MAGA in the Crosshairs
The juxtaposition is… interesting.
At the White House yesterday, “President Donald Trump gave a shout-out to a group of four big tech giants that have market caps larger than $1 trillion, calling them MAGA,” reports CNBC.
As he put it, “For 144 days, we set a record stock market. It means 401(k)s, it means jobs. Four trillion-dollar companies: Apple, Amazon, Google, Microsoft. You have MAGA. The trillion-dollar club.”
Just to make sure no one missed it, he had a visual aid. It doesn’t show up super-clear in this screengrab, but you get the idea…
It was late last year an alert reader of The 5 noticed these four biggest companies spelled MAGA — although it appears someone on CNBC’s uniquely irritating Fast Money might have made the connection as long ago as last summer.
Elsewhere in the imperial city yesterday, the Federal Trade Commission expanded its investigation into those same four companies.
The FTC ordered the four — plus Facebook — to turn over detailed information about the startups they’ve acquired during the last decade. At issue: Whether those acquisitions had the effect of stifling competition.
This is on top of the existing antitrust investigations at both the FTC and the Justice Department.
“The new probe likely will involve hundreds of transactions that never drew federal scrutiny because they were under the dollar-value threshold for antitrust review,” says The Wall Street Journal.
That threshold rises each year with inflation; here in 2020 it’s $94 million. In the world of Silicon Valley startups, that’s not very big at all.
No, you can’t say this is a case of the deep state undermining the MAGA agenda. All five FTC commissioners were appointed by Trump — three Republicans, two Democrats, which is customary under a Republican president — and their vote yesterday was unanimous.
So what’s the endgame with all these investigations?
Last month, our Jim Rickards ventured here in The 5 that it could be “as traumatic for today’s giants as it was for Standard Oil… during earlier eras of antitrust activism.”
We take Jim’s outlook seriously. Last summer, as the investigations were barely underway, he told his Strategic Intelligence readers that “within months, we should expect to see the announcement of antitrust investigations of Amazon for anticompetitive practices aimed at small vendors.” And here we are.
“The remedies,” he says, “may include breaking up these companies so that entities such as YouTube, Instagram and Amazon Web Services (AWS) are forcibly spun off from their tech giant parents. This would be designed to give those spun-off companies their own platforms from which they could compete with their former parents or innovate new products that do not abuse customers in ways the former products did.”
And what does that mean for the MAGA stocks?
For nearly three years, we’ve noticed how those names have outperformed the broad stock market — and not by a little, either.
That’s still the case here in 2020; according to DataTrek Research, MAGA accounts for two-thirds of the year-to-date gains in the S&P 500. That’s right, the other third is basically crumbs scattered among the other 496 companies.
“In the short run,” says Jim Rickards, “these legal actions aimed at abusive tech giants are likely to hurt their stock prices because of the uncertainty created and because new costs, whether consumer permission fees or lost revenues from foreign governments, will hurt earnings.
“In the longer run, these breakup and regulatory scenarios might actually help shareholders. The government cannot simply take the stock of tech firms without compensation. If a breakup is ordered, the stockholder in Google could end up with separate shares in Google, YouTube, DoubleClick and Waymo, among other firms. The combined value of those shares might be more than the value of Google shares alone.”
Which, by the way, is what happened after the breakup of Standard Oil a century ago.
No, we’re not going to hazard a guess on the timing here. We’d be doing just that — guessing. So we’ll leave it at this: If you already own some or all of the MAGA stocks and you can afford to be patient, you might have a wild ride ahead… but you’ll come out even better on the other side.
Yet again, the markets are shaking off any coronavirus worries today.
Oh, excuse us, that would be “COVID-19” worries. That’s the new name the World Health Organization gave the disease yesterday. Supposedly it stands for corona, virus, disease and the year it broke out.
"We had to find a name that did not refer to a geographical location, an animal or an individual or group of people," says WHO Director-General Tedros Adhanom Ghebreyesus. Fair enough, and we’re sure WHO staff in Geneva are patting themselves on the back… but to American ears it sounds like some obnoxious tech-bro conference that took place last year.
As we write, the Dow has followed the S&P 500 and the Nasdaq into record territory — up a little over 200 points to 29,479.
Gold has regained its footing after yesterday’s slip, the bid now $1,565. Crude is up nearly 3% after the weekly inventory numbers from the Energy Department — $51.33.
Still, there’s a handful of unsettling threads with COVID-19. (Really, that’s what we’re supposed to call it? They’re trolling us all, right?)
- The head of India-based drugmaker Cipla warns that supplies for most drug companies worldwide will start running out by month’s end unless China resumes production
- It turns out China is the source for most generic antibiotics consumed by Americans these days. U.S. penicillin production ceased in 2004. True, antibiotics are useless against viruses, but still…
Meanwhile, colleague Byron King tells us he spent last night with a group that included the dean of computer science at one of the top three computer-science research universities in the United States.
