Inside Facebook’s ‘war room’

Monday, 12 November 2018
Melbourne, Australia
By Selva Freigedo

  • The age of censorship on the internet
  • China’s digital Big Brother
  • The Billionaire’s Investor on trading for the long term

The US midterm elections are over.

Phew…Facebook must be sighing with relief. It managed to get through them without getting too much press.

You see, after getting the heat for ‘fake news’ in the 2016 elections, Facebook says they upped their game this time.

They set up a ‘war room’ with a team of 20 people from different divisions, tasked to identify ‘problematic’ content.  

Last Monday night, 5 November, Facebook announced they had blocked 115 accounts ­— 85 on Instagram and 30 on Facebook — after being in contact with authorities.

Yep, don’t forget, Facebook isn’t just Facebook. It owns Instagram and WhatsApp too.

But it’s not just in the US where Facebook has faced problems. Brazil’s recent presidential election was riddled with fake news. This time the favourite medium was WhatsApp.

Why were the websites banned on Monday night? We’ll get to that, but first the markets over the weekend:

Markets

Over the weekend the Dow Jones Industrial Average closed down 201.92 points, or 0.77%.

The S&P 500 lost 25.82 points, or 0.92%.

In Europe the Euro Stoxx 50 index finished down 8.11 points, or 0.25%. Meanwhile, the FTSE 100 fell 0.49%, and Germany’s DAX closed up 1.84 points, or 0.016%.

In Asian markets, Japan’s Nikkei 225 is up 29.56 points, or 0.13%. China’s CSI 300 is up 0.68%.

In Australia, the S&P/ASX 200 is up 12.70 points, or 0.21%.

On the commodities markets, West Texas Intermediate crude oil is US$60.92 per barrel. Brent crude is US$71.37 per barrel.

Turning to gold, the yellow metal is trading for US$1,211.80 (AU$1,677.23) per troy ounce. Silver is US$14.29 (AU$19.78) per troy ounce.

One bitcoin is worth US$6,364.86.

The Aussie dollar is worth 72.26 US cents.

As they explained:

 ‘Almost all the Facebook Pages associated with these accounts appear to be in the French or Russian languages, while the Instagram accounts seem to have mostly been in English — some were focused on celebrities, others political debate.

Right, not much of an explanation there.

Russian and French pages, celebrities and political debate…during election time, mind you.

But the banning continues from earlier this year when Facebook removed 800 pages. 

Facebook also defended their actions back then in a post:

This year, we’ve enforced this policy against many Pages, Groups and accounts created to stir up political debate, including in the US, the Middle East, Russia and the UK. But the bulk of the inauthentic activity we see on Facebook is spam that’s typically motivated by money, not politics. And the people behind it are adapting their behavior as our enforcement improves…

Many were using fake accounts or multiple accounts with the same names and posted massive amounts of content across a network of Groups and Pages to drive traffic to their websites. Many used the same techniques to make their content appear more popular on Facebook than it really was. Others were ad farms using Facebook to mislead people into thinking that they were forums for legitimate political debate.

Again, a very unspecific explanation. They provide no lists of websites banned nor an explanation on what steps to take to reverse the ban for affected websites.

While the appearance of big tech companies like Google and Facebook opened up the internet, these companies have now become so large they are taking the role of censor too.

A leaked presentation made by Google’s employees on censorship made it to Breitbart News recently. In the report — named ‘The Good Censor’ — Google questions if they can both ‘protect free speech and police harmful content’.

In the presentation, Google admits that ‘censorship can give governments — and companies — the tools to limit the freedom of individuals’.

As you can see, the requests from governments to censor content from Google have shot up:



chart image

Source: The Good Censor
Click to enlarge

Tech companies are moving away from having internet with free speech and swaying the balance towards moderating and censoring.



chart image

Source: The Good Censor
Click to enlarge

As we wrote before, Sir Tim Berners Lee, the inventor of the internet, is now in a crusade to fix the internet. His idea is to create a different type of internet.

He is concerned that his vision of the World Wide Web as an ‘open platform that would allow everyone, everywhere to share information, access opportunities and collaborate across geographic and cultural boundaries’ has morphed into ‘an engine of inequity and division; swayed by powerful forces who use it for their own agendas’.

People have willingly given tech companies their data. They have used this data to monetise it from advertisers. But they are also starting to use it to censor…and even to classify people.

The truth is, that massive amount of data, stored in one place, is immensely powerful.

And we can see the dangers of this in China’s recent experiment. In case you didn’t hear, China is experimenting with a new Social Credit program.

The difference between this and a regular financial credit system is that it adds a technological element to it.

That is, it not only looks at rating you in your ‘real world’ life, but also in your virtual life. Everything you say or do in person and online will be graded, even who your friends are on social media or what your neighbours think of you.

The goal is to have a file for each citizen, and to give them a score to reflect how trustworthy the government thinks you truly are.

The guiding principle is: ‘once untrustworthy, always restricted’.

Jaywalk, forget to make a payment, or post negative thoughts about the economy and you could be blacklisted. It could influence where you live, if you can get credit, and even result in travel restrictions.

China is looking to roll this out soon, in 2020.

If big techs are becoming censors, how do they determine who gets censored and why?

As we have seen, it’s all very unclear at the moment.

Yet China’s experiment demonstrates the power and dangers of combining big data and technology, and how much it could affect your finances and restrict your wealth.

