US stocks recovered their pandemic losses incredibly quickly.
Suspiciously soon, you might say …
In fact, 2020 saw the shortest bear market in US history, with stocks recovering to record highs by August.
But today, we look at how their past successes in 2020 can spell out their own destiny in 2021.
The· Washington post Kick us off in the August 2020 article:
‘500 companies make up the Standard & Poor’s 500 Index, the most widely used stock market performance indicator on Wall Street. Without only six of them, the benchmark would be down this year.
‘Along with Apple, achievers such as Facebook, Amazon, Netflix, Microsoft, and Google’s parent Alphabet are leveraging their digital expertise to thrive in a new, socially distant reality. Is the name.
‘By Tuesday, these six stocks had risen by more than 43% in total this year, while other companies in the index lost about 4% in total.‘
The data is now a few months old. But the key argument is that the small number of stocks selected in 2020 will grow rapidly, and that year will look good for the entire US stock market. But the other stocks suffered terribly.
But it was the subheadings of the article that caught your attention. “High-tech giants are flying high, but companies are facing growing backlash from lawmakers and regulators.”
In other words, the US government, and by the way, other governments, appear to spend time and effort targeting some of these great companies in 2021. It can have a significant impact on their stock performance over the next few years.
The plan is to pursue them under antitrust law. More about what it is soon.
The solution to such behavior may divide the company into several smaller, independent parts. The idea is to bring competition between them to the consumer market.
However, if this happens, the impact on stock prices can be negative. Some divisions of large companies are far more promising, more profitable and perform better than others.
Competition between them can also hurt all three variables, and newly established companies can experience poor investment performance after a split.
Given that these companies are very buoyant in US equity market boats, targeting them could reduce the overall performance of the US equity market by undermining star performers. There is. And it can happen as a mere threat of policy onslaught.
But what kind of policy was attacked?
Phase 4 of the US War Against Corporate Obesity
As always, examining all these histories will help to educate us about what is to come. And the US government has a history of undertaking companies that it considers too powerful.
In fact, the so-called antitrust law has gone through three stages in the last 120 years.My colleague Strategic Intelligence Australia, Jim Rickers recently discussed them in detail.Summarize how he set up the scene well with today’s inspirational weekly update Daily Reckoning Australia..
In the first phase, from 1890 to 1940, companies simply aimed to be too large. This, in theory, has given excessive power to consumers and competitors. And they were split into smaller pieces. Rockefeller Standard Oil is an example of a textbook.
The second stage lasted until the 1980s. It applied a more scientific approach to identify the “trust” that was abusing their power. For example, if competition is still fierce, large companies have been accepted.
Since 1980, the United States has taken a different approach again. It focused on whether consumers are profiting from corporate giants. Companies had to do something wrong in effect to be subject to antitrust law.
Based on Jim’s explanation, I’m pretty simplistic, but you understand the idea. Companies that are too dominant can be split under US law.
But social media doesn’t fit the bill
Social media and some other tech giants have abused the third phase of antitrust law by going through its loopholes. They offer many services for free — at first glance they are clearly beneficial to consumers. What’s wrong with you not paying for Google or Facebook?
However, their practices can violate the spirit of antitrust law. They acquire potential competitors before competing, sell consumer data without compensation to consumers, and become highly ubiquitous, giving them a dangerous level of influence and power over society. It has accumulated.
Examples of the impact of US elections, pandemics, and other social media on our lives have shown this quite well these days …
But what if the antitrust law is readjusted to target these companies? What if the law changes due to the new political style of the United States?
That is likely now.
Last week, the US Federal Trade Commission filed a proceeding against Facebook. It has been accused of trying to form some sort of monopoly by buying potential competitors like Instagram and WhatsApp.
And Texas led a group of 10 states by filing a proceeding against Google and Facebook for collusion.
I think this is just the beginning of an attack on these companies. And investors need to be careful. Especially if you own US stocks.
If antitrust laws succeed in dismantling things like Facebook and Google, it could hurt the performance of the entire US market. Remember, only a few companies are driving much of the rise in US stocks …
But there is another angle …
Regulatory prisoners are coming
In 2016, we participated in the “Free Market Road Show”. We traveled for three months in Europe advocating free market thinking at universities and think tanks.
In Bulgaria, we participated in a panel discussing regulatory crackdowns on free market-style innovation companies like Uber and Airbnb. They disrupted the government-approved taxi and hotel market. The government was struggling with how to fight back.
I predicted that Uber and Airbnb wouldn’t sustain the innovative culture of the free market for a long time. Soon they became government partners and sought to fight rivals by embracing and influencing government barriers to doing business. They will be exactly what they were set up to fight and turn over.
And that happened. Both companies have urged them to succumb to local regulations in most places and rewrite them elsewhere, as they openly ignore regulations. Airbnb shared data with the Chinese Communist Party, and one executive resigned with disgust.
Well, I make the same prediction here.
So-called antitrust campaigns against Facebook and others are attempts by governments to control these powerful organizations rather than neutralize them. It ends with a partnership between a government that harms consumers and a large tech company.
Especially us — people who speak positively to both big government and large corporations.
This phenomenon is known as “regulatory prisoners of war.” Companies have a big impact on regulation, while consumers have a small impact from small changes in regulation, so it’s the companies that spend their time and money working on the government. Ultimately, the industry captures regulators. They have a greater incentive to do so.
You see the symptoms of this in many ways. Such as revolving doors notorious for work between the industry and its regulators.
Well, I think it will be similar to the start of the fourth antitrust campaign in the United States.
Investors and consumers will eventually pay for it. Power brokers of politicians and companies win. The crackdown on pandemics and US elections against dissenting opinions is just the beginning of the crackdown.
It’s all a bit like politics. It’s time for both sides to agree on something you really need to worry about …
Until next time,
Editor, Daily Reckoning Australia Weekend
PS: Australia’s Massive COVID Depression — Learn which investments to accumulate and which to avoid to give you the best chance of maintaining wealth during a recession. Click here for more information.
Antitrust Law — I’m from the government, but I’m not here to help
https://www.dailyreckoning.com.au/anti-trust-laws-im-from-the-government-but-im-not-here-to-help/2020/12/19/ Antitrust Law — I’m from the government, but I’m not here to help