U.S. sues Google, meddles in Thailand
Markets play ‘hurry up and wait’ while Wall Street (minus Quibi) stays strong
It’s Monday, it’s time for a new edition of Contention. Enjoy about seven minutes of end-capped dissident business news. This week:
Market holding pattern drags on another week
DOJ Google antitrust case: too little, too soon
Thailand protests another U.S. game?
Rapid Round: Earnings season, Uber/Lyft appeal fails, Africa sticks with China, Quibi sinks
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Market holding pattern drags on another week
Stocks ended in the red last week, breaking multi-week streaks for each of the major indexes: the Dow was down 1%, the S&P 500 0.5%, and the Nasdaq 1.1%.
Right now the economy is in a holding pattern: an uneven but clear recovery still beset with stubborn labor market problems, equity markets staying elevated through ongoing central bank action, and everybody waiting for some big shoes to drop.
Still the biggest shoe: stimulus negotiations, which persisted in their empty performance art last week.
As for the holding pattern:
Initial jobless claims beat expectations, with 787,000 new claims versus 870,000 expected.
On an unadjusted basis, however, claims were still higher than they were two weeks ago, with 11 straight weeks in roughly the same range of 800,000 job losses.
Much of the reduction in continuing claims seems to reflect a shift into longer-term benefits for those who exhausted traditional unemployment -- the Pandemic Emergency Unemployment Compensation program has tripled in size in the last five weeks.
The Fed also published its semi-quarterly collection of qualitative economic impressions -- called the “Beige Book” -- reporting “uneven… slight to moderate” recovery across all of its regions.
Investors are eager for any catalyst that might break up this sluggish equilibrium. Hence the obsession over as-yet fruitless stimulus negotiations, which continued last week.
House Speaker Nancy Pelosi’s self-imposed 48-hour deadline for a deal came and went at the start of the week, and yet talks continued because she and Treasury Secretary Steve Mnuchin were “on a path” to a deal, she said.
Their “only” sticking points, it seems, are fiscal support for state and local governments and liability protections for businesses that killed or injured their employees with reckless responses to the virus. These sticking points are fundamental philosophical differences with massive consequences for the future of the U.S. economy. When Pelosi, Mnuchin et al. downplay these differences to justify daily Wall Street gains, they are being disingenuous in the extreme.
Investors have to know this, but to date they don’t seem to care. Families still have a little bit of CARES Act money sloshing around, and China’s Q3 GDP came in at 4.9%, making up all the losses from the initial pandemic crash. Their economy can help keep ours at a simmer until something gives, and in the meantime Wall Street is doing gangbusters this year.
For the 800,000 families losing their jobs every week right now and the millions stuck in long-term relief programs, the whole thing is an insult. Good thing the system doesn’t have to worry about what they think.
DOJ Google antitrust case: too little, too soon
The U.S. Department of Justice filed a long-awaited antitrust lawsuit against Google last week, beginning what will likely be a multi-year struggle over the search giant’s business practices.
At stake: whether a rigged system and bad politics might win consumers at least a little relief from the digital oligopoly.
Google has little to no real competition in the search space -- they complete 92% of all internet searches. The DOJ’s case lays blame for this at the feet of Google’s deals with device makers, paying to be the default search app on allegedly competing platforms.
Most notably, the company pays Apple $8-12 billion a year for this privilege, a situation of “co-opetition” between the two tech giants. About half of all Google searches come from Apple products.
Google points out that its dominance -- and the reason Apple went with them over their competitors -- is simply due to its superior product. But search engines need big data sets to perfect their algorithms. Google’s overwhelming data advantage makes it nearly impossible for competitors to build comparable products, especially as the company uses its huge pile of cash to pay its tech giant “competitors” -- like Apple -- for access to even more data.
But Google also argues that it is very easy for consumers to switch to a different search option, likening their deals to cereal companies paying for end cap space at grocery stores. Shoppers can simply walk down the aisle to buy another brand. But research indicates that a “yeah, whatever” effect among consumers makes them stick with default settings even when it would be in their rational interest to switch to another option. Securing that digital “end cap” blocks competition.
Nonetheless, the DOJ’s case isn’t very strong. A variety of legal observers -- most pro-business, like the courts -- have judged the case weak. Gary Reback, the lead government attorney on the last major tech antitrust case -- against Microsoft at the turn of the century -- charitably called the case “a good start.”
The main source of weakness: a hasty filing by a department feeling political pressure to move before the elections. Attorney General William Barr reportedly pushed staff attorneys to file even though they believed that the case was not yet ready, and only Republican state attorneys general have joined the suit so far.
But it is nonetheless encouraging to see a major corporate power targeted for their part in the interlocking tech megacap oligopoly dominating the economy today. It’s just too bad that politics have made the suit too little, too soon.
Thailand protests another U.S. game?
Ongoing anti-government protests rocked Thailand last week, with government responses doing little to dampen the unrest.
For those with a keen eye, however, the demonstrations are eerily familiar, and a closer look reveals connections between protest leaders and the U.S. regime change machine. The machine’s aim: to disrupt Thailand’s close ties to the People’s Republic of China.
Early in the week the government, led by Prime Minister Prayut Chan-o-cha, withdrew a state of emergency, framing the act as a good faith concession to the demonstrators. In reality, the orders had been ineffective, and protest leaders responded by reiterating their demand that Prayut resign, setting a three-day deadline for him to quit. The deadline passed on Saturday, and protestors retaliated… with more protests.
