thoughts as we finish out this last Week of July 2020
Google, Facebook, Apple, and Amazon are the modern equivalents of the railroads that used monopoly power to determine who gets to market and who does not. No longer can anyone dispute the fact that tech giants build and maintain their empires by breaking the antitrust laws.
Bruised but unbroken, the CEOs of Apple, Amazon, Google, and Facebook were virtually grilled over WebEx. The lawmakers repeatedly cut off Tim Cook (Apple) Jeff Bezos (Amazon), Sundar Pichai (Google) and Mark Zuckerberg (Facebook) to maximize their five minutes of time. This will be one of many hearings to come as each of these behemoths has gone from being a market leader to a market “controller.” The Federal Trade Commission (FTC) takes a dim view of companies who are so big they are harmful to competition and in a position to collude, fix prices, divide up markets or rig bids. Remember in 1984 when the U.S. Justice Department broke up AT & T into 7 “Baby Bells” after a 10-year antitrust lawsuit? Before Sprint, Verizon, T-Mobile, we had…just…Ma Bell. 😲 Why does this matter to you? Charges of misconduct across various categories include stifling competition, exerting market power, questionable use of data and content theft from developers. Amazon acquired 128 “pieces” to build the company they are today; Facebook snapped up 72 competitors; Google took over 200 companies and Apple has consumed more than 100 firms. If you have a “gut feeling” that someone is watching you every where you go, and with every click on a website, you are probably right. Break-Ups could be a good thing!
Financial planning journals are recommending advisors stress test financial plans to reflect 75% to 80% of projected benefits. The worst-case scenario is not that Social Security will go broke: rather, that payments will more likely experience a haircut. While the Social Security system was already under pressure before the pandemic hit, the Social Security Administration has outlined numerous ways it could be made whole for at least the next 75 years: reducing the COLA by 1%; changing benefit amounts; gradually raising the full retirement age (FRA) to 70; raising the earliest date that benefits can be received from 62 to 64 years; raising the Social Security tax employers and employees pay and raising income tax rates to provide more money. We have the time and resources to save the system and there will most likely be a combination of solutions. 😊Why does this matter to you? It would be very unlikely for those now receiving benefits to see a reduction in them: however, for the first time I WILL be paying close attention to this topic to determine if those close to 66 should take their benefit before 70. This is not something you should be alarmed about: with advance knowledge, we will have plenty of time to make rational decisions. This will be a slow process and will take years: just expect to hear more from me about it!
These 5 mega-cap stocks above have a collective valuation that is distorting the S & P 500’s 2020 performance: these companies now carry mega-risks reminiscent of the Tech Bust in 2000. The top graph shows the performance of Facebook, Apple, Amazon, Microsoft, and Alphabet and the bottom, the S & P minus these 5 names. While they are only 1% of the S & P 500, they are 25% of the value of the S & P! 😊Why does this matter to you? Stocks can stay over-valued for a long time, but these regulatory pressures are a growing risk. One of the benefits of active management is managers decide when to step out of over-valued positions. Expect the Antitrust Subcommittee to continue these investigations that are sure to get more contentious as we find out how these companies competed unfairly against smaller rivals.
What did you do over your “Pandemic Vacation?” A growing number of young traders with too much time…and a smart phone in their hand…have been day-trading stocks on the newest stock brokerage platform, “Robinhood” (think-take-from-the-rich-and-give-to-the-poor). The name, along with the Silicon Valley playbook of behavioral nudges and push notifications, has drawn inexperienced investors into risky trades, sometimes with devastating results. One-click trades, almost hypnotic, have enabled trading the most speculative part of the market – tech stocks. This also explains why we are seeing warning signals in the NASDAQ. While the index has continued to rise, the vast majority of its underlying stocks have been declining. ☹ Why does this matter to you? The Father of Value Investing, Ben Graham, coined the saying; “in the short run, the market is like a voting machine—tallying up which firms are popular and unpopular. But in the long-run, the market is like a weighing machine—assessing the real substance of a company.” During the 2008-2009 financial crisis, day-traders ran their stock accounts to $0 and today, we are seeing a similar phenomenon.
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steadfastness of mind under duress; dedication and devotion. In short supply.
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