After Hours Summary: COUP +13%, CAL -11%, RH / HQY -4%, WDAY -3% following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: COUP +12.8% (also acquires technology assets of DCR Workforce; terms not disclosed), SMAR +2.8%, CMFN +2.7%
Companies trading higher in after hours in reaction to news: MNKD +13.5% (continued strength), TSRO +8.4% (initiated the second stage of the JASPER study that is designed to assess clinical benefit of ZEJULA in combination with anti-PD-1 antibody in first-line non-small cell lung cancer patients), CRON +5.9% (extending today's move higher ahead of CEO appearance on Fast Money), TLRY +3.2% (continued strength after closing +18% on the day), HDS +1.7% (ahead of earnings tomorrow before the open), AMD +1.6% (after closing up 11.5% on the day), VSI +0.8% (CEO disclosed the purchase of 5.5K shares), SWCH +0.7% (Director Thomas purchased ~22K shares), GG +0.7% (reports 'significant progress' in permitting update; will host call Sept 6)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: CAL -10.8%, RH -4.4%, HQY -3.8%, WDAY -2.6%, AMSWA -2.2%
Companies trading lower in after hours in reaction to news: PETQ -7.8% (files for $100 mln mixed securities shelf offering and ~12.1 mln share Class A common stock offering by selling shareholders), TLYS -5.5% (announces proposed public secondary offering of 8.1 mln shares of common stock by selling stockholders ), ADC -2.7% (commenced offering of 3.5 mln shares of common stock in connection with forward sale agreement), PRFT -1.9% (to offer $125 mln Convertible Senior Notes due 2023 in a private offering), ADT -1.5% (announces CEO succession plan; Jim DeVries will replace Tim Whall, who will retire on November 30), TEX -1% (President Terex Cranes sold 7K shares)
Closing Market Summary: Modest Losses to Start Holiday-Shortened WeekStocks opened the holiday-shortened week on a modestly lower note, pulling back from last week's record highs amid continued uncertainty over U.S.-Canada trade relations. The S&P 500 finished with a loss of 0.2%, but did close in the upper half of its daily range. Meanwhile, the Dow slipped 0.1%, and the Nasdaq lost 0.2%.
Trade talks between the U.S. and Canada are set to resume on Wednesday after the two sides failed to reach an agreement to replace NAFTA on Friday as planned. The negotiations looked promising early last week, but appear to have soured since, with President Trump tweeting over the weekend that there's "no political necessity to keep Canada in the new NAFTA deal."
That tweet helped give the bears an advantage on Tuesday, which ended with eight of eleven sectors closing in negative territory. The lightly-weighted telecom services (-1.1%), real estate (-0.9%), and materials (-0.8%) groups were the worst performers, and the health care space (-0.7%) also showed notable weakness.
The top-weighted technology sector (-0.3%) finished in the red as well, with social media giant Facebook (FB 171.16, -4.57) dropping 2.6% following a downgrade at MoffetNathanson and ahead of Wednesday's appearance on Capitol Hill, during which the company will attempt to answer questions regarding political censorship and Russian propaganda.
Meanwhile, in the consumer discretionary sector, Nike (NKE 79.60, -2.60) fell 3.2% after the athletic shoe and apparel maker unveiled an ad for the 30th anniversary of its "Just Do It" slogan that features Colin Kaepernick, the former San Francisco 49ers quarterback credited with starting the controversial national anthem protests.
However, the consumer discretionary's largest component, Amazon (AMZN 2039.51, +26.80), became just the second U.S. company to achieve a market cap of $1 trillion, although AMZN shares did trim their gains after hitting the milestone, going from +1.9% to +1.3% and cutting the company's market cap to $995 billion by the close.
The consumer discretionary sector finished higher by 0.3%, and the financials (+0.5%) and utilities (+0.6%) groups also ended in the green.
