Tech giants in line of fire

Much excitement on Wall Street after Jeff Bezos surprised fans by revealing Amazon Prime in the uS has more than 100m paying members.

The push into entertainment is underlined by the reopening this week of hollywood’s culver Studios – where citizen Kane and Gone with the Wind were filmed – as the new site for Amazon Studios after an £8.5m restoration.

The pervasive role of the ‘FANG’ giants – Facebook, Apple, Netflix and Google – on the global economy made a guest appearance at christine Lagarde’s opening press conference at the International Monetary Fund (IMF) spring meeting amid all the dire warnings on debt and trade.

She was unsettled by their power and influence and called for more competition and disruption in the markets they dominate. The IMF managing director stopped short of calling for a break-up, in the manner of Standard Oil and AT&T in the past, arguing that such action would be tricky since most of the value is in intangibles.

That is not strictly true. Amazon owns the biggest logistics system in the world, dominates the cloud and has bought physical enterprises such as Whole Foods. Google owns most of the power generation in Nevada to drive its servers, and so on.

World Bank president Jim Yong Kim described Alibaba, china’s internet champion, as a force for good because it has given small firms instant access to cash.

All very laudable, no doubt. But the overwhelming reach of the FANG stocks and the lack of accountability is the issue.

Amber signals

ThE IMF’s global stability report is good at picking up vulnerabilities in the financial system. But, as with sub-prime mortgages, you can almost guarantee the analysts producing it will miss the ticking time bomb.

Several feature in the document: the Vix volatility index which wreaked havoc with equities in February; crypto currencies, such as bitcoin, which justify a section all of their own: collateralised loan obligations (cLOs) which are bundled-up, highly leveraged debt sold to fund managers. So what do they make of them? The ‘Vix tantrum’ showed that a financial product designed to protect investors from excessive volatility did precisely the opposite and left some exchange-traded funds and other products nursing losses.

Not quite what was intended. The best that can be said is that when it all went pear-shaped, market mechanisms coped.

The IMF and other regulators are in two minds about crypto currencies. They like the distributive ‘block chain’ ledger concept but worry there are too many cowboys involved and that the currencies have been exploited by fraudsters and money-launderers because of light touch regulation.

They cannot be regarded as real money because their use as a medium of exchange has been limited, and volatility makes it unreliable as a reliable unit of account.

The fund says there is little to worry about since bitcoin and its sisters only represent 3pc of the combined balanced sheets of the biggest four central banks. Maybe, but for the uninitiated that sounds quite large.

cLOs appear most dangerous. Some 57pc of the leveraged loans for buyouts and other speculative activities valued at £349bn have been bundled up into cLOs and sold to fund managers in much the same way as mortgage securities were sold off to banks before the crisis.

Not a happy prospect for innocents who may have life savings and pensions tied up in such products.

Beware!

Polman’s last stand

uNILEVEr’S claim that it was logical to move its share quote to the Netherlands because that is where most of the ownership is based was always perverse.

What is certainly true is that the AngloDutch giant is safer under the broader takeover protections offered in holland.

The reality is that uK shareholders, having supported chief executive Paul Polman when the company came under siege from Kraft-heinz, deserve better.

A one-off share buyback of £5bn is a nice gesture but misses the point.

Shell did the right thing when it kept its main share quote in London after unifying the uK and Dutch share registers.

The London markets are more liquid and accessible to global investors and that is where the shares should be quoted.

Polman’s final act should not be a retreat.