The sad story of how one irresponsible and greedy corporation could cause the entire stock market to crash. This is a trader alert that you don’t want to miss.
Facebook stock hit a record high on February 1, 2018, since then it’s fallen -17%. Just last week it was down -21% which officially put its stock in a bear market.
In fact, nearly 1 in 4 companies (22.4%) on the S&P 500 right now are down more than -20% and are officially in bear markets.
Facebook had a market cap of around $587 billion. Today it has a market cap of $480 billion. A whopping $107 billion in market cap on Facebook stock is gone. Just to put this incredible loss of value in perspective, the $107 billion in market cap lost is almost the entire GDP of Ukraine. It’s more than the GDP of Puerto Rico or the Slovak Republic.
Most of that decline has come since March 16, 2018, the day The New York Times broke the Cambridge Analytica story, a British firm that had data on 50 million Americans that it bought from Facebook.
I think the real scary thing is that for the first time, people are realizing that China, or North Korea, can buy access to that same data (and probably already have), and so anything critical said about these countries could end up you, your family, and all your friends, on a hit-list. And they have all your data and not just where you and your family lives, but even everywhere you’ve traveled over the last year.
Facebook also stores every single cellphone call and text you have made over the last year.
Facebook also tracks the purchases you make since it signed a deal with Datalogix back in 2012. It allows advertisers to single-out Facebook users in categories including, “total liquid investible assets $1 – $24,999”, “people in households that have an estimated household income of between $100K and $125K”, or even “individuals that are frequent transactor at lower cost department or dollar stores”.
Think about the attack against a former Russian spy Sergei Skripal and his daughter in England last month.
The police are trying to investigate when the attack actually occurred and if Russia had someone tailing the two as they strolled around from shop to shop. Well now we can see that in today’s age, tailing is not really needed. Russia probably had all the movements of the Skripal’s already figured out from getting the data Facebook stores and maybe Google too.
Now, millennia’s are wondering if their parents aren’t so stupid after all. This brave new world is starting to look more like a stupid new world.
And that’s what’s happening right now folks. Millions of Facebook users, most of them young adults, are re-evaluating how they feel about Facebook, Google, and other giant tech oligopolies who are collecting their information.
Remember, nothing is free. If you are getting some amazing service for free, chances are YOU are the product that’s being sold.
The issue of data privacy has suddenly become a rallying cry to #deleteFacebook and to break up tech oligopolies under antitrust rules. But the backlash is not just confined to Facebook. A growing backlash against Silicon Valley is brewing. That backlash – or #techlash, as it’s been referred to on Twitter – threatens to tip the stock market from a correction to a crash.
This might be exactly the kind of issue that leads to a sell-off in overvalued tech stocks, which will also cause a sell-off in the high P/E stock market. Remember these big tech oligopolies make up about 25% of the entire S&P 500. Just the FAANG stocks accounted for more than a quarter of the S&P 500’s total return (28.4%, to be exact), in 2017, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Could the government break up Big Tech under antitrust laws? The established threshold for breaking up a big company is that the company must be engaging in behavior that is harmful to consumers. The classic example is Standard Oil’s monopoly on the oil industry. Its control of the refining industry and the retail industry (gas stations) gave it unique (and potentially harmful) pricing power in the consumer market.
Facebook clearly has engaged in behavior that is harmful to consumers because it sold the data on 50 million Americans to a British analytics firm. This has now opened the door for the government to claim that Facebook, Google, Amazon, Apple, and other tech firms are in fact damaging consumers privacy rights.
According to new report from the BBC, even the US government is getting onboard and will require travelers to the US to handover their social website histories.
“Oh, I’m not sure I like that”, says Millennias. While their parents say, “I told you”.
Americans have never lived under a communist government that spies on them in order to maintain control over its population. That made them less cautious about what they were doing and saying online. What they didn’t bargain for was that data being sold to other countries and governments for nefarious purposes, like influencing a Presidential election.
Before Facebook and the New York Times article in mid-March, it was hard to make the case that any tech companies should be broken up on antitrust grounds.
Google’s Gmail is free and Google’s search engine is the most popular in the world because it helps people find what they’re looking for. That’s certainly not harmful to the public.
SnapChat is free and goofy and fun. How can that be harmful to the public?
Facebook has changed the antitrust case against tech. Instead of talking about the services these companies provide us (many of which appear to be free), the conversation is now about the personal data these companies are collecting about us and who they are selling it to.
Millennia’s are now realizing that Facebook, Google, SnapChat, and other “free services” are really giant data mining operations. You provide the content. You give the companies permission to access your smartphone, location history, who you call, what you read online, your text messages, and reams of other data. Facebook, Google, and SnapChat sells it.
Is that unethical? Is that illegal? Congress is calling tech oligopolies in to testify in an attempt to determine if these actions are illegal.
A poll done by Axios shows that Facebook’s favorability fell by 28% from October 2017 to March of this year.
