Good morning! Today’s word count is 1,666 words, or a 6-minute read. Let’s get to it:
Market Summary (11:22 am ET): U.S. Stocks recovered today after falling sharply late yesterday. President Trump had tweeted that he ended negotiations with Democrats on another coronavirus aid package, but has since softened his stance, saying he is “ready to sign right now.” The market also seems to be expecting a Biden victory in November currently.
- S&P 500: $3,405.55 (+1.38%)
- Nasdaq: $11,311.15 (+1.40%)
- Bitcoin: $10,616.60 (-1.28%)
- Gold: $1,886.50 (-1.17%)
- U.S. 10-Year: 0.768%
Justin Oh’s Quick Read
Read No. 3 for a little more on 5G wireless. Some investors in our Cents community have discussed investing behind the 5G adoption thesis by buying the Defiance Next Gen Connectivity ETF ($FIVG). It looks like a great ETF to own if you want to invest behind 5G becoming the future within a reasonable timeframe, as it has a cheap 0.30% expense ratio and trades at only a 0.08% premium to Net Asset Value (NAV). Here are some of its top holdings.
House Panel Says Big Tech Wields Monopoly Power
After a lengthy probe into Big Tech, the House Antitrust Subcommittee has concluded America’s biggest tech companies are too powerful, and Congress should consider breaking them up, WSJ reports.
The findings “capped a 16-month inquiry” into Amazon, Facebook, Apple and Google by the Democratic-led House panel, which alleged these companies used “their dominance to stamp out competition and stifle innovation.”
- Republicans responded separately, “endorsing strong antitrust enforcement targeting the companies but didn’t endorse many of the Democrats’ policy prescriptions.”
- The 449-page Democratic report also stipulates Big Tech has “monopoly power” and blames U.S. antitrust enforcement agents for “failing to curb their dominance.”
How are they doing it?
- Amazon improperly uses third-party data to inform its e-marketplace strategy.
- Google spends billions to dominate the search industry and divert traffic away from other websites.
- Facebook allegedly acquired Instagram and WhatsApp to remove them as competitors.
- Apple uses its gatekeeper power over mobile apps and devices to harm third-party developers.
All four companies disputed the report’s findings, which included recommendations to break up the Facebook family of apps and force Amazon out of different e-commerce sectors.
- “[The tech sector is] the reason for America’s global innovation leadership and powers our economy,” the Consumer Technology Association said. “To undercut our nation’s ‘crown jewel’ companies would take our competitiveness out at the knees.”
No legislative changes are on the way, but the report could be a table-setter for how the next administration approaches regulating Big Tech.
Again: “For all the rhetoric, I’d guess a breakup would look like how the government broke up Wall Street investment banks from traditional banks — by regulating internal separation rules. A true breakup would remove some advantages and synergies, but I’m not still not selling my favorite Big Tech stocks just yet. They will still have massive mindshare and scale advantages, and we’ve seen the oligopolistic Wall Street banks do very well despite their intense regulation.”
Apple to Host Oct. 13 Event; 5G iPhone Expected
Is the 5G iPhone finally here? Apple announced an online event for Oct. 13 and is expected to unveil the next generation of iPhones, WSJ reports.
It’s a departure from Apple’s usual strategy of introducing new iPhones at its September event. But coronavirus-related production issues forced Apple to delay the release.
- Apple announced a new smartwatch and a virtual fitness service at the event last month.
The Suspense Builds: The 5G iPhone is “among the most anticipated since 2014,” and the new product is expected to “usher in big sales and fat profits,” according to analysts.
- Apple released a larger-screened iPhone back in 2014 that generates around 50 percent of the device’s sales.
- iPhone sales growth has slowed in recent years. The company has since turned to the App Store, Apple Music, AppleCare and other businesses to make up the difference.
But what’s so great about 5G? Well, it’s much faster than anything we’re using right now.
- Industry trade group GSMA said 5G networks will be at least 10 times faster than what we have now. Some experts say it could eventually be 100 times faster, according to CNN.
- Imagine being able to download a two-hour movie in less than 10 seconds instead of the 7 minutes it would take now.
- The technology will make the use of cloud platforms more efficient.
The event, titled “Hi, Speed,” kicks off at 1 p.m. ET next Tuesday.
I will try to do more research on the 5G space, but on a long-term time horizon, 5G hardware will probably become a commodity and “table stakes,” just like how 4G/LTE has become ubiquitous. But I do believe that ubiquitous high-speed wireless internet is a general tailwind behind overall software usage and innovation. When current Wi-Fi speeds are accessible everywhere, imagine how much more technology we’ll be using all the time. One interesting question is: what happens to companies that provide Wi-Fi hotspot hardware and services when people can get those speeds anywhere? Looking at you $WIFI and $NTGR.
