Tech “Emperors” on the Hot Seat

“Our founders would not bow before a king. Nor should we bow before the emperors of the online economy.” – Representative David Cicilline

And that’s how it got started… the tone of the questioning was universally hostile as the 4 ‘emperors’ tried to defend their businesses and their business practices all in the name of innovation on behalf of the customers…

Adjectives like bullying, fear, panic describing the relationship between all 4 companies and the very customers they serve… I think one of the best shots was from Davey Cicilline – when he questioned Sundar Pichai – CEO at Google – by asking about competition… saying that his investigation has revealed that some competitors felt pressured by Google –

“Let us steal your content or disappear from the web. Isn’t that anti-competitive?” – Now we all understand what that means… Google is in a position to decide who wins and who loses… where you show up on the web when someone searches for a topic… how you get ‘optimized’ so that the search engine can find you… Google sets those rules and if you don’t play be them you’re out. This has a very ‘China’ feel to it – doesn’t’ it? I mean – aren’t we accusing China of ‘stealing’ intellectual property (IP) if companies want to do business in that country? Isn’t this what is at the core of the most recent trade negotiations between the US & China?

And then Marky had to defend his acquisition strategy of Instagram and What’s App as legislators attempted to determine if that strategy was really a campaign to ‘kill’ the competition… I mean look – that’s tough to define – because when FB did snap them up – it  paid a top price (at the time) – Instagram cost $1 bil and What’s App cost $19 bil – so I’m curious – if you were a 20 something and you created either one of those platforms in your parents garage and then someone comes by and offers to pay you billions of dollars – who YOU say ‘No Thanks!’ So did Marky really do anything wrong – or did he see an opportunity to allow that 20 something to monetize his idea while snapping up a disruptive technology to add to his empire? I mean no one said anything when it happened – no one in congress was screaming about ‘anti-trust’ laws, and the market rewarded the strategy -sending shares of FB soaring…

Then lawmakers took a shot at Jeffrey – accusing Amazon of using third-party sellers’ data to launch competing products at lower prices forcing those sellers out of business. Jeff adamantly denied any such thing… saying he was ‘shocked’ at that accusation… and conveniently couldn’t remember it that way… but was happy to report back to the congresswoman’s office…

And then Timmy had to defend the Apple app store… maybe a bit less confrontational than the others – but it was ‘must see tv’… By the end of the day – all of this back and forth did little to cause investors to abandon those names – in fact – they all ended the day more than 1.25% higher…

And then the FED…

At 2 pm, Fed Chair Jay Powell announced the latest policy statement… Rates to remain low for the foreseeable future (not new), and the FED stands ready to ‘do whatever it takes’ (again not new) as he warned of the ‘most severe economic downturn in our lifetime’ as the reason for this continued support. In fact, he repeated ‘we are not even thinking about thinking about raising rates’ – 3 times

“The path forward for the economy is extraordinarily uncertain, and will   depend in large part on our success in keeping the virus in check.  Indeed, we have seen some signs in recent weeks that the increase in virus cases, and the renewed measures to control it, are starting to weigh on economic activity.”

Reminding us all that the support needs to come from both the WH and the Congress… and so it goes…

He also reminded us that the vote was unanimous (that’s’ good) and that the FED would increase its holdings of treasuries and mortgage backed securities at least at the current pace in the coming months.  When asked about buying equities – he was adamant – saying that the FED is not considering that path at all… essentially putting that idea to rest… (but not considering today doesn’t mean that it won’t be considered tomorrow! Just sayin’…)

By the end of the day – investors weren’t spooked by the testimony and they welcomed the Powell commentary… sending the Dow up 160 pts or 0.61%, the S&P up 40 pts or 1.25%, the Nasdaq up 141 pts or 1.35% and the Russell up 30 pts or 2.1%. Remember – it is very hard to fight the FED or any other central bank especially when they pump the system full of money…

That was yesterday… this is today and global investors are having a change of heart… Markets around the world all in negative territory… The focus today – the coming deluge of earnings, the macro data (which is not good) and the latest news about surging cases of the virus in other parts of the world. Germany the latest country to see a spike in cases… all contributing to the negative mood as the media highlights how the pandemic has left millions of people unemployed and millions of small business shuttered. Look – as the pandemic continues to surge – we have seen an unprecedented response – As of today – the world has spent in excess of $11 trillion dollars fighting this virus… and at some point – the markets will hit their limits if we don’t get a more robust global recovery and get this pandemic under control. And if you thought this quarter was supposed to be the bottom – well – think again… it is very possible that the 3rd quarter could be even more challenging, causing markets to see a renewed level of volatility.

