Romania seen through foreign investor eyes

21.01.2019   |  Business Travel  |  Featured  |  Startup

I am a Romanian businessman, but I consider myself lucky for being born in a time when business became borderless. In other words, I’ve been interacting with non-Romanian partners for almost 10 years. So, since this text is in English, you are surely interested in a short list of my foreign partners’ perceptions of Romania. Warning: most positive things have a downside. 

Work hard, play hard

Yes, we, Romanians, are known for that. We get enthusiastic quickly and react well to uncommon tasks, stimulated by the novelty of what we have to do. Also, overtime is less expensive in Romania than elsewhere for various reasons. Every foreigner I know was happy with the fact that we are connected 24/7 and most of us do react well to business messages sent at unusual hours, especially having in mind time zones.

However: Things can become hectic at this pace. If somebody spent 16 hours at the office the day before, you can hardly expect them to deliver something good the next day. Somehow, in this part of the World, we have to protect ourselves from work excess in order to be able to obtain better long-term results.

Good English language knowledge

You can order a beer in English almost anywhere in a big city. You can even bet on a certain degree of command of English from middle-aged taxi drivers. There are even things that Romanians can hardly name in their native language, such as computer menus or marketing lingo. Romanian itself got invaded by English after the fall of communism, in domains that simply lacked the vocabulary. Most of them are related to business or technology.

However: There are people who have studied English and there are people who learned it by ear. You may face some misunderstandings ranging from funny to problematic. You also may be surprised of how little English legalese a technical person understands and the opposite — what a lawyer can make of a marketing report. My advice: if you’re in search of really strong abilities, look for English certificates rather than self-assessment in resumes.

Bureaucracy

One could hardly say anything good about Romania in this respect. In my view, you can never be cautious enough about it. Have you heard about the rule that you’ve got to get the agreement of your closest neighbors when setting up even the smallest, quietest business in an apartment? An American friend of mine asked a bureaucrat about the meaning of it and the bureaucrat frowned: ‘There have been cases when we’ve had dozens of companies registered in the same apartment, which is totally fishy.’ The American was bemused: ‘This is precisely what I pay for in New York and it’s totally legal. A box located at a physical address, together with hundreds of other businesses, just in case. It’s 50 dollars per year and it’s the only address I need in the US!’

Responsiveness and punctuality

A big part of Romania, at least the one you’ll be interacting with mostly, is somehow prone to progress. I’m not bragging with my conationals –  it’s the observation of an Italian partner. It comes down to the will to overcome ourselves and catch up with what is sometimes still called here ‘The West’ or ‘The Civilized World’. This is causing the enthusiasm and ability to work hard I’ve already mentioned and, obviously, punctuality. You can use it all to your own and your local partners’ advantage.

However: Have you ever heard anybody saying in Romanian ‘Imediat!’? It is an answer to a request and it literally means ‘Immediately’ or ‘Right away, Sir’. Some other cultures have it, but in Romania it’s some kind of automated answer, it hardly means anything. To a Swiss gentleman that I know, it means: ‘Gimme 15 minutes’, or simply: ‘F… off!’ The Swiss gentleman owns an Omega and I suppose he knows a thing or two about time.

Fun

Yes, Bucharest – as well as other big cities in Romania, such as Cluj or Iași — is lots of fun. You might have heard of the Old Centre, which is something similar to Campo de’ Fiori in Rome or the Jewish Quarter in Budapest. It’s right in the center, full of pubs and clubs. The kind of area that travel guides call, in lack of a better word, ‘vibrant’.

However: During weekends, the Old Centre gets stormed by low-cost city break cheap beer addicts and they sometimes don’t even book a hostel room. Music is loud, fine cuisine is scarce and yes, everything is cheaper than in London, but significantly more expensive than in other parts of Bucharest. My advice: look for an Arabian restaurant. You might have nice surprises, because they are run by Palestinian or Lebanese folks that came to Romania in the eighties, in communist student exchanges. Many of them have remained here, got into the food business and they’re really good at it.

Hospitality. Conclusion

All in all, I do love Bucharest a lot, in spite of what I’ve said. But a foreigner’s experience here depends strongly on their local contacts. As most other peoples, Romanians are very appreciative of their own hospitality. In general, it’s true, we are very welcoming, because until 30 years ago we were isolated and we had to report contacts to foreigners to the communist Police. To younger people in big cities, strangers are less appealing. So, in the end, finding compatible partners is a good idea in terms of personal comfort. As it always is for business, isn’t it?

Octavian Pătrașcu  |   21.01.2019   |  Business Travel  |  Featured  |  Startup

Q2 earnings

11.06.2020   |  Capital Market  |  Fintech  |  News  |  Tech

The past

After a mixed Q1 earnings performance (see my previous blog post) in which I predicted and, eventually, saw most economy sectors under-performing up to the brink of bankruptcy (with famous „victims” such as Hertz International or LATAM Airlines), and the sheer rise to stardom of „work-from-home” sweethearts Zoom, Microsoft Teams, Slack, it’s easy to say that the Corona pandemic took a carefully selected toll on the business world.

