Did Facebook trade fascism for a TikTok ban?
Plus the Fed's new inflation stance, big tech in your brain, Palantir, Epic, and Airline whining
Thanks for reading Contention! This week we’ve got just over eight minutes of neurologically implanted business news, including:
Markets love Fed’s new inflation stance
Did Facebook trade fascism for a TikTok ban?
Big tech brain plays cutting ethical corners
Rapid Round: Palantir and Epic again, Airline shakedowns, and ExxonMobil’s long goodbye
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Markets love Fed’s new inflation stance
Stocks were on a roll last week with the Dow up 2.6%, the S&P 500 3.3%, and the Nasdaq 3.4%. The S&P 500 and Nasdaq both hit record highs, and the Dow turned positive for the year, making up all its previous pandemic losses.
It was a busy week for market-moving news:
Renewed civil unrest following another police shooting of an unarmed Black man prompted a brief wildcat strike by NBA players and other professional athletes.
Hurricane Laura struck Louisiana and Texas on Thursday. The storm missed the most critical parts of the energy corridor, preventing significant production cuts and causing oil prices to slip.
Japanese Prime Minister Shinzo Abe resigned on Friday, citing health problems.
Chinese and U.S. trade officials spoke via phone Monday, with U.S. officials reporting “progress” in a rare moment of comity between the countries.
Likely the most important development of all: Thursday’s speech by Federal Reserve Chair Jerome Powell confirming expectations that the central bank will shift to an “average inflation targeting” policy.
The Fed has a mandate to protect price stability, which it defines as keeping inflation under 2% a year. The Fed has historically raised interest rates at the first sign economic growth might bring inflation close to the line. Higher rates mean higher credit costs and reduced economic activity. Subsequent layoffs and cancelled input purchases suppress wages and prices, blunting inflation.
Now the Fed will instead allow inflation to get up to and beyond 2% before raising rates, as long as inflation averages less than 2% over some period of time. How long a period? Powell didn’t say -- and the policy is something of a black box.
Stocks jumped following the speech despite the uncertainty, and the policy marks a “historic pivot” away from orthodox notions that employment and inflation are inverse forces in the economy. The policy reflects the “new normal,” a paradigm shift finally acknowledging that economic forces have been overwhelmingly deflationary for years.
And they are likely to stay that way: another million Americans claimed jobless benefits last week, consumer confidence plunged sharply to a six-year low, and a reported 1.9% increase in consumer spending indicates a slowing recovery. There’s little chance of an overheating market bidding up prices.
But capital has a different perspective: CEO confidence is up sharply as they envision no pay raises for their employees this year and previous Fed largesse bolsters stock prices just as buybacks come back in fashion.
Powell is promising to do more of the same, and markets are betting that they’ll keep getting the same results -- working families likely will too.
Did Facebook trade fascism for a TikTok ban?
The other big claim on business headlines last week: ongoing intrigue over TikTok’s future. Nobody, however, seems to be connecting the turmoil in and around the company to broader chaos in U.S. streets.
At least three major developments arose as TikTok scrambled to survive an impending ban in the United States:
The company’s CEO, Kevin Mayer, hired only three months ago, abruptly resigned.
The company sued the Trump administration over the ban, claiming there is no “bona fide national security risk” at stake.
Walmart publicly joined in on Microsoft’s bid to buy the platform.
The last piece of news reflects an established alliance between the two corporate giants against their common competitor, Amazon. Walmart lags Amazon in ecommerce, Microsoft in cloud hosting -- its Azure platform competes with Amazon Web Services. TikTok would give each company data and marketing advantages over Amazon.
But another competitive gambit might be even more significant: the Wall Street Journal reported last weekend that Facebook CEO Mark Zuckerberg made attacks on TikTok a feature of a 2019 trip to Washington D.C. He raised alarms with U.S. senators who soon after called for inquiries into the company, and may have raised the issue in a private dinner with President Donald Trump.
This dovetails with what an anonymous “former high-ranking Facebook employee” told Buzzfeed in November of last year: “Facebook is so pissed that TikTok is the one thing they can’t beat that they’ve turned to geopolitical arguments and lawmakers in Washington to fight their fight.”
Facebook stands to gain if TikTok can’t get sold. A deal looks imminent, but last week China issued new restrictions on data technology export that could bar any U.S. buyer from using algorithms crucial to the platform’s success. TikTok’s parent company ByteDance is now preparing for a no-sale scenario.
If Zuckerberg’s efforts did make TikTok a priority issue in the U.S.-China rivalry, Donald Trump likely didn’t help out for free. Now reports about the rising dominance of right-wing influencers on Facebook, the company’s special treatment of far-right pages, its explicit commitment to algorithmic racial bias, and its suppression of internal dissent all make sense.
Zuckerberg’s company has thrown in with the right, and the right’s standard-bearer has targeted a key Facebook competitor. Last week Zuckerberg characterized its tolerance of pro-police militia organizing on its platform as an “operational mistake,” only banning the group after one of its partisans murdered two protestors in Kenosha, Wisconsin.
Maybe there’s an agreement, maybe it’s a coincidence, but one thing is certain: the rank hypocrisy of leaders claiming to defend Americans from the very dystopian corruption they project onto the People’s Republic of China.
