The Saturday - 6/12/21 Edition
Volume 2, Issue 22
Morning!
I need to start with a mea culpa. When you’re younger, everything feels bigger and faster. Every house is a mansion and, apparently, every supersonic jet is an übersonic jet.
Last week, I claimed that the Concorde could fly from New York to London in 53 minutes. Turns out that I forgot to add 2 hours. It was a 2 hour and 53 minute flight.
That was only off by 200%… close enough right? I guess the Concorde wasn’t as cool - or fast - as I remembered it to be.
Thanks to the near-dozen readers who flagged the discrepancy. Keeping me honest!
It’s Saturday June 12, 2021.
Break Ups
According to a Wall Street Journal report published on Friday morning, the House of Representatives is expected to announce a bipartisan bill that would seek to break-up big tech platforms:
Called the “Ending Platform Monopolies Act,” a draft of the proposed structural separation bill reviewed by the Journal says: “It shall be unlawful for a covered platform operator to own or control a line of business, other than the covered platform, when the covered platform’s ownership or control of that line of business gives rise to an irreconcilable conflict of interest.” That language could change in the bill’s final draft.
In case the targets aren’t clear and obvious, here’s CNBC:
This bill would make it unlawful for a platform with at least 500,000 monthly active U.S. users and a market cap over $600 billion to own or operate a business that presents a clear conflict of interest.
As of Thursday evening, only seven US-listed companies had a market cap greater than $600B: Apple, Microsoft, Google, Amazon, Facebook, Tencent, and Berkshire Hathaway.
While final copies of the bill have yet to be circulated and there are no guarantees that it will pass in its current form (if at all), the reported bipartisan support and narrow scope suggest that it has a fighting chance to make it into law.
The activities targeted have long been controversial; in addition to Congressional criticism, marketplace conflicts of interest were at the heart of the EU’s charges against Amazon, which we discussed last November. Regardless of one’s thoughts on government intervention in free markets, most will agree that defending Amazon’s right to rip-off smaller vendors’ products is not a political winner.
With that being said, mom and pops wouldn’t be the only winners. Other large companies, such as Spotify, would also stand to benefit, as Apple’s ability to favor Apple Music over rival streaming services could be impacted.
Before getting too worried about Big Tech’s outlook, it’s worth noting that after Standard Oil’s forced break-up in 1911, John D. Rockefeller’s wealth increased significantly, even prompting Teddy Roosevelt to quip: "No wonder that Wall Street's prayer now is: 'Oh Merciful Providence, give us another dissolution.'" Big Tech shareholders might be harmed by break-ups, but that’s not a certainty.
This bill is one of five purportedly aimed at Big Tech, with others revolving mostly around data and privacy concerns. Much like the EU shared concerns about platforms’ conflicts of interest, it also shares privacy concerns; on Thursday, reports circulated that Luxembourg’s data-protection commission would fine Amazon $425M for violations of the EU’s General Data Protection Regulation (“GDPR”).
Amazon shareholders didn’t seem to care; the stock finished the week up 4%.
Bitcoin Stuff
It’s been a tough few months for the OG cryptocurrency. Since April 13 - and barring a sudden swing in the hours between when this post was completed and when it mails out - Bitcoin is down 41%. That’s worse than pretty much every other non-crypto asset over the same period.
As a still relatively nascent asset class, crypto remains fairly speculative and narrative-driven. I won’t pretend to know the reason behind its every move, but the narratives have been overwhelmingly negative as of late: environmental concerns, the end of Tesla’s “buy with Bitcoin” program, and the currency use by the Colonial hackers and other cybercriminals.
Although its price continues to hover around yearly lows, this week finally brought some more positive news for Bitcoin:
Institutional Services: efforts to bring Bitcoin into the mainstream remain underway and have taken an important step forward, with State Street launching a new division focused on digital finance.
