Scott Galloway and John Zolidis on Meta Platforms; 60 Minutes interview with Jerome Powell; I finally finished the new book on Ray Dailio and Bridgewater

1) I was pounding the table on Meta Platforms (META) in late 2022 when shares were in the $90s – publishing a six-part series beginning on November 1, 2022. I've remained bullish ever since, as the stock has skyrocketed by more than 5 times.

I wasn't the only one who nailed it – so did my friend and NYU marketing professor Scott Galloway, who just published an insightful analysis of it in his weekly blog post: METAstasis.

Galloway argues, correctly, that Meta's fourth-quarter earnings report last week (here's a summary of the highlights of the conference call) was "one of the most impressive quarters in business history." He adds:

In the past year, Meta has added three Netflixes to its market cap. On Friday alone, it added the value of Shell Oil – the biggest one-day increase in market capitalization in history...

The most impressive feature of the results isn't the top-line growth, but the company's headcount. Specifically, the reduction in headcount. Meta has laid off nearly one-fourth of its workforce, a disruptive and costly process. General Motors, in an effort to stave off bankruptcy in 2008, laid off a third of its workforce. Obviously, any firm laying off a quarter of its employees is desperate, right? Wrong. Instead of declining, Meta exploded, adding the value of 30 (2008) General Motors in one day.

To the best of my knowledge, no business of this size has ever increased revenue by 25% while shedding 25% of its employees. As it paid only 17% in taxes on the quarter, the company's earnings per share tripled from $1.76 to $5.33. Meta, suddenly having more money than management knew what to do with, announced a $0.50 quarterly dividend and a $50 billion stock buyback.

But Galloway isn't seduced by Meta's financial performance...

Like me, he recognizes that it's in part due to the company being a bad actor:

However, there's a glitch in the Matrix. At first unwittingly and then undeniably, Meta's products have become the most elegant and powerful hate machine known to man. A machine unfettered by the friction of humans deciding if the firm should send images of nooses and razors to a 14-year-old girl consuming videos on self-harm. AI, as instructed by the Zuck, will likely make things worse, not better. Like by like, and comment by comment, the machine divides us and makes us despise others and ourselves.

The Wright brothers invented flight, but Boeing scaled it. Enragement was not invented by Mark Zuckerberg and Sheryl Sandberg, but they scaled it... to over half the planet. Nearly 4 billion people use a Meta service over the course of a month, so in any 30-day period, almost half the planet loses a friend over politics on Facebook, gets taken by a crypto scheme on WhatsApp, or learns how to induce post-meal vomiting on Instagram.

He also shares some truly scary charts – and notes that while Facebook and Instagram aren't solely to blame for some big problems, they're a major contributor:

The negative effects of social media are well documented, and I've written about them before. The most concerning problem is what these platforms do to our children. When the mobile phone put Facebook and [Instagram] into every teen's hands 24/7, loneliness and suicide data began a steady march upward. In a survey of 1,024 young people, almost half "have become withdrawn, started exercising excessively, stopped socializing completely, or self-harmed because they are regularly bullied or trolled online about their physical appearance."

The suicide rate among 13- to 17-year-olds has doubled since the iPhone put social in their pockets. If Julia Roberts, one of the most beautiful women in the world, posts a picture of her with her niece and receives hundreds of comments disparaging her looks, what chance does a teen girl have to get through adolescence unscathed?

Galloway concludes, again correctly, by calling on Congress to act to rein in Meta and other social media companies (additionally, he and I have both called for the government to immediately ban Chinese-controlled TikTok until it's 100% U.S. owned):

This Congress has been historically unproductive, but when it comes to regulating social media, inaction is par.

In the late 1990s, before tech had a major presence in D.C., Congress established limits on online services to children under 13 and the distribution of potentially harmful content. Those days are gone. Since 2017, Congress has held 40 hearings on children and social media and passed nothing. Democrats and Republicans have introduced legislation, including to age-gate social and to reform Section 230 (which immunizes internet platforms from most litigation), but nothing gets done.

Senator Durbin had it right: "The tech industry alone is not to blame for the situation we're in. Those of us in Congress need to look in the mirror."

2) Regarding Meta's stock, I agree with John Zolidis of Quo Vadis Capital – whose excellent pitch for discount variety retailer Dollar Tree (DLTR) I covered in Friday's e-mail – that long-term-oriented investors should still hang on to shares.

Here's his recent post: Why we aren't selling META. Excerpt:

I'm not selling near $500 and I didn't sell any near $100. I didn't sell any at $385 in 2021. The reason for not selling is unchanged. It's our investment thesis: The long-term potential to monetize META's four billion monthly active users is truly enormous AND the company is only in the very early days of profiting from its user base.

Think about the lifetime value of these customer relationships. Also, think about how hard Facebook has tried to screw it up. Think about how much the media likes to heap shame on the business and management. How many times has poor Zuck been called to Congress to explain to lawmakers that Facebook makes money "by selling ads"? If the business can survive all that plus billions in losses to build in a fantasy-verse that will remain forever empty, surely this is one of the most anti-fragile companies ever created.

Also worth noting, when we started buying META shares (then going under the FB symbol) the monthly active user base was "only" 2.5 billion. I had no expectations it would grow. Here we sit today at 4 billion. The limit has not been reached. The value of META's customer relationships continues to increase.

3) I enjoyed this in-depth interview 60 Minutes did with Federal Reserve Chair Jerome Powell on February 1:

You can watch it or read the transcript here.

In the interview with anchor Scott Pelley, Powell clearly articulates the tightrope the Fed is walking. Here's an excerpt from the transcript:

PELLEY: You've avoided a recession. Why not cut the rates now?

POWELL: Well, we have a strong economy. Growth is going on at a solid pace. The labor market is strong: 3.7% unemployment. And inflation is coming down. With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully.

And, you know, we want to see more evidence that inflation is moving sustainably down to 2%. We have some confidence in that. Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.

PELLEY: What is it you're looking at?

POWELL: Basically, we want to see more good data. It's not that the data aren't good enough. It's that there's really six months of data. We just want to see more good data along those lines. It doesn't need to be better than what we've seen, or even as good. It just needs to be good. And so, we do expect to see that. And that's why almost every single person on the, on the Federal Open Market Committee believes that it will be appropriate for us to reduce interest rates this year.

PELLEY: When?

POWELL: Well, that will depend on the data. You know, the best we can do is to weigh the risk of moving too soon against the risk of moving too late and make that judgment in real time. So that time is coming, I would say, based on what we expect.

The kinds of things that would make us want to move sooner would be if we saw weakness in the labor market or if we saw inflation really persuasively coming down. The kind of things that would make us want to move later would be if inflation were to be more persistent, for example.

Overall, this reinforces why I remain constructive if not outright bullish on stocks.

If the economy remains super strong, the Fed will delay rate cuts – but strong corporate profits will boost stocks. If the economy weakens, the Fed has lots of room to cut – which will also provide a tailwind to stocks.

4) I recently finished listening to Rob Copeland's new book, The Fund: Ray Dalio, Bridgewater Associates, and the Unraveling of a Wall Street Legend, about the founder of the world's largest hedge-fund firm.

I've written many times about the book and what it reveals about Dalio and Bridgewater based on reviews. But after finally listening to it in its entirety, it's even worse than I could have imagined.

Copeland makes a strong case that Dalio is a malignant narcissist and that his firm is a bizarre cult of personality.

Why any investors remain with Bridgewater is beyond me...

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.