The market has periodically started to worry about the regulation of the tech industry. For a while that felt a bit premature, but given recent events, it is starting to feel more real. For instance, the FTC has just begun a marathon of hearings, which will run through November, into the state of competition and consumer protection in the digital economy. The hearings are about more than tech though, as they are fundamentally about inequality and worker’s rights across the whole of the economy. The head of the FTC said “In my view, basing antitrust policy and enforcement decisions on an ideological viewpoint (from either the left or the right) is a mistake”.
FINSUM: These hearings seem like the first stage of what might prove to be big changes for anti-trust policy in the US. If changes do happen, we believe they will be much more far-reaching than just for tech.
Top tech industry executives have spent their week speaking with the Senate and answering tough questions about their data security, fake news, and political content. Many fear it is a preamble to a big regulatory crackdown on the sector by the Senate. Well, that has not occurred yet, but in a worrying development US attorney general Sessions has announced that his department is looking into the tech sector in regards to competition and free speech issues. Sessions said he would be meeting with state attorney generals to discuss a “growing concern” that tech companies “may be hurting competition and intentionally stifling the free exchange of ideas”.
FINSUM: This might be the beginning of a major regulatory move against the sector. We think the market will start handicapping the odds of a big crackdown as more news comes out.
Investors in tech have reason to worry. Not only is Trump saying that they should possibly be subjected to anti-trust regulation, but the tech sector is heading to Washington today to meet with the Senate. Top executives at Facebook, Google, and Twitter, are set to face questions and scrutiny about their practices, including on trust concerns, political content, and consumer privacy. The tide of public opinion has turned against tech over the last year, and congress has followed suit, with Senate GOP leader Orrin Hatch calling Google’s anti-trust behavior “disquieting” despite the fact that he used to staunchly defend the sector.
FINSUM: The big problem for tech is that a regulatory crackdown now seems to have bipartisan support. We think there will be some regulations imposed on tech, but the depth of the forthcoming rules will be the deciding factor. In other words, will it be something along the lines of GDPR (relatively light) or more like Glass-Steagal?
Talk about comments coming right from the source. Microsoft CEO Satya Nadella went on the record this week telling the market that tech companies should “expect” regulation. Nadella walked through current areas of tech and regulations, like facial recognition or GDPR, and explained their implications for the industry. He said that “As tech becomes more and more pervasive, I think for all of us in the tech industry we should expect—whether it’s on privacy or on cybersecurity or even ethics or AI—government and regulatory bodies to take interest in it”.
FINSUM: We think the writing is on the wall that tech is going to face some form of regulation, especially given that the Trump administration is rather hard on the sector. The question is when, not if.
We do not cover Bitcoin very much, but we thought it would be worthwhile to give an update today, especially as advisors may have some clients who are very interested in the area. Most are aware that the cryptocurrency has plunged from late last year, but had been enjoying a minor rally of late. That has come to end abrupt end though, capped off by another SEC rejection/delay of a Bitcoin ETF. The SEC delayed a decision on a new Bitcoin ETF until the end of September, which sent the market plunging ~8%. Bitcoin is now trading around $6,500, way down from its $20,000 peak.
FINSUM: This newest Bitcoin delay is more worrisome as it was the most promising proposal on the table. The proposal, in part from top ETF provider Van Eck, was to actually hold Bitcoin instead of Bitcoin futures, which one would think would alleviate some of the SEC’s worries. We think this will eventually make it through, and when it does, Bitcoin might become a more mainstream asset class.
Yesterday was an absolutely monstrous one to be an investor in Facebook. In what will likely go down as a history-making day for the company, Facebook shares dropped a whopping 20% yesterday, equating to more than $100 bn of value lost. The huge losses were sparked by weaker than expected revenue growth as well as flat or falling user bases. That sent the stock down 7%. However, it was the guidance provided on a conference call that really spelled doom. The company’s CFO said that he expected weak revenue growth to continue, while costs were expected to rise 50-60% this year.
FINSUM: The big rise in costs is coming because Facebook is hiring 20,000 staff to increase cybersecurity. The need to do so does not bode well for the stock or the tech sector generally.