Current Thoughts On The Market with S&P500 Down -16% Versus Wed 2/19 High

Current Thoughts On The Market with S&P500 Down -16% Versus Wed 2/19 High

Apart from the fact that 26mm Americans are filing for unemployment benefits, things are not that bad from a market perspective. Thanks to the massive and relatively rapid monetary and fiscal policy response, COVID has not taken the S&P 500 down as much as the 2008 Financial Crisis did. At this point in the 2008 experience (start the sequence with 9/29/08, the first -5% move for the S&P), the index was down -17.6%. Now, (start with 3/9/20, the first -5% “crash” day), the S&P 500 is actually up +3.3%. So, based on the valuation for U.S. large cap stocks, this indicates a market view that the worst outcomes are off the table.

As such, the stock market believes the US economy will not be shut down again as testing, contact tracing and social distancing successfully contain COVID until better therapeutics and a vaccine arrive. This is underpinned by a view that monetary and fiscal authorities will remain on guard, ready to allocate fresh capital to keep consumers and businesses relatively whole until the US economy restarts. In all this, it is important for investors to understand that big businesses stand to benefit as smaller firms struggle, a real tailwind for the fundamentals of large public companies.

The stock market’s belief that current policy measures are sufficient to support a share price recovery underscores the outlook that the U.S. economy will stage a recovery as we move later into 2020. Over the weekend, Treasury Secretary Mnuchin stated his view that 3Q20 would see strong growth. Summer generally sees a seasonal peak in energy consumption, so demand recovery will be the main driver to clear the current record oil inventories.

Looking out further, though, it is harder to forecast a vigorous economic recovery. Recent experience from countries in Europe who are re-opening see consumer activity remaining subdued, a sign that stronger public health measures need to be in place and seen as effective before consumers will trade away the safety of staying at home. Consequently, economic growth is likely to be fairly modest and the path of economic recovery “W-shaped” with slowdowns and restarts around potential subsequent COVID outbreaks. Using the Fed Funds Futures (FFF) curve as a market-based forecast for economic growth, it currently discounts essentially 100% that the Fed maintains its current 0–25 bp interest rate policy through at least November 2021. While not as actively traded, the FFF’s 2022 prices show it is not before June 2022 that the odds of a Fed interest rate increase go above 50%.

GOOGL Results Show Revenue Growth Deceleration (+14% y/y vs. 1Q19 +18%), But Beat Forecasts; Worse Lies Ahead

Alphabet (GOOGL) 1Q20 net revenues of $33.7bn were up +14% with non-search-ad-related segments posting solid growth (i.e. YouTube +34%, Google Cloud +52%). In management’s words, 1Q20 was a “tale of two quarters” as the impact of COVID-19 caused online advertising to contract dramatically in March with travel bookings vanishing as sector activity ground to a halt in the face of the pandemic. Specifically, search and display ad revenue dropped more than -10% in March. The 2Q20 outlook is that Alphabet’s advertising business will be challenged.

Relative to consumer behaviour, management indicated that people have been searching more on Google, but many of those queries are not commercial in nature and likely linked to a surge in people looking online for COVID-19 information, limiting the company’s ability to show ads. Google is now seeing early signs of user behavior returning to normal, but stressed that it is unclear how durable the trend is for now.

FB 1Q20 Results Preview Sees It Harder Hit Than Alphabet By Online Ad Collapse

Facebook (FB) 1Q20 results will be out after the close this afternoon. Lacking the diversified operations that Alphabet has (i.e. cloud operations, in particular), it is likely FB will turn in a more disappointing report. Although activity on Facebook has leapt, thanks to housebound, news-hungry users, spending on advertising, its main revenue source, has shrivelled, as businesses cut costs to weather the pandemic.

Facebook will probably try to cheer investors by pointing to its recent $5.7bn investment in Jio Platforms, an Indian telecoms provider, which builds on its already dominant position in the world’s second-biggest internet market. Yet it will be hard to distract them from weak revenue: Facebook may report its first year-on-year quarterly decline. The fact that advertising inventory ad rates have crumbled over the course of 1Q20 is a clear indication of too much supply and not enough demand.


Current Thoughts On The Market with S&P500 Down -16% Versus Wed 2/19 High2020-04-30T01:50:04+00:00

David Garrity: New ’Stay-At-Home’ Paradigm Favors Big Tech

David Garrity, Chief Market Strategist for Laidlaw & Co discusses markets, bottom for tech, and changes to consumer behavior.

