Holiday Road: Vacationers Bringing Home Unwanted Souvenirs

After months of being cooped up in their houses, Americans have been clamoring for a chance to pack up everyone in the old Wagon Queen Family Truckster and get the heck out of Dodge for a while.

In more normal times, that would mean a trip to Las Vegas to play some blackjack, making the rounds in Europe, or if the kids have their way, a glorious getaway to Walley World.

Unfortunately this year, all bets might be off, our passports have expired…

And Walley World is closed… for real.

In lieu of those options due to the ongoing COVID-19 pandemic, families are increasingly opting for outdoor-based vacations. For a lot of folks in the middle of the country, that has meant purchasing an RV or a campervan, and turning the travel itself into a social distancing vacation.

For those closer to the eastern seaboard or the Gulf Coast, however, it’s largely meant heading to the water, where there’s better scenery, more outdoor dining establishments, and large enough outdoor spaces to accommodate a large amount of people.

The only problem is – when everyone has the same idea at the same time, that space isn’t anywhere near large enough.

It didn’t matter where you went over the July 4^th weekend – New York, the Jersey Shore, Virginia Beach, North Carolina’s Outer Banks, even a lake in Southwestern Michigan –  everywhere was jam-packed.

Now, when my family used to go to the beach, I’d come back with all sorts of stuff – shells, inflatable rafts, buckets and spades – typical beach wares.

But in the wake of this past weekend, families are returning home with an entirely different, unwanted, kind of souvenir…

Coronavirus.

Second Verse, Same as the First?

While most news outlets have been actively discussing the ongoing outbreaks in Florida, California, and Texas, very few have been talking about just how severe they actually are.

As a comparison, I think it’s important to note that the 7-day average of new cases in each state is rapidly approaching the same level as New York at its peak.

Source: Seawolf Research

Just yesterday in fact, Texas shattered New York’s record, showing over 10,000 new cases in a single day. And with far more cities to incubate the virus, it is probable (if not likely) that each of these states could eclipse 15-20k new cases per day.

But again, the important thing to notice here is that each of the states showing the highest daily new case rate – Florida, Texas, California, Arizona, Georgia, and South Carolina – are all huge vacation destinations.

And data visualization companies like Tectonix have shown us before through anonymous mobile data how easily coronavirus can spread from a single location all around the country.

From a single beach in Florida all up and down the Eastern US…

From a single meatpacking plant all throughout the Midwest…

From a single spot in Ocean City, MD over Memorial Day throughout the DC, MD, and VA region…

And from one party in the Ozarks all over Missouri and its neighboring states.

In fact, when I logged in to my own data tracker over the weekend, I noticed the beginnings of a serious outbreak in my hometown – Morgantown, WV (shown below in red).

Source: Seawolf Research

Some friends pointed out to me that the Morgantown outbreak is most likely connected to one currently affecting Myrtle Beach, SC (also shown in red below)  – a destination so often frequented by WV residents it is occasionally referred to as the “56^th County.”

Source: Seawolf Research

This is also likely cause for concern for other areas prominently populated by WV expatriates who may have been on vacation at the same time – notably Pittsburgh, Columbus, Charlotte, and right here around my current residence in the DC-Baltimore area.

Unfortunately, we’ll have to wait a couple of weeks until we see whether this unwanted souvenir shows up here in significant quantities.

Driving It Home

There are a couple of market implications we can make.

First, much like we have discussed before, the severity of outbreaks is closely related to a decrease in both consumer activity (retail purchases) and mobility (driving.)

The first means that our stake in ProShares Long Online/Short Stores ETF (NYSE: CLIX) – already up 20% – is likely to continue rising unless online retailers have supply chain trouble again.

Secondly, it means that shutdowns are likely around the corner again. And while it won’t be the largest city in the country doing the shutting down, it means that crude oil demand is likely to take yet another hit as driving season moves past its seasonal peak.

In fact, oil traders have already shied away from the market, with volumes for Brent down by nearly 2/3 of their March peaks…

Source: ICE, Bloomberg

And WTI crude volumes showing very much the same trend…

Source: CME, Bloomberg

As storage volumes sit at highs not seen in decades.

Source: EIA, Bloomberg

That means our stakes in ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO) and Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 2X Shares (NYSEArca: DRIP) are going to get healthy again over the coming weeks.

But it also means that the market might be gearing up for a serious slide.

And if that happens, I want to make sure we have some exposure to precious metals.

Now, our last positions in UGLD and USLV were recently (and cruelly) removed as investment options by Credit Suisse.

However, there are some analogous vehicles, namely ProShares Ultra Gold (NYSEArca: UGL) and ProShares Ultra Silver (NYSEArca: AGQ) that we can use in their stead.

Since both gold and silver are pulling back today, it’s a good time to go grab a ¼ stake in each, with the intention to pick up more in the event of a market selloff.

As to when that might be, it’s hard to say – markets have been extremely resilient, especially the Tech sector.

But if there’s one thing we know, it’s that when these things happen, they happen fast.

And we still have a long way to go down that Holiday Road.

All the best,

Matt Warder