The term “FANG” refers to the four popular technology stocks: Facebook, Amazon, Netflix, and Alphabet (Google). Just about everyone with an employer-sponsored IRA owns these stocks through the mutual funds and ETFs in their portfolio. The acronym FANG makes a word (fangs) that conjures up images of predators ripping apart their prey. So far, these companies, and companies like them, have done a stellar job of ripping up the stock market and making every other business look inferior. They have reigned for more than a decade, and it appears they can never ever fall.
But let’s look closer at why the last twelve years of money printing, credit expansion, and monetary debasement have made these companies so resilient and relevant. After all, they do not produce anything tangible and their services are mostly free. What they have been utterly successful at creating is popularity, and popularity is what has given them power. Since money has been cheap and easy for so long, profits have become less and less relevant in the stock market. I mean, what is popular is not about production or profits. It’s not about making things—it’s about consuming. None of the FANGS require us to get out of our pajamas and leave our homes, and all of them have made their fortunes by offering something for nothing. They have found a way to be free and/or cheap and easy in a consumption-driven economy.
The FANG business models represent what Americans have valued during this era, and what most empires value at the end of their reign: free money, never-ending debt, not producing, and not leaving the comfort of home to do anything “productive.” America values consumption. Americans have figured out how to make all kinds of money without producing—gaming the stock market, gaming the system, gaming consumers, gaming the media, more and more. They’ve made careers out of it. This is all possible because Americans value what is free, cheap, and easy. The Fed enables this way of life, and those companies who make “free”, “cheap”, and “easy” get likes and a thumbs up and huge stock valuations, regardless of their ability to produce or turn a profit. They can always borrow more money for almost nothing, so it has never been an issue. Anyway, let’s take a look at the models.
- Facebook makes its money from advertising, and selling user data, by offering a platform for people to network with each other for free. Think of the platform as the free worm, users are the fish, and companies buy the fish to eat. Facebook’s “real” customer is not the people who use Facebook to network with other people; it’s the companies that pay Facebook money to advertise real products and real services on their free and popular consumer platform.
- Amazon makes its money as the middleman between producers (many Chinese) and retail customers who want low cost goods delivered to their home for free. Let’s not discount the Chinese as part of this business model. It’s the Chinese who produce cheaply, not the Americans, and aren’t the US and China in a trade war? Maybe the “F” in FANGs should stand for “Free” because that’s what Americans have valued the most. “Give me free and cheap, or give me death!”
- Netflix makes its money as the middleman between film-television and retail customers, by providing in-home entertainment. It’s cheap, driven by consumption, and you don’t have to get out of your pajamas to use it. Who doesn’t love plopping down on the couch with a big bowl of popcorn and a great flick? They also offer free monthly trials which you can cancel at any time.
- Google – Like Facebook, their entire platform is built on advertising and selling user’s data in exchange for free technological services (keyword searches, email accounts, cloud, etc.). I have a gmail account that I take for granted, and I search up Google every single day. If you were around when Google grew up, you know that it was totally driven by what is free!
So America’s most valuable companies are those which are free to the consumer. The real customers are then businesses looking for ways to reach consumers who have money to afford their goods and services. These glorious FANG business models were enabled by a low-interest-rate environment and a Fed who can turn on the printing press whenever it wants. How will these business models hold up during a depression and sovereign debt crisis? I imagine people will still use free and cheap services, but if big-bubble debt-burdened companies aren’t able or willing to pay for advertising, and if people who value “free” have lost 40 million jobs, then how will Facebook and Google make money from companies? How will these business models then function in the new world that will soon need to value production instead? Will they be nationalized or replaced? Or will people be willing to pay real money for their services, since there won’t be value in advertising.
The trillion-dollar question is how will America survive if nobody wants to get out of their pajamas anymore and work? If everyone continues to borrow from the future to “consume” today? Will China continue to produce cheaply in return for dollars that can be printed and debased at every whim? Will other nations keep lending to America to finance “free” and “cheap” everything? Over the past decade, you could get away with not thinking and still make a ton of money in the stock market, which has become a casino. All you had to do is buy and hold what everyone else was buying and systematically buy the dips, a popular investment strategy. This decade, however, is not going to be the same. I suspect that real goods and services, which were pushed down by monetary debasement and toxic fiscal policies, will rise against a falling dollar. Other “new” and improved companies will give birth to what people need and what they can afford.
It’s time to put on your thinking cap, and ponder carefully the coming new world. Don’t cling to strategies that worked in the past, thinking things will never change. Wake up! We’re in a whole different environment that people haven’t figured out yet. Watch, read, and listen. Share your thoughts and ideas. Now is a time when great entrepreneurs will rise up while unprofitable frauds and fakes will crumble and go away (when the Fed loses all control). Now is a time for opportunity and change, new leadership, and rebirth. Pay attention. Stay alert. And most importantly, think! Those who are comfortable with change, who embrace change, who are flexible and adaptable, who can see the future through all the smog and act on it, will win. What is popular will change based on what people will soon want and need. Get ready, get set, go!