Away from equities, crude oil went on a wild ride on Tuesday, going from +2.3% to -1.0% before settling with a loss of 0.3% at a price of $69.82/bbl. The volatility came as investors tried to gauge the impact of Tropical Storm Gordon, which is expected to make landfall on the Gulf Coast tonight, possibly as a hurricane.
Lastly, the U.S. Dollar Index advanced 0.3% to 95.35, hitting its highest level in over a week, and U.S. Treasuries sold off, sending yields higher across the curve. The yield on the benchmark 10-yr Treasury note jumped five basis points to 2.90%, hitting its highest level in three weeks.
Reviewing Tuesday's economic data, which was limited to the ISM Index for August and the Construction Spending report for July:
- The ISM Index for August increased to 61.3 from an unrevised reading of 58.1 in July, while the consensus expected a reading of 57.6.
- The key takeaway from the report is that manufacturing activity is robust and consistent with a strong economy.
- Construction Spending increased 0.1% in July, while the consensus expected an increase of 0.5%. The June reading was revised to -0.8% from -1.1%.
- The key takeaway from the report is that weakness in nonresidential private construction spending was the primary reason for the tepid growth overall.
Looking ahead, investors will receive the July Trade Balance, Auto and Truck Sales for August, and the weekly MBA Mortgage Applications Index on Wednesday.
- Nasdaq Composite +17.2% YTD
- Russell 2000 +12.9% YTD
- S&P 500 +8.3% YTD
- Dow Jones Industrial Average +5.0% YTD
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IT’S TIME TO BREAK UP FACEBOOK - http://bit.ly/2Nip85U
‘Start by breaking off WhatsApp and Instagram’
Tim Wu thinks it’s time to break up Facebook.
Best known for coining the phrase “net neutrality” and his book The Master Switch: The Rise and Fall of Information Empires, Wu has a new book coming out in November called The Curse of Bigness: Antitrust in the New Gilded Age. In it, he argues compellingly for a return to aggressive antitrust enforcement in the style of Teddy Roosevelt, saying that Google, Facebook, Amazon, and other huge tech companies are a threat to democracy as they get bigger and bigger.
“We live in America, which has a strong and proud tradition of breaking up companies that are too big for inefficient reasons,” Wu told me on this week’s Vergecast. “We need to reverse this idea that it’s not an American tradition. We’ve broken up dozens of companies.”
And breaking up Facebook isn’t a new idea. Ever since Mark Zuckerberg bought Instagram and WhatsApp, the idea of undoing those deals has been present at the periphery of the conversation about regulating tech companies. Both were serious burgeoning competitors to the social network, and both acquisitions sailed through without serious government oversight, which was a mistake. Instead of facing competition, Facebook was able to swallow its rivals and consolidate the market.
“I think if you took a hard look at the acquisition of WhatsApp and Instagram, the argument that the effects of those acquisitions have been anticompetitive would be easy to prove for a number of reasons,” says Wu. And breaking up the company wouldn’t be hard, he says.
“What would be the harm? You’ll have three competitors. It’s not ‘Oh my god, if you get rid of WhatsApp and Instagram, well then the whole world’s going to fall apart.’ It would be like ‘Okay, now you have some companies actually trying to offer you an alternative to Facebook.’”
“I THINK EVERYONE’S STEERING WAY AWAY FROM THE MONOPOLIES, AND I THINK IT’S HURTING INNOVATION IN THE TECH SECTOR.”
Breaking up Facebook (and other huge tech companies like Google and Amazon) could be simple under the current law, suggests Wu. But it could also lead to a major rethinking of how antitrust law should work in a world where the giant platform companies give their products away for free, and the ability for the government to restrict corporate power seems to be diminishing by the day. And it demands that we all think seriously about the conditions that create innovation.
“I think everyone’s steering way away from the monopolies, and I think it’s hurting innovation in the tech sector,” says Wu.
