Come on, *Financial Times*…please…?

You know, I love you FT, please do not go this route in your subheaders:

Can new proposed regulation curb the power of big tech companies that now control roughly 80 per cent of corporate wealth?

Here is the link itself, maybe gated for you, but I can assure you it provides no support for this “factoid” whatsoever.  There is a reference to “IP-rich companies” controlling all that wealth globally — come on, that “IP-rich” designation could mean anything, and it does not correspond to how most people understand the phrase “Big Tech”…and where does that stat come from anyway?  Which large companies would it not count?

Comments

Tyler -- probably worth noting that 'FT Transact' is quite distinct content to the rest of the publication. I *think* it's produced by a company called Alphagrid, which the FT now owns, and it's all about producing branded content. (Note the sponsor is UBS). Back in the day we used to call it advertorial, but it's a lot more sophisticated now. Perhaps it's more akin to lifestyle journalism for FT types. Or the Economist's 1853 magazine.

The FT has its own lifestyle magazine called "How To Spend It."

O trumpora, o mores.

As a certain “Brazilian” would say, has it come to this in America? The FT magazine should be entitled How to Save it, not Spend it.

The FT is a British publication, not an American one.

Largest companies by revenue are: Walmart, State Grid Corporation of China, Sinopec Group, China National Petroleum, Toyota, Volkswagen Group, Royal Dutch Shell, Berkshire Hathaway...and then Apple.

The ten largest corporations by assets are from the banking and finance sector, such as Industrial and Commercial Bank of China, Fannie Mae, China Construction Bank, Agricultural Bank of China, JPMorgan Chase.

Apples assets are around $400 billion - those big banks have assets in multiple trillions of $.

Berkshire Hathaway has assets of $700 billion, higher than Apple's.

The largest company by profit is ... Apple. Profit > Revenue. Also, assets of financial companies are actually liabilities. If I'm a bank and I make a $1MM NINJA loan to Joe Sixpack, then it shows up as an asset on my balance sheet. Textbook learning is nice but you econ guys really need to learn real world finance/accounting to even have a seat at this table.

'assets of financial companies are actually liabilities'

Not precisely, assuming positive interest on government bonds that most banks hold to meet reserve requirements. Assuming the government in question can be counted on not to default - the U.S. was seen this way decades ago, but several political events over the last couple of decades has called into question whether the American political system would be fundamentally able to avoid defaulting on its federal debt due to a political tantrum in Congress.

But that is almost a rounding error compared to a bank's loan portfolio, which is definitely a liability.

'assets of financial companies are actually liabilities' and 'bank's loan portfolio, which is definitely a liability.'

No and no. Assets are on the left side of the balance sheet and liabilities are on the right side of it.

The amounts of assets and liabilities are equal (hence, the term 'balance-sheet' and with the exception of the bitcoin ledger which piles up everything on the right side) but they are not the same thing, neither at banks, insurance companies nor at other types of companies.

That said, I agree that comparing the assets of Apple and the assets of a bank is utter nonsense, like comparing apples to oranges.

'The amounts of assets and liabilities are equal'

This is correct for double entry book keeping.

The problem with a bank and loans comes down to how to value the loan. A loan for 1 million dollars on the books for someone who will never pay it back is not an asset, even if the bank claims it is.

This is where double entry bookkeeping meets the real world - what is your valuation of your inventory, for example, and just how realistic is it? A lot of games can be played in this regard, and are - the costs are real, of course (the money has been paid out) but the expected return is in the future.

Not all loans go bad, obviously. But trusting a bank to value its own loans is a historically proven way to discover that in many cases, financial assets are not actually assets, but instead liabilities that were being hidden, on the other side of the ledger.

This is one of the primary reasons for reserve requirements - and how they are determined compared to the loan portfolio, which is not considered an asset in that perspective, but a potential liability.

To hopefully put it a bit better, a loan portfolio is considered to have potential liabilities that need to be covered, regardless of whether they are carried as an asset on a balance sheet. But yes, a responsible bank is assumed to have made loans that in general will not become liabilities.

If a loan receivable is uncollectible, it doesn’t “become a liability”, it’s simply no longer an asset. If your point is that assets will be overstated if collectibility is overestimated- that’s true, but it really has nothing to do with liabilities.

Thank you for clarifying an issue that is taught in every undergraduate accounting course and about which absolutely nobody here should be confused.

" The amounts of assets and liabilities are equal" [SNIP}

Incorrect.

Assets = Liabilities + Shareholders' Equity

Well to be fair it's not really even worth calling out assets, or revenue or even profits (and did you really say Apple's profits are greater than their revenue? That seems either some very special one time situation or just impossible like some perpetual motion machine).

Profits are better than the other two but assets have to consider liabilities, as you note, and revenue have to look at costs. Free cash-flow might be a better metric than revenue.

