…Twitter and Facebook go to Washington. Google not so much. NYT Op-Ed cites inside resistance. Trade deficit jumps. NAFTA talk, talk. Kyl steps in for McCain. Theranos bleeds out.
Financial Review by Sinclair Noe for 09-05-2018
DOW + 22 = 25,974
SPX – 8 = 2888
NAS – 96 = 7995
RUT – 5 = 1727
10 Y un 2.90%
OIL – .98 = 68.89
GOLD + 5.20 = 1197.30
The Dow is only 600 points away from setting its first record since late January. The S&P 500 is trading just 1% below its all-time high. The VIX volatility index, a measure of market turbulence, remains at a subdued level of 14. Compare that to the turmoil in emerging markets. The iShares MSCI Emerging Markets ETF (EEM) has slumped 11% this year. It’s trading near a 14-month low. China’s Shanghai Composite has tumbled 18%. The Turkish lira has crashed by nearly half against the US dollar. And last week Argentina jacked up its interest rate to 60%. Industrial metals are also showing weakness. Copper, a closely-watched barometer of economic strength, has lost one-fifth of its value since early June. So, the Dow inches higher while the Nasdaq drops 1.2%, and you know that it was a rough day for tech stocks.
Sheryl Sandberg, Facebook’s chief operating officer, and Jack Dorsey, Twitter’s chief executive, testified at the Senate hearing about their companies’ response to foreign interference in elections and the moderation of online content. Larry Page, the chief executive of Google’s parent company Alphabet, was also invited to the Senate hearing but the company declined to send him. Several senators noted that no one from Google was there. Instead, the company chose to submit written testimony. As a result, Google appeared to send the message that the meeting was unimportant. Of course, skipping the hearing spared the company from having to comment on its attempts to develop a new search engine for the Chinese market, as well. For the politicians, it was a chance to make the claim that their side is being abused by big tech. Dorsey, who read opening remarks from a phone while live-tweeting, said the company has found no evidence of political bias; stating “Looking at the data, we analyzed tweets sent by all members of the House and Senate, and found no statistically significant difference between the number of times a tweet by a Democrat is viewed versus a Republican, even after our ranking and filtering of tweets has been applied.”
Online search and Google are synonymous. About 90 percent of all searches on the web run through Google, giving the company an enormous role in directing the worldwide flow of information on the internet. Last week, Trump accused Google of abusing that power by intentionally suppressing positive stories about his administration. Today, Trump accused social media companies of interfering with the upcoming congressional elections, without appearing to offer any evidence.
Trump’s assertions were discredited by search experts and even some vocal opponents of Google, but they spoke to a growing unease about the influence that tech companies have over what we see online. As the web has grown in size and complexity, the importance of Google Search has grown. A minor tweak to its algorithm can redirect huge amounts of web traffic. Not many people have a good understanding of how Google delivers search results. And for good reason — Google tries to keep it a secret. Google says that revealing its formula would make it easier for people who try to game search results. The other reason – is that the algorithm is proprietary. Still, it is not completely automated. Google employs 10,000 human “raters” – people who rate the quality of search results. And Google is not completely neutral – it tends to provide search results that favor …, Google. The European Union has said such preferential treatment violates its antitrust laws.
There is also the problem of hidden bias. These are issues not about deliberate bias against one political ideology like Trump raised, but about how algorithms or artificial intelligence will unintentionally amplify societal biases about groups like women and racial minorities. The concern is that since many Google engineers are male and white or Asian, they are less likely to spot subtle problems that arise for underrepresented groups.
Beyond the partisan pandering of today’s hearings, there is the question of what the tech companies are doing to ensure a fair 2018 midterm election. Something the politicians can ask of others but can’t answer themselves. And then there are other questions about whether big tech has become too big, whether they protect privacy, what are the privacy rights of individuals, and other questions that politicians have been slow, or unwilling to address. Twitter shares fell 6 percent as CEO Jack Dorsey testified. Google was down less than 1%. Facebook dropped 2.3%.
The New York Times today published an anonymous op-ed column from an author who the paper identified as merely “a senior official in the Trump administration.” Titled, “I Am Part of the Resistance Inside the Trump Administration,” the author of the column describes how President Donald Trump is facing “a test to his presidency unlike any faced by a modern American leader.” The dilemma — which he does not fully grasp — is that many of the senior officials in his own administration are working diligently from within to frustrate parts of his agenda and his worst inclinations. The author goes on to explain that within the Trump administration, there exists a group of political appointees who “have vowed to do what we can to preserve our democratic institutions while thwarting Mr. Trump’s more misguided impulses until he is out of office.”
