Coronavirus vs. the Financial markets

Coronavirus vs. the Financial markets

31.03.2020   |  Capital Market

After an extraordinary 2019 for the financial markets, many global companies had set unrealistic profit targets, with growth that would be hard to sustain.

Let’s not forget that, for the first time in history, the US technology sector recorded market capitalization that exceeded 1 trillion dollars. In such conditions of exacerbated optimism, it’s only natural to expect to see spectacular falls on the international stock exchanges this year. The bar was raised too high in 2019.

• Dow Jones 30 – a historical maximum of 28,500 points

• S&P 500 to 3200 points

• NASDAQ 100 to 9750 points

These were the optimistic figures when 2019 ended. Everyone, including most financial analysts, was expecting 2020 full of new records.

Only this time, the targets couldn’t be reached – the economy, like history, has a tendency to repeat itself. The longest bull market in history (from 2008 until a few days ago) has been ravaged by the Coronavirus pandemic and, as many can state, popped the business bubble in which we used to live.

THE HISTORY OF GLOBAL CRISIS

The history of global crises is spectacular but also cyclical, as in the most recent past we have the great oil crisis in the 70s, the infamous Black Friday of the 80s, a second oil crisis in the early 90s, the dot-com bubble of the 2000s and, more recently, the financial-real estate crisis from 2008.

We can see that roughly every 10 years, the capital markets go through a reestablishment process, resetting their values – an event which we’re in the middle of right now. 

* Since 1945, American blue-chip companies have experienced at least 25 years at an all-time high, 24 years within 10% of an all-time high,  and only 22 years in a declining market (bear market) *

The first signs of weakness started showing up at the end of 2019 – an important factor is one of the stars of the gig economy, WeWork, which was preparing for its primary listing. 

In less than a month, from an alleged market capitalization of about $ 47 billion, the company dropped to less than $ 10 billion, canceled listing plans, fired much of the workforce, and even removed its CEO from the company’s management, being rescued from bankruptcy only by one of the banking groups in the shareholding board. 

In the case of WeWork, the reason for the fall was the circumspection that investors began to have in the quality and stability of the company. But the WeWork case is not unique.

WHAT’S NEXT?

Phase 1 – FEAR

As in 2008, the capital markets and investors initially reacted emotionally, triggering what is called a sell-off panic. Right now, we have a reaction based on instinct, market expectations being that global stock exchanges will reach a general decrease of up to 20%.

After more than a decade of “pampering”, a period when money was extremely cheap, friendly lending and market conditions were all favoring growth, the reality is coming down.

Many businesses will have their skills tested, (just as a heavy sea shapes a sailor’s skills, only a real market, built on healthy fundamentals, will train enduring entrepreneurs).

At the moment, the general feeling is one of uncertainty, nobody knowing what to expect, with postponed investments, and expansion and development plans put back in the drawer – all eyes are focused on the state, central banks, and global vectors.

Phase 2 – THE FUNDAMENTALS

After the first wave of decline, we’ll see the markets adapting to new conditions – this being the turning point that can make the difference in a medium to long timeframe between the economies that are recovering – and will even prosper in the post-Coronavirus era – and those that will slow down the economic recovery.

There are two extremely important evaluations:

  • Operational evaluation – production and sales figures will be put together (phones sold by Apple, electric cars produced by Tesla, etc.) 
  • Financial evaluation – financial reports that measure the returns of market shares, revenues, income, profits

I am afraid that once all the above figures reach the market, a second wave of the crisis will start, the one in which the global stock market decreases will rise by another 25-30%.

Overall, on the 2 stages described above, the world expects impairments of up to 50% (eg. DJIA going below 12,000 points).

Businesses are people-based, and when those people lose their jobs, we will start seeing the real dimensions of the crisis. That’s why I always pay attention to the labor market figures (the famous US Jobless Claims report hit a record high last week, with about 3.3 million people going into unemployment in just one week).

Phase 3 – THE RECOVERY

The key movement is for central banks and national authorities to take monetary & fiscal measures, and also strengthen the labor market. Economies that will not adapt their structure to the new global conditions are risking a lot, as the rational sell-off, the one based on structural economic decisions and profitability calculations, has a longer life cycle and a much stronger influence than the one caused by initial panic.

Monetary/fiscal support packages have already been launched by all major economies (in the US alone, the Federal Bank announced a $ 3.3 trillion program to counteract the crisis effects), but it won’t be enough: businesses need to adapt their methods, plan everything out in advance, and invest more to add value to their work.