Cheers,
Selva


How to Trade for the Long Term
By The Billionaire’s Trader

Now that we’re hopefully on the same page, or at least on the same chapter, we’ll spend today outlining my current take on the market.

This is especially important when looking at your long-term portfolio. 

I’ll give you my reasons for this view, using the answers to the three questions I posed not so long ago. If you have been following along over the past few weeks you should be able to understand what this means.

If you feel a bit lost just find my past articles in the Port Phillip Insider archive on our website. That should give you the ability to arm yourself with the necessary knowledge.

Plus, to take your learning to a higher level, make sure you sign up for the upcoming Masterclass series (which starts this Friday) that I have put together for you. It will give you a solid outline of my method, and will also ensure that you hear more from me in the near-term when I see something interesting.

So, back to it. The main power of focusing on buy and sell pivots is that they give you a clear, non-lagging definition of when momentum is shifting.

When looking at very long-term charts such as monthly charts, you also get the added benefit that the creation of buy or sell pivots is a rarer occurrence than on an intra-day or daily chart. Years can pass without seeing a buy or sell pivot in the opposite direction to the current trend. But also, the trend cannot change unless a pivot occurs in the opposite direction.

As it happens, last month saw a monthly sell pivot in US markets.

The chart below shows you each and every monthly buy or sell pivot that occurred in the S&P 500 over the past 18 years.  The blue boxes show you the periods from the sell pivots to the next buy pivot.

Don’t ignore the monthly pivots



chart image

Source: Tradingview.com
Click to enlarge

There are some interesting observations you can make about the data.

In order to make these observations more realistic, I’d like you to imagine that you had hedged 50% of your portfolio when the sell pivots occurred (I can actually provide better levels than this with my proprietary entry technique).

 

Learning Point: To hedge 50% of your portfolio would involve selling futures contracts with a nominal value of half of your equity position — I won’t deal with the issue of adjusting for beta here. Or if that’s too complicated, it might just involve adjusting your exposure to equities. For instance, selling half your stock portfolio. 

 

Then when the corresponding buy pivot occurred, you exited the hedge and returned to a fully exposed equity position. Or if you had sold stocks on the sell pivot, you would have bought them back on the next buy pivot.

How would you have fared using this method over the past 18 years?

Well, quite clearly you have had a hedge in place during the two crashes that occurred from 2000–2003 and from 2008–2009. You would have also avoided the periods of volatility in late 2011 due to the European debt crisis, and the late 2015 equity market sell-off.

In five out of the 10 instances, you would have taken a small loss on your hedge. But remember that if you only have a 50% hedge, you would still be in a position to make money during these five examples, just not as much as if you didn’t have the hedge in place.

I’d say all up that is a pretty impressive set of outcomes for a simple methodology.

Now we are faced with another sell pivot in the US S&P 500, which occurred last month and was a substantial sell pivot candle. Interestingly, the volume that occurred during October wasn’t actually that huge compared to past substantial sell-offs. It may seem counterintuitive, but the fact that the volume wasn’t huge actually makes it potentially more worrying than less. 

If the market moved so far on less volume than during other substantial sell-offs, it could mean the liquidity isn’t there and sellers were forced to sell more aggressively than usual to get out of positions.

If the market does turn back down again, we could see a situation where the volume on the bid (investors lining up to buy) dries up again. That means there could be a lot more selling to come if last month didn’t really make much of a dent in the positioning of large players.

Does that mean this is a bad market for traders? Not a chance. Remember, this particular analysis is primarily aimed at your long-term portfolio, not your short-term trading portfolio.

The beauty of using this method to help you make decisions about equity exposure is that we get a signal very quickly to enter and exit the long-term hedge.

In the case of covering the hedge, all we need to see is a buy pivot. Simple, right? So if we look at the current situation, it could make sense to lower our long-term equity portfolio exposure, or selling futures contracts here and a little higher. (My Holy Grail level in the S&P 500 futures, is actually between 2,860–2,900, and I’m hoping we can see a final squeeze up to that level.)

If that happens, and we see a monthly close above 2,944, we would exit the hedged position and return to 100% equity exposure. 

If our decision to hedge turns out to be correct, we will have lowered our exposure very early in a sell-off, and would be very happy with ourselves. If there isn’t a big sell-off, there is relatively little harm done because we are still exposed to the rising market — albeit not by as much as if the hedge wasn’t in place.

We can also add to this idea by ratcheting up or down our level of hedging based on other macro-economic factors, or our personal view of the state of the markets.

We might have a base level of 50% but if we feel particularly cautious, or confident of our view, we might increase that level.

There are so many reasons that I can come up with why this current sell pivot could be the beginning of a much bigger sell-off. Worldwide interest rates slowly increasing, the Australian housing market selling off prior to an election that could see a shift in negative gearing and capital gains tax rules, the European debt crisis in hibernation but perhaps awakening, China struggling with the strong US Dollar, Japanese government bonds creaking under the pressure of US rate rises, and so on.

Take your pick which one might explode into something more substantial.

But in the end, the pontificating doesn’t matter.

What matters is that there was a monthly sell pivot last month. Now the market is rallying up into the key area where investors need to make decisions.

What decision will you make? And how will you make it?

Whether you have the answers to those questions or not, I strongly recommend checking out the special trading Masterclass, which starts this Friday. You can join for FREE here.

Until then,
The Billionaire’s Trader