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The Regulation Warpath to Libra

Facebook has a 30% chance of making this work.

Those are the odds I give Facebook today from making an announcement about integrating a Facebook-branded cryptocurrency called Libra into an actual successful future business.

First of all – let’s get this straight - Libra is not a cryptocurrency in the way that Bitcoin and Ethereum are.

These two digital currencies are non-sovereign bets for people who want to entrust a store of value outside the grubby fingers of big government.

Bitcoin and Ethereum are also speculative with a zig-zagging market movement attached to it with Bitcoin at its peak up to $20,000 and currently hovers around $9,000.

Slapping cryptocurrency buzzword on Libra is another marketing razzmatazz, one of the hallmarks of Founder and CEO of Facebook Mark Zuckerberg’s tenure.

This type of technology isn’t revolutionary or creative at all – it’s a giant rip-off of China’s WeChat Pay business.

Essentially, this is a digital wallet pegged to a basket of currencies and short-term instruments and Facebook’s digital wallet coined Calibra is for users to store and exchange the currency.

Libra will not be a speculative asset and will function as a payment instrument with $1 debited meaning $1 debited but this $1 is called Libra and it can be swapped for services on Facebook’s platform.

There aren’t any closing fireworks at the end of the show.

For the people who have lived in China, they know exactly what I am talking about because habitual monetary activity starts from the WeChat platform.

The main operational duty for WeChat is to chat with friends much like Facebook chat or Google Hangouts.

But here is when things differ – users can link a bank account and transfer money from the card onto the digital wallet called WeChat Pay that sits on top of the platform.

A home screen can then populate with a grid-like option of services from transferring money, ordering ride-sharing services, restaurant delivery and so on.

Users can even dump some cash into a money market fund that returns principal plus interest after a certain amount of time.

These 3^rd party services give the user a bill and then the money can be conveniently digitally transferred from WeChat Pay with a few taps.

WeChat, owned by Tencent, earns a commission on every transaction and this is the carbon copy blueprint that Facebook wants to follow even if they haven’t announced the details of it.

This is another example of China being 10 years ahead of American fintech.

The unrivaled losers if this plays out to Facebook’s fancy are the traditional banks who are bypassed and the capital that is rerouted through Calibra.

I will say that Facebook couldn’t have worse timing even if they had tried, but better late than never.

Facebook should have established and nurtured this business 5 years before the regulatory storm started to brew.

If they went ahead with this 5 years ago, I would have given this business a 75% chance of succeeding because they were the darling of the tech world with everything they touched turning to gold.

The model was even out there for everyone to see by 2011 when WeChat went live with its digital wallet, why did it take Facebook or anyone else for that matter 8 years to get the ball rolling?

Is it because Silicon Valley is so inward-looking? Perhaps.

Even at the beginning of me writing the Mad Hedge Technology Letter in early 2018, the coast was clear with regulatory winds hitting six months later with vengeance.

Let’s check another box off, Facebook absolutely possesses the technological know-how to make this a reality, that is not the question.

Now it has more to do with if outside forces with the authority will undermine the start of this digital currency business.

After the announcement, it appears the blowback from politicians and regulatory bodies will be intense and unrelenting.

To say that countries abroad will let this fly isn’t accurate either with Chairman of the Russian State Duma Committee Anatoly Aksakov sharing that Facebook’s attempt at cryptocurrency through Libra will not be legalized in Russia because of posing a direct threat to the health of the Russian financial system.

Europe will most likely become a no-go as well as they take the issue of protecting personal data more seriously than their American counterparts.

Allowing Facebook to harvest a commission through every European digital financial transaction is in the realm of fantasy today.

Facebook missed an ideal time slot to roll out this business, they could have sunk their fangs into the consumer in a way that it could not be reversed, but that ship has sailed.

This sets up a massive uphill battle against domestic regulators that were quick with responses to news regarding Libra with chair of the House Financial Services Committee Democratic Rep. Maxine Waters pushing for an immediate “moratorium” on Libra.