The global economy will recover, markets will reach historic highs again, and investors will regain their optimism. But before all this happens, a global sync with the new economic conditions is deeply needed.

MY BUSINESS PHILOSOPHY

There are 3 extremely important factors that have ruled my business philosophy so far:

• Longevity – I have to build something that will last through it’s added value 

• Liquidity – cash flow is essential; I must maintain a balance between savings and investments

• Legacy – ways of building my business to leave something valuable after me

The same 3 factors mentioned above are the ones that will push some companies to new records and others into bankruptcy.

I am deeply convinced that technology giants like Alphabet, Apple, Amazon, Microsoft, Facebook will recover quickly and hold onto the growing trend because their fundamentals are healthy, they have huge cash reserves and their business plans are built for the long run.

My predictions are that Amazon will be the first company to reach a market capitalization of 2 trillion dollars – the e-Commerce sector is booming right now.

However, others won’t be so lucky. 

I am more optimistic than in 2008 because I appreciate that the common individual’s level of financial education has increased, governments and central banks have much quicker reactions and are prepared to make any effort to minimize the effects of the crisis.

WHAT TO DO?

I want to leave you with a few recommendations on what’s to be done during a bear market:

Don’t panic! – crises aren’t pleasant, but they’re natural and temporary. History tells us that global stock exchanges spend more than two-thirds of the time close to historical highs)

Take care of your portfolio and finances! – we are all interested in discounts. What better time to buy, right? A global crisis is for the stock market what sales are for shops!

Be patient! – rethink your portfolio, lower your expenses, increase your savings and assets and wait for your return

Hunt opportunities! – moments of crisis create huge investment opportunities – be on the lookout and choose the ones that fit your profile

CONCLUSION

Panic is useless; add structure to your thoughts, plan strategically, be aware of the risks and act with caution.

We’re going through a natural phenomenon, don’t lose your cool, make smart investments and you will soon reap the fruits!

You can follow me on Twitter and LinkedIn

Octavian Pătrașcu  |   31.03.2020   |  Capital Market

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

End of lockdown – Wuhan is the new capital of the world

12.05.2020   |  Capital Market  |  Fintech  |  News  |  Press  |  Startup  |  Tech

“The beginning is always today,” said Mary Shelley two centuries ago

She was quite optimistic, which comes as a surprise from a leading Romantic era exponent. Of course, she was talking about the excitement of an interesting adventure, a fresh day, a brand-new start.

In the trying times of Coronavirus, I keep my right to be realistic. There’s growing talk about the post-corona era, about how everything will come back to what it once was, how society will restart and pick-up from where it was left a few months ago, how economies will put all crisis behind and rise from the ashes. I’m confident that what we’re going through right now is just the beginning of a new epoch, the epoch in which nothing will be the same anymore.

The new normal

I’ve come to this conclusion by observing behaviors around me. From the muted cry of small entrepreneurs who try to find comfort in insufficient government stimulus programs to central banks that gave their all and then some, printing money out of nothing and throwing it in the face of the virus in the hope that this, the last weapon in their arsenal, will start making things right, economies rejoice, and people enthusiastically consume once again.

The underlining note in all of this is one thing: FEAR. Manifested in different forms and with various influences and vectors, but all in all, the same feeling: pure, unadulterated fear.

Business-wise, fear makes or breaks actions and thoughts, dismisses investment plans, smashes development budgets, fires employees, cuts innovation, research, development, affects investor sentiments, turns economic tigers into tame pussycats. Mind you; this is not a presumptuous forecast; this is the reality we’re living in now. This is the new world.

The Wuhan precedent

Let’s not kid ourselves; this is not an exercise of imagination; this is what some already tried. The best example is the lockdown relaxation and economic restart measures in what was, not long ago, the epicenter of this new world: Wuhan, China.

For them, after a 76-day total lockdown, with draconic measures taken to keep them inside at all times, the April 8 announcement of travel bans being lifted came as a literal breath of fresh air.

One month later, and shops are still closed, restaurants are turned into takeaway booths, businesses generate close to zero profits, production is still in shambles, bankruptcy is the new status quo. Already, the local economy contracted by at least 40% and prospects are grim.

Regardless of state-backed stimulus programs, zero-rent programs, employee cost covers, and many more, the economy does not seem to pick up.

The once-thriving 11 million people city is still in mental lockdown. Anxiety is the name of the new game.

Employees that had the luxury of being able to work from home don’t want to return to the office. People no longer frequent gyms, restaurants, cinemas, spas, salons, arcades, shopping malls, travel agencies, beauty parlors, neither the personal nor the professional life of most Wuhanese is now what it was a few months ago.

