Ghost of Microsoft Stalks Apple as DOJ Takes Its Shot
https://www.wsj.com/tech/ghost-of-microsoft-stalks-apple-as-doj-takes-its-shot-1f2be684
On March 21st the Justice Department filed a civil antitrust lawsuit against Apple for monopolization or attempted monopolization of the smartphone market. For an excellent run down on what the government alleges, listen to this podcast from The Journal on Apple Podcasts.
While we will leave it up to antitrust experts to assess the legitimacy of the government’s case, regardless of the outcome Apple shareholders could be negatively impacted (as well as index investors as Apple is currently ~5% of the S&P 500). While not completely analogous, Microsoft faced an aggressive antitrust case against it starting in 1998 for allegedly monopolizing the Internet Explorer web-browser on its Windows operating systems (the US part of the case lasted from 1998 to 2001 and the battles they faced in Europe dragged on until 2009). This type of civil action is all-encompassing and can cause companies to lose focus. In fact, Microsoft founder Bill Gates said the government’s action was such a distraction that it contributed to Microsoft falling behind in the smartphone market.
“There is no doubt that the antitrust lawsuit was bad for Microsoft,” he said in 2019. “We would have been more focused on creating the phone operating system, so instead of using Android today you would be using Windows Mobile.”
“I was just too distracted,” added Gates, who no longer works at the company. “I screwed that up because of the distraction.”
For Apple shareholders, hopefully CEO Tim Cook can learn from Mr. Gate’s mistake and not let the legal action be a distraction from keeping up in the fast-paced world of technological innovation and product development.
Our latest Opportunity Report was released on Wednesday. It features a micro-cap we believe to have multi-bagger potential. If you’re a paid subscriber, be sure you don’t miss it. If you’re not a paid subscriber, then make sure to read the introduction and see if you can’t guess the company for yourself.
Truth Social Stock Price Surges on First Day of Trading, Increasing Trump’s Fortune
https://www.wsj.com/finance/truth-social-stock-trades-dwac-trump-18a6cd74
Is Donald Trump-controlled Truth Social the ultimate meme stock? On its first day of trading shares surged as much as 59% before finishing up 16%, giving the company a market value of ~$8 billion. Not bad for a company that since 2021 has posted tens of millions of dollars in losses and in 2023 generated a paltry ~$5 million in sales (not a typo). That equates to a huge 1,600x price-to-sales valuation, which is, in truth, a shocking multiple—appropriate price-to-sales multiples can depend on many things including the stage of a company’s growth but anything over ~10x is usually considered excessive by the vast majority of investors. Compare that to also-unprofitable Reddit (which also went public this month) and has a market capitalization of ~$9 billion but at least generated $800 million in sales. Both Reddit and Truth Social are signs of froth in the market that gives us pause.
Adam Neumann makes conditional offer to regain control of WeWork
https://www.ft.com/content/670bf843-bb42-4743-bd68-d85ca36ab584
Speaking of froth and speculative excess, WeWork founder Adam Neumann was back in the spotlight this week as it was reported that he has submitted a $600 million bid to purchase WeWork out of Bankruptcy. This is a far cry from a company that was once valued at $47 billion.
California Restaurants Cut Jobs as Fast-Food Wages Set to Rise
https://www.wsj.com/business/hospitality/california-restaurants-cut-jobs-as-fast-food-wages-set-to-rise-eb5ddaaa
“A California state law is set to raise fast-food workers’ wages in April to $20 an hour. Some restaurants there are already laying off staff and reducing hours for workers as they try to cut costs.
California restaurants, particularly pizza joints, have outlined plans to cut hundreds of jobs in the months leading up to the April 1 wage mandate, according to state records. Other operators said they have halted hiring or are scaling back workers’ hours…
The coming minimum-wage increase for California fast-food workers at bigger chains represents a 25% increase from the state’s broader $16 minimum wage….
Economists have long debated minimum-wage increases’ effect on employment. A study by the nonpartisan Congressional Budget Office last December found that raising the federal minimum wage to $17 an hour from $7.25 by July 2029 could increase wages for more than 18 million people, but also could reduce employment by about 700,000 workers.”
This is a stark reminder that laws mandating employers pay certain wages have real world consequences if not implemented thoughtfully. Laws that are put in place even with the best of intentions (trying to protect workers) can actually hurt them instead.
The New Normal for Mortgage Rates Will Be Higher Than Many Hope
https://www.wsj.com/finance/the-new-normal-for-mortgage-rates-will-be-higher-than-many-hope-40a10162
“Interest rates are likely to come down later this year, with the Federal Reserve on track to start cutting rates. But mortgage rates might not follow as quickly.
That is because mortgages, and mortgage-backed bonds, just aren’t as in demand in financial markets as they were in the years before the Fed began to start to tighten in 2022. And they might not be for a while…
The yield gap between mortgage bonds and Treasurys is still around 1.5 percentage points, according to figures compiled by Bank of America. The typical spread a few years ago was around 1 percentage point.”
If the Federal Reserve goes ahead with decreasing interest rates, mortgage rates should decrease but not as fast as buyers looking for a home (or selling one) would probably like. Fannie Mae now expects 30-year mortgage rates to average 6.4% in 4Q 2024, a disappointing prognostication for prospective home buyers compared to 5.9% in Fannie’s prior outlook.
Interesting Fact:
40% of global fund managers think that artificial intelligence stocks are already in a bubble, according to Bank of America’s latest fund managers monthly survey.
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