Contagion
Contagion
“I'm not a doctor, but I did stay at a Holiday Inn Express last night” - ‘Not’ Dr. Stewart
CORONAVIRUS MODEL.
Well, we recently set up a Twitter Account… and the 3rd Tweet went viral:
**Because of course, a Tweet about an actual virus would go viral**
Before going into the substance of the Tweet - here’s the article/clip that prompted it:
“Each person infected with coronavirus is passing the disease on to between two and three other people on average at current transmission rates, according to two separate scientific analyses of the epidemic” - Kate Kelland, Reuters
The 2x-3x person infection rate caught our eye.
Bear with us:
From viral marketing, we knew that if your K-Factor (share rate * activation) is >1x, you have exponential growth (conversely, a K-factor less than 1x results in exponential decline).
[This was top of mind, bc last year, we modeled out these mechanics during an exercise to value Dropbox & Uber…but that’s another story]
Anyhow - it’s relevant, because the mechanisms work the same way - it’s why viral marketing is called “viral”. [In medicine/epidemiology the K-factor roughly translates to an R-0]
Long-story-short: a 2x-3x contagion rate is VERY HIGH.
To draw attention to this, we forecasted out that infection rate to 9x months:
At that rate - by September - the whole world is infected.
Now - OBVIOUSLY, that’s not going to happen.
Hyperbole got the message out.
Going back to Uber & Dropbox - both companies did have K-factors over 1x for a meaningful period of time.
Like everything else, it tails off…
There’s no way that every reader of this newsletter has Dropbox + Uber installed.
BUT, 3x of us DO have Dropbox + Uber installed - and we’re guessing that at least a few hundred of you, if not more, do too.
SO - on that note - we’re not going to underestimate the coronavirus.
And you don’t need to be a doctor to understand that -
CRUDE.
Libyan crude oil production is down ~1MM bopd in the last 2x weeks.
And, per BAML, ~2MM bopd from ‘18 is also off the market - on account of the sanctions on Iran & general mismanagement in Venezuela:
Meanwhile, headlines are calling for Peak Permian…
And WTI is still down... ~15% in the last month.
We won’t speak for beyond the 12x month strip, but we do think the China virus concerns are affecting commodity prices - at least the ‘20 contracts -
VENEZUELA.
On the topic of Venezuelan production…
From Bloomberg:
“Facing economic collapse and painful sanctions, the socialist government of Venezuelan President Nicolas Maduro has proposed giving majority shares and control of its oil industry to big international corporations, a move that would forsake decades of state monopoly.”
“Maduro’s representatives have held talks with Russia’s Rosneft, Repsol of Spain and Italy’s Eni. The idea is to allow them to take over government-controlled oil properties and restructure some debt of state oil company Petroleos de Venezuela SA in exchange for assets”
It’s only appropriate that Rosneft - a Russian oil company - is trying to get in on this trade.
Back in October, we outlined the infamous Firebird Strategy - whereby a foreign investor bought shares of a Russian oil company, making what was perhaps the largest institutional return on an upstream investment - in the ‘90s at least.
Rosneft wants to turn the tables on history - and we don’t blame them -
OTHER NEWS.
For more on China, we recommend Bill Bishop’s Newsletter
We uploaded the Virus Model - download a copy in the file tab
Note from Matt: Kobe Bryant died… and everything else aside - on January 22nd ‘06, I watched him drop 81pts on the Raptors. I was at the Sandbar, in Coconut Grove.
Something about that performance still speaks to me - it was like taking Nike’s “Just Do It” slogan & turning it up to 11… into something like [crush them hard enough to] “Just Make Them Want to Quit Basketball”.
Don’t think I’ve seen that since -
That’s it for today - we’ll be back Friday -