Juxtapositions

Here are a couple of the questions we are currently musing over at AUTHENTIC. Will President Trump step in to support Stormy markets as the central banks step back? Will the regulatory environment become stringent enough to keep internet-related share prices depressed?

1. Stormy markets spank Trump

Wither to the markets? The future lies less in verifying the former bedfellows of the US President, and more in identifying the next partners of the financial markets. The central bankers in the developed world no longer wish to be viewed as the vivacious companions to asset pricers. Now they are hellbent on “normalizing” their monetary policy relationships, rather than be on call to re-animate financial markets whenever they go limp. Evidence is found in policymakers’ muted response last quarter, when interest rates flurrying higher induced stormy financial markets. Moreover, the recent stall in the modest upward trend in inflation has not evoked any change of heart either.

Canada’s first Prime Minister Trudeau infamously stated that “There’s no place for the state in the bedrooms of the nation”. Today in America, the opposite may be helpful: There is no place for the nation in the bedroom of the statesman. After the recent spanking, the financial markets need the President on their side now. If the latest public policy alley-oops are any indication, he may have decided to make a comeback in his most effective role - as Cheerleader in Chief.

2. “Senator, We Run ads” vs Regulation is taxation

The recent Congressional Hearings with Facebook CEO Mark Zuckerberg were priceless. Senator Orrin Hatch asked him, “So, how do you sustain a business model in which users don’t pay for your service?”. To which Zuckerberg replied, “Senator, we run ads” with a smirk on his face. Therein lies the smorgasbord of opportunities for technology companies, and the complex web of issues for regulators. It runs the gambit from technical and ethical considerations, to agency and stakeholder interests. Papers filled with news and sensationalism, supported by adverts and classified ads, and sold on subscription and by newsstand peddlers, have given way to interactive social networking platforms whereon content and preferences flow unfiltered in both directions. Users are not just readers, but unvetted contributors as well.

Regulating the internet and social networks will be a long haul. The Europeans and Chinese are ahead in the regulatory game, the former, laudably to promote consumer protection, the latter to better secure national self-interest. In North America, regulatory efforts are in their infancy and likely to remain so. Americans view regulation as a form of taxation, taxation inhibits business, business is money, and money is king.

The pendulum will eventually swing, but our view at AUTHENTIC is that it will not be any time soon. More immediate, will be a tug-of-war for the US stock market that juxtaposes corporations elevating their share buyback schemes, against active investors selling into rallies to reduce elevated portfolio risk. There is no clear sense just yet which side’s tugging will win during the quarter ahead.