After roaring back on Monday with their best day since August 2015 on hopes that China and the US were ready to renegotiate tariffs and trade imbalances, (White House trade adviser Navarro confirmed on Monday to have asked China to cut tariffs on imported cars, allow foreign majority ownership of financial services firms and buy more U.S.-made semiconductors in negotiations to avoid imposing tariffs on a host of Chinese goods), stocks which had started the day pushing even further early yesterday, stalled, and then started spiraling down with weakness in the most popular tech names (Facebook, Twitter, Nvidia and Tesla) contributing to drag the whole market lower, each of them for what seemed idiosyncratic reasons. The S&P 500 shed 1.7% and the Nasdaq 2.9%. Facebook dropped another 5% as it faces a probe and a coming international regulatory backlash of which the financial (probably huge) perimeter is difficult to define. Opening a small parenthesis and in our opinion, the problem is not with the use of a licensed user such as Oxford Analytica but with Facebook, Google, Twitter and most likely Microsoft all collecting data of unimaginable depth on all of their users. It seems that only now people have started to realize and be obfuscated with this data collection process. We already had plenty of reasons to believe or know what kind of meta data those information behemoths are collecting and exploiting for commercial purposes to justify their market cap. But the whole situation seems to have become unacceptable now and many “vierges effarouchées” are jumping around while others have started to sell fang shares in earnest... The ethical problem is plain for the eyes to see and nothing new. It is also many years ago that M. Zuckerberg opined that the concept of “privacy” was outdated. Few people seemed to care and the silent majority never questioned the ethical violations that the FB business model instituted as a cardinal principle. As always on Wall Street, something does not matter until it starts to matter and when it starts to matter, it is the only thing that matters. The problem with the stock market as a whole now is that there are Fangs in Techs and Techs in all major US indices and when those Fangs that everybody owns (because they are held in all major indices) without knowing it, start to roll, major indices are dragged down. Similarly, Nvidia shed 8% yesterday, on ripple effects from the dramatic fatal accident in the self-driving live experiment that will force to defer the installation of new systems for a while. We are more of the opinion that self-driving is a nuisance because it takes the pleasure away from driving and because it dehumanizes another basic activity of every day’s life, much more so than because self-driving is potentially unsafe. Every insurance company in the world is already betting (preparing differential pricing to that effect...) on the fact that self-driven cars will be much safer than human driven cars. But the market is focusing on this admittedly dramatic and much advertised accident, much more than on all the drunk or SMS typing drivers that caused many more fatal accidents on the very same day all around the world. Such are the imperatives of buzz driven policy making. For sure, NVidia has other worries related to the risk that crypto mining could abate if the crypto selloff continues, translating into lots of graphics cards going idle but the catalyst and concern yesterday were most likely exaggerated by safety concerns of the self-driving technology. Alphabet (google) suffered from the same ‘ethical’ problem as FB in the collection (if not the use) of mass data, more than from this 3% tax that Europe is trying to levy. Could it be that Amazon went off its perk, dropping 4% as the company tries to now disrupt the food delivery business.... delivering food at a loss? Probably not but the company should be prevented to sell at loss anyway anywhere and letting the capitalist system perform such damage is nonsense, as it will force massive restructuration in an employment intensive sector. It is twice as much nonsense as letting those companies pay no or very little taxes indeed. Adding to yesterday’s tech woes were Tesla dropping nearly 10%, we suppose in a delayed response to last week’s news about E. Musk’s pay package who was offered up to USD5.7bn (five times as much according to some estimates) just to stay motivated …and stay around for another 10 years. This announcement was made just days before announcing that the company won’t be able to keep up with promised deliveries… Perhaps the worry was also that baring a full-fledged trade war, European car makers will “electrify” and deliver what Tesla won’t be able to...justifying Tesla to initiate a process whereby it will be priced less as a tech company and more as a car manufacturer. European equity markets fared a little better than US ones, supported by accumulated past underperformance and a small dollar rally. There were some worries or rather talks of Deutsche Bank CEO having to go (on poor execution... read ... poor stock price performance). 10Y US Treasury yields dropped 7bps (to 2.79%) and 10Y Bund yields fell 2bps (to 0.5%) with bonds from the European periphery outperforming slightly. Gold and silver dropped -0.5% and -1% respectively, taken away from breakout zone for no good reason that we could see or think about. Oil dropped -1.3% from their recent highs. US high Yields rose 11bps. Bitcoins dropped 2%, hovering around its recent lows.
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