Follow Your Nose: Weird Data Can Often Be the Most Predictive

My daughter loves Fruit Loops.

We think it’s because her favorite color is “rainbow” or “all them” – but whatever the reason, she is powerless to resist the allure of the Technicolor Toucan.

She’s also convinced that each color is a different flavor, completely ignoring all the well-designed, extremely scientific studies that have proven otherwise.

For the record, she seems partial to “orange,” “cherry,” and “lemon”… you know, the classic flavors before Kellogg’s (NYSE: K) totally sold out and went full rainbow.

And I can’t blame her either – I loved the commercials as a kid. They were always clever and well written… and with a catch phrase so good, it’s been in use for 50 years.

Now, in the commercials, “follow your nose!” is basically a MacGuffin that lures our children toward a sugary snack. But for researchers like me, it’s actually pretty solid professional advice, because it also means to trust one’s instincts… or to track down information in a logically progressive fashion.

And somewhat ironically, while my daughter was devouring her third bowl yesterday (!!!), a text from a friend encouraged me to sniff out some data on Google Trends.

The Hidden Power of Synonyms

The text read “pretty interesting (can’t take credit) to predict next hotspots” and contained a link that took me to the following chart:

Source: Google Trends

What this shows is a 30-day trend of searches for the word “anosmia”… which is the medical term for loss of one’s sense of smell. You can see there that the chart clearly begins trending upward around June 12-13^th, and aside from a couple pauses, has steadily risen since.

Not coincidentally, June 12-13 also marked the bottom in US daily new cases of COVID-19… and that number has steadily risen in the time since.

Source: www.aaitshb.com/covidtrends

So when I dug in to see who else has looked at these correlations, I found a paper that had conducted a relatively thorough analysis linking the symptom of anosmia more closely to COVID-19… using Google Trends data to do so.

And sure enough, it works pretty well. Here’s Texas data showing a sustained rise above previous peaks around June 13^th…

Source: Google Trends

… which is right before new cases started to increase again.

Source: www.aaitshb.com/covidtrends

The predictive trend was clear in Florida, too, with clear spikes in search levels on May 19-20…

Source: Google Trends

… which coincided with the beginning of an uptrend in new cases.

Source: www.aaitshb.com/covidtrends

Obviously, the new cases in Texas and Florida are going to negatively impact demand for consumer goods in the near term. And if they go on lockdown, demand for gasoline is going to take an enormous hit in what would normally be peak driving season.

But we’ve been talking about that relatively frequently, and I’d much prefer to turn this idea loose on an emerging trend.

One suite of articles that has struck me of late have focused on the recent ban of American travelers by the European Union. Almost invariably, mainstream media articles are using the same chart to explain why – one that shows daily new cases in Europe juxtaposed with the US.

Source: Johns Hopkins

It’s true that Europe has done a great job in beating back the coronavirus over the past few months. But Europe is taking this precaution of banning US travelers as part of its plan to reopen.

Keep in mind, all 50 US states reopened on May 20^th, and just a month and a half later, we’re back at all-time highs.

Given the lack of hubris shown by US officials amidst this most recent post-reopening outbreak, it’s curious to me that Europe is about to follow in our footsteps.

When I did a search on Google Trends for “anosmia” throughout European countries, I mostly found stable figures… well, except for one:

Source: Google Trends

If this data is truly predictive, we should see the beginnings of a new outbreak from Madrid through the provinces of La Rioja and Basque Country over the next 2-4 weeks.

As such, we want to keep an eye on the iShares MSCI Spain Capped ETF (NYSEArca: EWP). Following a rebound all the way back to US$24/share it has stabilized in the mid-US$22 range. If it begins to flag over the next month, either buying puts around the $20 mark or buying a stake in ProShares UltraShort FTSE Europe (NYSEArca: EPV) would make some sense.

We’ll track this over time.

In the meantime, we have some housekeeping to do, as Credit Suisse is discontinuing their leveraged precious metals products soon, which include our holdings in VelocityShares 3x Long Gold ETN (NYSEArca: UGLD) and VelocityShares 3x Long Silver ETN (NYSEArca: USLV).

We’re up over 12% on gold and over 15% on Silver right now, so just sell now and lock in those profits, and we will look to jump into some different leveraged products on the next pullback.

Also, with shares of Wrap Technologies (NASDAQ: WRTC) back up above the US$10/share mark, the sub-$8 limit order I recommended is up as much as 72%, depending on when the order was placed.

While I’m a huge believer in the company longer term, this valuation is elevated… go ahead and sell now and we will jump back in at a lower price.

All the best,

Matt Warder