1) Current Thoughts On The Market with S&P500 Down -24% Versus Wed 2/19 High:

In the spirit of the Chinese curse, “may you live in interesting times,” we are certainly in the thick of it at the moment as efforts to contain the COVID-19 coronavirus to China have failed. There are now 140 countries that have reported infections and the weekend has seen the announcement of radical steps such as major U.S. cities (e.g. Chicago, IL; Los Angeles, CA; New York, NY) taking steps to sharply curtail public activities as the U.S. Centers for Disease Control & Prevention (CDC) has issued guidance that events involving 50 people or more not be held for the next two months. Meanwhile, Trump administration officials on Sunday took to the TV talk shows to let Americans know that it will possibly take a few months before life returns to normal as part of an effort to “flatten the curve” of coronavirus infection to preserve healthcare system capacity in the face of the expected surge in cases, not a confidence-building move.

Clearly, economic activity is grinding to a standstill in the face of growing COVID-19 coronavirus quarantines. This is making it challenging to estimate global GDP growth and, of more immediate concern to investors, corporate EPS. A week ago, sources such as Bloomberg Economics estimate that economic fallout from the COVID-19 coronavirus could be as much as a $2.7 trillion hit to global GDP, a -3.1% decline from the 2019 level of $86.6 trillion. With China’s economic statistics for the first two months of 2020 (i.e. retail sales -20.5% y/y, industrial output -13.5% y/y, fixed-asset investment -24.5% y/y) indicate the likely COVID-19 coronavirus hit to the global economy will be worse than the -3.1% decline forecast previously. This in light of the uncertainty associated with expectations for the shape and pace of the eventual recovery.

Also, it is important to consider how COVID-19 coronavirus will have a lasting impact on consumer and business behavior, much as previous crises (e.g. Great Depression) have done. The likelihood is that the “stay-at-home, work-from-home” mentality will limit recovery for airlines and travel/leisure/tourism sectors and favor the technology providers that cater to the “stay-at-home, work-from-home” paradigm such as cloud computing (GOOGL, MSFT, AMZN), e-commerce (AMZN), distributed workforce productivity (WORK, ZM) and distance learning (TWOU) providers. The shifts here are significant as by some estimates approximately 10% of all workers are employed in the sectors experiencing a sharp, immediate reduction in demand from the spread of COVID-19 coronavirus.

In broader terms, COVID-19 coronavirus is having a negative effect to both supply (e.g. through supply chain disruption) and demand (e.g. consumers are hunkering down), so this is an economic shock that differs markedly from the 2009 Great Recession. Before addressing the question of the timing and shape of the expected recovery, it is best first to assess when the global spread of COVID-19 coronavirus might be expected to peak.

To that point, a RAND Corporation expert panel indicated that this is unlikely to occur until 2Q20 with the possibility of 3Q20 indicated. One important point from the panel is that the COVID-19 coronavirus may not abate seasonally and is likely to see multiple waves of infection. All this underscores the importance of developing a vaccine, a process likely to take until mid-2021. All this serves to highlight the vulnerable state the global economy will be in for 2020 and going into 2021.

2) Recent Economic Data Was Positive, But Does It Have Any Significant Meaning Now?:

On its own the recent February 2020 economic data was very encouraging, but it serves now only to set a baseline for how well the U.S. economy was performing before the containment efforts around the COVID-19 coronavirus failed. The Services PMI reading of 57.3 was a great number, historically consistent with 3% real GDP growth on an annualized basis. The U.S. Employment report of a +273,000 gain in jobs was very solid, coming well ahead of expectations. Nice economy we had here. Too bad COVID-19 coronavirus had to come ruin it.

3) Oil Price Collapse Should Serve To Stimulate Economic Activity, But Will It Now?:

Our thoughts in December 2019 when drafting the “Laidlaw Five” was that oil might reprise its exogenous shock role to the global economy with an upside spike stemming from hostilities in the Persian Gulf. That said, we did not anticipate that the production cooperation between OPEC and Russia would collapse. The ensuing moves by Saudi Arabia to seize market share from Russia now has WTI crude quoted at $29.05/bbl and Goldman Sachs is calling for crude prices to fall to the $20/bbl level.

