Cryptocurrencies such as Bitcoin or Ethereum are a novelty that fascinates some while putting off others. The former people are driven by cryptos’ massive increase in value in recent years, while the latter people consider their large price fluctuations, which can turn a portfolio into a small one. However, I believe that the real novelty lies not in this category of virtual currencies but instead in the technology that makes them possible: the Blockchain. I am by no means the only investor with experience in the financial markets who is convinced of crypto’s revolutionary potential. That is why I wanted to publish a series of articles explaining a series of terms and concepts that are not exactly accessible for the less initiated.                    

How Bitcoin works

  The easiest way to start these explanations is to talk about the most well-known example of Blockchain put to good use: cryptocurrencies. For any currency to function as it should, a consensus had to be made that a certain thing, such as Bitcoin, has a specific value. A specific amount of coins is still required, hence the need for an issuing authority, such as central banks in classical currencies. Coins cannot function correctly without accurate and secure records (preventing theft) of the volumes held by individuals or institutions and the transactions that occur. Cryptocurrencies are a disruptive version of fiat currencies because of Blockchain. First of all, the issuing authority is no longer a central one, making some people happy for political reasons. In any case, the money circulation does not occur due to possible subjective decisions of some people, but through an automatic process called mining. In addition, the record is kept on numerous computers at the same time, making it 100% accurate. The Blockchain also allows for a seemingly paradoxical thing to occur: the transactions are entirely transparent, but the identity of their participants is undisclosed and hidden. How is this done in terms of software architecture? The tech’s name is pretty self-explanatory: "blockchain", meaning "a chain of blocks". In other words, it refers to a database comprised of containers (blocks), which are present at the same time on several computers. For example, a classic accounting register exists in a bank's computers, possibly with one or more backups. Distributed ledgers built on Blockchain technology are present simultaneously on several computers in two ways: firstly, there are backups and secondly, each computer stores different parts (blocks) of the database /register. In addition, Blockchain also contains a feature that makes it extremely versatile: the so-called timestamp, which is the time stamp that the blocks of information must include. As the database expands, the information is marked with dates and times. For cryptocurrencies, this refers to the circulation of new monetary volumes. In other applications, this means that the origin of any quantity present in the register can be traced back to its incipient phases.                                     So far, I talked about three main advantages of the technology: 1. Security: decentralized data storage protects Blockchain structures from the vulnerabilities of traditional banking information systems, whose centralization makes them easy to penetrate with a single hack 2. Confidentiality: networks do not monitor the type and purpose of the transaction, even if cryptocurrencies are used on the Dark Web. It is challenging for a transaction to be associated with a person. 3. Low costs for users: very low, for example, compared to bank fees. 4. Timestamping: although very secure and confidential, the technology allows monitoring up to the source of all data (financial or non-financial) included in the databases.   Some other Blockchain characteristics: • The Blockchain is "permanently open", 24 hours a day. • Almost instantaneous transactions (up to a maximum of 10-15 minutes), way less than the classic 48 hours in the banking environment • “Banking the unbanked”: the technology can be available to any Internet and mobile owner, regardless of the country in which he lives, if banks impose various restrictive conditions for opening accounts. The World Bank says there are currently about two billion adults worldwide without access to banking.                    

