Facebook's 'Zero' Data Cost Is Threatened By Regulation

trickle out of the big tech names. Amazon reporting after the bell today, shares lower by three quarters of a percent today, although a lot of people are expecting them to deliver strong results on the heels of their one day shipping initiative. Joining us now to discuss Dave Garritty, chief market strategist for laid Law and Company and also a partner at bt block. He is joining us here in our eleven three oh studios. Dave, I want to

start with Amazon. What are you expecting in terms of their earnings and and sort of the boost that they're expected to get from the one day shipping initiative. I think Amazon is going to be coming in with fairly strong results, probably looking at revenues possible growth somewhere north

of fiftent year over year. UM. You know, clearly the question here for Amazon isn't so much just the strength of the volumes through the e commerce platform, but really more what's going on with Amazon Web services and the fact that they've continue to reap returns from their leading return as being a cloud computing platform. So UM prime is a wonderful thing. However, at the end of the day, the engine for profit growth of the company is what

they're doing in terms of the ability to control data. So, David, on the data front, you're talking before we went on the air about Facebook. They had numbers last night, really strong top line growth, the stocks down one and a half percent. You're calling out some issues about their cost of good soul. It gives a sense of what you're thinking, Yeah, UM to UM you know it certainly as a monopoly if you will, in terms of social media. UM, you know,

Facebook is realizing these monopoly rents. UM. The thing that's been interesting here looking more on the regulatory front towards not just the US government and what the Hill is saying, but also overseas. UM. You know, clearly the fact of the matter is looking at the business model for these companies Facebook, Uh, you know they have they pay no

cost for the data that we provide. And there have been estimates out there that this could be giving a benefit to the company Facebook and other um monopolies within social media or within tech of something in the order about seventy five to a hundred billion dollars a year. Uh. There are discussions taking place in the U S and elsewhere of taxing this. I mean effectively, what would happen if say General Motors you know, paid nothing for the

steel that they used to build their cars. The model and the argument here is effectively the same in terms of looking at Facebook. So the issue is costs potentially are going to be rising as a result of this regulatory inquiry and oversight with respect of the industry. UM, so margins will come under pressure. Clearly, the revenue moment him continues to grow, uh, and that can support many things.

But the fact of the matter is is that life is going to become far more complicated, not just for Facebook, but also potentially for Amazon and Google as a result of the antitrust inquiry with the Department of Justice and the Federal Trade Commission the FTC have launched. Which companies of the big tech names do you think will get most affected by this the d efforts. My selection here would be Facebook. Um. You know, to the extent that Facebook does depend upon other companies for data. Um, so

other companies I think will pass costs onto Facebook. And I would simply say that even though Facebook on a tactical basis has had a win with respect of this five billion dollars settlement with the FTC because it removes liability for the officers, the fact of the matter is is that Mark Zuckerberg has shown himself to be brazen in his dealings with regulatory authorities, both here in the US and elsewhere, and I think this puts some rarely

in the crosshairs and there's a foreseeable future. There's also a question of diversification. We were talking about Amazon, and I thought it was striking that you said that the AWS, the sort of cloud computing services, was really where the focus needs to be, because on the actual bread motor of their business is sort of market platform, it's sort

of increasingly utility. They just try to crept margins as much as possible, or that's how they'd like to put it out there as how crucial is it for big tech to basically create their mainstay businesses as utilities, but then have these peripheral businesses actually give them their money.