Now, normally a collapse in oil prices would be seen as stimulative, but the demand environment with the COVID-19 coronavirus is quite different as consumers are hunkering down across the globe. Oil is historically a leading indicator commodity. With likelihood of oil breaking below $30/bbl, this price move does not bode well as it has negative implications for the high-yield bond market as well as for energy sector exposure for the banks. Also, with $45/bbl being the break-even level for the U.S. oil shale producers, look for U.S. employment in that sector to be cut back, something to add to the reductions noted above for the airline and travel/tourism/leisure sectors.

Meanwhile, away from the oil price move, there have been signs that China has been slowly ramping up production in an effort to restart global supply chains. This is based on weekday traffic volumes in major cities in China (Beijing, Shanghai, Shenzhen), but weekend traffic which reflects consumer activity remains depressed. These weekend traffic patterns are also becoming depressed in major European cities (Milan, Rome, Paris) and U.S. cities (Seattle, San Francisco, NYC). So, the takeaway from this data is that while China is trying to restart global supply chains, consumers are not buying but instead hunkering down. All we appear to be seeing from China is an effort to replenish inventory, but consumers are not drawing down due to the impact of the global spread of the COVID-19 coronavirus.

4) With All Of The Negative News Coming Out On Multiple Fronts, Are You Constructive On The Stockmarket?:

Mindful of historical performance that clearly favors equities, I consider myself to be a bull. However, with significant uncertainty around where 2020 earnings will come in, it is difficult to determine where a good entry point might be for long-term investors to step in front the current level of market volatility. With the global economy experiencing sudden retrenchment from COVID-19 coronavirus, it is challenging to determine where exactly corporate earnings might be thought to reach a trough level.

As chaotic as US equity markets may be, they are simply trying to discount normalized earnings power: the average of peak and trough bottom line results. A look at the last 2 recessions (2000 – 2002, 2017) shows the S&P 500 bottoms at an average of 13x prior peak earnings and 20x current trough. Assuming markets decide 2020 S&P 500 earnings will decline a not unreasonable -30% this year, that puts the floor on the S&P 500 at 2100, a level that represents a further -18% decline from current levels. Meanwhile, our 2020 S&P500 target level of 3,420 is essentially in line with the Goldman Sachs bull case of 3,400, all of which is highly dependent on how rapidly the global economy recovers from the COVID-19 coronavirus pandemic.

5) Other Topics Investors Should Focus On At Present?:

Earlier we discussed the challenge of determining the likely parameters around the global spread of the COVID-19 coronavirus, one important subsidiary consideration is to determine what is the available healthcare system capacity to address the epidemic. Capacity is measured by hospital beds and the medical staff necessary to provide adequate levels of care.

One of the challenges the U.S. faces is that among developed countries it has one of the lowest levels of hospital beds per citizen. That said, we have reviewed analyses that indicate that at current infection rates, the available U.S. healthcare system capacity will be fully used up by May 2020. Clearly, there will need to be a significant U.S. government-led effort to increase the supply of hospital beds and medical staff.

Note that the draw on U.S. healthcare system capacity from addressing the COVID-19 coronavirus may crowd out patients with other ailments from receiving care. Stay healthy.

David Garrity: New ’Stay-At-Home’ Paradigm Favors Big Tech2020-03-17T13:12:48+00:00

David Garrity: Laidlaw in the News – Tech Sector 4Q19 Results

1) Tech – AAPL Results Show Return To iPhone Growth With iPhone11, Coming 5G Model Bolsters Outlook: Out after last night’s close were solid results from AAPL where the 3Q19 introduction of the iPhone11 set up a solid year-end holiday gift-giving season performance. This growth was encouraging given that global smartphone sales in 2019 were down for the first time ever, a clear another indication of a mature product market. AAPL also showed improved performance in the China market where price repositioning on older products served to help gain market share. Surprisingly, AAPL Services revenues, while up over +10% year/year, were short of analyst expectations. AAPL ended 2019 with 480mm services customers, up +33% year/year, and looks to gain a further +25% to 600mm in 2020, a development that should serve to drive steady improvement in Services revenue for the year ahead.

The major positive driver for AAPL in 2020  and beyond will be the coming introduction of a 5G-capable smartphone. The roll-out of 5G wireless communications networks is expected to enable a step function increase in societal productivity. 5G connects everything from autonomous vehicles to industrial systems and medical devices at speeds sufficient to allow computing to happen in the cloud rather than on a device. Since population growth is slowing in the US/China and negative in Japan/parts of Europe, productivity growth will increasingly bear the burden of creating global economic growth in the coming years. That will come from fresh innovations enabled by 5G cellular systems.

