🌎 Flames on Facebook's empire? | Wanted: £50 billion | The final nail in Venezuela's coffin
December 11th, 2020
Covid-19 was probably the most overused buzzword this year, but IPO has also risen to the top of the word ranking.
It is no surprise, since “IPOs” have saturated the headlines this week. DoorDash shares soared 86% in their first day of trading on Wednesday! Without pause, another even bigger IPO Party... Airbnb went public yesterday, where shares more than doubled (up 113%), propelling the home-rental company to circa a $100 billion valuation and one of the biggest first-day gains on record.
Perhaps you might be wondering, or the devil day-trader inside you, are these shares too hot to touch?
Did You Know...
The first modern IPO occurred in March 1602 when the Dutch East India Company offered shares of the company to the public in order to raise capital. In the U.S, the first IPO occurred almost 200 years later, in 1783.
Do you know which U.S company was the first to “go public”?
Zuckerberg's Empire under Threat
Facebook’s head is firmly on the chopping block as The U.S. Federal Trade Commission formally filed an antitrust lawsuit this week, in an effort to break up and divide the technology giant. The Commission is accusing Facebook of exploiting its monopolistic powers in order to drown out competition.
The Commission has placed Facebook on the stand regarding its acquisition of Instagram for $715 million in 2012, and the $22 billion deal of WhatsApp in 2014. These two proposals, having initially sailed past regulators, were maliciously designed to crush other market participants.
This poses an existential crisis to Zuckerberg’s social media empire. A forced break up of this loving threesome would threaten Facebook’s long-term value. Instagram is estimated to generate $28.1 billion of revenue in 2020, or 37% of Facebook’s total ad revenue.
Although Instagram would arguably flourish if divested from Facebook, the same could not be said about WhatsApp. Over the last six years, WhatsApp has been focused on growing its user base, developing reliability and encryption, not on generating revenue and profit. This was only thanks to Facebook’s robust and reliable ad revenue, which paid for WhatsApp’s expenses. WhatsApp is in the midst of development, and without Facebook’s deep pockets, it will be left exposed and incapable of remaining afloat.
Zuckerberg acquired these rival platforms with the understanding that Facebook would one day fade, just like MySpace and Bebo did. Pew Research discovered that only 51% of teenagers (13-17-year-olds) claimed to still use Facebook in 2018. Instagram, however, remains in the spotlight being used by 72% of U.S. teenagers.
To state the obvious, Facebook has seen its heyday, and without Instagram in the fold, its future is looking pretty grim. Facebook would ultimately be forced to rebrand or create a new product that appeals to Gen Z and the sought after “influencers”; something it has failed to do so recently.
FX | The DXY which tracks the U.S dollar against a broad basket of major currencies plummeted to the lowest level since April 2018 as global risks eased. The index has traded in a narrow range from 90.8 to 91.07, making the greenback the worst-performing major currency in the world.
The Questions You NEED To Ask When Investing Overseas
You found an investment opportunity that you think is perfect! You love the potential returns and maybe your financial advisor has said you need diversification, but the difficulty is, that this opportunity is domiciled in a foreign territory and furthermore denominated in a foreign currency.
If you decide you want to move forward whatever your reasons, there are key questions that you need to ask to ensure a successful outcome for a cross border investment.
The Bank of England called to account for over £50 billion in missing banknotes
A parliamentary committee reported last Friday that of the £70 billion worth of cash in circulation in Britain, 50 billion has gone “missing”; either under our mattresses, buried in the garden or laundered off into the Ozarks. And to top it off, the Bank of England hasn’t appeared to have raised an eyebrow.
While the Brits are carefully counting every penny trying their best to weather the storm, the central bank is apparently struggling to account for 70% of the country’s cash supply. The parliamentary report noted that only about a quarter of the cash supply was being spent in local stores, which left the majority of tenders unaccounted for.
Meg Hillier, chair of the Public Accounts Committee, has condemned the Bank of England stating that “three-quarters of this precious and dwindling supply, but the Bank of England doesn’t know where should” and should "get a better handle" on the situation.
The Bank of England rebutted the accusation that it was taking a laissez-faire approach, stating “Members of the public do not have to explain to the bank why they wish to hold bank notes. This means that bank notes are not missing,”.
Different theories are popping up across the nation. Some believe that the £50 billion is being used for illegal Breaking Bad type activities such as money laundering in the underground economy. Others believe that the £50 billion in cash may have been smuggled out of the country or has been squirreled away for the winter.
Another theory being thrown around is that due to interest rates having been so low for so many years, “it doesn’t really matter whether you keep money in the bank or keep it in cash,” stated Andrew Sentance, former member of the Bank of England’s monetary policy committee, and so “a lot of people will have more cash in their wallet than they usually have.”.
FX | All back and forth over the prospect of a Brexit deal continue to infuse volatility into the FX market. The annual volatility in the GBP/USD pair stands at almost 11%, the highest value amongst the major currencies.
The Final Nail in the Coffin for Venezuela
A little more than a year ago, Venezuela's President Nicolas Maduro's political survival seemed to be hanging by a thread. Juan Guaidó was making noise, gaining international support from many countries, which quickly backed him as Venezuela’s legitimate leader and tens of thousands of people came out onto the streets to support him too. But in the time since, Juan Guaidó's popularity has plummeted and the international support has flaked away.
As a result, President Maduro is still in Miraflores Palace, and now, after a sham Sunday's parliamentary election, he won total control over the country’s legislature, the National Assembly(AN), and fully consolidated his regime's grip on power in the country.
The election was seen widely by the international community as fraudulent, since it was held without the minimum guarantees for a democratic process. That’s because Maduro contested the elections practically alone, after the main opposition leader, Guaidó, boycotted the event, which led to just 31% of the country's 20 million registered voters to participate in the elections.
The rumors in the Miraflores corridors were that opposition politicians would be jailed after the 5 of January because they're thieves, drug traffickers, traitors to the fatherland...maybe Guaidó and his team just were rational and ran away!
While Maduro proclaims himself the savior and makes promises to recover the country, the economic crisis has led to the largest immigration process in the region, with more than 4.5 million people leaving (fleeing) the country (Fig 1).
Figure 1. Escape from Venezuela to the world
In the US, President-elect Joe Biden, who has made clear he views Mr Maduro as a "dictator", seems unlikely to break with the Trump administration's view of these Venezuelan elections as "undemocratic".
Although the international community alleges fraud and accuses Maduro of being a tyrant, he will continue to be in charge and, now, with unlimited powers over all public institutions...Unfortunately, the outlook remains obscure for Venezuela.
“And what of the opposition? There's no opposition here, just God.”
FX | The Venezuelan bolivar is pegged to the U.S dollar at 248,832, with the annual inflation for the country is around 80,000%...Worth more as craft paper than as money. No more comments on this note.
In Other News
Currency Heat Map
This chart shows the relative volatility between currencies. The redder the color, the higher the volatility.
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Quiz of the week
The first IPO was the public offering of Bank of North America around 1783.