are in the financial field, the 64 mln dollar question is will Omicron turn out to be a substantial setback to the ongoing economic recovery or just a speed bump on the road. Whichever way it goes, things will be more clearer only by 14/15 Dec when the Fed meets again. This new uncertainty no doubt puts them into crosshairs. They just recently started dialing down on QE. The jobs data on Friday will be important. Any further negative virus news could have a deteriorating economic outlook. Such a scenario will put pressure clearly on the Fed to walk back on its well-announced exit of emergency level policies. If the past 12 years’ history is any guide, stocks can push the Fed until they respond and the Fed will respond.
On Friday, the treasuries were the only safe haven but remember Pfizer and Moderna rallied 6% and 21% respectively. Sometimes, one cannot help but wonder if this is all an elaborate Ponzi scheme!
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund. Currently, he is setting up a hedge fund where foreign citizens can invest in Indian growth stocks like Tanla operating in hyper-growth markets like CPaaS.