Meanwhile, the spreading Wuhan coronavirus (Wuhan SARS) is expected to limit economic growth during 1H20 as travel restrictions limit both consumer and industrial activity. For AAPL, one can expect that 1Q20 results for China will be weak as product sales around the Lunar New Year holiday are dampened. In terms of product sourcing, AAPL has to some extent shifted its supply chain away from China as a result of the Trump Trade War, but not to the full extent where there may be product shortages globally over the course of 2020.

2) Tech – Coming Results Unlikely To Be Clouded By Wuhan SARS China Weakness: While it is early in the 4Q19 tech sector results reporting season, one thing investors should appreciate is that the drive by China to develop domestic tech sector champions through its China 2025 program and other measure restrictive to non-Chinese companies means that the impact of Wuhan SARS will likely be muted with regard to 2020 results. Social media companies FB (results out tonight) and TWTR along with GOOGL have at best a minimal presence in China. AMZN has exposure to China only to the extent that products sold through its e-commerce platform by either itself or third-party vendors are sourced from China. There may be possible stock-outs and/or price increases, but most likely alternate sources or substitute products will be found to meet customer requirements. To this end, these companies’ results are driven by the global economy ex-China.

The economic contagion from Wuhan SARS is for now limited. What investors do need to watch is the extent to which Wuhan SARS spreads to other countries. Here, the indications are concerning as there are now cases of Wuhan SARS in Japan, Taiwan, Vietnam and Germany involving patients who had not traveled to China, indicating that person-to-person transmission of Wuhan SARS has taken root outside of China. Note that major international air carrier British Airways has now suspended all flights into and out of China. We expect other carriers may soon adopt similar measures.

David Garrity: Laidlaw in the News – Tech Sector 4Q19 Results2020-02-03T16:23:46+00:00

The “Laidlaw Five” 2020 Forecasts

2020 Outlook – Five Forecasts

With 2019 drawing to a close, the Laidlaw Investment Policy Committee is inaugurating the “Laidlaw Five” 2020 forecasts which offer investors thoughts on five particular areas to take into account when considering how best to navigate the capital markets in the year ahead and which will be periodically revised as the year unfolds and significant events necessitate.
See links or read and watch videos below:
Politics: Elections Prompt Markets To Pause
With 2020 being a year of elections across the world culminating in the November 2020 U.S. general election, investors should consider that investment returns are likely to be muted until the electoral tea leaves are read. That said, Laidlaw expects positive investment returns will most likely be realized as a “relief rally” in the back half of 2020. Relative to the U.S. Presidential contest, while the expected candidates in the general election are Donald Trump (GOP) facing Michael Bloomberg (Democratic), it is important to note that there is high level of uncertainty as there are thoughts the Democratic Party at its July 2020 convention in Milwaukee, Wisconsin might have its first “brokered” convention in years. Meanwhile, impeachment, trade policy, technology sector regulation, health care reform, and Supreme Court vacancies are expected to result in a contentious campaign culminating in an election with high levels of voter turn-out. Interesting to note, 2020 will be the first U.S. election in which the “Baby Boomer” generation is no longer the majority of the electorate as “Millenials” move to the fore.
Macro-economy: Tariff Wars, “Brexit”, & Iran Are Wild Cards
The global macro-economy is likely subdued as major events such as the U.S.-China trade tariff confrontation and the distinct possibility of a hard “Brexit” by the U.K. from the E.U. remain unresolved. Note that the inclination of the current U.S. Administration to withdraw from long-standing multilateral agreements in favor of more inefficient bilateral trade arrangements is likely to leave open the possibility of increased trade tensions with the E.U., something that may result in ECB monetary policy moving away from continued experimentation with negative interest rates. In terms of exogenous shock, Laidlaw believes an increase in oil prices to the $75/barrel level is possible depending on OPEC production cut-backs and the possibility of conflict with Iran limiting Persian Gulf shipments through the Strait of Hormuz. With this as back-drop, GDP growth is expected as follows: U.S. +1.5%, E.U. +1.0%, and World +2.5%.
Markets: Equities +7% Due To Buybacks & “TINA”, Interest Rates Edge Lower 
The fixed income markets in 2019 called the tune as the shift in E.U. interest rates towards negative prompted the U.S. Federal Reserve to cut interest rates three times thereby supporting equities during a period when earnings contracted and capital investment spending stagnated under the uncertainty associated with the U.S.-China trade tariff confrontation. For 2020, Laidlaw has a 3,400 level target for the S&P500, a +7% total return from current levels. Equities benefit from a return to corporate earnings growth supporting stock buy-back activity coupled with low interest rates leaving investors in the position of “there is no alternative” to equities. While no further Fed interest cuts are thought to be in the offing, the estimated -0.6% impact to U.S. GDP growth from Boeing halting 737 Max production may change that view. The U.S. Treasury 10-year rate now at 1.92% is expected to contract to 1.25-1.50% over the course of 2020 as the global macro-economy slows.
Sectors: Tech Sees Regulation Risk Limit Potential, Election May Benefit Healthcare Prospects
While investors have built wealth since the 2009 Recession by taking an over-weight position in large-cap U.S. Tech, the increasing risk of greater regulation may serve to depress profit margins for names such as Alphabet and Facebook and in the process limit the sector’s appreciation potential. While the yield curve has steepened off the August 2019 lows, a development that has favored Financial sector shares, Laidlaw expects the macro-economy’s uncertainties to slow and eventually limit further curve steepening. Meanwhile, the possibility of “Amazonization” is rising in the Financial sector as Tech names are speculated to be considering potentially disruptive moves such Apple acquiring an asset manager. That said, Laidlaw views the Healthcare sector as offering an attractive combination of growth and valuation that has the potential to improve should the 2020 election better define its return potential.
The “Laidlaw Five” 2020 Forecasts2020-01-15T02:36:34+00:00