Antitrust law in America seems to be at an inflection point: after a proud history of aggressive enforcement that saw the breakups of everything from Standard Oil to the original AT&T, the past few decades have been incredibly lax as something called the “consumer welfare standard” has swept the courts. Basically, the consumer welfare standard says the government has to show that a merger will result in increasing prices for consumers before it can stop it.
“I think anyone will agree that [the consumer welfare standard] creates a very challenging screen where most antitrust cases die,” says Wu. “And sometimes the prices will go up, but you can’t prove it because it’s hard to prove. That’s what I’m trying to overthrow.”
There are two problems with the consumer welfare standard in 2018: first, after years of dancing around it, giant corporations and their lawyers have learned to make their arguments about price increases ridiculously technical. This leads to comical misdirection. For example, the judge in the AT&T-Time Warner merger case devoted hundreds of pages to the technical discussion of price increases and paid zero attention to the anticompetitive effects of AT&T prioritizing its own video services over others.
HOW DO YOU SHOW A HARMFUL PRICE INCREASE WHEN GOOGLE AND FACEBOOK ARE FREE?
Second, it’s all but impossible to show a consumer price increase when major internet services like Google and Facebook are free. Making a case for breaking up these companies will rely on showing a different type of harm than high consumer prices — something like anticompetitive practices, or that innovative businesses get suffocated when they’re absorbed by their gigantic acquirers.
“There are a subset of cases where the primary harm manifests itself as an innovation loss,” says Hal Singer, an economist and antitrust expert. “We need to attack them with a different standard because the probability of prevailing under the consumer welfare standard is zero.”
One or two companies ruling over segments of the market has historically chilled innovation, says Wu.
“I think some people in Silicon Valley are like, ‘Yeah, competition is for losers.’ If you’re competing with other people, you might have to make compromises or [suggest] it’s better just to have one guy, the right guy, making all of the decisions. That’s what AT&T thought. They were like, ‘Listen. We know the phone system. We know what works. This internet stuff is never going to work.’ I think Facebook is in exactly the same position,” Wu said. “They’re trying to set themselves up as regulated monopolist for the foreseeable future.”
And the chilling effect of Facebook and other tech giants buying up every promising startup is noticeable. “I think if we have a tech economy entirely premised on the idea that monopolists may one day buy the underlying thing, it really limits what can happen,” says Wu.
“Google and Facebook didn’t start that way. There’s a really profound difference in the kind of innovation you see when people are afraid of disturbing the mothership versus what you do when you sense a real opportunity. No one’s willing to fund [profound innovation] because you’re not going to displace Facebook or Google. So we go around the edges somewhere and try and find some cute little thing that doesn’t bother anybody too much and get bought out.”
And so the movement to break away from the consumer welfare standard is growing. Sometimes called the New Brandeis movement, the idea is that the law should prioritize competition. It’s the same sort of standard EU regulators have been using to crack down on big tech companies; these standards were originally based on the American approach under Brandeis and Roosevelt.
“ARE THEY WINNING BECAUSE THEY HAVE A BETTER PRODUCT, OR ARE THEY WINNING BECAUSE THEY’RE USING DIRTY TRICKS?”
“I think we need to simply ask [if] what a large company is doing is part of the competitive process,” says Wu. “Whether, in fact, they’re destroying the other company on the merits or whether they are exceeding the bounds of what’s considered fair competition. You want competition to be something where the better product wins, and the question is: is the defendant winning because they have a better product, or are they winning because they’re using dirty tricks?”
“When you go inside an agency, and you’re facing real cases, this is actually what you’re doing,” says Wu, who spent time working at the Federal Trade Commission. “They don’t mess with the numbers. They look at ‘Okay, Facebook’s killing Snap. Are they doing that in reasonable ways? They’re copying them. Are they better than them, or are they actually doing this in unfair ways?’”
Singer has a different proposal that’s modeled after how Congress decided to regulate cable TV providers like Comcast from discriminating against channels owned by competitors. If a smaller company can show that it’s being meaningfully impaired from competing effectively due to some discrimination against its products, it would have a case.
