Whitney Tilson’s email to investors discussing not to underestimate the Huawei executive order; it’s time to break up Facebook; global regulators race to curb U.S. tech giants; giving up is not the same thing as failing; flying home from China; travel tip.
1) A smart friend of mine with a risk factor I hadn’t considered:
The market is significantly discounting the importance of the Huawei executive order. Trump's attempt to ban Huawei will force Xi's hand into an all-out trade war because he cannot back down on this.
Huawei is controlled by the military branch of the Chinese government. Although many people look at China as a monolithic one-party system, there are actually three competing factions. The military, the strongest faction, has massive investments in the economy – and hence massive income sources from it.
(It is the largest standing in the army in the world. Part of the reason that Xi cannot negotiate the removal of the artificial islands in the South China Sea is that it is an entirely military operation.)
An attack on Huawei is an attack on a leading Chinese institution. The military is playing up nationalism and gearing up for war – economic or otherwise. I would expect China to stop a ship in the South China Sea and impound it for inspection.
I think the market is completely missing the risk of the executive order.
2) I highly recommend this New York Times op-ed by Facebook (FB) co-founder Chris Hughes, It's Time to Break Up Facebook. He doesn't think Mark Zuckerberg is a bad person, but argues that his "influence is staggering, far beyond that of anyone else in the private sector or in government."
Here's the response from Nick Clegg, Facebook's vice president for global affairs and communications: Breaking Up Facebook Is Not the Answer. Excerpt:
Facebook shouldn't be broken up – but it does need to be held to account. Anyone worried about the challenges we face in an online world should look at getting the rules of the internet right, not dismantling successful American companies.
Regardless of your opinion on this, it's an important debate to be having.
As for how a possible breakup impacts my view of the stock, I think shareholders should be cheering those like Hughes and Sen. Elizabeth Warren who are calling on the government to force Facebook to spin off Instagram and WhatsApp, as it would unlock enormous value.
3) On a related note, if I'm wrong to be bullish on Facebook, Amazon (AMZN), and Alphabet (GOOGL), this will likely be the reason: Global Regulators Race to Curb U.S. Tech Giants. Excerpt:
French government officials said Friday they plan to give regulators there sweeping power to audit and fine large social-media companies like Facebook if they don't adequately remove hateful content. Competition authorities in India, meanwhile, have launched a probe into whether Alphabet's Google uses its mobile operating system to block rivals.
I think governments will (and should) scrutinize Facebook and Google much more carefully – but that won't stop either company from doubling its profits over the next five years (in which case, the stocks are likely to follow).
4) An interesting article: Giving Up Is Not the Same Thing as Failing. It's the rare person who isn't doing at least some things they should simply quit doing. As Charlie Munger says, "If something isn't worth doing, it's not worth doing well!" Excerpt:
The problem is that humans are pretty bad at being self-aware and thinking about the thought processes behind our decisions. One study from 2014 found that while some 95% of people think they're self-aware, "self-awareness is a truly rare quality: We estimate that only 10% to 15% of the people we studied actually fit the criteria."
Compounding the problem is that we sometimes force ourselves to stick with failing endeavors – even if we're fully aware they're failing – because we've already invested so much time in them.
5) As you read this, I'm on a flight home from Beijing. It was a quick trip (only 76 hours here!), but I'm glad I came. I met many great people and learned a lot at the Stansberry Spring Summit, and enjoyed being a tourist as well. Here are two photos from my visit to the Forbidden City yesterday:
6) I just learned a great trick. It drives me nuts that China blocks Facebook, Google, YouTube, Google Maps, WhatsApp, the New York Times, the Wall Street Journal, Bloomberg, etc.
Collectively, all of these things are like air: You don't notice them until they're gone – and then they're the only thing you can think about (a sad commentary on my tech addiction, I know – a topic for another day).
But I discovered that if I turn off Wi-Fi on my phone and connect with my Verizon global roaming (which I was paying for anyway – only $10 a day for unlimited data), everything works (albeit the connection is a little slow) – woohoo!
I'm still blocked when I'm using my laptop, however... (Some have suggested turning on my phone's hotspot and connecting that way, but Verizon charges a fortune for this – it's not included in the $10-a-day package.)
Another idea is to use a virtual private network (VPN), which is faster and allows you to use local Wi-Fi connections. One friend recommends ExpressVPN.