David Garrity discusses cloud computing…

David Garrity discusses cloud computing…

1) Bloomberg:

2) Twitter:

3) Linkedin:

1) Tech – Cloud Computing Growth Remains Solid, But Quality Control Issues Threaten Tech Majors: One of the major shifts of interest to investors has been that of enterprise computing to “cloud” platforms. In this regard, there have been three major competitors – AMZN, GOOGL & MSFT. While GOOGL results won’t be out until after the close Mon 10/28, the indications from AMZN (AWS 3Q19 revenues $9bn, +34.7% year/year vs. +37% y/y in 2Q19) and MSFT (Commercial Cloud 3Q19 revenues $11.6bn, +36% y/y) indicate that while cloud adoption growth is decelerating from earlier levels, it still remains quite solid. With major growth areas such as cloud computing remaining robust, the near-term prospects for the tech sector remain positive. However, there are issues that should concern investors in terms of quality control that need to addressed as the major tech companies have become greater factors in consumer markets. For example, AMZN has been found to be delivering rotten food to consumers as it does not monitor its inventories to exclude items that have gone past their “sell by” dates. Also, AMZN has been using clothing production sources that have been shunned by others for unsafe work practices. As such, AMZN is likely to draw the attention of regulators. The company would do best to clean up its own act before others do it for them. Relative to FB (reports after the close Wed 10/30), CEO Mark Zuckerberg has been conducting speaking and testimony tour in Washington, DC in which he has tried to claim First Amendment rights for the company’s “disinformation for profit” business model. While that might accord well with the preferences of the current Administration, the political tide is clearly shifting in ways that will require FB and other social media companies to meet the content standards (e.g. factual truth) that other more traditional news and media organizations have upheld for years. Time to become accountable, Mr. Zuckerberg.

2) Markets – High Yield Spreads Do Not Call For Recession In 1H20: While indications are that the Administration’s self-inflicted trade war with China has brought sectors (i.e. manufacturing, agriculture) representing roughly 20% of the US economy into recession, it is useful to look to areas of the financial markets that historically served as harbingers of recession to see whether there will be follow-through to the broader economy. In this regard, a cursory examination of the interest rate spreads between BB and BBB corporate bonds is useful.

Here is a chart comparing monthly average BB to BBB yields back to 1997:
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Here is the chart of BBB spreads back to 1997:
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The data show the following:

A) The average BB/BBB spread from 1997 to now is +164 basis points. As with BBB spreads, these tend to widen ahead of recessions. From January to December 2000 they increased by +62 basis points. In 2007, BB/BBB spreads widened by +130 bp over the course of the year. Current BB/BBB spreads sit at +74 bp (BB: +223 bp, BBB: +149 bp). The conclusion is this marginal slice of the US corporate junk market shows little concern regarding an imminent recession.