As previously predicted, the superstars of Q1 have been the technology behemoths, starting with the FAANG group (Facebook, Amazon, Apple, Netflix, and Alphabet) and continuing with the fresh princes: Zoom, Slack and other collaborative tech companies.

The future

I already mentioned in my previous analysis that, even though Q1 has been very good for business for the companies above, Q2 will not be so generous. More and more people find themselves out of a job, companies close or at least reduce volume, investment budgets disappear, research and development go bust, and consumers become more and more selective with their cash.

Macroeconomic data, in the US and elsewhere, fully supports the statement above and paints a very grim picture: US unemployment close to 25% (that’s more than 40 million people having no other choice but to apply for government help), a GDP drawdown of 34% according to analysts at Goldman Sachs.

It’s a dire future they predict, and it could get nasty for most S&P members. According to a research paper from factset.com, for Q2 2020, the estimated earnings decline for the S&P500 is 43.4%.

If 43.4% is the actual decline for the quarter, it will mark the most significant year-on-year decline in earnings reported by the index since Q42008 (-69.1%).  On a per-share basis, estimated earnings for the second quarter have decreased by 35.9% since March 31st.

*image source: factset.com

I see most, if not all, market sectors dropping in terms of revenue, earnings per share, target prices, P/E ratios. In part, due to the global exposure most of them have which brings more considerable influence, and from Covid-19 induced crisis but also because there’s no winner when everybody’s worrying for tomorrow.

In an interconnected global economy, there can no longer be a superhero company floating above all else; we’re all in the same predicament.

Murdered by numbers

Don’t let yourselves be fooled by the YTD performance of US indices:

  • NASDAQ – 9814 points   ~13% YTD
  • S&P – 3193 points   ~2% YTD
  • DJIA – 27110 points   ~-2% YTD

*image source: Yahoo Finance

By looking at the figures above, one might think the markets are all but immune to the effects of the pandemic over the real economy. It’s my firm opinion that the fairytale in which the markets are living right now is soon to end, more precisely, with the Q2 earnings releases.

In terms of business sectors, I prefer to focus on a 4-pillar aggregate:

  • Cyber-security companies
  • Collaboration & conferencing products
  • FAANG companies
  • Automation companies

Here’s my vision over these diverse and peculiar sectors and how I see the performance on Q2 earnings:

*forecasts from money.cnn.com & TipRanks

Disclaimer:

This is not a place for the giving or receiving of financial advice, advice concerning investment decisions or tax or legal advice. This is being based on personal opinion and experience and it should not be considered professional financial investment advice.

Take into consideration that most target prices from the table above are on the optimistic side as pundits, experts, and analysts are always considering the “market sentiment” in their thought process, and the overall feeling of the market right now is one of “immunity” to the effects of the pandemic.

Delving deeper into the core of the problem, I say the economy is not reflected in the equity markets, and there’s been a division between market sentiment and market performance.

The conclusion

In times of uncertainty and crisis, people and markets alike return to the basics, which, in capital markets, boils down to coming back to the fundamentals. Caution is the word of the times, and this caution, combined with the weaker financial performances of global equities, will push the markets lower - the general decrease in prices will come.

I've always put my money where my mouth is; this is why I'm all-in shorting the markets until the end of the year. When life gives you lemons, you make lemonade. When, in turn, it gives you a discount, you buy full-on, pedal to the metal. Because it's smarter to ride the wave and not go against the giants of the global economy: USA, I guess 😊 & China

Sit tight, prepare yourselves and your investment portfolios for big moves, and stay calm – these are the steps I’m taking and have proven to be the right ones in 2008 and any other crisis before and after.

You can follow me on Twitter and LinkedIn

Read full article

What to expect on the capital markets in the next quarter

21.05.2020   |  Capital Market  |  News  |  Tech

Wall Street was preparing itself for a terrible earnings season.

It’s not all bad news

The negative influence of the Covid-19 pandemic has been deemed to be anything between dire and desperate. And, for most, this already is, and will surely be, the case.

The exceptions are, by proper definition, exceptional. I'm talking by bigger-than-Earth companies, enterprises with revenues more massive than most countries' GDPs, behemoths in their own right: most, if not all, from the tech sector: Microsoft, Alphabet, Amazon, Facebook, Apple.

For them, the lockdown, the social distancing, the increased online presence, the overall feeling of insecurity, fear, anxiety, and maybe even boredom is yet another reason for people to use their services and, all in all, for them to generate more revenues from their core, and secondary, and tertiary businesses.

Tech sector breaking records

It might be Wall Street's worst-kept secret that the tech sector is, and has been for at least the last decade, on everybody's lips, in everybody's mind and, sooner rather than later, in everybody's investment portfolio. And by everybody, I mean all social classes, all levels of interest towards capital markets: from your hairdresser to Warren Buffett's humongous investment conglomerate.