Multiple uses for Blockchain and Decentralized Finance

  Cryptocurrencies appeared on the market in 2009. Since then, Blockchain and related technologies have started to be used, effectively and not experimentally, in many other industries. Related to capital markets, three types of concepts are emerging: 1. Alternative banking services: traditional banking has an ambivalent attitude towards Blockchain. Giants like UBS or Barclays have created their research labs, but central banks like the Federal Reserve don’t think that the technology is mature enough yet. Instead, some alternatives to banking services like Mojaloop, started by Bill and Melinda Gates, which provide open-source payment services for disadvantaged areas, slowly pick up speed. The concept on which Mojaloop is based is called Interledger and is related to Blockchain. 2. Automated Market Makers (AMM): an industry currently experiencing a boom. These are intermediaries providing liquidity and setting up prices in asset transactions. Automated Market Makers are based on Blockchain and compete with financial giants like the New York or London Stock Exchanges. 3. Smart contracts: software alternatives to classic contracts, functioning on the Blockchain infrastructure. Investopedia offers an example of using a smart contract when renting an apartment: like any contract, it will include a guarantee, the monthly fee to be paid and the rental period, but we can, for example, the access code to the apartment. When the tenant transfers the first established sum of money, the smart contract will automatically change the access code to the one the two parties agreed upon and will send a notification to the tenant about it, and he will be able to enter the apartment. If somehow the access code cannot be changed or modified by the owner, the smart contract will automatically return the money.     The Blockchain is proving its usefulness in other areas, as we speak: • Food supply: IBM has created the Food Trust, a Blockchain mechanism tracking the route of food from source to consumer. It is a medical revolution because, in the case of E. coli or salmonella infections, the source of the infection is located immediately, while in the past, expensive investigations were required which took several weeks. • P2P Energy Trading: new forms of energy, such as solar, are decentralized, and production is fluctuating. Within a particular time, the solar panels of a house can produce more energy than necessary so that the house owner will sell it back to the network. I do not need to go into technical details because it is evident at first glance that such a situation fits perfectly within the Blockchain universe, which was carefully assessed by a startup called WePower. • Mining of precious stones: as their origin is critical, the Blockchain helps to certify the source. For example, that's what Everledger does. • Freight transport: Walmart Canada uses Blockchain for managing highly complex supply chains, which rely on dozens of transportation companies. Blockchain technologies have created an ecosystem called by specialists DeFi (Decentralized Finance) in the capital markets. It includes not only cryptocurrencies but also the three segments mentioned above. Soon, the technology can be applied to loans, real estate transactions or insurance. I have already mentioned its benefits.                      

A bit of history

  To me, the history of the Blockchain seems like clear proof that this technology boasts a vast area of applicability. Generally, Blockchain’s start date is associated with the birth of Bitcoin. This may be due to the mysterious character Satoshi Nakamoto, who proposed the Bitcoin architecture in 2008 on a specialized forum, and who is said to be a pseudonym, a real person or a group of people. But Nakamoto only gave the name of the technology. The concern for a secure, timestamped database is much older than that. Among others, Scott Stornetta, a Bell researcher, was concerned in the late 1980s with an unalterable database, starting with a scandal in the scientific world, in which another researcher had modified the data on which a study was based. To understand what it is about, for example, the Excel file fields are straightforward to alter because this is an intrinsic feature of the program. Together with Stuart Haber, also a cryptographer at Bell, Stornetta developed a theoretical proposal based on which such databases could be integrated into a computer, focused on timestamping and published in 1991. The idea would be used by Satoshi Nakamoto when he created the first cryptocurrency some 18 years later.                    

Key terms recap

  At this point, a small recap dictionary will help you better understand the structure of a blockchain-based capital market. I have prepared fewer academic definitions, opting instead for easier-to-understand explanations. • Automated Market Makers (AMM): automated players from the financial markets, having the role of ensuring liquidity (assets required for transactions) and setting sell and buy prices, just like stock exchanges do in the case of traditional shares. • Assets (assets): a broad category of properties with financial value, which includes anything that can be converted at some point into money, from shares to the actual money existing in the accounts. The difference between assets (assets) and securities (securities) is that the former instead reflect the property, and the latter, its convertible aspect in cash (liquidity). • Blockchain: Decentralized database, distributed on several computers connected to the Internet (nodes), in the form of blocks of information. Compared to classic databases, this architecture is redundant (blocks are replicated in several places), almost impossible to falsify and has timestamps (timestamping: date, day, time etc.) on all its blocks, meaning that the records implicitly contain their provenance. Cryptocurrencies are not the only application of Blockchain. • Cryptocurrency (crypto, cryptocurrency): digital asset / alternative currency (virtual), quoted, traded and distributed based on Blockchain. It is also called an altcoin. Cryptocurrencies differ from traditional currencies by decentralized management (there is no central bank to issue them) and the absolute confidentiality of the owners’ names. The prefix "crypto" comes from "cryptography" or encryption of owners’ names and other sensitive data. • Decentralized finance (DeFi): the new decentralized, global and cross-border architecture of financial markets, based on the exact characteristics of the Blockchain. • Distributed ledger: a term that includes Blockchain but is not identical to it, referring to an accounting register distributed in several electronic sources. • Fork: a software term characteristic for the open-source/free software movement. At a given moment, a program or operating system is divided into two distinct pieces, at the initiative of a part of the developers working. Because cryptocurrencies are based mainly on software and an open-source philosophy, they also split, at different times, into different variants. One of the most famous forks is the one in which Bitcoin Cash split in 2017 from Bitcoin. • Liquidity: the characteristic of a market/segment referring to the ease of trading. Two categories of valuable shares can have very different liquidity on the same stock exchange, meaning that some are traded much more than others. • P2P (Peer-to-Peer or P2P): feature of a network architecture that has influenced the Blockchain architecture. In peer-to-peer, transfers take place between peers and not between a server and a user/client. The category includes Blockchain, but also Bittorent class technologies, which refer to simply transferring files. • Securities: class of convertible assets - and converted into money. These can be participation in companies (equities - of which the shares are part), tradable debts (debts) or derivatives (values resulting from different assets, such as futures contracts or stock options).                    