The latest run-up in Facebook shares was on the back of Libra, Facebook appears to be valued fairly at $200, and they are praying that Libra will become its fresh catalyst to take them to $250.

June 10, 2019

Tech Letter

Mad Hedge Technology Letter
June 10, 2019
Fiat Lux

Featured Trade:

(WILL REGULATION KILL TECHNOLOGY?)
(FB), (MSFT), (GOOGL)

Will Regulation Kill Technology?

Tech Letter

The Technology Hunger Games of 2019 is best viewed through the lens up top - the 30,000-foot view will offer insight into how the cookie will crumble.

Understanding the mechanisms which will either stop the Silicon Valley tech renaissance in its wake or deliver a supercharged boost to this sector is essential to dissecting the U.S. economy moving forward.

Silicon Valley has experienced a sensational generation by any yardstick and sometimes that is lost in the fog of war with the 24-hour news cycle hellbent on stealing the mojo of the tech industry.

Do or die regulation is shaping up to be the most critical acid test in the tech industry since the creation of the internet.

How will big American tech firms adjust to this new normal of government intervention forcing them to meaningfully alter their DNA?

Is a paradigm shift in store for the relationship that is the consumer and a tech company?

The American economy is probably the closest thing that can be passed off as unfettered capitalism.

This type of capitalism is predicated on scarce regulation which is an important part of the underlying theory.

With thin regulation, “animal spirits” can mushroom industries and its underlying companies to superstardom, we have seen this over and over again with companies like Google and Facebook.

On the flip side, we have austerity and economic vigilance.

Just to take a look around the globe and you will understand what I mean.

Germany is the economic gem of Europe and its namesake union motoring the 28-country block as the mainstay hub of innovation and value creation in the region.

But that does not mean they condone unfettered capitalism.

This is the same government that buttressed the call for austerity for the Greek and Italian government when these two entered uncontrollable debt cycles.

Deutsche Wohnen SE fell 8.7% in Frankfurt, while Vonovia SE dropped 5.5% whom are Germany’s largest residential landlords.

I thought buy to let was a guaranteed cash cow? What happened?

Germany’s largest residential landlords publicly traded shares cratered on the anxiety that Berlin will enact a rent freeze for the next five years in reaction to a surge in rental prices.

Deutsche Wohnen who owns 112,000 units is fighting fiercely to overturn this piece of legislation as they are the main recipient or culprits of the housing renaissance causing residential property opportunities or challenges to explode in the artsy Germany city.

Although residential property income is hardly connected to the fortunes of global technology, the regulation sets the tone for other pieces of the economy as a whole.

Take a quick rundown of other European nation states and the red tape is slapped around in abundance.

The end result is that Europe, even with German ingenuity, has been unable to deliver a tech company that can look the Silicon Valley FANGs in the eye and regulation is a big reason why.

Europe is essentially America with no tech companies because of it.

If you want to shovel through the recycling to pick up a name or two, then Swedish-based Spotify, the music streaming platform, would be apt and on the chips side, ARM Holdings, a British semiconductor company with many of its chips installed inside of Android systems.

These names are few and far between.

ARM Holdings was acquired by Softbank for $23 billion in 2016, a bargain buy at 2019 standards.

While America has privatized away many industries, take a look at other countries like China, who are propping up zombie banks and other state-owned companies accumulating more junk-graded debt.

I would argue that centrally planned economies like China and North Korea possess governments who get in the way of their economy more often than not to maintain strict control over its populace.

This is why private businesses often get the shaft of the top-down way of governing which hurts the free or not so free markets.

The biggest event in tech in the next 2 years will be if the big tech giants break up or not because of anti-trust tinged worries.

Microsoft’s regulatory mess was the last time the American government rolled up their sleeves and intervened this boldly into the tech sector and the functioning of it.

Remember that Microsoft missed search.

They allowed Google and then Facebook to launch and now we are back at the anti-trust table figuring out again if a reset is necessary or not.