The reason for this is simple: if you'd have invested $1,000 in Google stock ten years ago, you would've yielded a hefty 475% return, 590% for Microsoft, 1,700% for Amazon, 1,000% for Apple, and 550% for Facebook.

image source: cnbc.com

They're all rocket ships on their way to trillion-dollar market capitalizations (the Trillion Dollar club already includes Apple, Microsoft, Amazon, and Alphabet). And there's not much that can stop them. At least not yet. Not in the first quarter, not by the Coronavirus, not even the containment measures.

Their earnings for the first quarter looked better than expected, and, for sure, better than those from any other market sector, be it retail, banking, automotive, travel & tourism, or commerce.

*special mention for Tesla

Its stock price marked an astounding 3,500% return on the last decade. Although it’s seen a slight decline in the past months, it’s still reaching for higher highs and will, according to most market analysts, reach and top the historical max value of $917/stock.

Long term forecasts for TSLA stock price are close to $1,100, according to CNNMoney, which means an additional 35% ROI from current stock prices.

I’ve included Tesla here because the behavior of the company, and implicitly, of the stock, mimics those of tech companies, not of automakers. They’re constantly innovating in terms of business, budgeting, marketing and financial positioning and I see them being one of the top performers of this decade, as well.

image source: cnbc.com

*special mention for Zoom

What else is there to say about Zoom apart from the fact that, taking full advantage of the unconventional ways of doing business brought up by the pandemic, it exceeded 300 million daily meeting participants, up from last December's total of 10 million. That’s a remarkable 3000% jump.

Analysts at seekingalpha recommend Zoom as being a “buy and hold” stock for the long run. CNNMoney see Zoom’s stock reaching $200 – a potential increase of 20% from present day prices.

Q1 winners

EARTH 2.0 – the mandatory condition to digitalize businesses and embrace and prepare for the future. Today. All companies below are prime exponents for this business model, and it paid beautifully until now. Just as the Industrial Revolution rearranged the balance of powers almost 2 centuries ago, we are witnessing history in the making with the current the Technological Revolution:

  • Alphabet (mother company of Google): revenue of $41.2 Billion (13% higher than the previous year)
  • Facebook: revenue of $17.7 Billion (18% higher than the past year)
  • Amazon: almost $76 Billion in revenue deriving from an 18% increase in international sales
  • Microsoft: revenue of over $35 Billion, extremely positive outlook on the medium and long term

*Tesla: not much in terms of revenue, but a substantial ascending stock trend (it rose more than 200% in 2019)

*Zoom: 12% share increase after revenue more than doubled in the quarter

Q1 losers

A stubborn, poorly adapted, conventional business model is, and has always been a recipe for disaster. On all accounts, Microsoft should have been on the losing side of things, if it weren’t for Satya Nadella, the CEO who brought openness and collaboration to what is once was a sinking ship.

Comparing well-established enterprises with the tech cousins from above:

  • JP Morgan – profits dove 69%
  • Bank of America – profits plummeted 45%
  • McDonald's – earnings fell 17%
  • Exxon – 7% stock decrease on account of weak earnings
  • Boeing - $649 million loss, 10% workforce dismissed, revenue down 26%
  • Ford - $632 million loss, 15% slid in revenue, shares dropped 42% this year
  • General Motors – 87% decrease in income compared to Q1 2019, 6.2% decline in revenue

The gap between winners and losers grows more profound for now.

It's my undivided opinion that all four major tech players that right now are laughing all the way to the bank will have to turn their smiles into frowns once Q2 earnings are released. They took advantage until now from the increase in the cloud business and the work-from-home movement.

But the economy forgives and forgets no one – in the USA alone, more than 30 million people filed for unemployment benefits in the last seven weeks, and the future does not look too rosy for the job sector. 

No matter how much money the Fed might helicopter-throw unto the economy, the consumers are scared, cautious with their finances, and, in some cases, even hungry.

In these circumstances I see the Q1 earnings success for the tech giants is a temporary victory. I firmly believe they will be caught from behind by the huge wave that already smashed retail, banking, services, commerce, oil, entertainment, or travel.

The future is grim

Q2 earnings will be an eye-opener for all market optimists across the board.

Goldman Sachs expects a US GDP contraction of 34%, unemployment soaring to 15% - no happy-end is in sight.

US retailers are stopping payment to hundreds of thousands of workers in a desperate struggle to cope with the slump in demand, the four rounds of economic stimulus from the Fed seem to make little to no difference until now. 

On the long run, in an inter-connected global economy, everybody's in the same boat: decrease in consumption and demand from commerce and retail brings lower ad revenue for Google, which in turn brings down the cloud business revenues, which in turn influences the hardware demand, which in turn affects producers…and so on. The cycle cannot be broken without every integral part being affected.

