Category: zerohedge

New York AG Candidate: Time To Break Up Facebook And Google

New York attorney general candidate Zephyr Teachout says it’s time to “explore breaking up” Facebook and Google under state and federal antitrust laws if she is elected. 

Teachout, a Democrat, told a crowd outside the Manhattan office of the New York Daily News – the day after the paper fired half of its staff, that tech companies are to blame for dominating the advertising space, “drawing revenue from newspapers and publishers,” reports the Washington Post. 

“As attorney general,” said Teachout, “I would work with my colleagues in other states to launch a major antitrust investigation to look into the ways in which Facebook and Google are wielding and may be abusing their duopoly powers.”

The Attorney General hopeful’s campaign pledge comes amid a national debate about competition and monopoly, as many – including President Trump, have set their sights on tech giants for unfair practices.

President Trump tweeted on Monday that “the Washington Post is nothing more than an expensive (the paper loses a fortune) lobbyist for Amazon. Is it used as protection against antitrust claims which many feel should be brought?”

New York in particular is widely viewed as a champion of consumer protection issues, as previous attorney generals have aggressively pursued litigation against companies accused of misbehaving. 

Elsewhere, Missouri Attorney General Josh Hawley on Wednesday announced an expansion of his office’s antitrust probe into Google. Hawley served a new subpoena as part of his investigation into whether the search giant may have taken “improper steps to enhance its market power.” Hawley cited the European Union’s recent $5 billion fine against Google for bundling its proprietary apps on Android phones in what the E.U. said was an anti-competitive fashion. –WaPo

“If the European commission’s allegations are true, Google’s conduct may have violated both federal and state antitrust laws,” Hawley said in a statement.

Facebook and Google’s domination of the advertising space- an estimated 56.8 percent, represents a “democratic crisis” (her favorite phrase) for those in journalism, said Teachout in a Wednesday interview. 

Teachout also says her plan includes the blocking of new M&A between tech companies that she says stymies innovation and competition, while also promising to use federal laws such as the Clayton Act and the Donnelly Act to go after monopolies. She would even pursue completed acquisitions for targeted “unwinding.”

The cuts at the Daily News appeared to have little to do with the tech platforms directly; instead, the layoffs stemmed from business decisions by the paper’s parent company, Tronc. But Teachout said the “decimation” of local newspapers such as the Daily News reflects a broader economic reality for publishers. –WaPo

“People are making money off of local news,” she said. “But it isn’t the journalists, and it isn’t the publishers. It’s Facebook and Google.”

That said, not everyone agrees with Teachout’s premise, suggesting that newspapers are actually helped by tech companies which distribute their content to large audiences online – while some outlets’ financial troubles can be traced to the proliferation of competing sources of information such as new online publications and blogs. 

“Papers that are struggling are those that can’t compete with a much expanded market or that refuse to enter the digital age,” said Geoffrey Manne, executive director of the Portland-based International Center for Law and Economics, a think tank. “But this idea that a Facebook/Google ‘duopoly’ is to blame is simply wrong. This is pure politics.”

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Yuan Tumbles As China Rages At Washington’s “Extortion, Demonization”

The brief rebound in the Yuan is over as a barrage of headlines from China and US spark renewed concerns at Beijing’s ability to withstand Washington’s war.

Just when you thought the trend had reversed, Yuan has started tumbling back towards cycle lows…

Take your pick of what is driving this yuan weakness:

1. Trump’s ‘deal’ with Juncker, as Goldman notes, seems likely to give the Trump Administration more political flexibility to impose additional tariffs on imports from China…

Rural voters voted disproportionately for President Trump in 2016 and most rural areas have Republican representatives in Congress. Retaliatory tariffs recently implemented by China are particularly focused on agricultural exports that would impose disproportionate economic losses in rural areas and could weaken support for the President’s trade agenda among these constituencies. Additional subsidies are likely to reduce this effect, though they will probably not reverse it entirely.

Overall, developments over the last few days suggest that risks from trade policy are becoming more concentrated on the US-China trade relationship. The preliminary US-EU agreement could lead the White House to believe that imposing tariffs on imports from China could increase the probability of a US-China agreement. With subsidies in place to guard against some of the domestic economic fallout from retaliatory tariffs, the White House is likely to have additional political flexibility to pursue that strategy.