“Zappos and diapers.com would not have had to sell out to Amazon if they had a venue to defend themselves,” Singer says. “Amazon was able to bring both those companies to their knees because every party knew there was no protection under the antitrust laws.”
It’s the same with Facebook now, he says. “Facebook sits down with someone and says, ‘We could steal the functionality and bring it into the mothership, or you could sell to us at this distressed price.’”
“There’s really nothing to stop Facebook from swallowing all of these verticals.”
The 1914 Clayton Antitrust Act allows mergers to be studied for anticompetitive effects, and Wu thinks the case against Facebook is easy enough that it could be broken up without changing the consumer welfare standard. There’s the simple fact that the number of competitors in social networking went down due to the acquisitions of Instagram and WhatsApp, and there’s also the idea that the number of competitors in what Wu calls the “attention market” decreased as well.
“The easiest way to do it is to start by breaking off WhatsApp and Instagram so those are separate companies,” says Wu. “Hopefully, those companies try to introduce more privacy-sensitive or otherwise better social networking options. Right now, because they’re all owned by the same place, they’re never really allowed to get at the mothership and be a true replacement for Facebook. I think WhatsApp is in an even better position [than Instagram], frankly, to try to go at it. They’ve got this great messaging service. Everyone loves it.”
“THE EASIEST WAY TO DO IT IS BY BREAKING OFF WHATSAPP AND INSTAGRAM.”
But wouldn’t reaching in to break up Facebook be difficult for the government to justify? Wu thinks differently. “Unless you believe that we want one ruling master of all social networking and it should be Mark Zuckerberg… then there’s no good reason not to break it up,” he adds. “What’s the argument against it?”
“These are corporations,” says Wu. “They have subunits. Sometimes corporations divide by themselves. It’s not that dramatic, and there’s been this campaign to say, ‘Oh my god, this would be like the most insane thing ever.’”
But won’t getting bigger and bigger lead companies like Facebook and Google to make mistakes, become slower, and create opportunities for new challengers? That has largely been the belief of the tech industry, which has seen the fortunes of companies like AOL, Myspace, and Yahoo dramatically rise and fall. Basically: won’t the market solve for monopoly all by itself?
“It is true that bigness is a curse and leads a company to become doddering and bad,” says Wu. “But the mythology and the problem is assuming that these companies sort of automatically go away. AT&T had a monopoly for 70 years, and by the ‘50s or ‘60s, they were not a great company anymore. They were incredibly hostile to anything new. They thought they knew everything. They thought the internet was a mistake. They didn’t believe in modems. They didn’t believe in answering machines. They were this enormous doddering company, but nothing could get rid of them.”
“AT&T WAS THIS ENORMOUS DODDERING COMPANY, BUT NOTHING COULD GET RID OF THEM.”
Breaking up AT&T created massive opportunities for competitors to enter the market, and Wu says the 1990s-era antitrust case against Microsoft was a big factor in creating the modern internet as we know it.
“A whole generation of companies — Google, Facebook, some of these early companies — they don’t owe everything to antitrust, but they owe a sizable debt to the antitrust law,” he says.
Singer agrees. “It’s just hard for me to buy into this claim that [Facebook and Google] are going to be toppled the same way that Myspace was toppled. I feel like these are end-states. I don’t see what dislodges their dominance, at least not in our lifetimes.”
“If you wait long enough, maybe 100 years, they’ll go away. But we could very well have Facebook — an inefficient, ineffective, obsolete company — hanging around for another 20 years,” says Wu. “I’m just not really sure that’s what we need.”
ANTITRUST LAW IS THE COMPROMISE BETWEEN SOCIALISM AND CAPITALISM
At its most philosophical, antitrust law is the compromise between socialism and capitalism. The idea is that neither the state nor private corporations should amass unchecked power. “I wouldn’t want to live in a socialist country, and I don’t like living in a country where unaccountable capital faces no real check on its power,” says Wu. “The American Revolution was about resistance to centralized power. The Constitution is about resistance. No one entity should have too much power.”