Fed’s Powell Says U.S. Faces ‘Tragic’ Risks From Doing Too Little to Support Economy
Federal Reserve Chairman Jerome Powell called on the federal government for more economic stimulus in the wake of the Covid-19 pandemic, saying, “Too little support would lead to a weak recovery, creating unnecessary hardship,” WSJ reports.
U.S. economic recovery has trailed off in the last few weeks. Monthly job gains and job postings have slowed. Household income dropped at the end of the summer, and consumer spending, while still trending up, is lagging.
- Even with a rebound in global trade, the U.S. posted its largest trade deficit in more than a decade ($63.56 billion).
- Unemployment dropped to 7.9 percent in September. But Powell estimates a broader, more realistic measure would be 11 percent.
The Fed cut “its benchmark rate to near zero in March, purchased unprecedented amounts of government securities and offered to lend directly to businesses, cities and states to keep markets functioning.”
- Powell said this helped minimize parts of the downturn.
Powell “applauded” the $3 trillion stimulus package Congress passed earlier this year, calling it “truly extraordinary” and the “most innovative” since the Great Depression.
- With a follow-up, Powell said, “recovery will be stronger and move faster.”
The problem is both sides aren’t budging.
- House Speaker Nancy Pelosi and the Democrats want $2.4 trillion. President Trump and the Republicans want $1.6 trillion.
- Shortly after Powell spoke, Trump announced he was suspending negotiations with Democrats, the economy was “was doing well without additional spending and that he would revisit any talks next month.”
Powell highlighted two significant risks in failing to support the economy:
- Initial gains from reopening this summer could lead to a “‘longer than expected slog back to full recovery’ as hard-hit service-sector firms struggle with soft demand.”
- A prolonged slowdown could result in “typical recessionary dynamics, as weakness feeds on weakness,” which could heighten existing racial and wealth disparities in the economy.
Again: the critical risk that would throw us into another recession would be if, for longer than four to five months, lockdowns, job losses, and hiring decreases continue, and government stimulus isn’t there to support additional spending after consumers burn through household savings.
What’s Going On
Feeling Un-Wells: “Federal securities regulators have warned General Electric Co. of a civil-enforcement action over its accounting for a legacy insurance business, adding a fresh hurdle to efforts to turn around the once-mighty manufacturer. The industrial giant said in a securities filing Tuesday that it received the so-called Wells notice on Sept. 30 over the company’s accounting for reserves related to an insurance business it has been trying to wind down for years.”
- “A Wells notice is a letter saying the SEC staff is recommending that the commission bring an enforcement action against the recipient and offers an opportunity to argue why the action shouldn’t be taken. It often serves to cap investigations that can drag on for years, as the final step before formal litigation begins.”
Breakthrough Medicine: “Eli Lilly & Co. asked U.S. drug regulators to authorize emergency use of its experimental Covid-19 antibody therapy after data showed the treatment reduced hospitalizations. The Indianapolis-based pharmaceutical giant has approached the U.S. Food and Drug Administration for authorization of the treatment it’s developing with Canadian biotech AbCellera Biologics Inc. It would allow high-risk patients recently diagnosed with mild-to-moderate Covid-19 to receive the therapy.”
The Raise: E-commerce site developer Shogun raised $35 million, Peloton competitor ICON Health & Fitness pulled in $200 million, Greycroft closed on two new funds totaling $678 million, Salesforce Ventures launched a $100 million impact fund, Tone netted $4 million to automate communication between e-commerce brands and customers and Nivelo collected $2.5 million to reduce risk in digital ACH payments.
Big Air Compromise: “Speaker Nancy Pelosi signaled openness to having the House pass a standalone airline relief bill in a telephone conversation with Treasury Secretary Steven Mnuchin on Wednesday morning.”
Airbn-Burn: “Airbnb burned through more than $1.2 billion in cash between mid-2019 and mid-2020, as the plunge in global travel earlier this year eroded a balance sheet already weakened by big increases in spending on hiring and marketing.”
To India and Beyond: “Samsung and three major contract manufacturing partners of Apple are among 16 firms to win $6.65 billion incentives under India’s federal plan to boost domestic smartphone production over the next five years.”
Ride The Wave: “SoftBank’s shares rose to their highest in 20 years on the back of the broader stock market rally this year, which has boosted the value of some of its publicly listed portfolio companies.”
Chip Resolution: “The European Commission, the bloc’s top antitrust watchdog, on Wednesday said it was closing its probe and accepted Broadcom’s legally binding commitments to refrain from any exclusivity arrangements for chips used in television set-top boxes and internet modems over the next seven years.”
Fumbled Outbreak: “Two NFL games this weekend are in jeopardy of postponement after Covid-19 outbreaks on the Tennessee Titans and the New England Patriots grew on Wednesday.”
Did A Full 180: “Online business news site Quartz has been put up for sale just over two years after it was acquired by Japanese financial intelligence and media company [Uzabase].”