This happened to Microsoft because they were scared to go into that part of tech for fear of more anti-trust scrutiny.

If the government does pound Silicon Valley with harsh anti-trust rulings, these big platforms won’t be able to lean on its richer parent companies to bail them out since they will be separate.

I believe that if Google, Apple, and Amazon are cut apart and set free into the world, it will incite another technological renaissance for another thirty years.

Competition mixed with free markets has a funny way of working itself out.

As I see it, these monstrous platforms are stifling innovation now and choking off smaller companies in the incubation stage that could become the next Google.

Releveling the playing field will spur economic innovation, improve technological techniques, boost job creation, and deliver even better customer experience and prices to the consumer.

Another development which is just as interesting is the market for big data.

Data could be rerouted from the proprietary black boxes of Google and Facebook and into a public market that puts a price on data.

If big data ever became a commodity sold from a market, it would mean that the accuracy of data would improve, and companies would be able to produce better products.

As it stands, big companies receive free data by the gimmick of giving away free services, these companies, in turn, manipulate and slice up the data any way they see fit to monetize.

I believe that the ad marketplace for Facebook and Google is somewhat of a broken and disconnected experience with many third-party companies questioning if it is a black hole that ad budgets are disappearing into.

The digital ad industry will undergo a serious facelift because of government regulation.

If big tech is divvied up, there will be winner and losers.

Not every tech company will survive the breakup because not every tech company is created equal.

A new type of digital marketplace will be formed once again allowing small business to bypass Facebook creating another tsunami of wealth creation.

If the FANGs aren’t broken up, then expect unfettered capitalism to go unperturbed, albeit with slow to moderate growth, instead of the renaissance I mentioned above.

Incremental gains cannot supplant wholesale enhancements.

This all means that your only choice is to own technology stocks in both scenarios – particularly the best of breed with the most cutting-edge technology.

The only way to suppress tech shares in the long run is if the American economy decides to socialize or nationalize big swaths of the private economy.

Let’s hope Washington doesn’t kill the goose that lays the golden eggs.

June 4, 2019

Tech Letter

Mad Hedge Technology Letter
June 4, 2019
Fiat Lux

Featured Trade:

(THE GOVERNMENT’S WAR ON GOOGLE)
(GOOGL), (FB), (AMZN)

The Government's War on Google

Tech Letter

I told you so.

It’s finally happening.

The Department of Justice (DOJ) preparing an antitrust probe on Google (GOOGL) was never about if but when.

The Federal Trade Commission is in the fold as well, as they have secured the authority to investigate Facebook (FB).

The probe will peel back the corrosive layers of Facebook and Google’s businesses such as search, ad marketplace and its other assets in order to excavate the truth.

Investors will get color on whether these businesses are gaining an unfair advantage and perverting the premise of fair competition that every tech company should abide by.

Tech companies skirting the law and living on the margins are in for a stifling reckoning if these probes pick up steam.

Facebook is about to get dragged through the mud kicking and screaming facing an unprecedented existential crisis that have repercussions to not only the broad economy for the next 50 years, but far beyond American shores with America mired in a trade war pitted against the upstart Chinese most powerful tech companies.

Even though I have consistently propped up Alphabet on a pedestal as possessing a few of the most robust assets in tech, I have numerous times flogged their dirty laundry in public view, referencing the regulatory risks that could rear its ugly head at any time.

These companies have been playing with fire and everyone knows it, but in the world of short-term results via stock market earnings report, this trade kept working until governments decided to get their act together because of the accelerating erosion of government trust partly facilitated by technology apps.

As much as a handful of Americans have monetized Silicon Valley to great effect, I can tell you that I spend a great deal of my time abroad, and American soft power is at a generational low ebb.

Blame technology - our dirty secrets are not only exposed in frontal view but it’s pretty much a 3D view of the good, bad, and the ugly and there is a lot of ugly.

I am not saying that punishment is a given for these ultra-rich firms swimming in money.