That's a very good point, and it's you know, and in terms of looking at the monopoly that these companies have within their various sectors, the argument has been put forward that these are really more utilities, and as utilities they should be regulated and allowed to have the returns that utilities historically have enjoyed, Which means that these companies, much as a T and T did some time ago, have to think about setting up unread related businesses to

potentially drive their returns and continue to attract investor attention. Well, that brings up the ultimate question of risk, regulatory risk for these companies. Is there a scenario where they could be broken up? That's certainly something that Senator Elizabeth Warren

and presidential kendidate Elizabeth Warren has suggested. Well, I mean going towards a breakup, you know, is a possible solution or a possible scenario, um, but one which arguably comes after you've gone through this process of inquiry and very likely you go past the general election. Um, you know, with the solution you know doesn't get imposed with a hundred and seventeen Congress when it adjourns in two thousand

twenty one. I think it may take a little longer than that, But the fact is it's on the horizon and investors and looking at the sector have to have this on their radar. What's the next step for regulatory action? From your point of view, you're expecting, um, I think it's really more a matter of various entities, whether it's the Department Justice, whether it's a Federal Trade Commission, whether it's the Antitrust Subcommittee of the House Judicial Committee conducting

their hearings. And as these hearings and inquiries are conducted, clearly there's going to be a news flow coming out of these. Um. Clearly, the people who are going to do well out of all this are the lobby armies of K Street down in Washington, d C. It's going to be a bang up year, uh for attorneys going into and Paul, it already has been. It already has been. It's that something has never changed. David Garretty, thank you

so much for joining us. David's a chief market strategist at laid Long Company, also partner at bt block talking technology, We've got tech earnings this week and uh, clearly investors will be focusing on the operations of these companies, as they should, but they will also be focusing, I think increasingly, as David suggested, on the regulatory oversight that these companies are now finding themselves under, which is a little bit

of a new issue for them. Most of these tech companies historically have uh you know, you know, dealt with European oversight, but not necessarily oversight coming from US regulators US politicians. That appears to be changing. The question is how will they deal with it and will there be

some winners and losers. The scores of ultra net worth families haven't risen dramatically over the past few decades, and a big question now for those investors is where do they put their money at a time of high evaluations, easing central banks, and some concerns growing about the momentum in the global economy. Here to answer all of those

questions is Michael Son and Felt. He's chairman and founder of Tiger twenty one, which is a consortium of ultra net worth investors who get together and talk honestly about what they're doing. If I get that correctly, Michael, um, so, thank you for being here. What's the latest in terms of the optimism or lack thereof among the members of Tiger One. Thanks for having me uh over the last

six months. Sentiment is shifting slowly today. People are less optimistic those who were very positive or less so, but it's still smooth sailing for the moment. People have pulled out of a little bit of real estate, brought it down from the low thirty percent allocation to the high twenties, taking profits where they could. Are members because they're all former entrepreneurs, are much more comfortable in the private markets, private equity, private real estate, so they only have about

twenty three percent allocation to the public markets. Hedge funds have been very low, but the hedge funds that are getting interest now are the defensive hedge funds what would be called credit funds where you have distressed debts. So there are a lot of distress debt funds gearing up ready for the next downturn, and our members are looking

at that as well. So, Michael, one of the things that we've noticed this was some of these tech companies coming public like Uber and Lift, for example, is that maybe the valuations in the private market have gotten maybe stretched, so when they come to the equity public markets they maybe even have a down evaluation. What are your members saying about, given that they are entrepreneurs, about kind of valuations in venture world, in the private equity world. So

the valuations are clearly high in the public markets. Um, but long term people still believe that, for instance, technology stocks have greater scalability. Uh So after the index funds, which are members are increasingly interested in because they know they can't outperform the market, tech stocks would be the one subset. But even within tech stocks now you have a divergence. Whereas a year ago our members thought, uh,

Amazon and Facebook were two tech stocks. With all the challenges facing Facebook today regulatory and so forth, those are diverging. I would say our members are a little less interested in Facebook, although it had good earnings, it now has a five billion dollar fine. Amazon doesn't have those problems today. So I'm curious you said that your members were reducing their allocation to real estate slightly. I'm wondering if you can give me a sense or give us a sense

of where they're reducing those allocations. In other words, in the big cities, is it and warehouses the commercial So first of all, in real estate, you really have a tail of two cities. You have the gateway cities where prices are still very high, and outside of the gateway cities you have things like the retail apocalypse where you have streets that are just empty of retailers because of what's going on. So retail is still real estate is