The future of Blockchain

  In the following episodes of this series, I intend to detail more aspects of the technology that I consider revolutionary. I will review, for example, Automated Market Makers, a growing market, and the specifics of millennial consumers, for whom the idea of Blockchain seems - and is - explicitly created. I will also talk about the uses from the stage of proof of concept or in development. Even if they might not have an immediate practical use, I consider the information about these things as a matter of general culture, without which the future will catch us unprepared. You can follow me on Twitter and LinkedIn!

The digital currency boom that started early this year, fueled by news such as Tesla's decision to buy Bitcoin worth $1.5 billion, is again bringing the crypto market to the spotlight. However, these coins are a risky bet due to their substantial price fluctuations, among others. In this article, I will offer you some information about how people make money from cryptocurrencies. Please keep in mind that my opinions are intended to introduce this fascinating topic and not as buying advice.

Buy and HODL

                      This is the most basic strategy, based on price increases: to buy and keep a certain amount of a cryptocurrency. The English term comes from the phrase "buy and hold", where the last word was misspelt by a user, on a specialized forum, in the early days of Bitcoin. In the absence of a detailed analysis, this type of asset's extreme volatility makes the Buy and HODL strategy very dangerous, especially for beginners. We see why just by analyzing Bitcoin's price evolution: the first bubble (massive price surge, followed by an equally impressive fall) took place in 2017 when this cryptocurrency started trading at about $1,000, only to reach over $20,000. However, the price collapsed to around $3,400 in the next two years. After the first wave of the pandemic in 2020, Bitcoin's price sharply increased to almost $60,000. Other cryptocurrencies, such as Ethereum or Ripple, have had similar oscillations. A straightforward analysis shows the risks of this method, which seems attractive and clear at first glance. Assuming that an investor would have wanted to build a long-term crypto portfolio, he would have been spared significant losses only if he had invested in Bitcoin before July 2017, when the price was around $ 2,700, lower than the subsequent lows. However, in July 2017, Bitcoin and cryptocurrencies, in general, were something very new and exotic, and ordinary people didn't know what to do with them.

Crypto Mining

  The revolutionary principle of cryptocurrencies is based on a simple idea: their logs are not kept in the private registers of a bank but in a public and decentralized database, thoroughly checked by many participants. This does not mean the names of crypto owners are made public—quite the contrary. The cryptocurrencies in circulation, and each investor's transactions and assets are transparent, error-free, and perfectly secure from the user identity perspective. The process of updating this public database is called mining. The very concept of the software on which the cryptocurrencies are based makes mining a completely free service from a crypto owner's perspective. That's why the technology creators have introduced rewards for the so-called crypto mining, which essentially assumes that many computers connected to the Internet constantly check and update data flow. New cryptocurrencies can be generated through the crypto mining process, and those who provide logistics for operations receive them. The problem is that this mechanism is not nearly as simple as it seems. The computing power required is very high, hence the theory that the crypto market is ultimately an environmental threat due to the very high energy consumption generated by many powerful computers present in the network. Again, a strategy that seems simple turns out to be very complicated in reality. You can make money from crypto mining, but the price of electricity and specialized hardware must be considered because regular computers are not good enough. Not to mention the software (in many cases, open-source) and the required technical expertise - these two are resources to consider. Crypto mining is profitable in countries where electricity is cheap. This situation has created a derivative business: cloud mining. The necessary computing power is drawn from the cloud at lower prices than generated locally in a developed country.

 

 

Staking

  This is another easy-to-understand strategy, as it resembles a standard bank deposit or a traditional loan. Unlike typical purchases of assets, where investors look to capitalize from price rises, staking (which could translate to financial support) means storing cryptocurrencies in a special operator's wallet (account). This operator will use the available money electronically, offering an equivalent for interest on it.  

Is it worth it to invest in cryptocurrencies?

