The emperors will bow, but their stocks will first

“Our founders would not bow before a king. Nor should we bow before the emperors of the online economy.”

David Cicilline, US congressman for Rhode Island

The emperors of Apple, Google, Facebook and Amazon appeared before the US House of Representatives earlier this week.

Fittingly, the digital emperors were not physically present, but beamed through electronically on a big screen, big brother style. Their imposing appearance can’t have helped their attempts not to appear too powerful.

We’ve been writing about the threat of antitrust to big tech for quite a while now. Long-time readers may remember my jest a couple of years back that Facebook will be forced by law to change colour from its signature royal blue to Pantone 448C, the dirty khaki forced on cigarette packets to deter usage (The elimination of desire – 30 March 2018).

We’re a way off that yet, but amid the WuFlu fallout, the topic of antitrust has not gone away and has once again come to the fore. I still see government intervention in these companies as an inevitable force which will punish shareholders – though another force may punish them yet, which we’ll get back to in a moment.

One telling part of the “the emperors’ testimony” was how each responded to the question of whether the Chinese Communist Party (CCP) was involved in stealing technology from the US.

Emperor Zuckerberg and Emperor Bezos were happy to declare that this did indeed occur… but Emperor Cook of Apple and Emperor Pichai of Google were not so forthcoming. They instead deflected, saying they had no knowledge of this happening within their own businesses.

While Apple has just recently begun manufacturing the latest iPhone in India, its exposure to China is still huge. And while Google cancelled its “Dragonfly” project to build a fully censored search engine to CCP requirements a year ago, it doesn’t want to burn any bridges with the commies either.

But the US will demand fealty. The world we are tumbling into will not allow anybody to “live in the middle”, especially not tech companies with grand reach and influence. Google and Apple may try to play it safe and placate both sides for now, but as the second Cold War escalates, they will discover that even the emperors of the digital world must bow in the physical domain. Flush with cash and flirting with the enemy? Now isn’t the time, sire…

Back in ‘18 I was expecting antitrust and other punishing regulation against big tech to gain momentum much sooner than it has. While this has been growing in the background, imperial stocks have reached altitudes where even angels are commenting on the lack of oxygen in the meantime.

Facebook, Google, Amazon and Apple have advanced in leaps and bounds, vaulting over every negative news story and the WuFlu itself. These are the very companies which have dragged the stockmarket indices higher, while those involved in the real world have flagged and stagnated.

Can these stocks shrug off the heavy hand of the US government when it comes to strike them? I don’t think so. But we may not have to wait that long before we see these stocks take a bow – for the insidious force of inflation could kick in earlier than that.

We’ve explored in these letters how significantly higher inflation may be on the horizon, as ever larger government spending programmes financed by central banks are mixed with a lockdown-laced decline in the real economy.

While stocks are often perceived as an inflation hedge, this does not mean that owning stocks of any variety would offset the destruction of purchasing power of money. And it’s growth stocks in particular – like the tech giants – which are most exposed to this risk.

The whole promise of a growth stock is the potential value of its future revenues – but when those future revenues would be paid in a currency that is fast losing its value in the present, growth stocks lose their lustre.

As Charlie Morris over at The Fleet Street Letter Wealth Builder wrote to his subscribers recently:

Tech has been all about monetising the future and growing future profits. That works while inflation is absent. But as soon as money is perceived to be less valuable in the future, gold and hard assets become more attractive.

Imagine if we set up a high growth business in Turkey or Venezuela. Even if we could generate vast profits, our company would never trade at a hefty premium because no one wants lots of lira or bolivars in the future. With tech, there is a strong narrative, but that can’t hold true at any price. How much is enough?

How much indeed? When lockdown is finally over and folks start spending again, I think we’ll find out…

Wishing you a good weekend,

Boaz Shoshan
Editor, Capital & Conflict

For charts and other financial/geopolitical content, follow me on Twitter: @FederalExcess.

Category: Market updates

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