As of 6:30 am – US futures are reconsidering all of the news yesterday as they also focus on what is in store today…

It is the biggest day this week for earnings… 67 names will report and 3 of those will happen after the bell – AMZN, APPL and FB… Eco data includes the release of 2ndquarter GDP – the expectation is for a -35% print … a number the market is expecting so should not be a huge surprise – but look – Germany announced their GDP today as well and their economy plunged 34.4% and the DAX is down by more than 2.4%… Later on this morning – Europe will get Eurozone unemployment figures as well as industrial and services sentiment readings for July.  At midday, the FTSE -1.82%, CAC 40 -1.56%, DAX -2.70%, EUROSTOXX -2.03%, SPAIN -2.43% nd ITALY – 2.56%.

We will also get Initial Jobless Claims – exp of 1.44 mil and Continuing Claims of 16.2 mil. But let’s not kid ourselves… all eyes will be on earnings and especially on those tech earnings after yesterday’s testimony… and since those stocks have rallied hard then I suspect that it will risk off today as well… All of those stocks are quoted LOWER in the pre-market session and if futures don’t rebound – then it will most likely be a weaker day… but don’t despair – it’s all in a day’s work.

Already – we have heard from 18 of those 67 companies; 15 of them beat and 3 of them missed leaving the trend at 80% of the companies reporting are beating… we are still waiting for those 8 am conference calls that will detail the results  – so sit tight… And as of 7 am – none of these ‘better’ reports is changing the overall risk tone… Capisce?

Oil is down $1 at $40.36 – the new surge in global cases being targeted as the reason for the weakness. The latest US data on gasoline shows an increase in inventory vs. the expected decline… the Dollar strength (today) is also causing a bit of the weakness… Again – it’s just more back and forth… nothing to get alarmed about. We remain in the $35/$45 range…

Gold – is taking a breather – down $8 at $1,967/oz… as trader types ring the register – especially if they think equities are going to come under pressure… they will use the recent surge in gold to raise some cash… not all of it, but some of it… the same way they will use some of the ‘momo’ (momentum) names to do the same thing. Gold continues to be worried about inflation, and a dovish FED. The weaker dollar which has contributed to the recent surge in commodity prices is showing a bit of strength today… and that is also giving traders a reason to hit the sell button. Yesterday, I told you that Gold was a good 10% above its 50 dma trendline… a level that suggests a pullback is in order –  and now that it heard from the FED and understands that it is full steam ahead – it just might be the time. In any event – I would not be chasing gold here –as I expect a move back towards $1,850 ish…

The SPX closed at 3258 as the churn continues… we have been stuck in this 3200/3275 range for a couple of weeks – and I suspect that to continue. While we may see some pressure as we move through earnings season – any movement on a virus therapy / vaccine will keep a floor under the market – never mind the efforts of the FED. Remember – tech has led and will continue to lead, but it is a crowded trade – any sense that tech is under pressure will once again cause the trader types to hit the sell button – taking tech lower and then the market lower… but again – I think that is short-lived.

Take good care –

Kp


pork and apples

Pork Tenderloin w/Sliced Apples

You will need: Pork Tenderloin (or the thick cut chops), olive oil, Dijon mustard, lg white onion, peeled & sliced Apples (I like the red delicious – but many use Granny Smith’s) and White wine…

Preheat the oven to 450 degrees… season the pork with s&p…

Now in a sauté pan that you can put in the oven – not a Teflon coated one… heat up olive oil… add the pork tenderloin or the chops… brown on all sides – maybe like 5 or 8 mins… remove and set aside.  When it cools down a bit – rub the Dijon mustard into the pork… (do not overdo it).  Now add a bit more oil to the pan… add in the sliced onions and sliced apples… sauté for about 5 mins…. now spread around and re-introduce the pork to the pan…

Now put the pan in the oven and roast for about 15 mins max… (if using chops – maybe 10 mins max) – remove from oven, now remove the pork only and cover with foil… Next add white wine to the pan and turn up the heat – cook for 3 mins or so… turn off the heat.

If using tenderloin – then slice liberally into thick pieces.  Arrange a bed of onion/apple mixture on the plate and delicately place the pork on top.  Serve immediately with a mixed green salad dressed in an Apple Vinaigrette dressing….

Dressing:  Dijon mustard, apple juice, apple cider vinegar, olive oil, s&p. Bring the apple juice to a boil and then remove from heat… let stand. In a bowl add Dijon mustard, the apple vinegar and s&p… whisk. Now add the cooled apple juice and olive oil – making sure to keep mixing as you fold into the bowl. Done. Dress the salad – open a bottle of wine… invite your guests to the table.

Buon Appetito.

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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