At the end of the day the problem is not there but with the ability of these artificial "people" whose entire existence is suppose to be to resolve a legal problem to promote economic efficiency in contract are given a seat at the political table. Moreover it's at every political table regardless of where the "person" lives.

Our political economy sucks because of that trend.

I believe that "profits > revenue" means "profits are more important than revenue in this context".

"where does that stat come from anyway?"

This may sound like science fiction, but I've heard rumors that a certain IP-rich company has managed to create some sort of devious device that enables folks - especially Russians, for some reason, but I'm told that even Americans now use it - to send all sorts of falsehoods to very many people. This might be a case of that?

Interesting that this is the target of the most direct criticism of anything that Tyler has offered in years.

LOL!

I LOVE IT! Tyler is getting mean. Real mean! MAGA is growing stronger and stronger within you pale, sickly, girly MR cucks. Let the hate flow through you!

The definition of Trump Derangement Syndrome should hereon be changed away from anti-Trump posters to reflect the state of mind of the average Trumpbot. Yes, DJT himself can be said to suffer from TDS.

Stop with your “pale-ism”. Do I not bleed when you prick me, burn when the sun burns me, etc? Let’s move beyond the pale.

I have half a mind to start an anti discrimination movement: power to the pallid. Quotas now! This oppression has got to end!

Don't mind him, his red hat is on a little too tight.

Demonstrating the total fail of economics as an intellectual pursuit over the past three to four decades.

To think Adam Smith titled a detour in moral philosophy "The Wealth of Nations". As he noted in his intro:

" ...upon the real wealth, the annual produce of the land and labour of the society."

Wealth is the production of labor, not any static thing, and unless humans are property, real wealth can't be owned or controlled.

In the context of the idea a few corporations represent fantastic wealth, I point to Sears, which in my youth was the most powerful retailer in the world, having expanded from selling watches mail order into the everything in the world retailer that had gone from mail order to include brick and mortar, able to offer everything to everyone, no matter where they lived. As symbol of its tech power, it built the Sears Tower, the tallest building in the world for a quarter century, and the US until a few years ago.

I could name others. Many that vanished, after often a century of greatness, in almost a blink of time.

Their passing had no impact on the wealth of this or any other nation.

Their passing had no impact on the wealth of this or any other nation.

That is not true. When an efficient retailer is driven out of business by even more efficient retailers, we all get richer. Sears managed to offer a wide range of customers a lot of goods at cheap prices. Now Ebay and Amazon are offering even wider ranges of goods at even cheaper prices. Hence we all benefit.

It seems to be actual fake news nested within a bank-sponsored, pseudo-PSA about the dangers of fake news...

The US patents office has defined "intellectual property intensive" companies which includes software + database companies. Other companies under this definition are the publishers or music, books, news, advertising and the arts. No problem using the term to describe Apple and Google.

But, do publicly traded companies really control corporate wealth? I remembered this research where UBS in on the top10: https://www.newscientist.com/article/mg21228354.500-revealed--the-capitalist-network-that-runs-the-world/

MRU videos are an oddity in terms of quality. ~99.999% videos are trash. Some wise guy said " the medium is the message".

McLuhan was wrong, though.

The medium most certainly isn't the message, and it's ludicrous that people believe that.

The FT, like many media companies, are now mining their reputation via click bait articles and advertorials. Maybe short term cash flow is better for their shareholders than investing long term by employing knowledgeable writers. The problem with the latter strategy is that there is so much well informed content out there (like this blog) that it is hard to get people to pay for it now. The mistake that Tyler makes is to treat the FT as though it were 30 years ago, when they were one of very few sources of intelligent opinion. I used to think that someone who didn't read a daily newspaper would be an ill informed person, now if someone tells me they read a paper daily I downgrade my opinion of their intelligence.

There is something to this point of view -- I wonder how much worse off i would be if i just read this blog and nothing else

you'll miss a good fraction of MR since there's lots of links to nyt, wapo, ft & the economist.

Mark Twain: If you don't read the newspaper, you're uninformed. If you do read the newspaper, you're misinformed

I can't access the article, but I assume by "corporate wealth" the author is referring to total capitalization. The significance of it is both encouraging and discouraging: it's encouraging that investors are drawn to big tech (i.e., the future), but it's discouraging because it confirms that investors are generating large returns by inflating financial asset prices. I should point out that big tech avoids taxation on much of its income by exploiting loopholes that have allowed big tech to deflect large portions of their income to tax havens (e.g., by placing patents in a file drawer in the tax haven and apportioning income to the patent) and today's conservative politicians' hatred of taxes especially taxes paid by the wealthy. I should also point out that the value of big tech is largely based on blue sky rather than production of goods by a combination of productive capital and labor, so the value is susceptible to sudden and large fluctuations. Of course, Cowen, being a big fan of big tech, likes what's encouraging about big tech (the future) and what's discouraging about big tech (above all else the disruption but also avoidance of taxes and government regulation). To emphasize my point, consider Tesla, a tech company that also relies on the production of goods (electric cars) with a combination of productive capital and labor. How's that going? There a reason why big tech is putting distance between big tech and the production of self-driving cars: producing well-made goods is hard, much harder than the collection and exploitation of data.