Big tech brain plays cutting ethical corners
Amazon also made news last week with its first major play into the wearables space with Halo, a new competitor to Fitbit. LIke its predecessor, the wristband will connect with an app that can track various vital signs so that users can monitor their health.
Unlike Fitbit, however, Halo will use Amazon’s AI technology to listen in on your tone of voice and report on your “energy and positivity.” This is among the latest steps big tech is taking to extend their data collection into our very minds.
Fitbit is not content to be left behind in this effort: its new Apple Watch competitor Sense claims to measure wearer stress levels through electrodermal activity (EDA). Users simply put their palm on the face of the watch and it will spit out a report on how stressed you are.
But EDA is a measure of electrical conductivity on the skin, which is a function of moisture. The Sense will tell you how sweaty your palms are, feeding into the long tradition of pseudoscience around EDA. Likewise Halo’s “energy and positivity” measure will be limited by the very same implicit bias that has plagued facial recognition software.
At best these features will be no more valid than a mood ring; at worst they will tone police users from marginalized communities.
Neither of these products can compare to the biggest “wearable” news of the week however: Elon Musk unveiled the Neuralink brain implant device. First announced in 2017, Musk showed two pigs that had received the implant, pitched as a next generation improvement over current devices used to control Parkinson’s and other neurological diseases.
Musk anticipates that the device will be surgically implanted using an advanced robot, and outright claimed users will be able to summon their Teslas through telepathy. Neuralink’s main advantage, however, will be to treat mental illness and addiction, according to Musk. Musk’s demanding timelines and ethical corner-cutting has led to significant turnover on the project, and he is reportedly looking to pursue testing in Russia or China to end run FDA regulations.
The real-time pig brain data demonstration was “underwhelming” and the product has a long way to go still, but the intention is important: tech companies are not satisfied with listening into our conversations, they want to read our thoughts.
Like many industry ambitions this might prove to be more boondoggle than real danger, but even if they fail the audacity to try should be grounds for serious concern and pre-emptive resistance.
Rapid Round
CIA favorite Palantir advances
Palantir’s public offering moved forward last week, with new details about the money-losing data analysis business emerging in its S-1 filing with the SEC. While the company’s largest clients remain secret, the document revealed that In-Q-Tel, the CIA’s venture capital fund, is among its major investors.
Palantir CEO Alex Karp issued an open letter along with the S-1, reinforcing the company’s political views and reiterating his hostility to Silicon Valley liberalism:
“Americans will remain tolerant of the idiosyncrasies and excesses of the Valley only to the extent that technology companies are building something substantial that serves the public interest,” Karp wrote. “Our software is used to target terrorists and to keep soldiers safe. If we are going to ask someone to put themselves in harm’s way, we believe that we have a duty to give them what they need to do their job. We have chosen sides, and we know that our partners value our commitment.”
Epic vs. Apple, Round III
Apple made good on an earlier threat to remove all Epic Games products from its App Store, the latest move in a battle between the two companies over commissions for Store access and antitrust concerns. A federal judge allowed the move over Epic’s objections, but did restrain Apple from removing Epic access to its Unreal Engine developer tools.
Games are the most lucrative part of the App Store for Apple, and one of the big winners in the fight may be Unity Software -- a main competitor to Epic. The company filed for an IPO last week, which analysts believe could be worth $1 billion.
Facebook also reported last week that Apple had rejected its plan to label its new paid events feature with information about App Store fees. The company wanted to use the label to let users know that money they meant to spend with small businesses or nonprofits would be diverted to Apple instead. Facebook CEO Mark Zuckerberg then denounced Apple in a company-wide meeting for collecting “monopoly rents” from iPhone users.
Airlines under pressure
The three largest U.S. airlines all announced major layoffs last week, each coming in October if the companies do not get additional bailout money from the government. American Airlines was the biggest: the company plans to cut 19,000 jobs. United announced 2,850 furloughs -- 21% of all of its pilots, and the largest job cut in the company’s history. Delta limited itself to only 1,900 pilot furloughs.
All three companies, as well as other competitors that accepted bailout money in the spring, are barred from doing any layoffs before September 30. Congress anticipated the pandemic being over by this time, but air travel is still down more than 70%. The announcements put pressure on politicians to issue another round of financial support.
As for the relief package: House Speaker Nancy Pelosi and White House Chief of Staff Mark Meadows spoke for the first time in three weeks on Thursday, but made no progress towards a deal. Meanwhile, White House Economic Advisor Lawrence Kudlow suggested that another round of relief may not be necessary with the economy doing so well now.
Dow boots ExxonMobil after 92 years
The Dow Jones announced a shuffle in its 30-company membership last Monday, removing ExxonMobil, Pfizer, and Raytheon Technologies and replacing them with Salesforce, Amgen, and Honeywell. The move happened because Apple’s stock split this week will make the index underweight on information technology stocks.
ExxonMobil was the longest-tenured stock in the index, going back to 1928 when it was still Standard Oil of New Jersey. The company has lost 65% of its market cap since 2008, and it overlapped with Chevron, who remains in the index.
The change goes into effect this week, but had it been in place on Wednesday the index would have advanced 400 points as Salesforce gained 26% on the day. The company reported earnings on Tuesday, beating top and bottom line expectations and raising earnings guidance for the rest of the year. Especially fruitful for its bottom line: the company’s self-imposed moratorium on layoffs is now over, and it began a round of 1,000 job cuts just after the stock surge.
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