Historically, Alphabet has stymied regulators before beating out an antitrust investigation in 2013 after a two-year inquiry ended with the FTC unanimously voting to halt the investigation.

Remember that this time around, the probe follows the fine in Europe when The European Union slapped Google with a $1.69 billion for actively disrupting competition in the online advertisement sector.

The European Commission claimed that Google installed exclusivity contracts on website owners, preventing them from populating on non-Google search engines.

It was quite a dirty trick, but do you expect much of anything else from one of the most crooked industries in the economy?

And this wasn’t the first time that Google has run amok.

EU regulators levied a $5 billion penalty on Google for egregious violations regarding its dominance of its Android mobile operating system.

Google was accused by the EU of favoring its in-house apps and services on Android-based smartphones giving manufacturers no alternative but to bundle Google products like Search, Maps and Chrome with its app store Play ensuring that Alphabet would benefit from a lopsided arrangement.

Anti-trust legislation has a myriad of supporters including the current administration who have stepped up its onslaught on Silicon Valley.

President of the United States Donald Trump has even hurled insults at Amazon (AMZN) creator Jeff Bezos and even claimed that Alphabet’s artificial intelligence has aided China’s technological rise.

To say FANG companies are in the good graces of Washington would be laughable.

I would point to Facebook to accelerating the regulatory headwinds as investors have seen Co-Founder and CEO Mark Zuckerberg fire every major executive that has opposed his vision of merging Facebook, Instagram, and WhatsApp into a cesspool of apps that pump out precious big data.

The tone-deaf boss has doubled down to reinvigorate the growth after Facebook sold off from $210.

Board members want Zuckerberg out and he is defiant against any attack on his leadership spinning it around as a vendetta on his reign.

Facebook is walking straight into a minefield and the rest of Silicon Valley is guilty by association, the contagion is that bad.

Facebook is the one to blame because of the daily nature of social interaction on its platform and the pursuance of revenue through hyper-targeting data that 3^rd party companies pay access for.

They have no product.

Amazon sells consumer goods which is not as bad.

Facebook facilitates the social dialogue that has unwittingly boosted extremism of almost every type of form possible.

It has given the marginal and nefarious characters in society a platform in which to engineer devastating results and Facebook have an incentive to turn a blind eye to this because of the lust for user engagement.

This has resulted in heinous activities such as terror attacks being broadcasted live on Facebook like the 2019 New Zealand massacre at a mosque.

The former security chief at Facebook Alex Stamos hinted that Mark Zuckerberg’s tenure should wind down and the company needs to shape up and hire a replacement.

The security implications are grave, and many Americans have uploaded all their private information onto the platform.

What is the end game?

Facebook is in hotter water than Google, not by much, but their business model engineers more mayhem than Google currently.

Facebook could get neutered to the point that their ad model is dead and buried.

If Facebook goes down, this would unlock a treasure chest full of ad dollars looking for new avenues.

Facebook’s most precious asset is their data which might be blocked from being monetized moving forward.

Without data, they are worth zero.

The existential risk is far higher for Facebook than Alphabet.

No matter what, Alphabet will still be around, but in what form?

Assets such as YouTube, Google Search, and Waymo, which are all legitimate services, could get spun out to fend for themselves creating many offspring left to sink or swim.

In this case, YouTube, Google Maps, Chrome, Google Play, and Google Search would still possess potent value and offer shareholders future value creation.

Waymo would become a speculative investment based on the future and would be hard to predict the valuation.

Then there is the issue of whether Chinese companies would dominate the collection of FANGs after the split or not.

As I see it, Chinese tech companies will not be allowed to operate in the U.S. at all, and anti-trust repercussions will have many of these homegrown tech companies carved out of their parents to reset a level playing field in a way to re-democratize the tech economy.

This would spur domestic innovation allowing smaller companies to finally compete on a national stage.

The government finally clamping down epitomizes the current volatile tech climate and how Alphabet who has some of the best assets in the industry can go from barnstormer to pariah in a matter of seconds.