State Street is one of the world’s largest investment services and management firms, with $40T in assets under custody or administration and $3.6T in assets under management. State Street Digital, which will initially consist of 425 professionals, will provide a variety of the custodial and administrative services that large institutional clients and asset managers need to invest in a given asset class.
This is in addition to the crypto ETF that State Street hopes to launch and is still pending SEC approvalRetirement Accounts: for the first time, workers will now be able to allocate a portion of their retirement accounts to cryptocurrencies. ForUsAll Inc. is a 401(k) provider that recently announced the launch of a new partnership with Coinbase that will “allow workers in plans it administers to invest up to 5% of their 401(k) contributions in bitcoin, ether, litecoin, and others.”
As a standalone event, this isn’t a huge deal - ForUsAll accounts for only $1.7B of the $22T retirement account market - but it does signal another important step in adoption of cryptocurrencies among more traditional investment circles.PSEUDO-anonymity: Last month, we covered the now infamous hack of the Colonial Pipeline, which led to gasoline shortages across the Northeast. As some will recall, Colonial ended up paying a 75 Bitcoin ransom (~$5M). On Monday, the FBI announced that it had recovered 63.7 Bitcoins.
Hackers tend to like using cryptocurrency for two reasons: (i) as a digital good, it’s much easier to take possession, handle, and move around, and (ii) cryptowallets are anonymous. After receiving a ransom, hackers can supply these coins to pools to effectively launder them; they put in X number of coins and take X back out, but they aren’t the same coins.
With this announcement, the FBI sends a clear signal that it has the ability to filter millions of transactions, to trace anonymous wallets’ activities, and seize ill-gotten proceeds.
To those who value cryptocurrencies’ anonymity and view it as an asset outside of government’s reach, that’s not great news.
With ransomware becoming a larger issue however - last week JBS SA, the world’s largest meat processing company, was effectively shut down by hackers and had to pay an $11M ransom (in Bitcoin) - the ability to partially curtail crime will be welcome news for most.
Unfortunately for Colonial, the price of Bitcoin has collapsed since the hack, so despite recovering 85% of the Bitcoin, they will recover less than half the value paid.
Cheat Sheet
Alzheimer’s
This week was - arguably - a big week for Alzheimer’s research.
On Monday, for the first time in nearly 20 years, the FDA (conditionally) approved a new treatment for the disease that currently plagues over 6 million Americans - a figure that is expected to more than double, to 13 million, by 2050.
To state the obvious, of all the reasons why anyone should care about an Alzheimer’s treatment, financial windfalls don’t register anywhere near the top 100. Because The Saturday is in the business of writing about this stuff, however, let’s take a deeper look.
The new medicine, Aduhelm, was developed by Biogen. While the treatment isn’t expected to cure Alzheimer’s or to reverse its progression, it is expected* to slow cognitive decline at an annual cost of $56,000. This, of course, means billions of dollars of revenues for Biogen.
When the news was announced on Tuesday, Biogen stock rose as much as 60%. While that kind of jump is never negligible, it is all the more impressive when we are talking about a company that already had a $43B market cap. That’s a $25B jump in value!
*Unfortunately, it appears that scientists aren’t fully settled on Aduhelm’s effectiveness. Since the announcement, three experts from the FDA’s advisory panel resigned, with one calling the approval “probably the worst drug approval decision in recent U.S. history.”
In their opinion - which is infinitely more qualified than mine - there is no evidence whatsoever that the drug can achieve its stated goals. Although I can’t opine on the question, it is interesting to note that Aduhelm was deemed a failure by Biogen itself, only two short years ago.
Still, I think this is mostly good news? While I’m sure that degenerative diseases and viruses have nothing in common, the coronavirus pandemic proved that we could turn new medicine in short order, so I choose to be optimistic. Perhaps scientific progress is accelerating.
If anyone cares, the resignations didn’t chill Wall Street’s enthusiasm for Biogen. The company finished the week up 34%.
Have a great weekend!