Turn coal into diamonds

Provided the virus is ephemeral, maybe even more or less contained in Q2, the global economy might start to pick-up and rise from its ashes in the second half of 2020.

As always, being in close touch with the state of affairs, being up to date with the news, keeping your head clear and thinking straight on how to turn this fallout into an opportunity is the best advice I can give you. 

The harder the containment measures strike, the bigger the economic shock, the larger the recession that will entail, and the more considerable the investing opportunity!

It's challenging to keep your cool now, but I'm confident that those who adapt, those who look for alternative investment means (be it art or safe-haven assets such as gold or platinum or even fintech companies) will enjoy one hell of a ride.

My future

I’ve split the final chapter into two categories: my personal vision and my professional endeavor.

Personal

I’m an investor myself and I see this crisis as an opportunity to short the market on businesses that have not yet adapted to the new world and, in order to practice what I preach, buy Tech Companies (F.A.N.G.) for the long run.

Professional

Protect my businesses and my employees; the measures I already took (work-from-home for 99% of my workforce, consolidation measures for capital flow, redirecting of investment flows, budget reframing, alternative investment areas, enforcing my business' technology core) will continue to prove successful and inspired.

Even though we’re constantly expanding, having more than 250 employees all over the world, I want to continue behaving and acting just as a start-up; I see in this the right way to consolidate our position, and conquer new markets and alternate areas of investments.

You can follow me on Twitter and LinkedIn

Read full article

Latest Articles
In Tech

11.06.2020   |   Tech

Q2 earnings

The past

After a mixed Q1 earnings performance (see my previous blog post) in which I predicted and, eventually, saw most economy sectors under-performing up to the brink of bankruptcy (with famous „victims” such as Hertz International or LATAM Airlines), and the sheer rise to stardom of „work-from-home” sweethearts Zoom, Microsoft Teams, Slack, it’s easy to say that the Corona pandemic took a carefully selected toll on the business world.

As previously predicted, the superstars of Q1 have been the technology behemoths, starting with the FAANG group (Facebook, Amazon, Apple, Netflix, and Alphabet) and continuing with the fresh princes: Zoom, Slack and other collaborative tech companies.

The future

I already mentioned in my previous analysis that, even though Q1 has been very good for business for the companies above, Q2 will not be so generous. More and more people find themselves out of a job, companies close or at least reduce volume, investment budgets disappear, research and development go bust, and consumers become more and more selective with their cash.

Macroeconomic data, in the US and elsewhere, fully supports the statement above and paints a very grim picture: US unemployment close to 25% (that’s more than 40 million people having no other choice but to apply for government help), a GDP drawdown of 34% according to analysts at Goldman Sachs.

It’s a dire future they predict, and it could get nasty for most S&P members. According to a research paper from factset.com, for Q2 2020, the estimated earnings decline for the S&P500 is 43.4%.

If 43.4% is the actual decline for the quarter, it will mark the most significant year-on-year decline in earnings reported by the index since Q42008 (-69.1%).  On a per-share basis, estimated earnings for the second quarter have decreased by 35.9% since March 31st.

*image source: factset.com

I see most, if not all, market sectors dropping in terms of revenue, earnings per share, target prices, P/E ratios. In part, due to the global exposure most of them have which brings more considerable influence, and from Covid-19 induced crisis but also because there’s no winner when everybody’s worrying for tomorrow.

In an interconnected global economy, there can no longer be a superhero company floating above all else; we’re all in the same predicament.

Murdered by numbers

Don’t let yourselves be fooled by the YTD performance of US indices:

  • NASDAQ – 9814 points   ~13% YTD
  • S&P – 3193 points   ~2% YTD
  • DJIA – 27110 points   ~-2% YTD

*image source: Yahoo Finance

By looking at the figures above, one might think the markets are all but immune to the effects of the pandemic over the real economy. It’s my firm opinion that the fairytale in which the markets are living right now is soon to end, more precisely, with the Q2 earnings releases.

In terms of business sectors, I prefer to focus on a 4-pillar aggregate:

  • Cyber-security companies
  • Collaboration & conferencing products
  • FAANG companies
  • Automation companies

Here’s my vision over these diverse and peculiar sectors and how I see the performance on Q2 earnings:

*forecasts from money.cnn.com & TipRanks

Disclaimer:

This is not a place for the giving or receiving of financial advice, advice concerning investment decisions or tax or legal advice. This is being based on personal opinion and experience and it should not be considered professional financial investment advice.

Take into consideration that most target prices from the table above are on the optimistic side as pundits, experts, and analysts are always considering the “market sentiment” in their thought process, and the overall feeling of the market right now is one of “immunity” to the effects of the pandemic.

Delving deeper into the core of the problem, I say the economy is not reflected in the equity markets, and there’s been a division between market sentiment and market performance.