2. The failure of Chinese regulators to agree to the Qualcomm-NXP deal has prompted notable reactions with NXP CEO confirming his view that “the China decision was absolutely political,” and prompting broad-based concerns that all China-related M&A is off the table for now.

3. Deputy U.S. Trade Representative Dennis Shea blasted China this morning as the “most protectionist” economy of all at a meeting of the World Trade Organization in Geneva. Shea said China has failed to introduce reforms to make its economy more open to market forces and the harm that is doing can “no longer tolerated,” pointing out that China’s approach to international trade is a “zero-sum game.”

4. China has officially threatened – despite its notably asymmetric trade position – to retaliate for any amount of US tariffs, prompting fears that it will use alternative methods of retaliation (i.e. devaluation). Additionally China’s WTO Envoy snapped back at US that “extortion and demonization does no good” adding that “holding our feet to the fire won’t work.”

This trade war is far from over.

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Turkish Lira Tumbles After Pence Threatens Sanctions If Pastor Not Released

Yesterday we reproted that Tuesday’s Congressional vote to block sale of Lockheed Martin’s advanced F-35 stealth fighter to Turkey may already be having an effect as less than 12 hours after the House and Senate adopted the legislation, American Pastor Andrew Brunson was released from a Turkish prison and placed into house arrest.

He will be confined to his residence in Turkey where he can have interaction with his family and move freely within the confines; however, he will continue to proceed through his trial in the Turkish legal system.

Brunson’s family was reportedly “elated” by the move, according to media statements. His wife is said to be waiting for his release from a prison in the western part of the country.

However, some were displeased, and Bloomberg reports, VP Mike Pence has threatened to sanction Turkey is pastor Bruson is not released.

  • PENCE SAYS U.S. TO SANCTION TURKEY IF PASTOR NOT RELEASED: AP

In kneejerk reaction, the Turkish Lira tumbled as low as 4.88 from 4.80 before the news, down as much as 2.3%

In sympathy, all other Turkish assets are also sliding:

  • ISHARES MSCI TURKEY ETF DOWN AS MUCH AS 3.3% ON SANCTION REPORT

As a reminder, Turkey is a NATO ally and as such any sanction would likely be the first ever in which the US has put an economic blockade against another NATO member state, which however is that in all but name, considering Erdogan’s recent sharp pivot toward Russia and Vladimir Putin.

 

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FANG Becomes GA

Via Doug Kass,

* On Monday I warned that earnings disappointments in the FANG stocks represents an immediate risk to this league leading sector and to the markets

* Netflix and now Facebook have both experienced sub add misses

* FANG market dominance (shades of 1999) – with too many on the same side of the investing boat – will likely morph into shades of early 2000 (which represented the end of the dot.com boom and the start of a market correction)

* The markets are likely headed for a FANG-Over

After the close, Facebook dropped a bombshell of disappointing subscriber/user and advertising news and a guide to a slowing rate of revenue growth – its shares fell in the after hours by almost 20%.

The risks to FANG’s elevated revenue/profit expectations, FANG’s dominance in portfolios, and investors’ ebullience toward the acronym were some of the primary market warnings that I wrote about in “Investors Are No Longer Being Compensated For Risk” three days ago.

FAANG’s Dominance Represents an Ever Present Risk.

“Yes. They (FAANG- Facebook, Apple, Amazon, Netflix and Alphabet’s Google) are great companies, but ETFs may have accentuated the flow of capital into those stocks…

Things that are most hyped produce the most pain… A conspicuous number of ETFs are concentrated in the same stocks. When things go cold … who is going to buy it?…

If and when it ends, it will end worse for the stocks that have had momentum and for the ETFs that hold them than for the rest.”

– Howard Marks, Delivering Alpha Conference (July 28, 2018)

The dominance of FAANG stocks in the increasingly popular passive market (read: ETFs) makes the acronym (and market) risky as many of the ETFs are using the same “momentum” factor. Consider that just five stocks (FAANG) are a top 15 holding in 605 ETFs:

ETF Ownership of FAANG Equities

2018: 605
2017: 501
2016: 430
2015: 332
2014: 277
2013; 230
2012: 175
2011: 101
2010: 62
2009: 14
2008: 9

Source: Lawrence McDonald

Back to Howard Marks:

“The real big money in the investment world – the dependable money, the safe money – is made not betting that the things that have gone up a lot will continue but on betting that the things that have gone down and become unloved will rebound.”