Authorities, even despotic, autocratic ones as the Chinese are, have no idea what’s going to happen, how to prepare for it, how to tackle it, and what to do if all else fails. It’s a trial and error process for Wuhan, for China, and pretty soon, for the rest of the world.

A mixed bag of information

So far, the pros and cons list contains most, if not all, measures and steps you hear about all day long, every time you turn on your TV or web browser:

Lockdown

  1. It surely works!
  2. It might not, it’s too soon to tell, look at the USA, see the protestors!

Ventilators

  1. Essential for life support during these trying times!
  2. Actually, studies are showing they don’t make much of a difference!

Remdesivir

  1. The magic drug that’s going to cure us all!
  2. Trial test after trial test showed that it has no positive effects and might, in some cases, even make matters worse!

Hydroxychloroquine

  1. Some guy says it cured him!
  2. Intensive medical studies find no relevant connection between it and Corona evolution!

Smokers are better protected

  1. Their lungs are more accustomed to harsh breathing conditions!
  2. How could that be, smoking kills, it says so on the pack!

Flattening the curve is the way to go

  1. Sounds smart and might work!
  2. There’s no proof yet this is the way to go for acquiring mass immunization!

For each contradictory affirmation, there are hundreds, if not thousands, of articles, pseudo-studies, reports, analysis… And with each of those, the general uncertainty about the future grows a little bit stronger.

For the average Joe and for Billion and Trillion-Dollar businesses:

  • revenues and incomes plummet
  • earnings are reaching new lows
  • tens, if not hundreds of millions have already or are very close to losing their jobs
  • productivity is sinking
  • motivation becomes a scarce commodity
  • people invent reasons for staying inside, in the comfort and safety of their homes
  • entire market sectors close up
  • the business world is transforming and all of us together with it

Until the Holy Grail, the vaccine, will be on the market, I see the anxiety described above as an ever-growing sentiment for all of us.

What does the future look like?

Covid-19 is here to stay, even the most optimistic medical scenarios don’t approximate a delivery data for the vaccine closer than 18 months.

Bracing for the second wave is easier said than done, because, in the end, in this new world, nobody knows what the future holds.

Caution is the word of the year, and it should be displayed both in a personal and a professional sense.

Not all people react the same way, and not everybody can work from home, cultures differ, lockdown measures affect each of us differently, central banks intervene in various ways in the markets, government policies that work in Wuhan might not be appropriate for Milan. We’re different, all of us, and now we find each other united by a common enemy and a common goal: survive, adapt, thrive.

Stay safe; stay healthy!

You can follow me on Twitter and LinkedIn

Read full article

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In Tech

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
12.05.2020   |   Tech

End of lockdown – Wuhan is the new capital of the world

“The beginning is always today,” said Mary Shelley two centuries ago

She was quite optimistic, which comes as a surprise from a leading Romantic era exponent. Of course, she was talking about the excitement of an interesting adventure, a fresh day, a brand-new start.

In the trying times of Coronavirus, I keep my right to be realistic. There’s growing talk about the post-corona era, about how everything will come back to what it once was, how society will restart and pick-up from where it was left a few months ago, how economies will put all crisis behind and rise from the ashes. I’m confident that what we’re going through right now is just the beginning of a new epoch, the epoch in which nothing will be the same anymore.

The new normal

I’ve come to this conclusion by observing behaviors around me. From the muted cry of small entrepreneurs who try to find comfort in insufficient government stimulus programs to central banks that gave their all and then some, printing money out of nothing and throwing it in the face of the virus in the hope that this, the last weapon in their arsenal, will start making things right, economies rejoice, and people enthusiastically consume once again.

The underlining note in all of this is one thing: FEAR. Manifested in different forms and with various influences and vectors, but all in all, the same feeling: pure, unadulterated fear.

Business-wise, fear makes or breaks actions and thoughts, dismisses investment plans, smashes development budgets, fires employees, cuts innovation, research, development, affects investor sentiments, turns economic tigers into tame pussycats. Mind you; this is not a presumptuous forecast; this is the reality we’re living in now. This is the new world.

The Wuhan precedent

Let’s not kid ourselves; this is not an exercise of imagination; this is what some already tried. The best example is the lockdown relaxation and economic restart measures in what was, not long ago, the epicenter of this new world: Wuhan, China.

For them, after a 76-day total lockdown, with draconic measures taken to keep them inside at all times, the April 8 announcement of travel bans being lifted came as a literal breath of fresh air.