  There are countless other ways to make money from cryptocurrencies, from ICO (initial coin offering) to Forks (when cryptos split). However, all these concepts are highly technical and demand an excellent knowledge of the digital world, in general, and the Blockchain philosophy, the idea that cryptos are based on. In the long run, a revolution that began in 2008 on the Dark Web, where the first cryptocurrencies were traded, slowly gained financial acceptance, turning into a global market accessible to many investors. Old-school financial regulators are also involved, banning several practices and businesses in the crypto world. Still, they will eventually end up creating a secure and legal framework for an unstoppable idea. Earlier this year, when announcing Tesla's massive investment in Bitcoin, Elon Musk said on Twitter: "Looking back, it was inevitable." In other words, the Blockchain, the very idea behind cryptocurrencies, now used for many different purposes, is unstoppable. But only knowledgeable investors or those well-advised by efficient and transparent fintech platforms can benefit from it. You can follow me on Twitter and LinkedIn!

2020 was a surprising year, first of all, because of the COVID crisis, but also when looking at the spectacular recovery of many financial markets in the second half of the year. For me, as an individual investor, the balance sheet is positive. However, as proof of honesty, I'd also like to show you where I was wrong /things didn’t go my way/ the markets moved against me.

My successful investments

 

Gold

  The most famous alternative investment market, always a safe-haven asset during a crisis. But in 2020, gold was much more than a refuge, as it started trading at about $1,500 an ounce and finished at around $1,900. This translates to an increase of over 24%, well above the status of "desperate remedy" that gold usually embodies during dire times.

Stocks

  I was among those who believed that the coronavirus-induced fall would be only a short-term thing. Although initially, several stock indices recorded drops of over 30%, the recovery began in April. By the end of the year, the S&P 500 had risen 14%, even more than the 5% forecast before the pandemic. Analysts still cannot explain this spectacular comeback. As for myself, I have closely monitored the enthusiastic support governments of powerful economies - including the European Union - have shown for the markets, after having learnt their lesson from the 2007-2009 crisis. I'm glad I did that.

Cryptos

                      2018 and 2019 were two years of decline and /or  uncertainty for the crypto market. However, I’ve always been sure that Blockchain technology is revolutionary, and it will find its much-deserved place in the world of finance. Elon Musk set the tone for Bitcoin’s recovery using Tesla to invest more than $1.5 billion for an estimated profit close to one billion. By the end of 2020, this currency surpassed the 50k mark. However, I do not recommend the Bitcoin market to novice investors. The ups and downs are tough to predict. In several years, we could live in a world where cryptocurrencies would be an everyday reality, but the revolution has yet to happen.

My losing investments

 

Oil

                      Oil consumption and prices have fallen dramatically due to the pandemic. First of all, the decline occurred because of demand, but the political factor was to blame too, as OPEC drastically reduced supply. Also, the concerns of political entities such as the European Union for a green economy influenced oil’s direction on a psychological level. Be careful, as forecasts for the coming years indicate that production and consumption will not return to pre-pandemic levels.

Short Selling

  This was THE strategy to consider during the crash from the beginning of 2020. For the less initiated, short selling means borrowing falling shares at a future price lower than the market price. Then, the investor sells them at a higher price from the near future and will buy them cheaper near the maturity date, and then return them. The yield from this type of strategy derives from the difference between the sale price and the reimbursement price. Timing is essential, but in 2020, the stock market's return exceeded all forecasts and proved my expectations were wrong. It might seem weird that I bet on both stocks and short selling, as investing in stocks requires them to be on the rise, and the short-selling mechanism described above implies precisely the opposite. I must add two things here: first, the assets I traded were different - and they couldn't be otherwise. And second, I invested in shares before the short-selling trading. Fortunately, these were significantly larger than the second category of investments. Warren Buffett very well defines the failure of short-selling: "Never bet against America". In other words, do not bet against American companies, as they rule the stock market.

What I learned from 2020

  If we needed any confirmation that a modern, professional investor must rely more on numbers and analysis than on the "gut feeling" (intuition in Romanian), 2020 was the undeniable proof. The financial markets have become far too complex and diverse for a single person to regularly earn based on their own experience or bits and pieces of information. If I lost by investing in oil or successfully bet on gold or crypto in 2020, I do not want you to take these things as recommendations or tips but as an experiment in transparency. For example, if you approach oil in a certain way, it could prove a very profitable investment in 2021. Additionally, it also made a big difference for me that I focused more on the long-term return on stocks than on quick short selling, a decision I could not have made without a thorough analysis. If I could offer a piece of advice for beginner investors, it would not quote by any means to a specific category of financial instruments but at finding trustworthy partners who can provide them with the know-how for successfully trading in today's complicated markets. You can follow me on Twitter and LinkedIn!