The conclusion

In times of uncertainty and crisis, people and markets alike return to the basics, which, in capital markets, boils down to coming back to the fundamentals. Caution is the word of the times, and this caution, combined with the weaker financial performances of global equities, will push the markets lower - the general decrease in prices will come.

I've always put my money where my mouth is; this is why I'm all-in shorting the markets until the end of the year. When life gives you lemons, you make lemonade. When, in turn, it gives you a discount, you buy full-on, pedal to the metal. Because it's smarter to ride the wave and not go against the giants of the global economy: USA, I guess 😊 & China

Sit tight, prepare yourselves and your investment portfolios for big moves, and stay calm – these are the steps I’m taking and have proven to be the right ones in 2008 and any other crisis before and after.

You can follow me on Twitter and LinkedIn

Read full article
21.05.2020   |   Tech

What to expect on the capital markets in the next quarter

Wall Street was preparing itself for a terrible earnings season.

It’s not all bad news

The negative influence of the Covid-19 pandemic has been deemed to be anything between dire and desperate. And, for most, this already is, and will surely be, the case.

The exceptions are, by proper definition, exceptional. I'm talking by bigger-than-Earth companies, enterprises with revenues more massive than most countries' GDPs, behemoths in their own right: most, if not all, from the tech sector: Microsoft, Alphabet, Amazon, Facebook, Apple.

For them, the lockdown, the social distancing, the increased online presence, the overall feeling of insecurity, fear, anxiety, and maybe even boredom is yet another reason for people to use their services and, all in all, for them to generate more revenues from their core, and secondary, and tertiary businesses.

Tech sector breaking records

It might be Wall Street's worst-kept secret that the tech sector is, and has been for at least the last decade, on everybody's lips, in everybody's mind and, sooner rather than later, in everybody's investment portfolio. And by everybody, I mean all social classes, all levels of interest towards capital markets: from your hairdresser to Warren Buffett's humongous investment conglomerate.

The reason for this is simple: if you'd have invested $1,000 in Google stock ten years ago, you would've yielded a hefty 475% return, 590% for Microsoft, 1,700% for Amazon, 1,000% for Apple, and 550% for Facebook.

image source: cnbc.com

They're all rocket ships on their way to trillion-dollar market capitalizations (the Trillion Dollar club already includes Apple, Microsoft, Amazon, and Alphabet). And there's not much that can stop them. At least not yet. Not in the first quarter, not by the Coronavirus, not even the containment measures.

Their earnings for the first quarter looked better than expected, and, for sure, better than those from any other market sector, be it retail, banking, automotive, travel & tourism, or commerce.

*special mention for Tesla

Its stock price marked an astounding 3,500% return on the last decade. Although it’s seen a slight decline in the past months, it’s still reaching for higher highs and will, according to most market analysts, reach and top the historical max value of $917/stock.

Long term forecasts for TSLA stock price are close to $1,100, according to CNNMoney, which means an additional 35% ROI from current stock prices.

I’ve included Tesla here because the behavior of the company, and implicitly, of the stock, mimics those of tech companies, not of automakers. They’re constantly innovating in terms of business, budgeting, marketing and financial positioning and I see them being one of the top performers of this decade, as well.

image source: cnbc.com

*special mention for Zoom

What else is there to say about Zoom apart from the fact that, taking full advantage of the unconventional ways of doing business brought up by the pandemic, it exceeded 300 million daily meeting participants, up from last December's total of 10 million. That’s a remarkable 3000% jump.

Analysts at seekingalpha recommend Zoom as being a “buy and hold” stock for the long run. CNNMoney see Zoom’s stock reaching $200 – a potential increase of 20% from present day prices.

Q1 winners

EARTH 2.0 – the mandatory condition to digitalize businesses and embrace and prepare for the future. Today. All companies below are prime exponents for this business model, and it paid beautifully until now. Just as the Industrial Revolution rearranged the balance of powers almost 2 centuries ago, we are witnessing history in the making with the current the Technological Revolution:

  • Alphabet (mother company of Google): revenue of $41.2 Billion (13% higher than the previous year)
  • Facebook: revenue of $17.7 Billion (18% higher than the past year)
  • Amazon: almost $76 Billion in revenue deriving from an 18% increase in international sales
  • Microsoft: revenue of over $35 Billion, extremely positive outlook on the medium and long term

*Tesla: not much in terms of revenue, but a substantial ascending stock trend (it rose more than 200% in 2019)

*Zoom: 12% share increase after revenue more than doubled in the quarter

Q1 losers

A stubborn, poorly adapted, conventional business model is, and has always been a recipe for disaster. On all accounts, Microsoft should have been on the losing side of things, if it weren’t for Satya Nadella, the CEO who brought openness and collaboration to what is once was a sinking ship.