still our members largest allocation. That's an important thing. So the fact that it came down from the high thirties to tent, it's still their largest allocation. What they've done is where they had an opportunit unity to take low hanging fruit that was easily sold at a very high value, they took those off to build cash and get ready for the next downturn. So that's that was gonna be

my next question. What do they buy? And it sounds like they bought nothing if they're buying it in the real estate is more on the income producing side rather than the speculative side. Unless because our members so many made their money in real estate, sometimes they can see a value that nobody else can see. An empty building to you might be frightening, it might be an extraordinary opportunity to one of our members. But generally there's a

lot of interest in income substitutes. So workforce housing, as an example, is very stable, good cash flows or although even that's gotten a little price over the last year or two. So, Michael, where are you seeing with your company Tiger twenty one? Where are you seeing the growth in wealth? I mean, I'm assuming that you know, you know there are lots of billionaires in the U s. Where are you seeing the growth? Were you opening groups

and offices and so on? So we've identified the sixty markets around the globe that members like Tiger members would like to either work in, live in, invest in, or connect to. We're already in over thirty of those markets, so over the next five years will probably roll out the next thirty. Our market, by the way, is not the billionaires. Our market is from ten million to a billion.

People have created all the great meat and potato businesses, And one way to think about it, if you're a Major League football, baseball or basketball player, you're about one in seventeen thousand by accomplishment. Our members are of a similar scale of success within their field of entrepreneur minus the all stars. We don't we don't go for the billionaires.

I'm wondering when you talk about building cash or getting defensive or distressed debt investors trying raising capital to deploy to take advantage of a downturn, why are they like that's going to happen somewhat soon, given the fact that you've got central banks that are easing and doing what they kind of prevented. Yeah, so I think um OUR members are looking for the all elusive, all weather portfolio, something that will be durable. We're not traders by nature.

Are members are entrepreneurs who build businesses over ten, twenty thirty years. So they're looking to have a portfolio that will last through good times and bad. So they see what happened in two thousand eight, what were the strategies that did well? And the one thing they know is you don't want to ever have to sell at the bottom. You have to have enough cash to weather through the bottom, so you're not forced to liquidate great assets at discount prices.

So that would be the that would be the main thing is have enough cash not to be forced to liquidate your great investments at the wrong time. Paul. This is so fascinating to me because it's not just AlterNet worth individuals. It's all the big firms still, the big private equity firms, private debt firms, etcetera. And I have to wonder if this will sort of cushion any blow and kind of created buffer on price declines in a downturn because you've got just so much cash they're waiting

to pick up any bargains. Yeah, And I know, I mean you'd like to think so maybe we saw that in December last year, you know, And we saw that in December. We had that sell off in December. H And then he came running back this year, Michael Son and felt thanks so much for joining us. Michael is a chairman and founder of Tiger twenty one but seventy one billion dollars under management across all of their members. Just a unique way to aggregate wealthy individuals who have

created companies and value and entrepreneurs. Uh. And the question is when those people liquidate their investments, what do they do with the cash? Well, yesterday was certainly an important day for President Trump, as former Special counsel Robert Mueller testified in front of two congressional committees to get a

post mortem on that performance. We welcome Ken nowadays. He is a partner at Venable l l p H. He was also a former corruption and fraud prosecutor for the U. S. Attorney's Office in the Southern District of New York, Kent. Thanks much for joining US. President Trump yesterday claimed that it was a great day for him. Do you agree? I disagree with that, um, And the reason is, the report is still the report. All the facts and the

report are still the facts. And one thing that Bob Mueller did clarify and say pretty pretty strongly was that the report did not exonerate the president. So I can't say you can say it was a good day. So I guess that my question is going forward, what precedent does this set? Because the Special prosecutor came out with a report he said he could not exonerate President Trump. He also said that there were some very concerning things,

particularly pertaining to the Wiki League section. These are the things that the Democrats are sort of clinging to as justification for why they did this in the first place, because they're getting a bunch of criticism today. My question is moving forward, where do we go from here with this report? I think we're in the same place we were before, which is Bob Mueller has always made it clear that he's the third party narrator of a great book. But he's not going to give you the last chapter.