I'm an entrepreneur at heart, directly involved in the startup phenomenon (I dedicated a big chunk of the last ten years to building sound business models for my companies). Since 2020 has been a remarkable year for obvious reasons, I thought it would be a good idea to share some of my thoughts with you about what's been happening lately in my field of expertise. 

The premise 

Many companies are facing an identity crisis, as the global recession is quickly brewing up. The Covid-19 pandemic has put a halt to a robust economic expansion, triggering a sharp rise in unemployment and forcing governments all over Europe to find new ways of avoiding collapse. 

While European policymakers focus on getting economies back on their feet, the crisis could signal the beginning of a new dawn for EU businesses. Could it really? 

An in-depth look at statistics 

European startups funding got slashed by 20% in the first half of 2020. This figure might seem significant, but it's still one billion dollars higher than the 2018 numbers. And there's something else too: 2019 marked the most significant funding for venture funds. Ever.

 

Graph showing the evolution of EU startup investments from 2016 to 2020 

Source: crunchbase.com 

To put things into perspective, 904 EU startups raised funding above $2 million in the first half of 2020. The year before, nearly 1.000 companies raised at least $2 million.  

As for leading markets, the U.K startups attracted the most funds during the first six months of 2020 (twice more than the second place holder, Germany). France, Sweden, and Switzerland follow next. 

Graph showing the volume of startup investments in five leading EU countries 

Source: crunchbase.com 

Inevitably, I need to draw a parallel between Europe and North America, the Land of Opportunity for new companies. Europe's startup business peaked at a different time than its U.S counterpart. For Europe, the upward trend in startup funding began in 2018 and carried on until Q4 2019. For the Americans, 2018 was the pinnacle.  

I don't want to bore you with too much data, so let me tell you why things are about to change for European startups. It has to do with how fast and prompt they reacted to the pandemic. 

A strong response to Covid-19 

Many European countries have managed to get the pandemic under control faster than the U.S, while also preserving jobs better during the lockdown, rather than allowing unemployment to grow at an alarming rate. 

Therefore, EU startups are now prepared to receive with open arms all skilled people who lost their jobs in the U.S. This truly is an excellent opportunity for European businesses to develop further and see their stocks grow in the short term. 

Naturally, the sectors most likely to see a boost soon are those that amassed increased funding for quarter over quarter and year over year: biotechnology, e-commerce, science, and health care.  

That hardly comes as a surprise. Numerous European startups from these sectors came forward with unique products to combat the pandemic. It was an extraordinary moment for every player, big or small, to flex their muscles and show what they can achieve. 

Special mention for e-commerce companies that have garnered plenty of publicity and funding during the global lockdown. 

Three new EU companies breached the $1 billion valuations

Three European startups joined the select unicorn group during the past quarter. 

A couple of consistent fund injections (one worth of $240 million and another $35 million) were enough for Berlin-based Lilium to reach $1 billion valuations in June. The company activates in the airline industry.  

The UK-based car platform Cazoo joined the unicorn ranks, achieving another impressive feat along the way: it became the fastest European company to get to $1 billion, less than 18 months from its founding. 

Workhuman, headquartered in Dublin, provides cloud-based software management solutions. By raising $122 million from existing shareholders the past quarter, Workhuman reached a $1.2 billion valuation, a result that placed it on the unicorn board. 

What about Romanian startups? 

I left my beloved country last for a good reason: I plan to talk in detail about something that caught my eye about Romania's startups. 

According to a recent study published by Dealroom, Romania ranks first among Central and Eastern European countries when it comes to investments in local startups in the previous seven years. 

Since 2013, Romanian startups have raised $1.3 billion in investment, same as Estonian startups. Poland occupies third place with $0.9 billion investments, followed by Lithuania ($0.6 billion) and Hungary ($0.3 billion). 

In the last decade, the Central and Eastern European region has created eight unicorns - private companies valued at $1+ billion. Romania gave two unicorns from this list: UiPath, a company specialized in providing software solutions, recently valued at over $10 billion*, and eMAG.  

*Quick note: UIPath leveled up to decacorn status now, exceeding $10 billion in market value. 