As for Facebook, they have always had a bad stench.

The cookie could still crumble in many ways, each case looks high risk for Facebook and Google for the next 365 days.

Stay away from these shares until we get any meaningful indication of how things will play out, but I have a feeling this is just the beginning of a tortuous process.

May 21, 2019

Tech Letter

Mad Hedge Technology Letter
May 21, 2019
Fiat Lux

Featured Trade:

(HUAWEI HITS THE FAN)
(HUAWEI), (MU), (NVDA), (GOOGL), (FB), (TWTR), (APPL)

Huawei Hits the Fan

Tech Letter

If you ever needed a signal to stay away from chip stocks short-term, then the Huawei ban by the American administration was right on cue.

Huawei, the largest telecommunications company in China, is heavily dependent on U.S. semiconductor parts and would be seriously damaged without an ample supply of key U.S. components

The surgical U.S. ban may cause China and Huawei to push back its 5G network build until the ban is lifted while having an impact on many global component suppliers.

The Chinese communist party has exhibited a habit for retaliation and could target Apple (AAPL) who is squarely in their crosshairs after this provocative move.

At a national security level, depriving Huawei of U.S. semiconductor components now is still effective as China’s chip industry is still 5 years behind the Americans.

China has a national mandate to develop and surpass the U.S. chip industry and denying them the inner guts to build out their 5G network will have long-lasting ramifications around the world.

Starting with American chip companies, they will send chip companies such as Micron (MU) and Nvidia (NVDA) into the bargain basement where investors will be able to discount shop at generational lows because of a monumental drop in annual revenue.

Even worse for these firms, Huawei anticipated this move and stocked itself full of chips for an extra 3 months, meaning they were not going to increase shipments in a meaningful way in the short-term anyway.

This kills the chip trade for the rest of the first half of 2019, and once again backs up my thesis in avoiding hardware firms with Chinese exposure.

Alphabet (GOOGL) has cut ties with cooperating with Huawei and that means software and the apps that are built around the software too.

Gmail, YouTube, Google Maps and Chrome will be removed from future Huawei smartphones, and even though this doesn’t amount to much in mainland China, this is devastating for markets in Eastern Europe and Huawei smartphone owners in the European Union who absolutely rely on many of these Google-based apps and view Chinese smartphones as a viable alternative to high-end Apple phones.

Users who own an existing Huawei device with access to the Google Play Store will be able to download app updates from Google now, but these same users will not consider Huawei phones in the future when the Google Play Store is banned forcing them to go somewhere else for the new upgrade cycle.

The fallout further bifurcates the China and American tech ecosystems.

I would argue that China had already banned Google, Facebook (FB), Twitter (TWTR), and marginalized Amazon (AMZN) before the trade war even started.

The American government is merely putting in place the same measures the Chinese communist party has had in place for years against foreign competition.

The recent ban on Huawei was a proactive response to China backing away from negotiations that they already had verbally agreed upon after hawks inside the Chinese communist party gained the upper hand in the tireless fight against the reformist.

These hawks want to preserve the status quo because they benefit directly from the current system and economic structure in place.

The American administration appears to have taken on an even more aggressive tone with the Chinese, as the resulting tariffs are putting even more stress on the Chinese hawks.

However, there is only so much bending they can do until a full-scale fissure occurs and debt rated “A” which is its third-highest classification has recently been slashed to a negative outlook as the tariff headwinds pile up.

The U.S. administration could further delve into its party bag by rebanning Chinese tech firm ZTE who almost folded after the first ban of U.S. semiconductor components.

The U.S. administration is emboldened to play the hand they have now because as long as Chinese tech need U.S. chips, the ball is in the American’s court and going on the offensive now would be more effective than if they carried out the same strategy in the future.

China is clearly attempting to delay the process enough to get to the point where they can install their own in-house chips and can say adios to America and the chips they currently rely on.

It’s doubtful at the current pace of escalation if China can survive until that point in time.