The last chapter has to come from somewhere else. He's going to bear witness. He's going to tell you what the facts are, but he's not going to be passing judgment. So I think we're in the same place where we always have been up until this point after the report,

which is, will there be impeachment proceedings? So let's just you know, looking at yesterday and so that the bare bones testimony we got yesterday from Mr Mueller plus the report, you think that moves the needle at all as it relates to the legal jeopardy of the president Trump will face either while he's in office or after office. It may maybe it moves it, uh where he's in more jeopardy.

And the reason for that is not because Bob Muller brought anything new to the table that wasn't in the report. It's because the public discourse, the public vetting, the public attention on the facts in that report are still being discussed and focused on, and frankly, the more you look at those facts in that report, the more you talk about them, it's kind of hard not to look away.

The more that I listened to Robert Mueller yesterday and his comments since the publication of the report, the brief ones that he has made, the more of the contrast between him and some of the politicians UH, sort of remains stark in my mind. This idea that he is committed to process. He wants to basically say, the institution will provide justice. I am committed to it. He has

a commensurate marine. As a recent guest UH said, I'm just wondering whether career prosecutors and career workers UH in the US government our our story to change their mentality about faith in the institution if they feel like it isn't rewarded in the sense of, you know, actually being

as meaningful as they hoped. I think with that question, the d o j's credibility as an institution is taking a hit with these proceedings, with what's going on with how everything was handled, and you know, I don't know what line d o J, A U, sas and prosecutors are thinking but it's got to hurt and UM it's my question is whether this is a permanent shift of the viewpoint of d o J and federal their place in federal prosecutions and and and seeking justice, or whether

this will revert back to the norm. So con it's not just the Muller investigations. The President Trump also is facing some potential liability with investigations here in New York.

I think the federal there's some federal prosecutors as well as a Southern District of New York looking at some of the Trump organizations, for example, can give us an update on where you think the statusus of some of those investigations are we well, first off, I think it seems pretty clear that the campaign finance fraud investigation that the Southern District of New York was looking into up

here has been closed. And I'm basing that on the unsealing letter that was submitted to Michael Cohen's uh sentencing court that said that part of the investigation is done. UM I don't know where the investigation stands with respect to the Trump organization. I know it's been publicly reported that there are those investigations going on. UM as well as investigations by the New York Attorney General, who I suspect UH is going to be more aggressive because they're

not part of the federal system. I'm wondering what do you think is most discouraging for federal prosecutors and career prep the government with respect to the way that the Muller investigation was handled it. I think the unfairness of both sides in asking UH Mueller and his team to do something that they were somewhat constrained from doing. They were doing their job, and having your work turned into a partisan fight, I think is what is discouraging for people.

I think also seeing it play out in public, the tension, the obvious tension between the Attorney general Attorney General Barr and Mueller and his team, where it's publicly displayed that they had differing views about what conclusions Mueller could reach or not, and Bar took it upon himself to reach a conclusion um that Mueller didn't, and seeing that play out in public, it really hurts. So you know, in the legal community today, do you think the mull report

UH serves as a basis for impeachment? Is that the belief or is the belief that there's just not enough there I think the Mulla report is a there is a lot of there there um, and it is incumbent on the fact finders, and here the fact finders are ultimately going to be Congress to decide and past judgment. But it's a very in depth report with a lot of juicy facts, uh, inculpatory facts in there. Cod Nowaday, thank you so much for being with us. Your thoughts

are always insightful. Can nowadays a partner at Venable L L. P. He is a former prosecutor at the U. S. Attorney's Office in the Southern District of New York. He spent nine years. They're focusing on corruption and fraud. Time to check in with the Bloomberg Opinion. We're joined by opinion Commas at least, Martin Uzi at least thanks so much

for joining us. We had a big day for Marrier drage today and the e c B let's see already had to say there is surrounding euro Area growth out remained tilted to the downside, reflecting the prolonged presence of uncertainty is related to geopolitical factors. The rise in threat

