A growth locomotive or a runaway train


After half a year during which the economic world rolls on its lips the variety of letters from the English alphabet – from L to V and W – in an attempt to predict what the economy will look like at the end of the Corona crisis, in recent weeks the focus shifts to a new letter, K. An American economist who is not exactly one of the ordinary stars, who wrote in June that the recovery will not be the same for different industries and for different population groups and it will only intensify the gaps.

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What is a K-shaped recovery? On the rising side – staggering financial reports that shattered forecasts and left even the most optimistic investors stunned – launched by Apple, Amazon, Facebook and Google on Thursday night. It happened just hours after the US growth data, which indicated a dive of 32.9% of GDP, an unprecedented fall since World War II. This is the second leg of the letter K, the one that goes down to the ground. Already last week, Federal Reserve Chairman Jerome Powell adopted the K concept, but on Thursday the best illustration was received that we are probably living in the K era and the desire for the economy to recover in a V-shape was only a dream.

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How is it possible that big tech companies are presenting the best quarters in their history while the traditional economy, from airlines to old retail chains, is struggling for its life? This is one of the severe side effects of corona and it is felt all over the world, both on the business level and on the private level. In this crisis the “rich”, i.e. those who sit on higher cash balances and engage in areas adapted to the new reality of confinement at home, only improve their situation, while those who were poorer in advance, without cash pads and engaged in areas requiring physical presence, weakened.

The technology giants are among the first group and this is very evident in their financial results. Their aggregate profit in the second quarter of 2020, which was supposed to be one of the most difficult quarters in history, as it was mostly closed worldwide, amounted to $ 28 billion. Moreover, all companies improved their profitability compared to the corresponding quarter in 2019, which was crisis-free. Amazon stood out in this regard, Which warned in advance of one-time expenses, which in fact amounted to $ 4 billion, to adjust its activities to the requirements of social distance. But despite this expense, the company posted earnings of $ 10.3 per share against expectations of earnings of $ 1.5 per share. In absolute terms, this is a net profit of $ 5 billion, double the corresponding period. The company enjoyed increased online purchases during the closure period, which jumped its revenues by 40% over the same period to $ 89 billion.

Also Facebook’s net profit Doubled to $ 5 billion during the second quarter, despite a boycott by quite a few large advertisers. The number of monthly active users on the social network jumped to 2.7 billion people, an increase of 12%. Dark It also provided a huge surprise, showing a 12% jump in net profit to $ 11 billion with an 11% increase in revenue to $ 60 billion – revenue that was $ 7.4 billion higher than forecast. These are surprising numbers, especially given the fact that a large portion of Apple stores around the world were closed during the quarter, but hence also part of the explanation: Apple gave gas in sales of iPads and Macs as people spent more and more time in front of screens during the closure. Revenues from Apple’s various services also jumped to a historic high of $ 13 billion, which contributed to the improvement in profit rates. These services, led by the company’s various built-in apps, such as Apple Music, are at the center of scrutiny by the congressional committee that grilled the technology giants just a day before the reports were released.

Among the giants, Google Was the unit with lukewarm results, and showed, for the first time in its history, a decline in quarterly revenues, but these were still higher than forecast. Revenue was $ 38.3 billion, down 2% from declining advertising and tourism, and operating profit fell to $ 6.4 billion, with Google posting a net profit of $ 10.1 per share – well above analysts’ expectations.

Investors predicted what analysts did not expect

The issue of forecasts requires reference, as these are ostensibly used as a measure of the success or failure of the performance of public companies. In stark contrast to the heavy concerns ahead of the publication of the second quarter financial statements, 80% of the S&P 500 companies that have already reported actually beat the forecasts. The companies themselves provide detailed forecasts for their performance later in the year, since the outbreak of the corona crisis they have stopped doing so, hanging on to market uncertainty and inability to predict what will happen.Therefore, the last quarter simply reveals Years, without the companies “holding their hand”.

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Those who did manage to predict the immunity of technology companies are the investors, meaning the wisdom of the masses worked. Big tech stocks have led the positive trend in the US stock market since the beginning of the year and have repeatedly raised the question of the disconnect between the stock market (Wall Street) and the economy itself (Main Street). Following the release of the reports and growth figures, the issue has only sharpened. The companies have added $ 200 billion to their value and the aggregate market value of the four has exceeded $ 5 trillion. Billion dollars.

In the spirit of the era when governments are handing out checks to citizens in an attempt to help deal with the crisis, it is easy to immerse yourself in theoretical calculation exercises about how much money Apple can distribute to any American family or even to any citizen in the world. Apple, meanwhile, has decided to help the community in another way and announced a split of its share by one to four. This will make it easier for small investors, especially young ones, to flock to trading platforms such as Robin Hood, which will cost about $ 100 instead of the current $ 425.

 Photos: AFP

Big tech is pulling the indices to highs

If we continue to adhere to the wisdom of the masses, then technology stocks are succeeding in pulling the indices to historic highs and producing the coveted letter V. The month of July, which ended last Friday, and was one of the most difficult months in terms of morbidity in Corona, not only in Israel but also in the United States, was actually very positive on Wall Street.

The S&P 500 completed a 5.5% rise, NASDAQ jumped 6.8% and even Dow Jones, almost devoid of technology stocks, climbed 2.3%. As in the case of technology stocks, for which the market was more right than forecast, so be it Even with the economy itself? Will the technological revolution take the entire world economy out of the mud of the corona crisis and not just create a layer of societies and rich people who are detached from everything else?

Technology has proven to be a lifesaver during the Corona Crisis, even if not in the immediate sense of the word. Were it not for the ability to work from home in most organizations, the real economy would have been hit harder. Remote medicine technologies make it possible to reduce the serious morbidity and mortality from corona, and they are also the ones that may enable the rapid development of innovative mRNA vaccines.

These days many technologies are undergoing rapid adoption by bodies that were previously reluctant to change working methods, but the corona crisis has revealed the urgency of this. Anyone who wants to be on the right foot of the K needs to adapt to the new reality, as many small businesses, for example, have rushed to open online stores.

But not all areas can move to the virtual plane, so it is precisely there that governments need to channel aid, otherwise, as Twitter claims, the K will easily become a scenario that no one wants to see – the letter L, for everyone, without exception.


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