Comparing well-established enterprises with the tech cousins from above:

  • JP Morgan – profits dove 69%
  • Bank of America – profits plummeted 45%
  • McDonald's – earnings fell 17%
  • Exxon – 7% stock decrease on account of weak earnings
  • Boeing - $649 million loss, 10% workforce dismissed, revenue down 26%
  • Ford - $632 million loss, 15% slid in revenue, shares dropped 42% this year
  • General Motors – 87% decrease in income compared to Q1 2019, 6.2% decline in revenue

The gap between winners and losers grows more profound for now.

It's my undivided opinion that all four major tech players that right now are laughing all the way to the bank will have to turn their smiles into frowns once Q2 earnings are released. They took advantage until now from the increase in the cloud business and the work-from-home movement.

But the economy forgives and forgets no one – in the USA alone, more than 30 million people filed for unemployment benefits in the last seven weeks, and the future does not look too rosy for the job sector. 

No matter how much money the Fed might helicopter-throw unto the economy, the consumers are scared, cautious with their finances, and, in some cases, even hungry.

In these circumstances I see the Q1 earnings success for the tech giants is a temporary victory. I firmly believe they will be caught from behind by the huge wave that already smashed retail, banking, services, commerce, oil, entertainment, or travel.

The future is grim

Q2 earnings will be an eye-opener for all market optimists across the board.

Goldman Sachs expects a US GDP contraction of 34%, unemployment soaring to 15% - no happy-end is in sight.

US retailers are stopping payment to hundreds of thousands of workers in a desperate struggle to cope with the slump in demand, the four rounds of economic stimulus from the Fed seem to make little to no difference until now. 

On the long run, in an inter-connected global economy, everybody's in the same boat: decrease in consumption and demand from commerce and retail brings lower ad revenue for Google, which in turn brings down the cloud business revenues, which in turn influences the hardware demand, which in turn affects producers…and so on. The cycle cannot be broken without every integral part being affected.

Turn coal into diamonds

Provided the virus is ephemeral, maybe even more or less contained in Q2, the global economy might start to pick-up and rise from its ashes in the second half of 2020.

As always, being in close touch with the state of affairs, being up to date with the news, keeping your head clear and thinking straight on how to turn this fallout into an opportunity is the best advice I can give you. 

The harder the containment measures strike, the bigger the economic shock, the larger the recession that will entail, and the more considerable the investing opportunity!

It's challenging to keep your cool now, but I'm confident that those who adapt, those who look for alternative investment means (be it art or safe-haven assets such as gold or platinum or even fintech companies) will enjoy one hell of a ride.

My future

I’ve split the final chapter into two categories: my personal vision and my professional endeavor.

Personal

I’m an investor myself and I see this crisis as an opportunity to short the market on businesses that have not yet adapted to the new world and, in order to practice what I preach, buy Tech Companies (F.A.N.G.) for the long run.

Professional

Protect my businesses and my employees; the measures I already took (work-from-home for 99% of my workforce, consolidation measures for capital flow, redirecting of investment flows, budget reframing, alternative investment areas, enforcing my business' technology core) will continue to prove successful and inspired.

Even though we’re constantly expanding, having more than 250 employees all over the world, I want to continue behaving and acting just as a start-up; I see in this the right way to consolidate our position, and conquer new markets and alternate areas of investments.

You can follow me on Twitter and LinkedIn

Read full article

Latest Articles
In Capital Market

11.06.2020   |   Capital Ma...

Q2 earnings

The past

After a mixed Q1 earnings performance (see my previous blog post) in which I predicted and, eventually, saw most economy sectors under-performing up to the brink of bankruptcy (with famous „victims” such as Hertz International or LATAM Airlines), and the sheer rise to stardom of „work-from-home” sweethearts Zoom, Microsoft Teams, Slack, it’s easy to say that the Corona pandemic took a carefully selected toll on the business world.

As previously predicted, the superstars of Q1 have been the technology behemoths, starting with the FAANG group (Facebook, Amazon, Apple, Netflix, and Alphabet) and continuing with the fresh princes: Zoom, Slack and other collaborative tech companies.

The future

I already mentioned in my previous analysis that, even though Q1 has been very good for business for the companies above, Q2 will not be so generous. More and more people find themselves out of a job, companies close or at least reduce volume, investment budgets disappear, research and development go bust, and consumers become more and more selective with their cash.

Macroeconomic data, in the US and elsewhere, fully supports the statement above and paints a very grim picture: US unemployment close to 25% (that’s more than 40 million people having no other choice but to apply for government help), a GDP drawdown of 34% according to analysts at Goldman Sachs.

It’s a dire future they predict, and it could get nasty for most S&P members. According to a research paper from factset.com, for Q2 2020, the estimated earnings decline for the S&P500 is 43.4%.

If 43.4% is the actual decline for the quarter, it will mark the most significant year-on-year decline in earnings reported by the index since Q42008 (-69.1%).  On a per-share basis, estimated earnings for the second quarter have decreased by 35.9% since March 31st.

