Hey Influence Traders,
Big Tech has been on a big roll since, well, forever.
But public and private entities alike are gunning for our new-age overlords …
The Biden administration wants to break up the digital oligarchy.
Russia and China want to crack it.
The G20 wants to tax it.
Will Big Tech survive?
The Vegas oddsmakers say …
That I’ve lost count of how many times the CEOs of Facebook, Google and Twitter have been called to testify in front of Congress.
They are under the gun for, among other things, issues of antitrust and cybersecurity … and taking advantage of tax havens.
A federal judge recently threw out antitrust lawsuits brought against Facebook (Ticker: FB) by the Federal Trade Commission (FTC) and more than 40 states. (That’s 80% of them!)
The judge denied the argument that FB holds a monopoly over social networking, saying prosecutors failed to provide enough facts to back up that claim.
But the crux of the decision was that the states waited too long to bring their case — which centers on deals made in 2012 and 2014 — not on the merits of the antitrust claims.
The door is open for the FTC to try again.
President Biden badly wants to emulate FDR on antitrust — and he has built a team to make it happen.
Biden believes FDR’s focus on antitrust enforcement helped usher in an era of entrepreneurship and small-business growth.
And he’s making moves in the form of aggressive personnel.
The new U.S. Attorney General, Merrick Garland, has pledged to “vigorously” enforce U.S. antitrust law.
Throw in Lina Khan and Tim Wu and you have the makings of an antitrust tech tsunami.
Former Columbia Law professor Lina Khan now heads the Federal Trade Commission. She was a leader in the progressive movement known as “hipster antitrust,” which calls for new ways of reviewing companies’ market control, including how that affects people’s “roles as citizens.”
Kahn is a staunch antitrust advocate and her nomination signals an intent by the administration to be aggressive on enforcement. She has been known to call out Amazon (Ticker: AMZN) and other major tech platforms and has actively advocated for an overhaul of competition law.
She is paired with her Columbia Law colleague, Tim Wu, who was recently named to the National Economic Council and who has been vocal about attacking consumer welfarism in antitrust.
Exec Order Muscle
And President Biden has Kahn’s back.
He recently signed a broad executive order promoting competition through 72 initiatives cracking down on anti-competitive practices across multiple industries.
The provisions aim to, among other things:
- Bolster competition
- Encourage innovation and competition among tech companies
- Ban or limit non-compete agreements for workers
The full impacts of these policies are not clear.
For example, one plan restricts mergers between “dominant internet platforms, with particular attention to the acquisition of nascent competitors, serial mergers, the accumulation of data, competition by ‘free’ products, and the effect on user privacy.”
This order comes as several lawsuits have been brought against big tech companies such as Alphabet’s (Ticker: GOOG) Google and Facebook (Ticker: FB) alleging violations of antitrust laws.
The administration also wants to make it easier for employees to switch jobs by limiting the use of noncompete agreements, particularly for non-executive level jobs.
Banning non-competes puts more leverage in workers‘ hands as it provides more freedom to move to competitor firms.
Today, a third of U.S. businesses require non-competes.
Unions approved of this measure; Big Tech did not.
Khan and Richard A. Powers, who is serving as the acting assistant attorney general for antitrust, said that their agencies would review the current guidelines “with the goal of updating them to reflect a rigorous” approach toward mergers because “we must ensure that the merger guidelines reflect current economic realities and empirical learning and that they guide enforcers to review mergers with the skepticism the law demands.”
This spells trouble for tech firms and increases the scrutiny from Capitol Hill.
Tax Haven Take a Hit
As the G20 group pushes 130 nations to adopt a 15% global minimum tax, Ireland, Estonia and other tax havens’ days in the sun might be coming to an end.
Ireland has an official corporate tax rate of 12.5%, and fears that a 15% minimum rate will ruin a competitive advantage that puts billions of euros into Ireland’s tax coffers and creates hundreds of thousands of jobs.
Ireland was one of only nine countries to forgo signing onto the tax proposal.
In addition to setting a 15% minimum rate, the proposal would force technology and retail multinationals to pay taxes where their goods or services are sold, rather than where the company has its headquarters.
Again, that does not make Big Tech happy.
Let’s be honest – the U.S. is in an all-out cyberwar with Russia and China, and China, in particular, is playing to win.
American business is under constant attack.
China, Russia and other bad actors are engaging in daily incursions into US tech.
This year data from more than 500 million FB users was found on a website for hackers.
According to Business Insider, the information included phone numbers, FB IDs, full names, locations, birthdates, and email addresses.
The announcement highlighted the vast amount of information collected by FB and other social media sites, and the on-going concerns as to how secure that information is.
This is not the first time FB has faced security issues.
In 2019, the names, phone numbers, and unique user IDs of more than 267 million FB users were found in a database on the open internet.
Cybersecurity firms are going to grow in demand and impact as time goes on.
A recent survey found that nearly 75% of tech leaders think the government’s response to the SolarWinds hack and its aftermath has been average or fair — and not a single respondent said the response was excellent.
Meanwhile, 33% of respondents said that the chief technology priority for the Biden administration should be defining a national cybersecurity protocol.
That is bad for Big Tech, good for traders who look at cybersecurity opportunities.
U.S. companies have to beef up their cyber protocols.
Enough red flags have gone up indicating that we need to better ensure security.
Defense in the years ahead will be more about computers than tanks.
China and Russia have made it clear that we need to expect constant threats to our tech infrastructure.
Those threats can be countered through strong cyber programs.
That got me looking at a number of strong cyber companies like:
- CrowdStrike Holdings (TICKER: CRWD)
- Ping Identity Holding Corp. (TICKER: PING)
- CyberArk Software (TICKER: CYBR)
- Proofpoint (TICKER: PFPT)
The #Powermoves portfolio has been crushing it in Palantir (TICKER: PLTR).
And while we are not active in PLTR at the moment, it is the type of nimble company with solid tech that can pivot to address ongoing threats.
That’s why it’s still in the starting lineup.
Power Moves Portfolio
We cashed in the Taiwan Semiconductor (Ticker: TSM) July 23 124-strike calls for 40% position gain and now just hold the remaining TSM Jul16 125s through the earnings.
We have our all-in cost on the TSM Jul16s down to $1.25 per contract, so we will ride those and see if some gains develop until the 15th.
We also own some Cleveland-Cliffs (Ticker: CLF) puts in case the market melts down.
Cutting Through the Noise for You.