The U.S. trade deficit increased to a five-month high in July as exports of soybeans and civilian aircraft declined and imports hit a record high, suggesting that trade could be a drag on economic growth in the third quarter. The increase was the biggest monthly widening since 2015. The Commerce Department said the trade gap jumped 9.5 percent to $50.1 billion. The trade gap narrowed in April and May as farmers front-loaded soybean exports to China before Beijing’s retaliatory tariffs came into effect in early July.
Canada and the US resumed NAFTA talks today. Trump describes ongoing trade talks with Canada as “intense” but says the United States doesn’t have much to lose. Canada relies on the U.S. to buy about 75 percent of its exports. Trump repeated his charge that Canada maintains “tremendous trade barriers.” In fact, NAFTA eliminated most tariffs and other trade barriers between the United States, Canada and Mexico, and the United States last year ran a $2.8 billion trade surplus with Canada, its second-largest trading partner. The two countries have less than a month to work through a pile of sticky issues still dividing them, from Canadian protection of its dairy industry to Trump’s threats to slap tariffs on auto imports.
Flat U.S. auto sales in August reignited worries about the car industry. Sales came in at an annualized rate of 16.5 million, according to an estimate by Edmunds, and 0.4% higher compared with August 2017. J.D. Power, said SUVs, pickups and vans accounted for about 68% of new-vehicle retail sales in the month, the highest-ever for an August.
Customer service is lousy, and that’s actually a sign of a tightening labor market. As the competition for labor intensifies, the quality of service at businesses tends to deteriorate. The American Customer Satisfaction Index crunches more than 200,000 consumer survey responses each year. The ACSI’s national measure of consumer happiness, which ranks moods on a scale of 1 to 100, has slid from 77 in the first quarter of 2017 to 76.7, where it sat all year — the longest period of stagnation since 1993.
Two massive healthcare mergers are about to get the green light from the Justice Department. The Wall Street Journal reports the DOJ was nearing an approval of the pharmacy CVS Health’s $69 billion merger with the insurer Aetna, announced at the end of last year, as well as the insurer Cigna’s $67 billion deal with the pharmacy benefit manager Express Scripts, announced in March.
The late Senator John McCain’s seat was filled earlier today when Jon Kyl, a former senator, took the oath of office in time to help Republicans in their push to confirm Brett Kavanaugh to the U.S. Supreme Court. Senate Judiciary Committee hearings began on Tuesday to consider Two massive healthcare mergers are about to get the green light from the Justice Department, according to The Wall Street Journal.
The Journal reported Wednesday that the DOJ was nearing an approval of the pharmacy CVS Health’s $69 billion merger with the insurer Aetna, announced at the end of last year, as well as the insurer Cigna’s $67 billion deal with the pharmacy benefit manager Express Scripts, announced in March.
Trump’s nomination of Kavanaugh to fill a vacant U.S. Supreme Court seat. Kyl, as a private citizen, had been helping usher Kavanaugh’s nomination through the Senate. A full Senate vote on Kavanaugh could come later this month. Kyl said he would not be a candidate in a special election in 2020 to finish McCain’s term that ends in January, 2023.
The FBI is reportedly investigating American Express for possible Forex pricing violations. The investigation is in its early stages and is focused on whether the card company’s foreign exchange international payments department misrepresented pricing to clients to get more business. According to a report in The Wall Street Journal, Amex recruited business clients with offers of low currency-conversion rates and then jacked up the rates without warning.
Bitcoin, the world’s biggest digital currency, fell more than 6%, trading back below $7,000. In early May, Goldman Sachs told the New York Times that it would be opening a cryptocurrency trading desk to allow its customers to trade bitcoin as a non-deliverable forward. Today, Business Insider reports Goldman as put a hold on its plans to open a cryptocurrency trading desk.
Theranos is preparing to wind down its business. The Wall Street Journal reported late Tuesday that Theranos CEO David Taylor emailed shareholders to announce the blood-testing company will dissolve. Taylor said the investment bank with which Theranos was working reached out to more than 80 potential buyers, but none were interested. Theranos, the biotech company, which was once valued at $9 billion, built its reputation on the claim that it had come up with a cheaper, more efficient alternative to traditional medical tests. But that claim unraveled in spectacular fashion. The startup’s founder and former CEO, Elizabeth Holmes, was indicted on federal wire fraud charges in June.