In the eyes of the kings and queens of tech, as long as they conquer the world, it is the job of our ever-inflated U.S. government bureaucracy to take care of everyone dislocated by these anti-competitive activities.
The fallout from this well-known fact is all over the news. Facebook has used its monopoly in social media to brainwash the masses, violate the public’s long-lost privacy and then claim to not have had any idea what they were doing. In effect, we are a nation of Ed Saverin’s, the buddy of Facebook’s CEO, who almost got swindled out of his share of the company. He had to go to court and so will the public to right the wrong.
Google gets 80 percent of the profits in search and arguably knows more about you than your spouse or the federal government. They control your privacy and shut out competitors in every non-search business in which they operate. Expedia’s largest expense item is Google advertising and their biggest competitor is Google themselves. I’m sure that Google never uses what they know about Expedia to do more in travel commissions each year than Expedia does.
Amazon has a massive market share in e-commerce and in cloud services, which we mentioned is not mutually exclusive. We assume their e-commerce business is among the nation’s three largest users of the cloud (pornography, Netflix and Amazon e-commerce). Therefore, who can compete in e-commerce when someone like Amazon can lose money on most deliveries? Amazon’s AWS division gets a cut of each dollar of e-commerce revenue. The Wall Street Journal has weighed in on the activities of these three companies as follows:
“U.S. tech companies are increasingly facing a backlash from consumers, businesses and politicians about the widespread exploitation of personal data. In Europe the regulatory remediation has gone further, but action in the U.S. seems inevitable too.” (Source: The Wall Street Journal)
Fact No. 4: There Is A Recession Out There Which Will Hurt Main Street
In 2000-2003, we had a recession in the U.S. when the dot-com technology bubble broke. We could do that again, but every region built around tech suffered while the rest of the country enjoyed continued economic growth. We believe a curse surrounds the expensive coastal cities and market readers are confusing a needed correction in Seattle, San Francisco, Boston, New York and Miami, with a national residential real estate correction. There is no correlation between affordability and home building in the last 60 years (see chart below):
We believe the economy of the U.S. will be about what Steve Case calls, “The Rise of the Rest.” Tech employees who see their parent company stock decline will ask to move to affordable areas of the country where water and Wi-Fi are inexpensive and readily available. The well-known fact is that millennials want to be in the coastal cities even after they marry and have kids. Eventually, their stagnant paychecks and the need to own a home will send them elsewhere in the country. Home building will boom in the other 85 percent of the places people in America live. Welcome to the next big thing, a huge intra-country migration to the fly-over states.
What investment implications can we draw from these well-known facts? First, if history is any guide, all things FAANG and glam tech should be avoided for an extended period. Five years of gross outperformance doesn’t get cured by a 90-day correction. When tech is a swear word and insiders are heavy buyers, we will be glad to do our research when those interested are lonely.