B) BB spreads over BBB are well below long-run averages. The only times this spread shows similar tightness is March 2005 and the first half of 2007. As the chart clearly shows, there is no move higher for BB spreads underway right now. Not pictured but worth mentioning, the current +74 basis points is lower than October 1st (+81 bp) and flat versus a month ago (+73 bp).

Based on the above, corporate bond markets see little likelihood of a US recession or a material chance of weaker corporate cash flows in the near future. The bearish argument is that ultra-low interest rates have permanently skewed corporate bond payouts to the downside as asset owners reach for yield, thereby limiting their predictive power and setting up a pretty large cliff for these assets when recession does hit.

Separately, note recent WSJ article highlighting how ratings agencies have been giving remarkable leeway to BBB companies, a sentiment echoed by several investment banks of late. Rating agency credit rating laxity historically leads to financial crisis as it leads to risk being mispriced. Caveat emptor.

David Garrity discusses cloud computing…2020-01-15T02:37:18+00:00

Why Amazon might be more at risk than Facebook amid antitrust concerns

Watch David Garrity explain why Amazon may be at more antitrust risk than Facebook.

David Garrity, chief market strategist from Laidlaw and Company U.K and Dan Ives, managing director of equity research form Wedbush Securities, join CNBC’s “Closing Bell to give their take on which tech companies are most at risk from antitrust concerns. Click on the picture below to see the video…

Why Amazon might be more at risk than Facebook amid antitrust concerns2020-01-12T22:06:19+00:00

David Garrity Discusses the Impact of the Trade War with China

David Garrity Discusses the Impact of the Trade War with China

Follow the links and read more below:

1) Bloomberg:

2) LinkedIn:

3) Twitter:

1) Tech – Whoever Builds The 5G Platform First Sets The Standards And Thus The Rules Of The Game: Published in 2015, the same year the PRC State Council laid out the “Made in China 2025” Plan (MIC2025) under which China would become a global powerhouse in ten high-tech fields from artificial intelligence (AI) to aviation, the novel “Ghost Fleet” depicts a possible global conflict scenario in which the United States (and by extension its allies) are defeated in large part due to the use of PRC-made components in its weapons systems that render them subject to enemy control and thus useless in wartime. While the novel depicted an update to the time-honored theme of the Trojan Horse in making the reader wary of accepting gifts from strangers, it did not anticipate the challenge now presented by the technology shift from 4G to 5G communications networks. In April 2019, the Defense Innovation Board, an advisory board of tech sector leaders to the U.S. Department of Defense, issued a report warning that the PRC is on track to pull off a “first-mover advantage” in the competition to dominate 5G mobile telecommunications. Note that 5G promises to revolutionize existing industries and invent entire new industries with data speeds of approximately 20x those of 4G. In the state-controlled economy that is the PRC, the primary competitor here is Huawei, the company that has become a focal point in the current U.S.-China trade war as the current U.S. administration is lobbying allies aggressively to keep Huawei equipment from being installed in their countries’ telecommunications infrastructure. However, “In public and private statements, American intelligence officials and telecommunications executives and experts have begun to concede that the United States will be operating in a world where Huawei and other Chinese telecom companies most likely control 40 to 60 percent of the networks over which businesses, diplomats, spies and citizens do business.” With the prospect of a PRC 5G “first-mover” advantage, the U.S. will be operating in a world where it is not setting the standards, a world where networks are possibly subject to PRC state control and thus compromised, or “dirty networks.”

2) Tech – China Needs To Push Hard To Establish Regional Hegemony As Demographics Work Against It: While the rapacious nature of PRC-led misappropriation of technology intellectual property is well-known as the country seeks to attain its MIC2025 goals, one perhaps under-appreciated factor prompting the PRC’s need for speed is that fact that its demographic profile is in many ways reminiscent of that Japan faced in the 1980s in which the country was clearly seen to face a rapid increase in its elderly population, something that has clearly occurred. According to researcher China Power, the percentage of Chinese above the retirement age is expected to reach 39 percent of the population by 2050. At that time, China’s dependency ratio (the number of people below 15 and above 65 divided by the total working population) is projected to increase to 69.7 percent, up from 36.6 percent in 2015. Add to this negative development the PRC’s gender imbalance in which the country has 70mm more men than women and we are left with the sense that the PRC has internal pressures to establish dominance regionally while it has a demographic “window of opportunity,” something that raises the odds of conflict intensifying over the next 5-10 years.