This has been going on for a while. FT quality has fallen as they pick on tech without reason aside from supposed "power".

They've gone from nineties neoliberalism to sophomore leftism.

“They've gone from nineties neoliberalism to sophomore leftism.“

In this they resemble the current Democratic Party, and more’s the pity.

If you changed "Democratic" to "Republican", I'd agree. Trump's Twitter feed reads like a teenage drama queen.

Fake news FT. SAD!

Major broad market stock indices might be a good proxy for the percent of "corporate wealth" controlled by "big tech companies".

This source lists the following:

S&P 500 ----- 23%
MSCI World--- 16%
FTSE Global Allcap--17%

https://datatrekresearch.com/index-weight-watching-in-2018/

Cowen is correct. At the least, if one--and, in particular, a journalist-- is going to use his own special definitions for "big tech" and/or "corporate wealth" you are duty bound to disclose them.

I don't read FT. I didn't read the article.

I read Barron's, some of the financial news, and my statements.

What does corporate "wealth" mean?

Since I asked, I'm telling you it's market capitalization: The current, quoted stock market value of the corporation's outstanding stock (Stockholder's equity) on the financial statements.

The 80% I've seen bounced around is nearly 80% of the market indices' recent run-up is concentrated in eight or ten, mainly large tech companies. Let that sink in. The concern is the concentration and how the market may react if there's a blip in one or more.

It's not the tech companies' fault. I think it's the current stock market's retreat from fundamental investing principles. As in: stock market price is the estimated (assumptions, forecasts) net present value of future earnings per share.

I also saw that 80% of recent IPO's had not posted initial profitable operations.

I think stuff like this was happening and ignored in the run-up to the dot.com bubble bursting.

The only ways I can think of to even back out a number like that would be to see what share tech stocks have of total enterprise value or market cap in the top 10-50 stocks.

I have subscribed to the FT for over 20 years and it seems like it has really gone downhill. Most of the opinions are trite and you can find random stuff on the internet that is more thought provoking. The US reporting is quite distorted and there is not a single columnist who has much original to say. I only renewed it this year because they gave me some super bargain rate. I will probably skip it next year.

I subscribe to the FT. I've been wondering about the quality trend of the FT myself lately. To be fair, I have exactly the same problem with the WSJ and NYT. Netflix, Hulu and Amazon Prime video on the other hand are getting better.

Would love to know what you think of FT's Alphaville blog. In my opinion they are the worst producers of this kind of lazy, careless criticism of anything vaguely under the banner of 'tech'.

FT Alphaville: Izzy Kaminsky rocks.

It's entertaining. Informative sometimes.

Laughed a lot during Brexit bashing period. Liked the coverage of Uber self-employed Vs employees ruling in the UK. Chuckling at periodical crypto news. Currently enjoying Tesla's meltdown.

What's wrong with being a bit conservative and risk averse?

If Tesla is melting down someone needs to tell the stock price.

'Buy it on the dips!'

;)

ps https://hbr.org/2015/04/why-tesla-wont-be-able-to-scale WHOOPS!

The irony is that the concern of "fake news" and the call for greater regulation of "big tech", is that it's done under the guise of preserving democracy. The video starts off "it's not just a threat to media, it's a threat to democracy".

However the whole premise underlying this concern with fake news is itself anti-democratic. The notion that it's a threat to democracy is premised on the conclusion that citizens are incapable of distinguishing truth from falsity, that citizens need to have government regulators mandate that tech companies filter out certain types of information to avoid misleading citizens to drawing false conclusions about the world. This is dangerous territory. Even if you make the unrealistic assumption that regulators will be able to get it perfectly right on what types of information should be blocked and what shouldn't, this enterprise cuts against the most basic premise of democracy, i.e. that citizens are capable of determining for themselves how the world is and how the world should be - they don't need government officials to tell them that. Virtually every type of content contains varying degrees of truth or not, and will inevitably influence people's outlook on life or their values in various ways - whether you're talking about a novel, tv show, newspaper articles, political commentary or campaign ads. One cannot in good faith entrust a citizenry to exercise the right to determine public affairs via the right to vote but not entrust them to determine for themselves what is true and what is not.

I was an FT subscriber for many years, but found recently that their standards had fallen and there were few articles of any use. Like many "newspapers," FT is now full of content-free commentary posing as information.

Now with the repeal the of Net Neutrality see what happens with these tech-giants.

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