The dominance of products and strategies (quant machines and algos) that worship at the altar of price momentum also represents a near term risk to the markets. As Marks says, whenever investors/traders are on one side of the boat, problems often arise.

Today the boat could capsize from the overwhelming weight on that side – should an inflection in momentum begin to occur.

That positive price momentum can change from numerous influences – here are some immediate and potential catalysts:

* Amazon’s (AMZN)  aggressive vertical and horizontal strategy could be challenged by the President through a more modern interpretation of the Sherman Antitrust Act (which protects trade and commerce against unlawful restraint and monopolies).

* An earnings disappointment of any FAANG member. (Already Netflix (NFLX)  has recently whiffed on sub ads).

* Tesla (TSLA) might have a liquidity issue.

* Investors may begin to get worried about the large insider selling of FAANG (particularly in FB).

And, on July 9th I wrote and asked a very important question, which “bears” mention:

If Only This Were Fake News

Jul 9, 2018 ‘ 12:41 PM EDT

The Washington Post is reporting that Twitter (TWTR)  has killed 70 million suspicious accounts over the past two months.

My question — what the heck does that mean for shares of Facebook, which is trading at record highs despite its current enormous hiring of new staff to handle privacy and content issues?

Bottom Line

“There is nothing like price to change sentiment.”

– Helene Meisler (The Divine Ms M)

Some are surprised that the overall market has not immediately fallen and that the VIX did not rise in response to the large miss at Facebook.

I am not shocked (there was some “positive” trade news late in the day) – but more importantly, tops are processes.

For years there has been a narrative to stay bullish – to not see or respect any turns (as significant). It was like that in 1987, 2000 and 2007-08 as the market ramped until the day it began to rollover.

It is no different today.

This week may represent a seismic change in investor perceptions – as it relates to FANG and possibly the broader markets.

The markets are likely headed for a FANG-Over.

Position: None

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600 Migrants Armed With “Flamethrowers And Feces” Break Through Spanish Border In Morocco

Some 800 sub-Saharan migrants attempted to cross the border between Morocco and the Spanish enclave of Ceuta at 6:45am through a high fence. While 602 of them succeeded, 15 law enforcement officers were injured in the clashes and later taken to a hospital, the Spanish Civil Guard reported.

Migrants attempted to cross the seven-meter high fence separating Morocco from Spain at 6:35 a.m. They threw stones, homemade shielrs, Molotov cocktails, feces and hashish at law enforcement representatives and used sprays as flamethrowers. The migrants also tried to cut the barbed wire on the fence with scissors and hammers. Once inside Spanish territory, they threw stones at cars of the Civil Guard.

Border agents arrested hundreds on the Moroccan side and more were detained in Ceuta, El Pais reports.

Some of the missiles recovered by officers during the crossing. Photo: Guardia Civil

According to The Local.es, the scramble over the barrier is the biggest in Ceuta since February 2017, when more than 850 migrants entered the overseas territory over four days.   

It comes as Spain becomes the number one destination for migrants crossing the Mediterranean by boat, surpassing Italy with 19,586 arrivals so far this year, according to the International Organization for Migration.

592 migrants who managed to cross the border had applied with the International Organization for Migration; 132 of them were injured, and 11 migrants were taken to hospitals.

Since the beginning of the year, according to the International Organization for Migration, 3,125 migrants crossed the Spanish border through the enclaves of Melilla and Ceuta, not including those who crossed the border on Thursday.  Ceuta is a Spanish autonomous city in North Africa, sharing a four-mile-long border with Morocco. Rabat has repeatedly called on Madrid to transfer the sovereignty over Ceuta and the neighboring city of Melilla. The residents of the city insist the territories should remain part of Spain.

Maybe it’s time for Trump to give Spain some advice on that whole “Wall on the Southern border” thing..