One month later, and shops are still closed, restaurants are turned into takeaway booths, businesses generate close to zero profits, production is still in shambles, bankruptcy is the new status quo. Already, the local economy contracted by at least 40% and prospects are grim.

Regardless of state-backed stimulus programs, zero-rent programs, employee cost covers, and many more, the economy does not seem to pick up.

The once-thriving 11 million people city is still in mental lockdown. Anxiety is the name of the new game.

Employees that had the luxury of being able to work from home don’t want to return to the office. People no longer frequent gyms, restaurants, cinemas, spas, salons, arcades, shopping malls, travel agencies, beauty parlors, neither the personal nor the professional life of most Wuhanese is now what it was a few months ago.

Authorities, even despotic, autocratic ones as the Chinese are, have no idea what’s going to happen, how to prepare for it, how to tackle it, and what to do if all else fails. It’s a trial and error process for Wuhan, for China, and pretty soon, for the rest of the world.

A mixed bag of information

So far, the pros and cons list contains most, if not all, measures and steps you hear about all day long, every time you turn on your TV or web browser:

Lockdown

  1. It surely works!
  2. It might not, it’s too soon to tell, look at the USA, see the protestors!

Ventilators

  1. Essential for life support during these trying times!
  2. Actually, studies are showing they don’t make much of a difference!

Remdesivir

  1. The magic drug that’s going to cure us all!
  2. Trial test after trial test showed that it has no positive effects and might, in some cases, even make matters worse!

Hydroxychloroquine

  1. Some guy says it cured him!
  2. Intensive medical studies find no relevant connection between it and Corona evolution!

Smokers are better protected

  1. Their lungs are more accustomed to harsh breathing conditions!
  2. How could that be, smoking kills, it says so on the pack!

Flattening the curve is the way to go

  1. Sounds smart and might work!
  2. There’s no proof yet this is the way to go for acquiring mass immunization!

For each contradictory affirmation, there are hundreds, if not thousands, of articles, pseudo-studies, reports, analysis… And with each of those, the general uncertainty about the future grows a little bit stronger.

For the average Joe and for Billion and Trillion-Dollar businesses:

  • revenues and incomes plummet
  • earnings are reaching new lows
  • tens, if not hundreds of millions have already or are very close to losing their jobs
  • productivity is sinking
  • motivation becomes a scarce commodity
  • people invent reasons for staying inside, in the comfort and safety of their homes
  • entire market sectors close up
  • the business world is transforming and all of us together with it

Until the Holy Grail, the vaccine, will be on the market, I see the anxiety described above as an ever-growing sentiment for all of us.

What does the future look like?

Covid-19 is here to stay, even the most optimistic medical scenarios don’t approximate a delivery data for the vaccine closer than 18 months.

Bracing for the second wave is easier said than done, because, in the end, in this new world, nobody knows what the future holds.

Caution is the word of the year, and it should be displayed both in a personal and a professional sense.

Not all people react the same way, and not everybody can work from home, cultures differ, lockdown measures affect each of us differently, central banks intervene in various ways in the markets, government policies that work in Wuhan might not be appropriate for Milan. We’re different, all of us, and now we find each other united by a common enemy and a common goal: survive, adapt, thrive.

Stay safe; stay healthy!

You can follow me on Twitter and LinkedIn

Read full article

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In Capital Market

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

Read full article
12.05.2020   |   Capital Ma...

End of lockdown – Wuhan is the new capital of the world

“The beginning is always today,” said Mary Shelley two centuries ago

She was quite optimistic, which comes as a surprise from a leading Romantic era exponent. Of course, she was talking about the excitement of an interesting adventure, a fresh day, a brand-new start.

In the trying times of Coronavirus, I keep my right to be realistic. There’s growing talk about the post-corona era, about how everything will come back to what it once was, how society will restart and pick-up from where it was left a few months ago, how economies will put all crisis behind and rise from the ashes. I’m confident that what we’re going through right now is just the beginning of a new epoch, the epoch in which nothing will be the same anymore.

The new normal

I’ve come to this conclusion by observing behaviors around me. From the muted cry of small entrepreneurs who try to find comfort in insufficient government stimulus programs to central banks that gave their all and then some, printing money out of nothing and throwing it in the face of the virus in the hope that this, the last weapon in their arsenal, will start making things right, economies rejoice, and people enthusiastically consume once again.

The underlining note in all of this is one thing: FEAR. Manifested in different forms and with various influences and vectors, but all in all, the same feeling: pure, unadulterated fear.

