The FAANGs: Danger Alert!

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FAANG Stocks
  • Mad house or White House?
  • American politics swings left
  • Plus, the trouble with the FAANG trade, and plenty more…

Hmmm. Today we pick over the shambles that is the Trump White House. It may be part of what ends the current US bull market — possibly next year.

What’s going on?

The US President appears to be stacking the board of the US Federal Reserve with figures ‘friendly’ to his agenda[1]. Trump wants lower rates and more quantitative easing to ‘rocket’ the economy up[2].

Trump also has a fondness for haranguing the current Chairman Jerome Powell. Trump even suggested nominating Powell as among the worst mistakes of his presidency.

This is encroaching heavily on the supposed independence of the central bank. It may result in an asset bubble developing if Trump gets his wish of keeping rates low, for too long.

At the same time, people are either quitting the Trump administration or being fired on a scale I certainly can’t recall[3].

Venezuelan President Nicolas Maduro seems to inspire more loyalty, despite trashing the local economy.  

The Economist cites evidence this week that Trump’s tariffs are hurting American producers by driving up the cost of their inputs.

Plus, we have his enormous government spending driving up the US federal deficit.

How long before this train goes off rail completely?

Trump’s aggressive rhetoric against foreign friends and foes alike means few countries will sympathise with American industry, either.  

That’s why Mark Zuckerberg and Jeff Bezos should be very worried…

World says to American tech: Suck it up

Here’s where I am going with this. Momentum is growing around the world to impose regulations or heavier taxes on the American tech giants.

The European Commission has already fined Google three times for antitrust violations[4].

A writer in the Financial Times suggests that technology firms that harvest your personal data should pay you for it[5].

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There may be merit to this idea.

I don’t bring it up today to argue either way. However, the more money in your pocket, the less in Facebook’s earnings — and therefore a likely lower share price.

This is very important in the context of US stocks. Big tech has driven practically the entire bull market.

The British government announced this week that it wants ‘sweeping’ new powers to regulate the internet. They would include fines and the power to prosecute individual executives[6]. Australia and Singapore are leading similar initiatives.

The privacy commissioner in New Zealand has called Facebook ‘morally bankrupt pathological liars’.  

The company’s targeted advertising is also accused of facilitating discrimination based on race and religion.

Facebook CEO Mark Zuckerberg is even calling for government regulation, presumably to forestall harsher legislation.

This could cause significant uncertainty around the big US tech stocks. Markets hate uncertainty. This could reach fever pitch as we move closer to the US presidential election in 2020.

Democratic presidential nominee Elizabeth Warren has gone public with a plan to break up America’s largest tech companies[7].  

Her argument is that they have too much power. The precedent for this goes back to the forced demerger of Standard Oil about 100 years ago.

The so-called FAANG (Facebook, Apple, Amazon, Netflix and Google) trade is certainly no longer a one-way bet.

We have to be tracking what happens here…

A mantra to keep in mind

I have no way of knowing how close the Democratic Party is to winning the next US election.

But if the market thinks the Democrats have a realistic chance, then this will feed into the stock market. It’s unlikely to send it higher.

If Trump’s chaotic leadership sends the US economy into a further wobble, the odds of a Democratic win could go even higher — and ramp up the pressure on the US stock market.

The Democratic platform appears to have taken a heavy swing to the left.

That could panic investors, who might think higher taxes are on the agenda to pay for the social programs.

Again, I’m not saying either approach is right or wrong, but only how it could impact the market.

I’ll keep saying the same thing. Be bullish in 2019. Be a little worried about 2020.

Best wishes,

Callum Newman,
Editor, Profit Watch


Footnotes

[1] ‘Majority of Wall Street Pans…’, CNBC, April 9, 2019.

[2] ‘Trump Says Economy Would Take Off…’, CNBC, April 5, 2019.

[3] ‘Trump Purge Set to Force…’, New York Times, April 8, 2019

[4] ‘Google Fined 1.49 Billion…’, ABC News, March 3, 2019.

[5] ‘Big Tech Must Pay…’, Financial Times, April 8, 2019.

[6] ‘Britain Proposes Broad New Powers…’, April 7, 2019.

[7] ‘Sen. Elizabeth Warren Wants…’, Fortune, March 8, 2019.

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