“Many Chinese students attend that institution,” he says in an email. “Lots. And all of them are currently wearing face masks.”
After a brief spurt, Congress appears to have once again lost all interest in the Federal Reserve’s efforts to shore up the “repo” market.
In mid-September, the market in repurchase agreements — short-term loans Wall Street firms take out with each other to fund their daily trading — seized up. Since then, the Fed has stepped in to do much of the lending.
For the most part, Congress has expressed little interest in which institutions need the money, or why. The topic came up briefly during hearings by the House Budget Committee in November.
Yesterday, Fed Chairman Powell delivered his twice-a-year testimony to the House Financial Services Committee. In his prepared statement, he offered anodyne reassurances that the repo rescue is a “technical measure.”
We haven’t slogged through all the video yet, but it appears no one inquired any further. However, Rep. Katie Porter (D-California) saw fit to lecture him about the high cost of child care.
That said, it appears the huge ramp-up in the Fed’s balance sheet since September more or less ended when the calendar turned to 2020…
But with the balance sheet swelling from less than $3.8 trillion to nearly $4.2 trillion in less than four months… the Fed has fewer “bullets in the chamber” to combat the next recession, whenever it comes…
Back to the virus: “It’s a little surreal,” says the CEO of a company that happens to be called… Covid.
It turns out Tempe, Arizona-based Covid is a maker of high-end audio-video cables, mostly for commercial installations. Some 40 years ago, the founders of the company thought of the name “Vid Co.” But that was already taken by several other businesses… so Covid it was.
Word of the WHO’s naming decision yesterday reached CEO Norm Carson at a trade show in Amsterdam.
“I don’t think anyone would like to have their name associated with a worldwide pandemic like this,” Carson tells the Slate website.
But on the flip side, “We have very high-quality products, we have very good relationships with our customers, we’re very good at what we do. I guess I don’t have concern that people are going to be confused and think that our company is associated with this.”
“China syndrome?” writes one of our longtimers after we examined the outbreak yesterday.
“I did not become overly concerned at previous epidemics like SARS or swine flu or Ebola.
“I kept a close eye on them for signs things could ‘melt down’ like the China syndrome (I realize the uninitiated may not get the reference), which fortunately never happened.
“At first, the coronavirus felt the same way as previous epidemics; keep a close eye on it while ignoring most of the media circus around it.
“But the more I hear folks from government agencies, and now even the media, saying the worst is over, I’m starting to become more concerned.
“If this virus is far less lethal than the average flu season each year, then why are 400 million in quarantine in China? (I’ve seen direct photos from folks inside [ambiguity intended] that show just how vast the emptiness is in parts of China. Very, very eerie!)
“Reports I would have previously dismissed entirely I am now considering more closely. Like the Tencent post that reportedly shows orders of magnitude higher lethality and total infections than what are officially being reported.
“I’m also reconsidering reports that Wuhan is home to China’s military bioweapons lab. Accidents do happen.
“And I’m remembering videos that reportedly show citizens being rounded up and whisked away, to somewhere, by Chinese military, as Jim mentioned in yesterday’s 5.
“I could go on, but the facts are starting to point to something much worse than a typical flu outbreak.
“Right now the preponderance of the evidence (scant as it may be) sides with something much worse than the garden-variety flu.
“I’d appreciate more commentary from Jim on this if possible. One of the many reasons I love The 5!”
The 5: “There is substantial medical, anecdotal and model-based evidence that the actual infection rate and death rate may be 10–20 times higher than those official statistics,” Jim says — reiterating his point yesterday.
He says so knowing that models are subject to conceptual flaws, and anecdotes are a terrible substitute for data.
Part of the problem is that China has such an enormous population. So the effects take place on a scale we Americans simply can’t conceive of. Sixty million city dwellers confined to their homes, except for a once-every-three-days grocery trip? That’s more than one-sixth of the U.S. population.
The lack of transparency from the Chinese government? Also a huge problem, for sure.
We’ll throw in one more complication in trying to separate the signal from the noise.
In the financial community, there are certain “China bears.” They think China is a bubble ready to burst at any moment, or at the very least deflate slowly. They invest accordingly.
Not surprisingly, some of them are “talking their book” given this outbreak. On Twitter, they’re liable to jump on dire rumors that later turn out to be untrue, or at the very least uncorroborated.
We’re thinking specifically of hedge fund chief Kyle Bass, whose investment thesis is further complicated by his animus for the Chinese Communist Party. “Let the Chinese virus rampage through the ranks of the… Communist Party,” he tweeted on Sunday.
We’ve had kind words for Bass in years gone by. He was the driving force behind the University of Texas endowment — second-largest in the country, after Harvard — taking on a substantial gold position. Good diversification. But more recently, his hedge fund’s short-China position led to 19% losses in 2017 when a collapse of China’s banks and currency didn’t materialize.
It’s a powerful reminder never to let your politics drive your investing decisions…
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