3) Tech – A War By Any Other Name Is Still Conflict All The Same As PRC Conducts An Unchecked Cyber War: Apologies to Shakespeare, but one may say that all is fair in love and war and so it is in the ongoing and unceasing cyberwar that the PRC is waging against the US and its allies. Granted the PRC is far from alone in this new front of global conflict, but it is among the most persistent and the most pernicious of state actors seeking to penetrate critical infrastructure and to steal intellectual property so as to further its ambitions under MIC2025. While cyberwar is a silent war, it is war nonetheless and there should be no illusions otherwise.

Please find disclosures below.

Disclosure – Ownership:

Personal: BTCS

David Garrity Discusses the Impact of the Trade War with China2020-01-12T22:04:35+00:00

Big Tech Regulation Risk & Implications

David Garrity on Big Tech Regulation Risk & Implications

Follow the links and read more below:

1) Bloomberg:

2) LinkedIn:

3) Twitter:

1) Tech – “Big Tech” Breakup Proposals on 2020 U.S. Presidential Election Radar: Legislators’ interest in investigating and potentially regulating the tech sector has been building since the 2016 U.S. general elections. Concrete proposals have been coming forward since Senator Elizabeth Warren (Democrat, MA) on Fri 3/18/19 as part of her 2020 Presidential election bid put forth a proposal that would result in substantial controls and possible break-up being imposed on tech companies with revenues in excess of $25bn with a specific focus on Alphabet, Amazon and Facebook.

In the proposal, Senator Warren picked up on the September 2017 Yale Law Review article by Lina Khan (“Amazon’s Antitrust Paradox”) which argued that “Amazon is amassing structural power that lets it exert increasing control over many parts of the economy.” The concept of “structural power” breaks with more traditional tests of anti-competitive behavior such as the unilateral ability to set prices. “Structural power” goes beyond pricing power to touch on a company’s ability to determine the market access of other companies, much as railroads controlled market access in the last half of the 19th Century. In Khan’s view, “the thousands of retailers and independent businesses that must ride Amazon’s rails to reach market are increasingly dependent on their biggest competitor.”

Senator Warren has moved to translate the concept of “structural power” into an anti-monopoly legislative and regulatory program. Namely, companies with over $25 billion in revenue that offer the public an online marketplace/exchange/platform for connecting third parties would be designated a “platform utility”. Accordingly, such companies would not be able to participate in the platform they operate (e.g. Amazon would have to stop selling its own products on its website). If elected President, Warren would also appoint regulators committed to reviewing and potentially reversing previous acquisitions (e.g. Amazon/Whole Foods, Facebook/Instagram, Google/Waze).

2) Tech – Anti-Monopoly Policy Is Competition Policy Which Needs To Be Set In Global Context: U.S. Anti-monopoly policy was last substantially updated in 1949, a point in time where policy makers were primarily concerned with the domestic U.S. economy as the global economy was only just beginning to recover from the devastation of WWII. Now, with a global economy no longer as dominated by the U.S. and one challenged increasingly by the government-led technology sector’s development in the PRC, policy makers need to think in terms of a larger global stage.

As the PRC’s “Made In China 2025” plan clearly spells out, it is China’s intent in concert with Chinese technology companies (e.g. Alibaba, Baidu, Tencent) to dominate critical emerging technologies such as AI, autonomous vehicles & others. In this sense, anti-monopoly policy if it results in U.S. technology companies not having sufficient economic scale to support their own emerging technology development efforts may have significant national security ramifications. In essence, in the 21st Century context, technology development has become like diplomacy before it, “the continuation of war by other means.” Consequently, Senator Warren’s proposal while a positive development in moving forward the idea of increased regulatory oversight for the technology sector needs to consider the current and likely future realities against which it would be implemented.

3) Tech – Not All Tech Companies Created Equal, Some Names Merit Greater Oversight And Possible Breakup: It is difficult to say that social media technology companies such as Facebook and Twitter are critical to the future national security of the US, especially given the substantial lapse in necessary vigilance around the 2016 Presidential election, but nevertheless should for these very reasons be subject to increased regulatory oversight. To this end it is our view that following a thorough in-depth examination from economic and national security perspectives that current anti-monopoly policy be developed and then applied to the technology sector.

Big Tech Regulation Risk & Implications2020-01-06T17:45:05+00:00
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