Meta’s Global Data Cable, Holiday Returns, U.S. Investment Boom, and Bitcoin’s Big Milestone

Greetings folks and a warm welcome to the 19th Edition of Friday Finance Weekly. Apologies for missing the last 2 weeks, but I am back for the home stretch. Great news about the rate cuts, and it seems like the Bank of Canada will continue on this path. The Canadian dollar, unfortunately, needs to change its name to the Canadian Peso. Let’s bite the bullet and all switch to Bitcoin.

Meta-owned platforms (Facebook, Instagram, and WhatsApp) account for a whopping 10% of all fixed and 22% of all mobile traffic worldwide. To ensure it has a reliable infrastructure to support future growth, the company is considering a massive investment in its own data transmission infrastructure of its own. Once installed, the cable would give Meta a dedicated pipe for global data traffic.

According to TechCrunch, Meta plans to build a new fiber-optic subsea cable network spanning more than 40,000+ kilometers. While the project is still in its early stages, a starting budget of $2 billion has been proposed, and the full build-out cost is expected to be closer to $10 billion. The project timeline is expected to multiple years; however, no physical assets have been installed as of this writing. It’s expected that Meta will disclose more project details, such as the intended route, capacity, and rationale for the undertaking, sometime in 2025. For now, speculators believe the motivation is threefold:

1. Sole ownership of the network would ensure that Meta has priority over capacity to support traffic from its various platforms. Furthermore, with the majority of Meta’s revenue being generated outside of its home market, ownership of its own infrastructure would help ensure the quality of service on its foreign traffic.

2. In recent years, subsea cables have been targeted by terrorist groups and hostile foreign governments. China, Russia, and Houthi fighters backed by Iran have each been accused of tampering with or damaging subsea cable networks. The route envisioned by Meta is intended to avoid areas of geopolitical tension.

3. A third potential reason could be that Meta is seeking to capitalize on India’s cheaper cost of compute bandwidth by investing in data center capacity in the country, specifically for training AI models. A subsea cable network terminating in India would play a major role in that effort.

This is all looking like the start of Snowpiercer, and it even has the W. Meta is starting to act as a utility provider, and I think it’s a great business model. It’s also clear that, with Trump coming into power, large groups like Meta are trying to avoid China. Considering the impending breakup of TikTok, I wonder if China and the West will part ways and have separate social media ecosystems. (Source: TechCrunch)

According to the National Retail Federation (NRF), the total sales revenue achieved during the 2023 holiday shopping season amounted to $964.4 billion in the U.S. alone. This year, the NRF is forecasting growth of between 2.5% and 3.5%, resulting in a record $989 billion in expected holiday sales. Unsurprisingly, the overall retail total has been massively assisted by growth in the online shopping sector, which is expected to account for $295 billion (30%) this year.

With the rise in online shopping, a major challenge has emerged: what to do with merchandise returns?

• Per Happy Returns, nearly 67% of consumers participate in “bracketing,” a practice that involves purchasing multiple sizes or colors with the intention of returning certain items.

• Per Optoro, roughly 69% of consumers admitted to “wardrobing,” or buying an item for a specific event with the intention of returning it afterward – a 39% increase from 2023.

• Roughly 46% of shoppers admitted to returning goods multiple times per month – a 29% increase from 2023.

With the average cost of processing a return being roughly 30% of the item’s original price, these behaviors have a meaningful financial impact on the retailer’s bottom line. From an environmental perspective, the additional emissions created through the process of returning, repackaging, restocking, and reselling (in some cases overseas) are perhaps even more concerning. According to the EPA, many returned goods are sent straight to landfills, along with an estimated 46% of all packaging used. In 2023 alone, returned goods created an astonishing 8.4 billion pounds of landfill waste.

These statistics are forcing most retailers to re-evaluate their policies and implement reverse logistics strategies, with 86% of surveyed retailers stating the issue was a priority. These strategies include offering the ability to return goods without packaging or labels, diverting like-new goods to other recommerce channels, and consolidating shipping for returns. Larger firms like Amazon and Target have even resorted to a “keep it” policy, offering refunds without taking the product back. I think companies like Amazon should start charging for an unlimited return policy and limit the number of returns on regular Prime. (Source: NBC News, Optoro, National Retail Federation)

Despite political turbulence and a growing perception of dysfunctionality, global investors continue to flock U.S. financial markets like moths to a flame. In the 1980s, the U.S. accounted for approximately 30% of the leading global stock index which has since increased to roughly 70%. Relative to its 27% share of the global economy, the U.S.’ position in global equities is clearly outsized. While the gap is commonly justified by tangible factors like superior earnings power, global reach, and a leading technology sector; a disconnect clearly exists and will eventually need to be reconciled.

The ever-growing thirst for “American Exceptionalism” isn’t the product of a single factor like Trump’s election victory or AI mania, nor is without basis. For example, on indices that weight stocks equally, the U.S. has outperformed the rest of the world by more than four to one since 2009. However, even at the height of the dotcom bubble in 2000, when U.S. stocks were more expensively valued than today, those shares traded at a much smaller premium relative to other foreign markets. While the U.S. economy is indeed growing faster than its European and Japanese counterparts, it lags many developing nations despite commanding the highest premium since 1998.

A similar pattern has emerged in the $13 trillion global debt and private markets sector, with the U.S. now attracting over 70% of all new capital flows. So far in 2024, U.S. debt has attracted foreign capital at an annualized rate of $1 trillion, which is nearly double the amount flowing into the Eurozone.

While conventional wisdom asserts that fundamentals drive prices and sentiment, we may have reached a point where sentiment has began driving fundamentals. To quote Ruchir Sharma, a columnist for the Financial Times, “America is over-owned, overvalued and overhyped to a degree never seen before.” But will that change anything, No! Especially after Trump said he would declare war on the BRICS if they stopped trading with the USD. (Source: Financial Times)

The price of a single Bitcoin reached (and then quickly exceeded) $100,000. The new milestone caps off an extended bull run, which has seen more than a doubling in the coin’s value since January, when the first Bitcoin ETF was launched. With a current market cap of over $2 trillion, BTC/USD now reflects the seventh-most valuable asset in the world – topping the likes of silver, Meta Platforms Inc., and Saudi Aramco.

Prior to reaching its new milestone, Federal Reserve Chair Jerome Powell reiterated that he considers BTC a true competitor to gold. Also on Wednesday, Trump announced crypto advocate Paul Atkins for SEC chair, while more pro-Bitcoin regulators are expected to be appointed to other positions. The news led to intense buying pressure over the following 24 hours, with institutional investors reportedly acquiring 700,000 units via ETFs. Conversely, BTC bears suffered short liquidations exceeding $134 million over the same 24-hour period.

Another notable trend accompanying the friendly regulatory rhetoric has been the resurgence of demand for Bitcoin-backed loans. The crypto debt sector was hit hard in 2022/2023 when a series of market participants went bankrupt due to ill-advised loans and a sudden dip in the price of BTC. While the industry is still significantly smaller than its heyday in 2021, Galaxy Research estimates that crypto lenders currently maintain roughly $36.8 billion in loans – nearly triple the amount relative to September of 2023. What's the difference between investing in Bitcoin and getting married? If your marriage fails, you only lose half of your wealth.

(Source: Coin Telegraph, Bloomberg, Morning Brew)

Have a fantastic weekend and please don’t hesitate to forward this to friends and family.

Many thanks,

Sam