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Nasdaq Opening-Bounce Fades As Dip-Buyers Fail To Appear

Despite 94% of analysts bullish on the stocks, Facebook is barely bouncing at the open, and the machines desperate attempt to ignite some momentum in Nasdaq has failed…

Nasdaq futures are back at the lows as The Dow soars…

And the initial bid for Facebook is fading fast…

FANGs are ugly…

But the NYSE FANG+ Index has found support again…

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“SEC May Want To Take A Look”: Facebook Insiders Dumped $4.1 Billion In Stock Since Scandal

For all the mockery he is subjected to on a regular basis, both here and elsewhere, Dennis Gartman issued a very prescient and timely warning ahead of Facebook’s earnings. As we noted yesterday in our note why Gartman thinks that this is a “This Is A Dangerous Time“, the (formerly) regular CNBC guest pointed out the following troubling fact:

… note the chart this page, courtesy of RBMP Capital, of the huge and increasing sales of Facebook by its founder, Mr.  Mark Zuckerberg, over the course of the past several years and most notably over the course of the past several months. When owners sell this aggressively… no matter what the excuse they might give…only the foolhardy do not pay heed.

Today, Gartman understandably takes a victory lap, and writes the following:

Facebook closed at 4:00 p.m. at a new all-time closing higher of $217/share, but when the news came out if fell swiftly to $173/share… a loss of just over 20%! This is fascinating in light of the massive “insider selling” of Facebook shares by non-other than Mr. Zuckerberg himself in recent weeks and noted here yesterday.

Bloomberg has also picked up on this insider selling deluge, and writes that “nine Facebook insiders combined to sell about $4.13 billion worth of stock since the Cambridge Analytica data-mining scandal first surfaced on March 17.”

Chief Executive Officer Mark Zuckerberg accounted for 85 percent of the total, according to data from InsiderInsights.com, which analyzes such transactions. The social media giant’s stock fell as much as 24 percent in late trading Wednesday after second-quarter sales and user growth disappointed investors.

The acceleration in selling is notable because as Gartman, and we, showed yesterday, that compares with $4.31 billion in all of 2017.  And while the traditional excuse is that “the sales were part of pre-determined trading plans” the sharp acceleration in 2018 selling, and especially in recent months, should raise some eyebrows, perhaps those of the regulators, because as Gartman – who will have the last words – writes:

“The selling was of such massive size and such recent hurried nature that one had to take note of Zuckerberg’s liquidation as a clear indication of future potential problems. Those problems were made clear last evening. The SEC may want to take a look!”

Then again, with everyone’s pension invested in facebook in some capacity, the last thing the SEC will dare to do is cause a market “event” by taking a close look at the one company in which as of last quarter seemingly everyone was invested…

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Why It Might Be A Good Time To Revisit Ray Dalio’s 1937 Analog

Authored by Jesse Felder via TheFelderReport.com,

It was over three years ago that Ray Dalio first proposed his 1937 analog.

After the presidential election, he refreshed it in the context of growing global populism so that it looks like this:

  1. Debt Limits Reached at Bubble Top, Causing the Economy and Markets to Peak (1929 & 2007)

  2. Interest Rates Hit Zero amid Depression  (1932 & 2008)

  3. Money Printing Starts, Kicking off a Beautiful Deleveraging  (1933 & 2009)

  4. The Stock Market and “Risky Assets” Rally  (1933-1936 & 2009-2017)

  5. The Economy Improves during a Cyclical Recovery  (1933-1936 & 2009-2017)

  6. The Central Bank Tightens a Bit, Resulting in a Self-Reinforcing Downturn (1937)

And if these fundamental parallels weren’t enough, we now have a rather interesting price parallel to consider. The correlation between the S&P 500 over the past four years (black and white candles in the chart below) and the four years leading up to the 1937 top (blue candles) is roughly 94%. As I have suggested in the past, price analogs are not very valuable on their own but when the fundamentals also parallel closely they become far more interesting.

In this case, the fundamental parallels are only getting tighter as time passes. Despite the yield curve currently sending a clear red flag, the markets are now pricing in better than even odds of two more rate hikes this year. It seems ‘central bank tightening into a self-reinforcing downturn’ is becoming a more distinct possibility as the economic cycle ages and inflation pressures grow. In other words, “the policy stakes are now very high,” and history provides a clear road map for markets.