*image source: factset.com

I see most, if not all, market sectors dropping in terms of revenue, earnings per share, target prices, P/E ratios. In part, due to the global exposure most of them have which brings more considerable influence, and from Covid-19 induced crisis but also because there’s no winner when everybody’s worrying for tomorrow.

In an interconnected global economy, there can no longer be a superhero company floating above all else; we’re all in the same predicament.

Murdered by numbers

Don’t let yourselves be fooled by the YTD performance of US indices:

  • NASDAQ – 9814 points   ~13% YTD
  • S&P – 3193 points   ~2% YTD
  • DJIA – 27110 points   ~-2% YTD

*image source: Yahoo Finance

By looking at the figures above, one might think the markets are all but immune to the effects of the pandemic over the real economy. It’s my firm opinion that the fairytale in which the markets are living right now is soon to end, more precisely, with the Q2 earnings releases.

In terms of business sectors, I prefer to focus on a 4-pillar aggregate:

  • Cyber-security companies
  • Collaboration & conferencing products
  • FAANG companies
  • Automation companies

Here’s my vision over these diverse and peculiar sectors and how I see the performance on Q2 earnings:

*forecasts from money.cnn.com & TipRanks

Disclaimer:

This is not a place for the giving or receiving of financial advice, advice concerning investment decisions or tax or legal advice. This is being based on personal opinion and experience and it should not be considered professional financial investment advice.

Take into consideration that most target prices from the table above are on the optimistic side as pundits, experts, and analysts are always considering the “market sentiment” in their thought process, and the overall feeling of the market right now is one of “immunity” to the effects of the pandemic.

Delving deeper into the core of the problem, I say the economy is not reflected in the equity markets, and there’s been a division between market sentiment and market performance.

The conclusion

In times of uncertainty and crisis, people and markets alike return to the basics, which, in capital markets, boils down to coming back to the fundamentals. Caution is the word of the times, and this caution, combined with the weaker financial performances of global equities, will push the markets lower - the general decrease in prices will come.

I've always put my money where my mouth is; this is why I'm all-in shorting the markets until the end of the year. When life gives you lemons, you make lemonade. When, in turn, it gives you a discount, you buy full-on, pedal to the metal. Because it's smarter to ride the wave and not go against the giants of the global economy: USA, I guess 😊 & China

Sit tight, prepare yourselves and your investment portfolios for big moves, and stay calm – these are the steps I’m taking and have proven to be the right ones in 2008 and any other crisis before and after.

You can follow me on Twitter and LinkedIn

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21.05.2020   |   Capital Ma...

What to expect on the capital markets in the next quarter

Wall Street was preparing itself for a terrible earnings season.

It’s not all bad news

The negative influence of the Covid-19 pandemic has been deemed to be anything between dire and desperate. And, for most, this already is, and will surely be, the case.

The exceptions are, by proper definition, exceptional. I'm talking by bigger-than-Earth companies, enterprises with revenues more massive than most countries' GDPs, behemoths in their own right: most, if not all, from the tech sector: Microsoft, Alphabet, Amazon, Facebook, Apple.

For them, the lockdown, the social distancing, the increased online presence, the overall feeling of insecurity, fear, anxiety, and maybe even boredom is yet another reason for people to use their services and, all in all, for them to generate more revenues from their core, and secondary, and tertiary businesses.

Tech sector breaking records

It might be Wall Street's worst-kept secret that the tech sector is, and has been for at least the last decade, on everybody's lips, in everybody's mind and, sooner rather than later, in everybody's investment portfolio. And by everybody, I mean all social classes, all levels of interest towards capital markets: from your hairdresser to Warren Buffett's humongous investment conglomerate.

The reason for this is simple: if you'd have invested $1,000 in Google stock ten years ago, you would've yielded a hefty 475% return, 590% for Microsoft, 1,700% for Amazon, 1,000% for Apple, and 550% for Facebook.

image source: cnbc.com

They're all rocket ships on their way to trillion-dollar market capitalizations (the Trillion Dollar club already includes Apple, Microsoft, Amazon, and Alphabet). And there's not much that can stop them. At least not yet. Not in the first quarter, not by the Coronavirus, not even the containment measures.

Their earnings for the first quarter looked better than expected, and, for sure, better than those from any other market sector, be it retail, banking, automotive, travel & tourism, or commerce.

*special mention for Tesla

Its stock price marked an astounding 3,500% return on the last decade. Although it’s seen a slight decline in the past months, it’s still reaching for higher highs and will, according to most market analysts, reach and top the historical max value of $917/stock.

Long term forecasts for TSLA stock price are close to $1,100, according to CNNMoney, which means an additional 35% ROI from current stock prices.

I’ve included Tesla here because the behavior of the company, and implicitly, of the stock, mimics those of tech companies, not of automakers. They’re constantly innovating in terms of business, budgeting, marketing and financial positioning and I see them being one of the top performers of this decade, as well.

image source: cnbc.com

*special mention for Zoom

What else is there to say about Zoom apart from the fact that, taking full advantage of the unconventional ways of doing business brought up by the pandemic, it exceeded 300 million daily meeting participants, up from last December's total of 10 million. That’s a remarkable 3000% jump.