of protection is and vulnerabilities in emerging markets. That was ECB President Mario Draggy speaking this morning talking about the slowdown in growth and some of the concern there at least Martinous Bloomberg Plenty opinion columns, thanks so much for joining us at least it just real quickly, What was your main takeaway from what we heard this morning from Mr dry Well. I think you know there's going to

be you know, some some stimulus on the way. Um he's signally this might you know, come as as soon as September. You saw banks initially rally on the back of expectations that there might well be someb mitigating actions for them in the way of potentially deposit tearing. Of course, the banks have to pay the ECB money. Um, I have to pay the ECB two part their funds, and that's been hurting them and and that's where we are.

And yet we saw a reversal in market. So this I find really interesting because initially bond yields dropped to record low, certainly in Germany, and there was a rally all across the fixed income world in Europe that has since shifted, especially after Mario Draggy suggested that perhaps the decisions were not unanimous at this point. Yes, no, that's right. It seems that some some also work remains to be done, for example, on on how they might relieve banks in

the way of deposit tearing. It seems like the analysis is still underway. So yes, I think that the takeaway changed as as the press conference evolved. So at Lisa so Mary dragging here is stepping down as President of the European Central Bank in October, but there's still some questions about some of his dealings in the past and some of his actions in the pascess. It relates to the Banka mont Apache in Italy. I know you wrote a colment about that. What are some of the key

issues from that that you're looking at. Well, basically, you know, the ECB is a very young banking supervisor. They only officially became the region's chief regulator in fourteen, and the idea was that, you know, you'd have a European wide regulator that wouldn't be UM there wouldn't be influenced by national politics, national inclinations which have you know, sometimes led to regulators locally being too permissive for example, UM. But what we've seen in the case of Montepasky which is

potentially quite an extreme case. Is that you know, based on the you know, the information that we have had. You know, the ECB potentially you know bent the rules a little bit um in its latest rescue of Montepasky two years ago, and that is raising questions as to the workings of the east be as a banking regulator. Um, you know, particularly now it's the early days of it's

of its of this role. It's important to understand, you know, how does the CB work, how does it come to its conclusions, and how was it you know, what led to them, um, you know, taking not taking into consideration or not giving you know, considerable consideration to the fact that Montapasky was probably insolvent when it was bailed out. So understanding how the mechanics of that decision unfolded would

be helpful. So given the fact that Christine Legarde is going to step in as the next ECB president, what do you think she needs to do to show up confidence in the mechanics of the e c B. I think more transparency to begin with. Um, you know, this is a very young institution, as I said, it has many overlapping arms within it. As it's not entirely clear sometimes her decisions are taken, and I think more transparency

would be helpful in that regard. And you know, the European Commission has also singled out the fact that there needs to be more transparencing. So I think it's very important because these initial UM instances are going to set important precedents for the future. Well, Lisa, what's the what's the sense in the European banking community as it relates to the e c B as a regulator. Has it been effective? I mean it is there is there uncertaintly

between local regulations and e CB wide regulations. Is that causing some of the issues. I think, you know, the Bloomberg News around UM sort of report card about a year ago on how it's done as a supervisor, and I think you know they've it's great by with a little bit more than a pass. I think the senses that in some eras they've been a little bit too slow to move, for example, UM with regards to the

build up of bad loans, particularly in Southern Europe. UM. And you know, more decisive and swifter action would be welcomed, you know, by the market. UM. I think you know, I don't get the sense that there is necessarily concern as to how the institution works, but it's more how effective it is. A Lisa Martin Newsy, thank you so much for being with us. It's always illuminating. A Lisa Martin Newozi is a calumnist covering finance for Bloomberg Opinion,

joining us from London. You can read more on all of her work and other stories from Bloomberg Opinion at Bloomberg dot com, Slash Opinion on the Terminal at O P I n Go. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter at Lisa A. Bram Woyds one. Before

the podcast, you can always catch us worldwide. I'm Bloomberg Radio