Most notable: a planned demonstration at the German embassy in Bangkok, a symbolic move since the country’s monarch, King Maha Vajiralongkorn, lives primarily in Germany. The protests have focused unprecedented ire on the monarchy, prompting royalist counter-protests.
The main demonstrators have deployed tactics familiar to those who studied Hong Kong’s protests, and Thailand’s protest leaders have embraced the “Milk Tea” movement label connecting their efforts to those in Hong Kong and Taiwan.
All three share a clear pro-U.S. bent, with prominent leaders of Thailand’s movement -- notably the Student Union of Thailand, Thai Lawyers for Human Rights, and others -- receiving funding from the National Endowment for Democracy (NED). Started under President Ronald Reagan, the NED was explicitly intended to take over regime destabilization efforts previously led by the CIA.
The NED has spread CIA-developed “color revolution” tactics to U.S.-aligned organizations around the world, and Thai organizers have been feted by U.S. and other NATO power embassies in Bangkok.
Thailand’s crime: a close strategic relationship to China. Less than two weeks ago Prayut hosted a state visit from Chinese Foreign Minister Wang Yi, committing to a major new connection between Thailand’s Eastern Economic Corridor and China’s Guangdong-Hong Kong-Macau Greater Bay Area. China also pledged to help build out the country’s 5G network.
Thailand has to date declined Belt and Road Initiative (BRI) loans, but a $7.8 billion high speed rail collaboration is still considered part of the Initiative. In 2018 Prayut told Time magazine that the country’s relationship with China would always come first, with the United States in “second or third place.”
But the United States is not happy with silver or bronze, and like sore losers everywhere if they can’t win they’ll throw the board across the room. Pay attention to what’s happening in Thailand now to spot U.S. cheating the next time they try it again.
Corporate earnings keep rolling out
Earnings season continued last week, and with about a quarter of the S&P 500 having already reported, nearly 84% of companies have beat analyst expectations -- well above the historic average of 65%.
Some of the most notable reports from last week:
Tesla brought in its fifth straight quarter of profits, but once again relied upon regulatory credits to close the gap. Production was nonetheless up 51% year-over-year, and the company committed to hitting its 500,000 vehicle delivery goal by year’s end.
Intel dropped 10% after profit margins narrowed from 58.9% to 53.1%. Investors also worried about a lack of clarity on company plans following its failure on 7nm production earlier this year.
American Express missed expectations, with earnings coming in at $1.30 a share versus $1.34 expected. Non-travel and entertainment consumer spending only gained 1% year over year, as opposed to a typical 7-8% growth rate. Travel and entertainment spending was down 69% from 2019.
Halliburton beat expectations and believes the bottom has hit in the shale industry, with attrition in the industry allowing remaining companies to rebound. The company’s stock sank, however, on news that major competitor ConocoPhilips would purchase Concho Resources -- one of the largest Permian Basin shale producers -- for $9.8 billion.
Uber and Lyft lose again… for now
A California state appeals court ruled against Uber and Lyft last week, ordering the companies to begin reclassifying their drivers as employees, not independent contractors.
The two rideshare giants -- as well as other gig economy companies such as Doordash and Instacart -- have sought to avoid complying with a 2019 California law that requires them to provide their workers with basic employment protections including workers compensation, a minimum wage, unemployment benefits, and overtime. The companies have complained about the costs of these protections, but the appeals court ruled that losing money was not an “irreparable harm” justifying continued violation of the law.
Uber, Lyft, and their corporate allies have spent at least $189 million to promote a statewide ballot initiative -- Prop 22 -- in California to overturn the law. The campaign is the most expensive ever for a ballot question in the state, and polls indicate that the outcome is still too close to call.
African leaders stick with China, Huawei
U.S. National Security Advisor Robert O’Brien drew quick rebukes from African leaders at an investment conference organized by the U.S. International Development Finance Corporation the week before last. O’Brien opened the event with an attack on China’s “journey to dependence” for the continent.
Senegal’s President Macky Sall pushed back immediately. “Africans today know exactly what their priorities are,” Sall said. “The projects that we implement with our partners will not suffer from any encroachment on our sovereignty.”
This follows recent U.S. failure to turn African countries against Huawei, a nearly impossible proposition since Huawei built 70% of the continent’s 4G network, raising interoperability issues for any alternative 5G network. Experts have also pointed out that despite U.S. alarms about asset seizures following debt defaults, this has never happened in Africa. A 2019 think tank report instead found that China almost always renegotiates debt with its investment partners.
Quibi streams billions into a black hole
Quibi, a short-form streaming video company started by billionaire media mogul Jeffrey Katzenberg and veteran tech CEO Meg Whitman, announced last week that it would be going out of business. The company started less than six months ago and will shutter its service entirely in early December.
Quibi hosts 5-10 minute “chapter” videos intended for mobile viewing, and has only original content. Its failure to land a hit, especially as the coronavirus pandemic eliminated much of the commuter audience they intended to serve, doomed the business.
Katzenberg sought to comfort employees when he announced their job losses by encouraging them to listen to the song “Get Back Up Again” from the children’s animated film Trolls. The $1.75 billion sunk into the company by investors including the largest Hollywood studios, JPMorgan Chase, and Google would cover about a quarter of the money the World Food Program says it needs to prevent up to 35 million deaths from starvation in the next six months.
Our only investment advice: Pay attention to Chile.
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Photo Credit: Khaosod English / Wikimedia