The Great Pivot

By Marius-Cristian Frunza
Weekly Briefs

One year ago, investors and analysts started to talk about the “Great Reset”. The “Great Reset” is a complex and yet amorphous concept, encompassing a set of brutal economic shifts, such as relief of the public debt, universal basic income, shock on financial markets… Despite the unprecedented crisis triggered by the pandemic outbreak, no signs of reset are to be seen. What if developed economies managed to pivot before a reset even was on the table?

The term “pivot” denotes a radical change of a company when its senior management understands the current business model does not fit the market demand. A pivot is nothing else than a quest for adapting and surviving. A business pivot is expected in a Darwinian selection process.

Economies of developed countries have most likely pivoted during 2020. Thus, the pandemic divided the world’s economy into two silos. On the one hand, we have the economies that benefited from the money helicopter and embraced the trend of digitalisation, thereby successfully moving towards a new modus operandi. But, on the other hand, there are countries whose economies are still functioning in the old paradigm, thereby not being adapted to the new realities.    

The stock market has beat over the past year record after record, while the real economy was under a prolonged lockdown. This counter-intuitive development is justified by the fact the market is pricing mainly economies and businesses that pivoted. The economies and businesses that did not pivot, not only that are not priced by markets, but they cannot even efficiently access capital.

The big divide between pivoting and “old fashion” economies will increase inequalities at the global level. Migration will increase and the non-pivoting economies will be depleted of talent and resources.

Cryptocurrencies are the only bridge between the old and new economies, between those benefiting from this new financial era and those living in the pre-pandemic paradigm. As long as this bridge is needed, Bitcoin will survive and grow.

There is good reason to worry: A sharp economic downturn has already begun, and we could be facing the worst depression since the 1930s. But, while this outcome is likely, it is not unavoidable. To achieve a better outcome, the world must act jointly and swiftly to revamp all aspects of our societies and economies, from education to social contracts and working conditions. Every country, from the United States to China, must participate, and every industry, from oil and gas to tech, must be transformed. Klaus Schwab, Executive Chairman of the World Economic Forum

Market overview

The S&P 500 ended another record week, the leading stock index closing above 4,350, a new all-time high. Investors saluted the most recent US employment figures showing no more than 364,000 initial jobless claims, much better than the 390,000 Dow Jones estimated.

The US job market is improving, the jobless claims reaching a new low since the pandemic outbreak. The economy is creating new jobs and absorbing more workforce from the pool of 11 million Americans, which are still receiving benefits through pandemic-related programs.

Bitcoin remained above 34,000 USD but is navigating into murky waters. The Financial Conduct Authority, Britain’s main financial watchdog banned Binance, the world’s leading cryptocurrency exchange, thereby adding additional negative pressure on the crypto market.

Focus:

General Motors

If during the previous 2008 credit crisis, General Motors was on the brink of implosion, the American leading automotive manufacturer is thriving during the pandemic. Quantitative easing and the corporate bonds buying program are not the only reasons.

U.S. automotive producers reported a substantial increase in quarterly sales driven by the rampant demand for SUVs. Consumers also have an increased propensity for electric vehicles.  General Motors is launching new lines of electric cars and subsequently increased the budget for EVs to 35 billion USD. These new types of cars praised by consumers come at higher prices, thereby boosting the revenues of auto manufacturers.

The demand for cars bolstered amid the price inflation due to people’s preference for private transportation in the post-pandemic new reality. Moreover, low interest rates and stimulus checks from the Federal government facilitated the boost in cars demand.

Focus:

HSBC

The big investment banks are thriving, neo-banks’ valuations are going through the roof, but traditional banks are struggling. It is HSBC’s case, one of the world’s biggest banks. The Hong Kong-based bank is a conglomerate of many operating entities across the globe. Prior to COVID-19, HSBC struggled to streamline and integrate its various local businesses. The fast digitisation of the financial industry amid the pandemic outbreak left HSBC on a hiatus. The emerging fintechs are continuously eroding the market share of high-street banks. Investors are penalising the old tycoons of the City because the modus operandi of such entities would face many difficulties to pivot in the new economy.

Focus:

Zoom

In January 2020, Zoom was known only by a very limited number of people. One year later, the videoconferencing company became a global leader and there are only a very few companies not using the product for privacy reasons. Zoom’s share price peaked in October 2020 and since then is in a continuous decline. With the reopening of the society, growth opportunities for Zoom are limited. Nevertheless, the spreading COVID-19 Delta variant brings fear of new lockdowns. Zoom’s share jumped 17% in June.

Market outlook

The Dow Jones soared over the past week above  34,700. The likelihood of a significant correction in the short term seems low. Nevertheless, all bets on a further rally could put investors in a risky spot.

The world’s leading cryptocurrency is at crossroads and all eyes are on regulators that seem to dismantle crypto exchanges not complying with AML regulation. This is not the end of the bearish cycle, and for the moment, there are no signs of an exit from this zone of turbulence.

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.