How will China react?

Massive easing and dovishness by the Chinese central bank will be needed to maintain stability and remedy the economy.

The manufacturing sector will face another wave of mass layoffs and debt pressures will inch up.

Chinese exports will get slashed with international corporations looking to move elsewhere to stop the hemorrhaging and rid itself of uncertainty.

Many Chinese tech companies will have entire divisions disrupted and even shut down because of the lack of hardware needed to operate their businesses.

Imagine attempting to construct a smartphone without chips, almost like building a plane to fly without wings.

This is also an easy to decode message to corporate America letting them know that if they haven’t moved their supply chains out of China yet, then time is almost up.

Going forward, I do not envision any meaningful foreign tech supply chain that could survive operating in mainland China because nationalistic forces will aim for revenge sooner or later.

There are many positives to this story as the provocative decision has been carried out during a time when the American economy is fiercely strong and firing on all cylinders.

Unemployment is spectacularly low at 3.6%, the lowest rate since 1969, while wage growth has accelerated to 3.8% annually up from 3.4%.

The robust nature of the economy has led to stock market performance being incredibly resilient in the face of continuous global headline risk.

The positive reactions are in part based on the notion that investors expect the Fed Governor Jerome Powell to adopt an even more dovish stance towards rates.

It’s almost as if we are back to the bad news is good news narrative.

Each dip is met with a furious bout of buying and even though we are trudging along sideways, for the time being, this sets up a great second half of the year as China will be forced to fold or face mass employment or worse offering at least a short-term respite for investors to go risk on.

As for the chip sector, high inventories on semiconductor balance sheets and in the channel will continue, as well as weak end demand in nearly every semiconductor end market meaning a once-in-a-generation magnitude of memory oversupply.

The trade war will most likely turn for the worse giving investors even more beaten down prices that will turn into great entry points when the time is ripe.

May 7, 2019

Tech Letter

Mad Hedge Technology Letter
May 7, 2019
Fiat Lux

Featured Trade:

(THE LURKING DANGERS BEHIND FACEBOOK)
(FB), (WFC), (NFLX)

The Lurking Dangers Behind Facebook

Tech Letter

The current business model of social media is dead, and the future model seems in doubt – that was the take away from world's largest social media platform at F8 that I attended, its annual developer conference.

Co-founder and CEO Facebook (FB) Mark Zuckerberg stated at the event that “in our digital lives, we also need both public and private spaces,” an impromptu call to action to migrate users into a new private digital world with Facebook dictating the terms.

The sushi must really be hitting the fan for Zuckerberg to announce his future vision of social media, and the writing is on the wall for his current social media experiment, that is, if he continues along at the same rate.

The projected $5 billion fine incurred by Facebook from the Federal Trade Commission over its privacy handling of personal data is peanuts for the social media company, but this could be the first of numerous fines doled out by regional and national regulatory bureaus that span from the Bay Area to Vietnam.

Facebook is a company that made over $55 billion in revenue last year and the $5 billion would amount to less than 10% of annual sales.

From that $55 billion, Facebook earned profits of over $22 billion, and this $22 billion is what the regulatory battles are about, along with the co-founder’s tenacious defense of deploying his users as free content.

The firm has continued to post operating margins of over 40% and delivered margins of 46% last quarter, a sequential rise of 4% in Q4 2018.

The Oracle of Omaha better known as Warren Buffet cited necessitating accountability for CEOs that drive a company into a government bailout especially banks.

He advocated that these executives and their spouses should be stripped of their net worth if they damage shareholder value.

The comments were directed at the way Wells Fargo’s (WFC) former CEO Tim Sloan crippled Wells Fargo and has since been sidelined during the long bull market in equities.

At some point, Zuckerberg could confront similar ructions because of his efforts at perverting democracy that has caused innumerable damage to American democracy and global society, and I am certain his legion of lawyers are already hatching a plan to tackle this thorny predicament.