Business-wise, fear makes or breaks actions and thoughts, dismisses investment plans, smashes development budgets, fires employees, cuts innovation, research, development, affects investor sentiments, turns economic tigers into tame pussycats. Mind you; this is not a presumptuous forecast; this is the reality we’re living in now. This is the new world.

The Wuhan precedent

Let’s not kid ourselves; this is not an exercise of imagination; this is what some already tried. The best example is the lockdown relaxation and economic restart measures in what was, not long ago, the epicenter of this new world: Wuhan, China.

For them, after a 76-day total lockdown, with draconic measures taken to keep them inside at all times, the April 8 announcement of travel bans being lifted came as a literal breath of fresh air.

One month later, and shops are still closed, restaurants are turned into takeaway booths, businesses generate close to zero profits, production is still in shambles, bankruptcy is the new status quo. Already, the local economy contracted by at least 40% and prospects are grim.

Regardless of state-backed stimulus programs, zero-rent programs, employee cost covers, and many more, the economy does not seem to pick up.

The once-thriving 11 million people city is still in mental lockdown. Anxiety is the name of the new game.

Employees that had the luxury of being able to work from home don’t want to return to the office. People no longer frequent gyms, restaurants, cinemas, spas, salons, arcades, shopping malls, travel agencies, beauty parlors, neither the personal nor the professional life of most Wuhanese is now what it was a few months ago.

Authorities, even despotic, autocratic ones as the Chinese are, have no idea what’s going to happen, how to prepare for it, how to tackle it, and what to do if all else fails. It’s a trial and error process for Wuhan, for China, and pretty soon, for the rest of the world.

A mixed bag of information

So far, the pros and cons list contains most, if not all, measures and steps you hear about all day long, every time you turn on your TV or web browser:

Lockdown

  1. It surely works!
  2. It might not, it’s too soon to tell, look at the USA, see the protestors!

Ventilators

  1. Essential for life support during these trying times!
  2. Actually, studies are showing they don’t make much of a difference!

Remdesivir

  1. The magic drug that’s going to cure us all!
  2. Trial test after trial test showed that it has no positive effects and might, in some cases, even make matters worse!

Hydroxychloroquine

  1. Some guy says it cured him!
  2. Intensive medical studies find no relevant connection between it and Corona evolution!

Smokers are better protected

  1. Their lungs are more accustomed to harsh breathing conditions!
  2. How could that be, smoking kills, it says so on the pack!

Flattening the curve is the way to go

  1. Sounds smart and might work!
  2. There’s no proof yet this is the way to go for acquiring mass immunization!

For each contradictory affirmation, there are hundreds, if not thousands, of articles, pseudo-studies, reports, analysis… And with each of those, the general uncertainty about the future grows a little bit stronger.

For the average Joe and for Billion and Trillion-Dollar businesses:

  • revenues and incomes plummet
  • earnings are reaching new lows
  • tens, if not hundreds of millions have already or are very close to losing their jobs
  • productivity is sinking
  • motivation becomes a scarce commodity
  • people invent reasons for staying inside, in the comfort and safety of their homes
  • entire market sectors close up
  • the business world is transforming and all of us together with it

Until the Holy Grail, the vaccine, will be on the market, I see the anxiety described above as an ever-growing sentiment for all of us.

What does the future look like?

Covid-19 is here to stay, even the most optimistic medical scenarios don’t approximate a delivery data for the vaccine closer than 18 months.

Bracing for the second wave is easier said than done, because, in the end, in this new world, nobody knows what the future holds.

Caution is the word of the year, and it should be displayed both in a personal and a professional sense.

Not all people react the same way, and not everybody can work from home, cultures differ, lockdown measures affect each of us differently, central banks intervene in various ways in the markets, government policies that work in Wuhan might not be appropriate for Milan. We’re different, all of us, and now we find each other united by a common enemy and a common goal: survive, adapt, thrive.

Stay safe; stay healthy!

You can follow me on Twitter and LinkedIn

Read full article

Latest Articles
In Business Travel

21.01.2019   |   Business T...

Romania seen through foreign investor eyes

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.  (more…)
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26.11.2018   |   Business T...

Japanese Business Dictionary

Last summer, Japan and the European Union signed a historic free trade agreement, regarding food products, cars and long lasting development products, among other things. There is a new ambassador in Bucharest and we do no longer need a visa for the short term trips to Tokyo or Osaka. Most certainly, Japan is a country full of opportunities and I have started by sorting out the famous problem of Japanese business etiquette. Here are a few recommendations I've verified from several sources:  (more…)
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