“I’m a believer in the industry of the common man or common woman in charge of their own destiny, a nation of small business, small concerns, people feeling a sense of opportunity, and I think what deadens that is always excessive, concentrated power, whether in government or in private industry.”
“I think we’re in a time where we need to bring back the controls on bigness.”
Labour’s ruling body adopts IHRA definition of anti-Semitism
NEC rejects Corbyn caveat allowing criticism of Israel — but adds own
The Labour party’s ruling committee finally accepted the full IHRA definition of anti-Semitism on Tuesday. The national executive committee rejected a last-ditch attempt by leader Jeremy Corbyn to add a caveat allowing more leeway to criticise Israel — but added one of its own.
Britain’s main opposition party, which has been dogged by a long-running row with Jewish groups over the behaviour of some members, had in December 2016 accepted into its rule book the general definition of anti-Semitism by the International Holocaust Remembrance Alliance.
But this summer it emerged that the party was not prepared to adopt all of the IHRA’s 11 examples of such behaviour, on the basis that some could limit criticism of Israel.
That drew the ire of many of Britain’s leading rabbis and some of its own prominent MPs.
The party’s NEC on Tuesday confirmed that it had accepted the IHRA definition in full, along with all 11 examples, after hours of debate. But it added a caveat: “this does not in any way undermine the freedom of expression on Israel and the rights of Palestinians”.
According to attendees, an “informal” attempt Mr Corbyn to inject his own, stronger caveat was rejected.
The Labour leader had wanted to include a statement that said: “It should not be considered anti-Semitic to describe, Israel, its policies or the circumstances around its foundation as racist because of their discriminatory impact.”
This would have contradicted one of the IHRA’s examples, which states it is anti-Semitic to be “claiming that the existence of a state of Israel is a racist endeavour”.
The Labour leader was over-ruled by various members including union officials and Rhea Wolfson, a Jewish member of the Momentum pro-Corbyn group.
James Cleverly, deputy chair of the Conservative party, said Mr Corbyn’s caveat showed that “he isn’t the solution to Labour’s anti-Semitism problem, he’s part of it”.
A Labour official said Mr Corbyn spoke to the NEC of the “deep concern and pain” across the party over the loss of confidence among Jewish communities, and said the committee’s adoption of the full IHRA text and examples was part of the process of “rebuilding trust and as an act of solidarity with Jewish communities”.
But the NEC’s decision to add its own caveat was criticised by Jewish groups and party members.
“There can be no caveats, no conditions and no compromises with racism,” said a statement by Labour Against Antisemitism. “We are disappointed by the decision of Labour’s governing body, the NEC, to diminish the IHRA Working Definition of anti-Semitism via the attachment of a “clarification” that risks giving racists in the party a get out of jail card.
Margaret Hodge, the Labour MP who this summer accused Mr Corbyn of being an anti-Semite tweeted: “Two steps forward and one step back. Why dilute the welcome adoption IN FULL of the #IHRA definition of #anti-Semitism with an unnecessary qualification?”
The NEC’s acceptance all 11 IHRA examples also prompted cries of betrayal from some of Mr Corbyn’s most passionate backers. Some suggested that the decision should be re-examined after party conference later this month when the NEC’s make-up will have shifted in favour of the leadership.
The wording of Labour’s final statement appeared to concede that the anti-Semitism row is far from over: “We re-invite organisations to engage in consultation on the code of conduct.”
The controversy has frustrated some senior party loyalists who have backed Mr Corbyn but watched in despair as the party has struggled to shake off accusations of anti-Semitism. They included John McDonnell, shadow chancellor, Len McCluskey, leader of Unite the Union and Emily Thornberry, shadow foreign secretary.
A total of 31 countries have adopted the IHRA definition of anti-Semitism, as well as more than 130 UK local councils, the police, the Crown Prosecution Service and the judiciary.
