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This is an exclusive "Hedgeye Investing Summit" interview between Mike Taylor, Portfolio Manager at Critical Mass Partners and Hedgeye CEO Keith McCullough.
To watch other "Hedgeye Investing Summit" interviews, click here.
You don’t want to miss the insights in the excerpt below transcribed from their conversation.
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Keith McCullough: I like to think of you Mike as a Man for All Markets. I wanted to have you go last because at the end of this I want to recap, ‘What the hell do you do now?’ And on the COVID topic in particular, you’re widely known on HedgeyeTV as having nailed it.
I certainly want to hear how you think we’re coming out of it.
Mike Taylor: On background for me, a lot of people don’t know where I came from or what I’ve done. I started out about 25 years ago working on gene therapeutics. I wore a lot of hats in a small business and then I discovered that this job existed [hedge fund manager]. I had no idea.
As soon as I saw it, I thought, ‘My God, this is what I’m supposed to do.’ I always loved science, loved drugs, creating drugs. I was fortunate enough to get two of my drugs into the clinic. But then I discovered that this job existed and said, ‘This is it.’
I went to business school then ended up at Oppenheimer. I’ve been at hedge funds for the past 20 years, predominantly at Citadel and Millennium for most of my time.
We have a lot to talk about. I want to talk about COVID and what the trades are. Also the Election and how it’s going to work out and what the trades are.
First on COVID. Right now we have about 60,000 cases rolling in per day. That’s a lot better than I thought. The states have done an incredible job with the lockdown. Last time we talked, I thought we were going to hit a new high in COVID infection rates and blow through 100,000 per day. And we didn’t. The states really got onto their job.
I generally view government officials as feckless twits. They actually took action. I really didn’t think they had it in them. That bought us some time.
In the next two weeks, we are going to see the first vaccine trial readout. The first one is from Pfizer and BioNTech. They’re working together. I think there’s an 80% chance that it’s going to be positive and we’re going to have the first vaccine.
We have five vaccines that are going to readout between now and January. That’s Pfizer (PFE), Moderna (MRNA), Novavax (NVAX), AstraZeneca (AZN) and Johnny John, Johnson & Johnson (JNJ).
I think Astra and Johnny John have troubled vaccines. They based them upon a vector called the adenovirus. That’s something that I worked a lot with 20 years ago. The human body doesn’t like it very much. The other ones are using an mRNA vector but they’re all using the same thing. They’re making proteins along the spiked protein on the CCP virus, that’s Chinese Communist Party-19 virus.
They are all likely going to work. They’re all very classical. There’s an antigen. Your body is attacking that antigen and making you immune from that antigen when the virus comes into your body. So you’ll likely have memory T cells. All the classical vaccination events.
There’s probably an 80% chance this reads out positive in the next two weeks. Three weeks after that, we likely have a read-out form Moderna and that will likely be positive too. The side effects on these vaccines are pretty nominal, mostly around injection site reactions and fever in about 20-30% of vaccinations.
I think the vaccinations are going to be very successful. And that’s actually going to change everything very quickly. We’ll be looking things getting back to much more normal here in the U.S. about a year after that. But as you know stocks will start to react immediately.
The trade is, for all your listeners, long garbage. Garbage meaning Carnival Cruise Lines (CCL).
McCullough: The stuff that has been hammered.
Taylor: All these companies, Dave & Busters (PLAY), Cheesecake Factory (CAKE), Gaming, Leisure, Hotels, like Carnival are going to go bankrupt in the middle of next year unless bookings explode, and then they’ll get the cash to carry them through.
We’re going to get distribution of a vaccine beginning in late November, early December. It will be one of the fastest approvals we’ve ever seen. It will go mostly to healthcare workers first until the end of the year. And then January, February and March it will go largely to everyone else in the U.S.
Many of these companies have big contracts to deliver supplies once they are approved.
So I think the trade is a dash for trash. It’s going to be a violent one and it should be a violent one.
You look at a company like Carnival Cruise Lines (CCL), which is trading around a 52-week low. Yes, they’ve diluted themselves. Yes, they’ve taken on a lot more debt. It’s not great, but it’s not going to go bankrupt if the vaccines are positive and it probably has a triple in its future between here and May.
McCullough: To get a good trade you have to have a good set-up. And this is what a lot of people miss for those that don’t have a view of the world like we do. You have these most recent moves lower in stocks that I would characterize as dumpster divers, Carnival and Norwegian (NCLH). You have to get them to a place where people think it’s not going to get any better.
So on your timeline we have two weeks – which is interesting because we’ll talk about the election. The stocks that you’re talking about are basically my shorts. When they’re going up I short them and when they’re going down I cover them. We were just in that going down part of the movie.
Taylor: What it might be is that everything goes up but these garbage stocks go up a heck of a lot more. I’m actually really surprised that the market hasn’t started to front-run this yet. I suppose I shouldn’t be because the market is always right and always wrong. It’s going to change.
