(San Francisco)

All of the last year’s fear of anti-trust regulation seem to be coming true. Tech shares dropped yesterday on news that top US regulators had divvied up jurisdiction of tech giants for a forthcoming probe. The Department of Justice and the Federal Trade Commission, the agencies in charge of anti-trust, have decided who will manage what as they prepare to launch an anti-trust probe into Facebook, Amazon, Google, and Apple. It is still unclear exactly what will be investigated, as well as the scope of the probe. After the market closed, the US House of Representatives also announced its own investigation. The tumble in shares sent Google into a bear market.

FINSUM: This has been looming for some time, but now looks like a reality. This could be the start of some very serious volatility and changes for the FANGs.

(New York)

There has been a lot of speculation about whether there may be rate cuts this year. The Fed has been less than clear about this possibility, mostly indicating it just wants to stay put for the year. The Treasury market has been very vocal, however, with investors clearly indicating they expect rate cuts over the second half of the year. Now JP Morgan is weighing in, saying that the Fed is likely to cut rates twice by the end of the year, a prediction which precisely matches what markets are calling for. The ten-year Treasury yield fell below 2.1% recently.

FINSUM: We think the cut will come as a function of how the trade war plays out. Trump is certainly pushing the Fed’s hand, but we expect the central bank will remain “data dependent”.

(Chicago)

There is an enormous asset bubble that has engulfed much of the US, yet you probably haven’t even heard of it. That bubble is threatening a meltdown that has not occurred since the 1980s. Where is the bubble? In debt linked to farm land values. Despite falling grain prices for years, Midwest farm land has held its value very well. This has led to debt levels that hve not been seen since the farm debt crisis of the 1980s. Farm income has fallen by half since its peak in 2013, yet farm equity has only dropped 5%. According to the FT, “Farmers remain creditworthy in the eyes of banks, even as their incomes fall, because the collateral value of land remains high”.

FINSUM: That last sentence is very dangerous because it sets the stage for a doom loop of dropping values and high rates, and foreclosures, leading to even worse values. Many big lenders have a lot of money tied up here, and there are likely implications for muni bonds as well.

(New York)

One of the best indicators of the health of the economy from the last several years has been the strength of the labor market. In particular, low unemployment and jobless claims have highlighted a tight labor market traditionally associated with a strong economy. However, what if the opposite was the case? Recent academic studies show a new recession indicator: full employment. Historically, downturns have typically started about 12 months following the lowest unemployment rate reached in a cycle.

FINSUM: We are currently at 3.7% unemployment, which is VERY low. It seems like the economy is exactly in the “12 months from a recession” position, at least according to this research.

(San Francisco)

We ran a piece yesterday highlighting the risk of China using rare earth elements as a bargaining chip in the trade war. The US currently gets 80% of its rare earths from China, and the elements are used in everything from smartphones, glass, electric vehicles, and jet engines. The biggest loser if China blocks access could be Apple. The company is currently planning a ramp up in production for its new fall products, so according to Goldman Sachs “even a short term action affecting production could have longer term consequences for the company.”

FINSUM: It is hard to calculate the financial impact at this point, but we expect it could be significant given that these elements are key to smartphone production.