It was the largest decline of any of the tech oligopolies. Only about 1/3rd of the American public has a “favorable” view of Facebook. Apple, Amazon, Twitter, Google, and Microsoft also fell, but retained largely favorable ratings.
Facebook is trying to stop the decline in their popularity and stock by reminding people that sharing your call history and text messages is something you agree to when you use Facebook’s services. If you don’t want to have your private data sold, you can always opt out. I’m sure Facebook and Google will tell lawmakers the same thing. Will it be enough to avoid legal action? Probably. But what it will not change is the new public perception of Big Tech.
Most people were asleep and used to see Big Tech as a fun, free, and liberating instrument of communication, information, and individual expression.
Now, more people see corruption in the form of Big Tech lobbyists’ who have bribed, got elected certain candidates, and have changed the system so that it gives them very little regulation and favorable tax treatment in order to build vast databases of information which are sold to people who want to manipulate us.
The Federal Trade Commission (FTC) announced an investigation into Facebook’s privacy practices.
The FTC could fine Facebook up to $40,000 per violation per day — which could add up quickly with millions of users involved — if it finds the social media giant broke its earlier promises to protect user data. I bet the FTC will find some violations. After all, the evidence is pretty damning. If Facebook was protecting user data, then how did a UK marketing firm called Cambridge Analytica end up with all the data? The penalty could be huge. I’m talking hundreds of millions of dollars and maybe even a billion dollars or more.
But it’s not just the FTC coming after Facebook. Attorneys general from 37 different states have demanded that Facebook explain its privacy practices.
This could be the precursor to even more fines at the state level. Certainly regulations and class-action lawsuits are coming, all of which could be damaging to Facebook’s reputation and share price.
The government’s case for breaking up these tech oligopolies or regulating them as if they were public utilities, has been strengthened.
That’s where the real damage to all of us stock traders come from.
Tech oligopolies are the main catalysts for why the stock market has been going up all these years. Tech stocks have been some of the best performers of this bull market. The Wall Street Journal reported that, as of March 12, 2018, Facebook, Amazon, Apple, Microsoft, and Alphabet (Google) had accounted for 45% of the year-to-date gains for the S&P 500. So nearly half of the upward strength of the stock market is coming from tech oligopolies.
Institutional investors and money managers have huge exposure to Facebook and other tech oligopolies. For years, 401ks and pension funds have rewarded tech companies with rich multiples on earning and sales, because their user base is growing. But now, thousands, and maybe even millions of people could end up abandoning these popular tech platforms. I have little doubt that already, institutional investors and money managers are re-evaluating the risk versus reward ratio of these tech oligopolies.
Here’s is what you need to watch for. Look for a change of leadership away from tech in the stock market. If you see that, get out. In this scenario, tech stocks would lose leadership and then rollover and lead a market sell-off. The 200 day moving average on the S&P 500 could then break, and we’ll quickly go from a market correction to a market crash.
Remember, so many investors have become lazy in index-tracking funds and ETF investments. Facebook and other tech oligopolies are a huge percentage of holdings in hundreds of index-tracking funds and ETFs. Over the years, Big Tech stocks have gotten bigger on a market-cap basis and have taken the indices with them. Big Tech passed the threshold of “too big to fail” many years ago. If Big Tech is taken down by government action in the form of fines and antitrust actions, index-tracking funds and ETFs will be pulled down too and that’s how the market correction will become a market crash.
A perfect storm is brewing. The public backlash against Big Tech is happening at the same time that the U.S. government is auctioning off $294 billion in debt. That’s the highest amount of bonds and notes for sale since the financial crisis in 2008. Then we have the Fed raising interest rates and ending its bond purchase program (quantitative tightening). Then we have trade wars increasing with the second largest economy in the world, China, who just took the world off the petrodollar and put it on the petroyuan. Then we have the national debt soaring out of control at more than $21 trillion with neither party able to stop the debt spiral. Then we have the first President ever elected without special interest groups money and so deep divisions are evident not only between parties, but inside the Republican party as well. These deep divisions have caused opened battle between the President and large mainstream media groups in a power struggle of like the kind we’ve never seen before.
What is going on in Facebook and its implications on Google and other Big Tech names may be the catalyst for a stock market crash. Tech will lead the market lower and the stock market crash will be the official start of the next recession as the yield curve goes flat or inverted.
If this scenario plays out, gold should be a good investment choice. Not only is gold a traditional refuge of safety when everything else is crashing, but China essentially put the world back on the gold standard with the petroyuan oil trade. Every country needs and trades oil. Now, countries will buy oil with yuans and then exchange yuans for gold. In essence, this move by China has put oil back on the gold standard. For the petroyuan scheme to work though, a lot more gold needs to be mined and sold for China to keep up with the yuan for gold redemptions. In other words, the petroyuan also puts a bid under gold.
Another good investment will be Bear market funds that short major indices like the S&P 500 and Nasdaq.
This is what you guys need to be on the lookout for as tensions between the government and Big Tech heat-up over the coming weeks and months.