Moneybeat: The big sale

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David is head of the wealth management firm, the Bahnsen group. And he’s here now, David. Good morning.

DAVID BAHNSEN, HOST: Good morning, Nick, good to be with you.

EICHER: Well, David, I’d like to talk about the story of the week. The funny thing is, it seemed to come a little bit out of nowhere. This was not on the legislative calendar, talking about, of course, the forced sale of TikTok. And I realized that there’s some legal process to play out. We’re just assuming that this gets approved in the Senate and signed by the president. But I’m curious, can you speak to the mechanics of a big sale like this? If this were to go forward, how would a thing like this even work?

BAHNSEN: Well, there’s so much complexity here. But let’s start with that legal side first and the political, I would not assume it’s going to get out of the Senate, but it is going to be very, very close. But if it’s blocked in the Senate, it’s going to be Republican led blocking, where you have people like Rand Paul fighting against it. And people like Josh Hawley, and Ted Cruz fighting for it. So this is some of the strangest political bedfellows I’ve ever seen. And there are different, you know, pragmatic considerations at play, I won’t get into.

But what I will say is that the irony, in my opinion will be that you could very well end up with a legislatively driven—okay, a congressional bill, which is how last I checked, we’re supposed to make laws in this country—you could have a legislative effort, blocking it, signed into law by the President (and it’s not blocking it. It’s saying they must sell), then have a federal agency, the Federal Trade Commission FTC, under the executive branch, led by Lina Khan, who will not let any of the potential buyers buy it. Who are the potential buyers that have the pockets, and a strategic interest, synergistically? Apple, Amazon, Facebook with Meta, [the FTC’s] not going to let any of those three buy it.

And so who are the potential buyers? I think it probably ends up being a financial consortium of private equity lead. You know, there’s still a few players in this country that can write a nine-figure check—with two commas. But it’s not a lot. And this FTC has been so antitrust driven, that I just don’t believe they’re gonna let some of the other big players take this on.

Your question is really interesting, which is what would end up happening. And that actually meets the goal they have here, if all they do is sell the brand and hold to the algorithm, I’m not sure that does what they’re looking for. What they want is to not have access of the data that is traded and used and floating around on TikTok accessed by the Communist Chinese party. I don’t know that they’re going to get to a solution where CCP and Byte Dance part with the data. I don’t know that they’re gonna get the solution where the brand has any value apart from the algorithm. And so there is a lot of TBD here.

I am sympathetic to the argument that giving a tool for propaganda to CCP is outside the U.S. interest, and I’m incredibly sympathetic to the argument that giving them access to data. Now, I do think that both those things could be theoretically satisfied with adequate regulatory oversight and imposition. They haven’t been. And I don’t think they’re going to be, but in theory, I think they could be. But merely blocking a country’s company from buying another, I think it has a lot of implications for the U.S. dollar. And I think it has a lot of implications for ongoing trade. So we will see what comes of this, but it is a real strange political, not to mention financial situation.

EICHER: Let’s talk about the possible effect on foreign investment in the U.S. There was a pretty long and complicated piece in The New York Times DealBook about what might become of investment from China or elsewhere, if they have to worry about forced sales and things like that. I mean, what kind of distortion do you think might occur if this does go through?

BAHNSEN: Yeah, there’s a lot of things that could happen. You could see investors look for other deals. You can see a premium in deals. It distorts cost, because people then have to start to worry about the regulatory minefields. This is a very difficult situation because I think they could end up doing the right thing for the wrong reason. Or they could do the wrong thing for the right reason. I said before, Nick, I am sympathetic to the fact that we do not want to give our enemies a propaganda tool. I am not sympathetic at all to the argument of just general opposition to foreign ownership. Our capital markets have always been open to freely trade. People can move, capital can move, labor can move. That is a fundamental part of the American experiment for almost 250 years. This particular rationale is different. And I’m acknowledging that with TikTok that there is an argument to be made. And then there are some people I am sympathetic to that are making. But then you get into other cases like this Nippon steel with U.S. Steel. And I would add, do they really want to keep U.S. companies from being able to buy foreign companies, because reciprocity as assured here, and what they would do to job creation and competitiveness? If we start saying that U.S.-based companies can’t acquire foreign companies, which is of course what sorts of retaliatory response you would expect here, it’s not good.

EICHER: Yeah. It’s interesting that you brought that up, because I saw the story, this was what back in December, when we heard of the possibility or the interest of Nippon Steel in acquiring U.S. Steel. And it just seemed to be ticking along just fine. And then all the sudden, President Biden came out and said he was against that. Now saying you’re against it and actually blocking the sale are two different things. Does that just kind of fall into the bucket of protectionism? Or is there something else at work here? Do you know?

BAHNSEN: Yeah, I know very much what’s going on here. What’s happened between then and now is a President Biden is is tight or losing and polls in Pennsylvania, and he believes that there’s some argument here to be made, that makes him sympathetic with more economic nationalism. But far more importantly, as he has been lobbied like crazy by Cleveland Cliffs, which is a competitor of U.S. Steel, and is looking for their own kind of crony intervention. Now, as far as I know, President Biden has not said he’ll block, and he doesn’t have any authority to block it. He could try to get the FTC to block it, but this is not what’s happening with TikTok. With TikTok, it’s an act of Congress. They have the authority in the constitution to make law. We’re not talking about that here.

You’re talking about the use of the U.S. government, which is traditionally uses something called CFIUS from the State Department, to whenever they want to block a deal to pretend or to really believe that there is national security risk. Nobody believes that Nippon Steel and Japan—the great military threat of Japan!—is going to try to steal secrets. They’re already eating our lunch with this, this gives us greater advantage I feel very strongly. There’s been some good things written that one who is … and this is the thing about protectionism, it will cost jobs. You need a better-capitalized, better competitively positioned steel company for U.S. Steel to do better. This deal is additive. And so it doesn’t even scratch the itch of protectionism. It’s just rank, cosmetic politics.

EICHER: So David, I just threw that phrase out, “protectionism.” Why don’t we do that as Defining Terms this week? Talk about what historically protectionism is and what it means economically.

BAHNSEN: So historically, the term is a reference to government policies that seek to protect the domestic industry. And it’s largely been affiliated with attempts to restrict free trade. That by having less free global trade, it could better position our own domestic manufacturers. But philosophically, protectionism could be broader than trade protectionism. Things like imposing tariffs is really any policy that seeks to protect a certain sector. And so it’s not always been referred to in a complimentary sense, historically. The way I grew up, it was meant to be a pejorative. That the idea that the government would use policy to protect one sector or industry or economic actor, inferred that it was doing so because, you may have heard, Nick, there’s no free lunch. It may have done so by hurting another sector. What many will say now—which I disagree with, but I want to be charitable to my opponents— is that they’re protecting U.S. interest against the person who loses is a non-U.S. actor. And that ends up being more politically and emotionally sympathetic. But I also would argue that there is always a U.S. actor who benefits in protectionism and a U.S. actor who doesn’t. Another competitive company? Sometimes it pits producers versus consumers, but they’re both U.S.. So protectionism comes at a cost. But at a high level, that’s what it is, is government policy to protect some actor in the economy.

EICHER: All right, David Bahnsen, founder, managing partner, and chief investment officer of The Bahnsen Group. David’s latest book is Full Time: Work and the Meaning of Life. He also wrote the book, There’s No Free Lunch. But you can find out more about Full Time by visiting fulltimebook.com. David, I hope you have a great week. We’ll talk to you next time.

BAHNSEN: Thanks so much, Nick.

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