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Allen's Analysis Blog

Weekly Market Comment

September 13, 2019

“Truth is confirmed by inspection and delay; falsehood by haste and uncertainty.” - Tacitus

The TSX Composite Index gained 0.9% while the S&P 500 rose 1%.

The S&P 500 climbed to its previous high, a high it has been hovering around for the past year and a half. It was helped in part by the European Central Bank cutting its key interest rate and promising what is effectively continued quantitative easing forever. America’s Tweeter-In-Chief took to Twitter to call for the “boneheads” at the Fed to cut rates to negative so that the U.S could refinance its debt much cheaper. If only the world actually worked like that.

Tech companies have lead the stock rally but we noticed that the E.U. just promoted its most aggressive tech watchdog, a woman named Margrethe Vestager. Fond of eliciting multi-billion dollar fines from Silicon Valley, she now has more power than ever and she is expected to use it. In America, discussion of regulating Facebook and others is heating up. The U.S. Congress today requested that Amazon, Facebook, Google and Apple to laundry list of financial and other business records in a bid to unearth harm to consumers or the competition.

And speaking of power, Apple just released its newest phones and its fancy “Pro” and “Pro Max” phones are so power efficient that battery life will rise four and five hours, respectively. That’s the biggest single improvement to battery life in Apple’s history. The phones also received a 3rd camera that will allow for far better low-light shots as well as video recording using all the cameras at once (each with very different footage that can cherry-picked during editing or shown simultaneously).

Also, Apple released its movie/TV streaming app called Apple TV Plus though it’s not a Netflix killer and is probably priced at only $4.99 per month for a reason. Customers who buy a new iPhone, iPad, Apple Watch or iMac will get a year’s subscription for free. Interestingly, Goldman Sachs downgraded their already bearish target price because of how they fear this “freebie” will be accounted for. If you buy a new phone, Apple plans on stripping out $59.88 (12 months’ worth of the free video service) from “hardware sales” and crediting its “services” segment. Goldman warns that it will make hardware sales look even weaker than they are.

Well, what can we say. We live in crazy times. That is, the company formerly known as WeWork and now known as We Co., have filed their prospectus to go public after much doubt and criticism surrounding their lack of governance, lack of transparency, and ridiculous valuation. We (us, not them) will spare you the many details of just how messed up this IPO. We Co, or the sign “WeWork” as we’ve seen popping up around this city and others, is a glorified commercial real estate play at a tech company’s valuation.

You can read more details here but Jim Cramer summed it up nicely: “I don’t want WeWork at any price.”

Notable reads:

Musings Beyond The Market

The economist Thomas Piketty’s new book is out (currently only in French) but reviews make it clear that he has taken his alarmist fixation on inequality to new heights. Alarmist because inequality is non-factor when it comes to improving happiness levels and because it ignores standard of living gains experienced by the less well-off (even if the gains by the well-off are so much greater). Not to mention that the top 1% own are stock market gains on paper. When they die, that ownership will get dispersed family and charities and later dispersed again and so on.

Of course, what does reliably reduce the inequality gap is war and famine. Which would you prefer?

Then again, society can always just decide to take assets away via expropriation - arguably, just a fancy term for exceedingly punishingly high taxes. And taxes/expropriation (it depends on how much you have) is how Piketty proposes to level the playing field. These two charts sum up his policy proposal for fixing inequality.

Capital and Ideology charts

Capital and Ideology charts

The most obvious blind spot to the above tax policy suggestions is that just trying to implement them would absolutely pulverize asset prices and wealth along with it. Oh sure, the world’s citizens would be more equal economically speaking but the total pie would shrink dramatically.

Word of the Week

august (adj.) – respected and impressive. “I felt that I was joining a long and august line of people who’d been made to wait.”

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