Howes: FAANGs fallout tests techy orthodoxy
The party is winding down for tech heavyweights, and so may be the tailwind generated by Trump tax cuts.
Investors spent the better part of the fall pounding shares in the FAANGs — Facebook, Amazon, Apple, Netflix and Google parent Alphabet Inc. — repositories of enormous wealth and way too much influence. Roughly $1 trillion in FAANGs market value has vaporized from their highs, according to CNBC, with Facebook off 40 percent.
Yet we're told the economy is strong. Unemployment is plumbing record lows. And gyrating equity markets that this week erased all the gains this year are not, we're also told, good predictors of the health of the economy.
Let's hope so, though I hear a distinctly audible bell reminding that I've heard that one before. That and echoes of CNBC's Jim Cramer thundering: "They know nothing!"
Headwinds are stiffening for an economic expansion given a second boost after the 2016 election and passage of the GOP tax cuts. It's getting harder to make money, thanks to outsized expectations, overreaching politicians and Silicon Valley moguls whose business practices skew more 19th-century Robber Baron than 21st-century corporate citizen.
Blame President Trump, whose escalating trade war with China is making business more expensive. Blame the new Democratic majority in Congress, whose leaders vow to re-regulate the banks and finally regulate the unregulated tech companies barely able to manage their own platforms.
Blame the Russians, whose decades-long history of making mischief in American politics now is turbo-charged by internet-fueled tools created right here at home. Blame the Chinese, whose mercantile imperialism and penchant for mischief invite the pushback Team Trump is willing to exert. Blame investors, said to like divided government in the aftermath of the Democrats regaining control of the House in the mid-terms.
Throwing it all together produces a toxic sludge likely to gum the gears of commerce: more and higher tariffs raise costs for businesses and consumers. Renewed regulation makes the financial sector costlier. And arguably overdue oversight for tech companies like Facebook — whose management shows an alarming inability to control, much less understand, the power of its creation — now seems inevitable.
Investors' insatiable search for growth has endowed the FAANGs and the tech sector with enormous market-shaping power. It's vested their leaders with an air of invincibility. And investors persuaded themselves that growth would continue unimpeded. Only one of those is true — the market power punishing the broader market despite stronger fundamentals.
Just about anyone who has skin in the market or the economy could feel the pinch, if only a little. The FAANGs are in your pocket, your smartphone, your laptop and your home. They track your shopping preference, your browsing history and at least one of them — Amazon.com Inc. — is pushing around mayors, governors and state legislatures with impunity.
The Seattle-based online retailing giant last year launched a sweepstakes seeking sites for a second North American headquarters, dubbed "HQ2." More than 200 cities and regions submitted bids, including Metro Detroit. Ol' Amazon went strictly establishment, choosing the money of New York and the power of Washington.
That tells you just about everything you need to know.