GSX Techedu tumbles; 'SOLO is a COMPETE JOKE'; 1 America, 1 Pandemic, 2 Realities

1) In Friday's e-mail, I wrote: "As punishment for the outrageously high number of Chinese firms that have listed on U.S. exchanges and turned out to be total frauds, I would simply ban all of them."

It would be hard to find a better current example than Chinese online-education provider GSX Techedu (GSX), which famed short-seller Carson Block of Muddy Waters targeted earlier this year – see my October 22 e-mail about it.

GSX shares fell as much as 25% on Friday before closing down "only" 8% after the company announced third-quarter results. This tweet explains what happened:

Don't be tempted to try to catch this falling knife. Even if it doesn't turn out to be a fraud (unlikely), GSX Techedu still has a $15.6 billion market cap and its stock trades at 17.4 times trailing revenue!

2) Whenever a sector gets hot – like electric vehicles today – you'll often have better luck on the short side by avoiding the market leaders like Tesla (TSLA) and instead shorting the total frauds or promotions that are going along for the ride.

Here's another famed short-seller, Andrew Left of Citron Research, on one such company, Electrameccanica Vehicles (SOLO), whose stock is up more than 1,000% since May despite having virtually no revenue. Left tweeted:

3) Here's an excerpt from the e-mail I sent to my coronavirus e-mail list over the weekend (you can read the full e-mail here... If you'd like to be added to the mailing list, simply send a blank e-mail to: cv-subscribe@mailer.kasecapital.com).

In the absence of any leadership at the federal level, there are fascinating natural experiments occurring as states adopt vastly different responses to the virus. Two of the most extreme are South Dakota and New Mexico, as this story on the front page of the New York Times highlights: 1 America, 1 Pandemic, 2 Realities. Excerpt:

In one pandemic reality, restaurants are packed. There are no coronavirus limits at college-town bars. No social-distancing dots speckling the floor. Some people are wearing masks, but even a weak proposal to make it a requirement in one city prompted an outcry. Welcome to South Dakota.

In another, hundreds of miles to the south, much of life is shut down. No dining inside restaurants. Capacity limits at Walmart. Shuttered bookstores, museums, hair salons, parks. A mask-wearing culture so widespread that someone put one on an old statue. Welcome to New Mexico.

This is the view from America's two discordant, dissonant pandemic realities.

The pandemic and the nation's disjointed response have taken the notion of two Americas to a new extreme. As known coronavirus cases in the United States have surpassed 12 million over the course of the pandemic, the daily routines of millions of Americans are now shaped by their ZIP codes and governors and beliefs about the virus: Do they wear masks? Go to school in person or online? Eat out? Get exposed to the virus?

Hospitalization rates in South Dakota have been the highest in the nation, but a conservative frontier philosophy dominates the state's approach. Some towns, stores and school districts require masks or social distancing, but, as a whole, South Dakota has the fewest restrictions of any state, with neither a mask mandate nor significant limits on businesses. Gov. Kristi Noem, a Republican, has called that distinction a badge of freedom and criticized restrictions as ineffective and economically destructive.

"You wouldn't even know there's a pandemic going on," said Heidi Haugan, a mother of four young children in Sioux Falls, South Dakota's biggest city.

As the virus surged in New Mexico, Gov. Michelle Lujan Grisham, a Democrat, on Monday put the state's two million residents under some of the toughest restrictions in the country, issuing a two-week stay-at-home order, banning restaurant dining, setting capacity limits on grocery stores and closing indoor malls, movie theaters, and gyms.

Let's look at the latest data for each of these states – first the raw numbers for each state, then per capita cases, hospitalization levels, and deaths over time, showing both states on the same chart (sources here, here, here and here):

My takeaways from this data:

• Both states were almost completely unaffected by the first two waves, so developed little population resistance/herd immunity, and therefore it's not surprising that they are getting clobbered – with huge surges in cases, hospitalizations, and deaths.
• By all measures, South Dakota is getting hit harder, with hospitalizations and deaths per capita approaching the horrific levels that New York and New Jersey hit in April.

In light of this, many people will no doubt conclude that the politicians and people of South Dakota are being incredibly reckless in refusing to lock down the state (as New Mexico – and most other states – are doing). They're like the famous "crazy nastyass honey badger, the most fearless animal in all the animal kingdom. It really doesn't give a shit!"

I am not recommending that the rest of the country adopt South Dakota's approach – especially with multiple vaccines about to become widely available. It's just too risky to experiment on 331 million Americans.

But as a researcher, I'm delighted that an extremely low population state (885,000 people) is trying this approach – because it's entirely possible that the South Dakotans will eventually be proven right!

If you look at the charts closely, you'll see that cases per day have been declining and hospitalizations have flattened over the past week. It wouldn't surprise me if the top was a week ago and the virus starts to fade away because South Dakota has reached the herd immunity threshold.

Here's why: As of today, the state has had a total of 71,070 cases (source). My rule of thumb is that only 20% of cases are identified by testing. If so, that means roughly 350,000 South Dakotans have been infected, which is 40% of the state's population – likely the highest of any state.

My guess is reinforced by this chart by data scientist Youyang Gu:

Here's his estimate by county:

Gu estimates that North and South Dakota are the highest, at roughly 30% infected, while the lowest are Vermont and Maine, at roughly 2%. Overall, he has prevalence at about 17% nationally.

In summary, there is little doubt in my mind that, by not locking down, more South Dakotans will be infected, hospitalized, and die. (How many more is impossible to know.)

But, in exchange, South Dakotans haven't had their lives upended for the better part of a year. They're not cowering at home, children are going to school, people are going to work, businesses aren't failing, friends are hanging out with friends, people are getting necessary health screenings, etc.

So is the trade-off worth it?

My view is that if they go into this with their eyes open, fully informed of the risks, and choose a certain amount of sickness and death in exchange for more freedom, who am I to judge?

Best regards,

Whitney