The NEC meeting came as a leaked internal Labour dossier obtained by radio station LBC detailed 45 cases of alleged anti-Semitism.
Among them were messages posted by party members on social media, including one which read: “We shall rid the Jews who are a cancer on us all.”
Metropolitan Police Commissioner Cressida Dick said the allegations would be fully investigated.
Europe Goes Harder on Money Laundering With Record ING Fine
Banks world-wide are under pressure to clamp down on the trillions of dollars illegally flowing through the global financial system
Banking group ING Groep ING -1.22% NV has agreed to pay a record European fine of €775 million ($899.8 million) to settle an investigation by Dutch prosecutors into money laundering failings, as watchdogs scramble to staunch flows of illicit money after a spate of high-profile scandals.
Also Tuesday, Danish lender Danske Bank DNKEY -6.33% saw its shares tumble 6.5% following a report that local prosecutors had uncovered a higher than expected tally of allegedly illegal Russian money moving through its Estonian branch.
Banks world-wide are under increasing pressure to clamp down on the trillions of dollars’ worth of illegal money flowing through the global financial system.
The U.S. has led the way in policing banks in the past decade. Since 2008, it has imposed around $23.52 billion in fines, according to consultants Fenergo, hitting lenders whose ineffective systems officials say have let clients launder money out of countries such as Mexico, Russia and Venezuela. In contrast, European regulators and prosecutors extracted $1.7 billion over such breaches in the same period, including Tuesday’s ING fine, according to the consultants.
The EU’s anti-money-laundering laws are policed by a patchwork of local regulators, which critics say leaves it open to criminal abuse.
More recently, local regulators have toughened their stance after embarrassing data leaks from whistleblowers on company money laundering and tax avoidance and criticism that the authorities have been too meek in pursuing such transactions.
ING shares fell 2.6% Tuesday following the announcement as Dutch prosecutors said it had been “seriously deficient” as a gatekeeper of the financial system. The bank, for instance, handled bribes paid by telecommunications company VimpelCom Ltd. to the daughter of Uzbekistan’s former president and didn’t report the suspicious transactions to regulators for several years, the prosecutors said. In 2016, Amsterdam-based VimpelCom, now called VEON Ltd., paid $795 million to the U.S. and Netherlands to settle the matter.
Other infractions ranged from poor client record-keeping to helping a Suriname client launder money through electronic payment terminals.
Danish authorities have been investigating Danske Bank since a whistleblower flagged issues at its Estonian branch in 2013. The Financial Times reported Tuesday that consultants had found that up to $30 billion of Russian money flowed through the Baltic branch, far higher than previously thought. In a statement, Danske said it wasn't able to verify the number. The bank expects to publish the findings of an internal investigation into the matter later this month.
“The main concern for investors remains whether the U.S. regulator becomes involved,” Citigroup analysts said. So far Danish and Estonian authorities are leading investigations, but U.S. involvement could see any eventual fines increase substantially, analysts said.
U.S. authorities have already heavily punished European banks for failings in money laundering compliance. In 2014, French lender BNP Paribas SA pleaded guilty and paid $8.97 billion to U.S. authorities to settle charges it disguised transactions with clients in sanctioned countries. Britain’s HSBC Holdings PLC in 2012 paid $1.9 billion to settle U.S. charges that included allowing Mexican drug cartels to launder money through the bank.
The Danske debacle highlighted ongoing concerns about what is seen as a particular weakness in Europe: Russian customers using Nordic and Eastern European banks to shuffle funds across the European Union.
In February this year, the U.S. Treasury declared Latvia’s ABLV bank an “institutionalized money laundering” operation and cut its access to dollars. The bank closed down shortly after. Around the same time, Estonian Versobank AS had its bank license revoked by the European Central Bank after regulators found money laundering deficiencies.
Amazon surpasses $1 trillion in market cap -- shares now up 75% YTD