COVID-19 is polarizing the world — both on a human level and on a business level. Your portfolio needs to reflect this

 

$22.

That’s all she has left in her bank account.

Yesterday, The Wall Street Journal profiled Alicia Cook, a head banquet chef at a hotel in Nacogdoches, Texas.

Making $10.25-an-hour, she had been able to make ends meet but that income didn’t allow for any savings.

So, when her hours were cut to virtually nothing in the wake of the pandemic, she was left with practically nothing herself. After paying her electricity bill, Ms. Cook had just $22 in her account.

She’s hardly alone.

From The Wall Street Journal:

Roughly half of U.S. households have no emergency savings, according to a Federal Reserve survey released last year. Those that do may not have enough. Almost 60% said they couldn’t tap into rainy-day funds, borrow from family and friends or sell something to cover three months of living expenses.

As of this morning’s latest unemployment benefits report, we now know that more than 20 million Americans have lost their jobs. And despite the record $2 trillion stimulus package, many of these individuals will struggle to pay their basic living expenses next month.

For example, as we noted in the Digest last week, nearly one-third of all U.S. apartment-renters were unable to pay their April rent. Expect that number to skyrocket come May.

***Meanwhile, over recent weeks, the stock market has been soaring

 

From the late-March low, the S&P jumped 27% before yesterday’s mild sell-off (it’s still up 25% as I write Thursday morning).

 

 

And how is this morning’s brutal unemployment claims report — another 5.2 million Americans filing — impacting the rally?

As I write, the Dow is reflecting this grim news by being down — scratch that — up 6 points.

For all I know, by the time you read this later today, it could be up 6%.

It’s almost as if Wall Street’s response to another five million Americans losing their jobs is, “Hmm? Oh, sorry, I was over here making money … you were saying something?”

This glaring divergence in fortunes was immortalized earlier this week in a screenshot taken during the investment television show “Mad Money.”

 

 

It’s an uncomfortable reminder of just how divided the U.S. has become. It’s also an illustration of what Eric Fry calls the “Technochasm.”

***How the coronavirus is accelerating the Technochasm

 

For newer Digest readers, the Technochasm is Eric’s name to describe the stark — and expanding — wealth gap in the United States that’s, in large part, driven by technology.

In the past decade, we’ve seen a tremendous shift taking place in our economy.

Amazon has taken over traditional retail. Uber has disrupted traditional taxis. Netflix has obliterated home video rentals, and even impacted how we view network television (the “binge” model).

In fact, look at virtually any major business sector and you’ll see tech’s fingerprints, reshaping and redefining it.

In short, tech has changed the game — and the changes it continues to make today are coming faster than ever before.

Now, on one hand, these technologies are great — they make life far easier and more convenient for us. That’s why we’re all more than willing to open our wallets for these new products and services.

But the flip side is that all of this money is now flowing toward a highly-select few companies … and by extension, a highly-select group of owners, key employees, and investors. And in doing so, it’s fueling this ever-growing, ever-widening wealth gap.

Of course, the wealth gap is also exacerbated by the loss of jobs that comes as new technologies continue to disrupt traditional sectors.

From Eric:

Year after year, we watch established businesses that appear sturdy and in control of their markets get utterly destroyed by upstarts.

In many cases, these businesses employ tens of thousands of workers … and are cornerstones of retirement accounts. But the seeming strength of these businesses often hides their underlying weakness. Companies that fail to adapt die a slow but certain death.

***The sudden appearance of the coronavirus is accelerating the Technochasm at an alarming rate — on both a human level and a business level

 

On a human level, the reality is the coronavirus is not affecting Americans equally.

From Eric’s update to subscribers on Tuesday:

While anyone can “get” the coronavirus, how it’s hitting us varies widely among income levels.

Indeed, instead of being an “equalizer,” COVID-19 is hitting people on the wrong side of the wealth gap especially hard.

First off, consider who can actually “shelter in place.”

Many high-income and upper-middle-class white-collar folks can work from home with little more than a laptop and an internet connections.

Working-class truck drivers, nurses and health aides, and grocery store and warehouse clerks, on the other hand, are front-line troops in the war against COVID-19

So, we have a huge number of lower-earning Americans suddenly facing an income-crunch — or suddenly finding themselves directly in the path of COVID-19, while higher-earners are far more insulated (financially and physically).

And what about virus’s impact on a business level?

Here again, it’s vastly different.

On one hand, we have many smaller brick-and-mortar operations suddenly facing an existential crisis. Even huge companies are facing massive challenges (especially in the retail sector).

Meanwhile, certain tech companies are flat-out thriving.

From Financial Times:

Tech companies are still hiring feverishly as they move to take advantage of a world shifting increasingly to digital as a result of the coronavirus, despite mass lay-offs elsewhere and growing concerns over plummeting global markets.

***Take the technology sector of telemedicine

 

While coronavirus fear has ravaged the U.S. economy, telemedicine has seen explosive growth.

Back to Eric:

It’s been around for years, but many of us are now using it for the first time to speak with doctors and receive treatment rather than visiting in person. Just look at what the coronavirus has done for top telehealth company Teladoc Inc. (TDOC) …

 

 

Eric’s chart above is from a couple weeks ago. Below, we compare Teladoc and retail veteran Macy’s since the beginning of the year, through this morning.

The difference is nothing short of staggering …

While Teladoc is up 103%, Macy’s has lost 65%.

 

 

This is the Technochasm at work … and COVID-19 is only intensifying the divide.

Expect it to continue.

Back to Eric:

I believe we will beat COVID-19.

The economy will recover. Most people losing their jobs now will get back to work.

But longer term, many companies will prepare for the next global pandemic by shifting more of their processes to automation, robots, and/or artificial intelligence, rather than human beings.

In other words, as people keep losing their jobs due to technology … that technology will keep making the wealth gap bigger. That’s the “Technochasm.”

***What can you do about it?

 

On a human level, most of us can only be aware of the dire financial reality facing many Americans and respond accordingly with empathy and a helping hand.

But on a business/investment level, there’s much you can do.

Back to Eric:

I wish I could tell you this situation will be resolved soon.

But it won’t.

But you can educate yourself about the Technochasm.

And more than that … you can make sure your portfolio is positioned to make the most possible profits …

Today there are so many ticking time bombs in so many people’s portfolios, because of bad business structures … heavy debt loads … and completely outdated business models that are being disrupted by fast-moving and creative, technological startups.

If you own doomed firms like these you are all but guaranteed to miss out on the biggest gains of the years to come.

If you’d like to watch Eric’s research video on this Technochasm issue/opportunity, click here.

Have a good evening,

Jeff Remsburg