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Bund Yields Rise On Draghi’s Inflation Comments, Upbeat Assessment

While Draghi has so far failed to provide more context on the forward guidance of the “summer of 2019” threshold for low rates, keeping the same language as last month, as part of his prepared remarks he added a paragraph that indicates the ECB president is generally happy with the state of the European economy:

“While uncertainties are notably related to the global trade environment remain prominent, the information available since our last monetary policy meeting indicates that the Euro area economy is proceeding along a solid and broad-based growth path. The underlying strength of the economy confirms our confidence that the sustained convergence of inflation to our aim will continue in the period ahead and will be maintained even after a gradual winding down of our net asset purchases.”

Additionally, his language on trade risks was also unchaged, although Draghi did make the following somewhat downbeat comments on the Trump/Juncker deal, saying it was a “good sign [but] too early to tell”. Answering a question about the deal, Draghi said that the ECB had “taken note” but that it is “too early” to say anything about the content. and that “it’s a good sign” because there is a “willingness to discuss trade issues in a multilateral framework again.”

Draghi also said that the reinvestment of maturing bonds “wasn’t discussed.”

But what the market appears to be most focused on is Draghi’s comments on inflation: here Draghi said that “uncertainty around inflation is receding”, that “underlying cots pressures are strengthening” and “underlying inflation to rise gradually in medium term”, and finally that he sees “some encouraging signs on inflation” even if it is “too early to call victory on inflation.”

As a result, the EUR ticked up modestly, if briefly, but has since given up much of the gains as Draghi sidesteps comments on the euro:

  • Draghi: Exchange Rate Isn’t A Policy Target
  • Draghi: Euro Has Appreciate Considerably Over Past 12-18 Months

… while 10Y Bunds are drifting higher concerned about Draghi’s generally favorable outlook amid warnings on rising prices.

Finally, some more headlines from the conference:

Bloomberg headlines:

  • DRAGHI: ECB READY TO ADJUST ALL INSTRUMENTS AS NEEDED
  • DRAGHI: QE STOCK, REINVESTMENTS, GUIDANCE PROVIDE STIMULUS
  • DRAGHI: SIGNIFICANT MONETARY POLICY STIMULUS STILL NEEDED
  • DRAGHI: INFLATION ADJUSTMENT TO CONTINUE AFTER BOND BUYING ENDS
  • DRAGHI: ECONOMY PROCEEDING ALONG SOLID, BROAD-BASED GROWTH PATH
  • DRAGHI: UNCERTAINTY RELATED TO TRADE REMAIN PROMINENT
  • DRAGHI: RISKS TO GROWTH OUTLOOK REMAIN BROADLY BALANCED
  • DRAGHI: GROWTH IN GLOBAL DEMAND TO BOLSTER EURO-AREA EXPORTS
  • DRAGHI: RISK OF HEIGHTENED MARKET VOLATILITY NEEDS MONITORING
  • DRAGHI: GLOBAL UNCERTAINTY, THREAT OF PROTECTIONISM PROMINENT
  • DRAGHI: DIRECT EFFECTS OF IMPLEMENTED TARIFFS LIMITED
  • DRAGHI: TRADE WAR WOULD CREATE ENTIRELY DIFFERENT CLIMATE
  • DRAGHI: MID-TERM OUTLOOK FOR GROWTH, PRICES UNCHANGED FROM JUNE
  • DRAGHI: SOME SLUGGISHNESS FROM 1Q CARRIED INTO 2Q

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Durable Goods Orders Disappoint, But Military Spending Saves The Day

After two months of declines, Durable Goods Orders were expected to rebound handsomely in June… they didn’t.

Against expectations of a 3.0% MoM surge in Durable Goods Orders, the Census Bureau reported a meager +1.0% increase…

This is the biggest miss since Oct 2017

However, thanks to the military-industrial complex – which saw defense spending rise 20.2% MoM – the number remained positive…

This is the 3rd month in a row of massive monthly increases in military spending.

Remember, war is a racket.

The silver lining in the report is that shipments of those goods, used to calculate gross domestic product, rose 1% (beating the expectations of a 0.4% rise) after a 0.2% increase…

This is the best monthly gain since Sept 2017.

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