Covid-19

[holymage]

Now, I have discovered another reason as to why the market is so resilient. Investors are merely thinking about the most obvious surface issue: peaked virus cases, so the worst is over, and so there will be a V-shaped recovery. Seems like most investors failed to consider what Specuvestor and I mentioned: second and third order effects that this crisis has triggered. I just don't believe that businesses (and economies) in reality can be turn off and turn on like a switch. If I were to make a wild guess, I think the day of reckoning may come somewhere late in 2020, when the effect of most government aids fades.

As a kind gesture, here is Google's 1Q2020 earnings results. Revenue YoY +13%. EPS YoY +4%. Given the current circumstances, that is good. But.....

Ruth Porat, Chief Financial Officer of Alphabet and Google: Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues.

https://abc.xyz/investor/static/pdf/2020...he=4690b9f

I would expect 2Q2020 and 3Q2020 results to be a rude awakening to the bag-holders. Same for Facebook as both companies derives bulk of their revenue from advertisements (tonight is Facebook's earnings call). From my experience, advertising are highly discretionary items, once it is removed, it takes time for a company to reallocate money into that expense item. So I don't expect to see a V-shape recovery in results. From what I know Google and Twitter has withdrew their earnings guidance. In addition, we will be able to see another example of the double edge sword of operating leverage. 

As a disclaimer, the market may again look past poor results and treat it as an outlier.