Guess Who Trump’s About to Go to War With…

US stocks were flat overnight. Gold and oil fell, as commodities and emerging markets in general come under pressure again.

Surprisingly, the NASDAQ continued its rally to fresh all-time highs, despite President Trump issuing a warning to tech giants Google, Facebook and Twitter.

As Bloomberg reports,

President Donald Trump warned Alphabet Inc.’s Google, Facebook Inc. and Twitter Inc. “better be careful” after he accused the search engine earlier in the day of rigging results to give preference to negative news stories about him.

Trump told reporters in the Oval Office Tuesday that the three technology companies “are treading on very, very troubled territory,” as he added his voice to a growing chorus of conservatives who claim internet companies favor liberal viewpoints.

The concentration of power in the hands of a few tech companies is a major reason why the NASDAQ’s bull market has been so powerful, as you can see in the chart below. Since the 2009 low, the index has increased by more than 520%!

MoneyMorning 29-08-18

Source: Optuma
[Click to open new window]

A big part of that increase is thanks to the above stocks, as well as Apple, Amazon and Netflix. These are all examples of the ‘network effect’ in action.

What does the ‘network effect’ mean?

What do I mean by that?

A network effect occurs when a company gets a critical mass of users for its goods or services, which then leads to everyone else using the service too…simply because ‘everyone else does it’.

Facebook is probably the best example. It’s effectively monopolised social media by being a first mover in the space, and then aggressively investing in growing its user base well before focusing on profitability.

It easily challenged and overtook rival MySpace because the Newscorp owned network focused on ad revenues and profitability rather than investing in user experience and growth in user numbers.

It’s the same with Amazon. Its profits are famously weak. But that’s because it reinvests for growth. Revenue growth is its metric because it’s trying to take market share from other retailers by undercutting them. The strategy is to gut the retailers and emerge with a dominant network that people can’t help but be a part of.

Google search is another example. It dominates search so it dominates the market for online ad revenues. That’s the network effect in action.

How to get in on high-risk tech plays with massive potential. Find out here.

Do tech giants hold too much power?

But is the power of the tech giants becoming too dominant…to the point where they can influence the national discussion? Here’s one of Trump’s tweets:

“Google search results for ‘Trump News’ shows only the viewing/reporting of Fake New Media. In other words, they have it RIGGED, for me & others, so that almost all stories & news is BAD,” Trump said. “Republican/Conservative & Fair Media is shut out. Illegal.”

Now, the mainstream media will tell you this is Trump whinging and there is nothing to it. But it’s happening. I know of people who have had accounts closed on Twitter or have been shadow banned for their conservative views, and Facebook is closing down accounts too.

Don’t take my word for it though. Earlier this year, Silicon Valley icon Peter Thiel moved to LA to escape the liberal, left wing echo chamber that is Silicon Valley. As the L.A. Times reported at the time:

In some ways, Peter Thiel is the embodiment of Silicon Valley success. Stanford brought him to the region, PayPal made him rich, Facebook made him richer, and now he doles out his millions to fund other entrepreneurs.

But Thiel, 50, has also never felt himself to be a part of Silicon Valley. An outspoken libertarian provocateur, even in his early days in college, Thiel has long tried to nudge America’s tech capital rightward, with little success. And after his endorsement of President Trump, a man who reveled in being an outsider has apparently found himself too far to the fringes for his liking.

Now Thiel is leaving Silicon Valley for Los Angeles — a move his camp describes as a bid to escape the political hegemony of the San Francisco Bay Area.

He plans to relocate his residence to his home in Hollywood, and move his Thiel Capital and Thiel Foundation organizations to a new headquarters in L.A.

“It’s tough to exist [in Silicon Valley] personally,” said Alex Marlow, editor in chief of Breitbart News. “Conservatives are blacklisted to the point of humiliation. There’s only so much a man can take.”

At the same time, The Wall Street Journal reported on friction between board member Reed Hastings and Thiel in 2016, resulting from Thiel’s support for Trump:

Mr. Thiel’s support for Mr. Trump that year drew criticism within Facebook, ranging from rank-and-file workers commenting on employee message boards to Mr. Hastings. In a 2016 email to Mr. Thiel, Mr. Hastings called his support of Mr. Trump “catastrophically bad judgment” and questioned his fitness to remain on the board, according to a copy of the message reviewed by The Wall Street Journal.

Wow!

What does Thiel’s political view have to do with how Facebook operates?

There were rumours that Thiel would give up his Facebook board seat at the time he left Silicon Valley, but he is still with the company. I wonder what the boardroom meetings have been like lately!

Will tech giants be hit with more regulation?

This all raises an interesting issue. Are the tech giants now at increased risk of regulation because of their dominance? It brings to mind the Sherman Anti Trust Act that came into force in 1890. According to Wikipedia:

The law attempts to prevent the artificial raising of prices by restriction of trade or supply. “Innocent monopoly”, or monopoly achieved solely by merit, is perfectly legal, but acts by a monopolist to artificially preserve that status, or nefarious dealings to create a monopoly, are not. The purpose of the Sherman Act is not to protect competitors from harm from legitimately successful businesses, nor to prevent businesses from gaining honest profits from consumers, but rather to preserve a competitive marketplace to protect consumers from abuses.

That last bit is important…‘to preserve a competitive marketplace to protect consumers from abuses.’

If Trump is serious about disciplining the tech giants, it will knock the NASDAQ off its perch. That will present a problem too, as Trump likes to claim credit for stocks hitting new all time highs.

Right now, the chart of the NASDAQ isn’t showing any signs of concern about regulation. But it’s something to keep an eye on. The NASDAQ has been the leader of this bull market, and while tech continues its run, the bull market remains alive and well.

Regards,

Greg Canavan,
Editor, Crisis & Opportunity

PS: The Key to Spotting Breakout Biotech Stocks. Download your free report now.


Greg Canavan is a Feature Editor at Money Morning and Head of Research at Fat Tail Investment Research.

He likes to promote a seemingly weird investment philosophy based on the old adage that ‘ignorance is bliss’.

That is, investing in the Information Age means you have all the information you need at your fingertips. But how useful is this information? Much of it is noise and serves to confuse, rather than inform, investors.

And, through the process of confirmation bias, you tend to read what you already agree with. As a result, you often only think you know that you know what is going on. But, the fact is, you really don’t know. No one does. The world is far too complex to understand.

When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases.

Greg puts this philosophy into action as the Editor of Crisis & Opportunity. As the name suggests, Greg sees opportunity in a crisis. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines traditional valuation techniques with charting analysis.

Read correctly, a chart contains all the information you need. It contains no opinions or emotion. Combine that with traditional stock analysis and you have a robust stock-selection strategy.

With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the basic, costly mistakes that most private investors do every time they buy a stock.

To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Money Morning here.

And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here.

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