Analysts at seekingalpha recommend Zoom as being a “buy and hold” stock for the long run. CNNMoney see Zoom’s stock reaching $200 – a potential increase of 20% from present day prices.

Q1 winners

EARTH 2.0 – the mandatory condition to digitalize businesses and embrace and prepare for the future. Today. All companies below are prime exponents for this business model, and it paid beautifully until now. Just as the Industrial Revolution rearranged the balance of powers almost 2 centuries ago, we are witnessing history in the making with the current the Technological Revolution:

  • Alphabet (mother company of Google): revenue of $41.2 Billion (13% higher than the previous year)
  • Facebook: revenue of $17.7 Billion (18% higher than the past year)
  • Amazon: almost $76 Billion in revenue deriving from an 18% increase in international sales
  • Microsoft: revenue of over $35 Billion, extremely positive outlook on the medium and long term

*Tesla: not much in terms of revenue, but a substantial ascending stock trend (it rose more than 200% in 2019)

*Zoom: 12% share increase after revenue more than doubled in the quarter

Q1 losers

A stubborn, poorly adapted, conventional business model is, and has always been a recipe for disaster. On all accounts, Microsoft should have been on the losing side of things, if it weren’t for Satya Nadella, the CEO who brought openness and collaboration to what is once was a sinking ship.

Comparing well-established enterprises with the tech cousins from above:

  • JP Morgan – profits dove 69%
  • Bank of America – profits plummeted 45%
  • McDonald's – earnings fell 17%
  • Exxon – 7% stock decrease on account of weak earnings
  • Boeing - $649 million loss, 10% workforce dismissed, revenue down 26%
  • Ford - $632 million loss, 15% slid in revenue, shares dropped 42% this year
  • General Motors – 87% decrease in income compared to Q1 2019, 6.2% decline in revenue

The gap between winners and losers grows more profound for now.

It's my undivided opinion that all four major tech players that right now are laughing all the way to the bank will have to turn their smiles into frowns once Q2 earnings are released. They took advantage until now from the increase in the cloud business and the work-from-home movement.

But the economy forgives and forgets no one – in the USA alone, more than 30 million people filed for unemployment benefits in the last seven weeks, and the future does not look too rosy for the job sector. 

No matter how much money the Fed might helicopter-throw unto the economy, the consumers are scared, cautious with their finances, and, in some cases, even hungry.

In these circumstances I see the Q1 earnings success for the tech giants is a temporary victory. I firmly believe they will be caught from behind by the huge wave that already smashed retail, banking, services, commerce, oil, entertainment, or travel.

The future is grim

Q2 earnings will be an eye-opener for all market optimists across the board.

Goldman Sachs expects a US GDP contraction of 34%, unemployment soaring to 15% - no happy-end is in sight.

US retailers are stopping payment to hundreds of thousands of workers in a desperate struggle to cope with the slump in demand, the four rounds of economic stimulus from the Fed seem to make little to no difference until now. 

On the long run, in an inter-connected global economy, everybody's in the same boat: decrease in consumption and demand from commerce and retail brings lower ad revenue for Google, which in turn brings down the cloud business revenues, which in turn influences the hardware demand, which in turn affects producers…and so on. The cycle cannot be broken without every integral part being affected.

Turn coal into diamonds

Provided the virus is ephemeral, maybe even more or less contained in Q2, the global economy might start to pick-up and rise from its ashes in the second half of 2020.

As always, being in close touch with the state of affairs, being up to date with the news, keeping your head clear and thinking straight on how to turn this fallout into an opportunity is the best advice I can give you. 

The harder the containment measures strike, the bigger the economic shock, the larger the recession that will entail, and the more considerable the investing opportunity!

It's challenging to keep your cool now, but I'm confident that those who adapt, those who look for alternative investment means (be it art or safe-haven assets such as gold or platinum or even fintech companies) will enjoy one hell of a ride.

My future

I’ve split the final chapter into two categories: my personal vision and my professional endeavor.

Personal

I’m an investor myself and I see this crisis as an opportunity to short the market on businesses that have not yet adapted to the new world and, in order to practice what I preach, buy Tech Companies (F.A.N.G.) for the long run.

Professional

Protect my businesses and my employees; the measures I already took (work-from-home for 99% of my workforce, consolidation measures for capital flow, redirecting of investment flows, budget reframing, alternative investment areas, enforcing my business' technology core) will continue to prove successful and inspired.

Even though we’re constantly expanding, having more than 250 employees all over the world, I want to continue behaving and acting just as a start-up; I see in this the right way to consolidate our position, and conquer new markets and alternate areas of investments.

You can follow me on Twitter and LinkedIn

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