In the first half of 2020, more than 20 tech Romanian startups raised capital from venture capital funds, business angels, and crowdfunding. 

The burning question – to launch or not to launch a startup in 2020? 

I think we could witness the European startups' turn to take the spotlight, ahead of their U.S and Asian equivalent. But only time will tell how things are going to unfold. I'm optimistic. 

You can follow me on Twitter and LinkedIn. 

Lately, I’ve spent more time than usual analyzing the markets. Just like most investors, I was interested in how they will react to this Covid-19 pandemic. Do you know what caught my attention? Not the stock market rising from the ashes like a Phoenix. Or the incredible gold rally. Not even what happened to oil from February up to now. No, I’m talking about something else: soft commodities.

Stay with me, and I will tell you why the soft commodities market is the next big thing I will put money in.

 

Numbers don’t lie

Cocoa, coffee, cotton, sugar. Four of the goods we all use in our everyday lives. And guess what? It happens they’re among the best performing financial assets nowadays. For example, sugar prices jumped 20% since May. Cocoa, coffee, and cotton became a lot more valuable as well, posting double-digit figures increases as well.

 

But here's the exciting thing: between March and May, all these common goods were cheap as chips. The pandemic was taking its toll on them too. Prices were extremely low, and nothing was pointing at a change.

Naturally, I became very curious to find reasons for this sudden shift. From May until now, deep into August, the soft commodities market thrived. Just a couple of months earlier, prices were down below sea level. So, I started digging out deep in my quest to find some answers and a potentially exciting trading opportunity.

Let me tell you some of the reasons why I believe the soft commodities market is looking better than ever.

 

Supply shortages got everybody worried

Brazil and India, two of the world’s biggest soft commodities producers, are forced to deal with the harshest effects of the Covid-19 pandemic. They’re both in the top three worst-hit nations globally. Hundreds of thousands of people have already died there.

Brazil is the largest manufacturer of coffee and sugar, with tens of million bags of coffee and hundreds of million metric tons of sugar cane produced in 2019 alone. India produces the most cotton on earth. Even more than Europe makes with all its 40+ countries.

But here’s the issue. Investors anticipate supply constraints are closing in, as both Brazil and India will need to put their economies back on track when the crisis ends. With smaller supplies on the horizon due to workforce shortages, prices for soft commodities futures can only go up. Another reason for the bullish trend is that many people are stuck at home, and the demand for goods such as coffee and sugar tends to rise under these circumstances. Also, as soon as the economy starts recovering, we can only witness a boost in demand.

 

The U.S Dollar, no longer safe

The Dollar Index, which measures the power of the U.S Dollar compared to several other major currencies, has recorded its worst month in almost ten years. That spells excellent news for soft commodity prices, as a weaker Dollar makes it more affordable for importing nations to buy commodities priced in the U.S. currency.

Investors betting against soft commodities had to cut their short positions. In early August, the "performers" were the coffee shorts, with more than 19,000 contracts wiped out of existence.

Fewer bearish supporters of soft commodities mean there's more room for optimism in this market. Together with improved market sentiment, prices should continue to rise until something truly unexpected occurs. For the moment, investors don't expect such a thing to happen. 

 

Game over for the gold rally – or so it seems

Gold lost 5.72% on Tuesday, August 11, marking the most significant single-day decline in seven years. It also fell below $1.900/ounce for the first time since July 24. That's quite a negative record.

I did my homework and checked what investors believe happened. Here's what I found out: many experts believe gold is overbought. Optimism is growing among small businesses worldwide. The risk-appetite attitude seems to return (slowly, but surely). 

Don't get me wrong: that doesn't imply people stopped looking for safe havens. Not by any means. It just shows that gold might no longer belong in this category anymore. I think the U.S Dollar faces the same issue as well.

It always happens like this: in the beginning, investors run to what they believe is their safest bet. As soon as things appear to take a turn for the better, they shift by 180 degrees. And then other opportunities start to look more clearly.

 

Final Words

The markets remain uncertain, as the pandemic is far from over. Now we need to protect our investments more than ever since danger looms.

What do we have left when gold and the U.S Dollar stopped proving their utility as hedging instruments? There's only one market we can turn our attention towards. And that's precisely the soft commodities products I've been talking about. I don't know what you're going to do, but I'm counting on them. 

Make sure you follow me on Twitter and LinkedIn for more useful insights & commentary!

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 31^st.

*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.

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