If you ponder about his announcement in a zero-sum environment, it makes no sense for Facebook to pivot to “private” messages.

This leads me to believe his words are smoke and mirrors so that Facebook can perpetuate its duopoly and force digital ad players to continue to drink from the same Kool-Aid.

As before, Zuckerberg still believes this game of cat and mouse is a half-baked marketing fix.

This is why many of his trusted disciples such as former executive Chris Cox left under a shroud of mystery citing “artistic differences” in terminating his tenure at Facebook.

It is clear to many that Facebook is barreling straight into an even more frightening future.

What does the announcement mean from a business perspective?

Zuckerberg will continue to purge anyone that disagrees with him, even trusted lieutenants, and continue to integrate the family of apps into one big platform that includes Facebook, Instagram, and WhatsApp messenger.

These three will become one and thus, Zuckerberg’s ad machine rolls on like the dystopian action film Mad Max.

Let me remind you, these drastic measures boil down to Facebook doing everything they can to keep content costs down.

If they, for example, have to go the same route as Netflix (NFLX) - overpaying for the best actors and directors to generate premium content, the stock would halve the next day.

And that is what Zuckerberg is desperately hoping to avoid after the 30% dip in shares in 2018 because of regulatory headwinds.

Combining the three apps would be impossible to regulate at a time that regulation is rearing its ugly head.

Zuckerberg is intentionally upping the ante and accruing more risk in the hope that Facebook can outmuscle its way through in one piece.

The ad industry is crying out for something new, but as long as Zuckerberg’s claws are firmly into the meat of the digital ad budgets for most companies, he gets to decide how the industry develops because he knows the ad dollars will stick.

In the future, your private chats won’t be private because Zuckerberg will be mining the data for ad dollar revenue.

No matter what he says, nothing will change unless Facebook goes in an entirely new direction which would inhibit sales.

Until the fines become material, let’s say 70% of annual revenue or something of that nature, a $5 billion hit to the bottom line will not persuade the management to transform their practices.

Expect less privacy, and WhatsApp and Instagram to be heavily monetized through ad promotion and data mining even though Zuckerberg pledging his company won’t hold user data “longer than necessary.”

As for Facebook itself, Zuckerberg can’t throw his baby out with the bathwater and will hope to minimize its deceleration by bundling it with the growth trajectory of WhatsApp and Instagram.

Instead of major structural changes, Zuckerberg continues to beat around the bush saying, “You should expect that we’re not going to store your data in countries where there's weak data protection.”

This is not the crux of the problem and shows Zuckerberg is still paying lip service and not ponying up to reality.

Attaching Facebook and its dying model is not an attractive strategy leading to a slew of executive resignations.

I believe this could all end in calamity for Zuckerberg as he figures piling on more risk onto the elevated risk levels is the right decision making Warren Buffet’s point for him about CEO’s accountability.

Should Zuckerberg refund shareholders if his flight turns into a suicide mission then claims to be an unwitting victim?

And how does he even refund democracy with his apps causing major unrest to society such as killings that occur because of the distribution of fake news on his platforms?

Making a hot potato hotter might work for the short term and if ad dollars stream into WhatsApp and Instagram, Zuckerberg will claim victory.

But at some point, the potato will scald his hands so bad that it will drop.

Your private chats will be the content at the fulcrum of his data broker empire since his “digital town square” approach isn’t working anymore.

The company is utterly incentivized to figure out how to continue this ad revenue carnival because 93% of total revenue last quarter came from digital ads which is up from the prior year when it constituted 89%.

It all sounds like a big brother apocalyptical novel, which we are in, scarily, in putting out this dialogue before the firestorm starts, Facebook wants to normalize, and front runs the craziness of selling your private chat data before it becomes a national issue.

Will regulators shut this down or will they be naïve and turn a blind eye?

April 25, 2019

Tech Letter

Mad Hedge Technology Letter
April 25, 2019
Fiat Lux

Featured Trade:

(THE RESILIENCE OF TWITTER)
(TWTR), (FB)

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