Moneybeat: The crackdown on Big Tech

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

NICK EICHER, HOST: It's time to talk business markets and the economy with financial analyst and advisor David Bahnson. David is head of the wealth management firm, the Bahnson group, and he's here now. David, Good morning.

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

EICHER: I would like to explore the big anti trust case the Justice Department filed last week against Apple. It seems that the case is predicated on Apple's strategy they've been following ever since Steve Jobs came into work in bare feet. I mean, namely the idea of a walled garden controlling the experience, so that the software works seamlessly with hardware. And Apple hardware tends to work best with other Apple hardware. And the way it works, seems to be why it's so popular. David, why would that be illegal?

BAHNSEN: Well, this is the stuff that antitrust lawyers fight about. But I think antitrust scholars have been debating for a long time. The late Robert Bork—who I was a huge fan of his judicial philosophy—really expounded a legal doctrine that there had to be harm to consumers. That size in and of itself did not meet monopolistic standards. And bundling of products that were beneficial to customers did not in and of itself lead to harming a customer or harming a consumer. You recall the course in the late 90s, the DOJ's very famous pursuit of Microsoft for daring to bundle a free web browser with their operating system. And the DOJ failed quite a bit with some of those pursuits. In this case, what they're accusing Apple of is essentially, “You're making people really like using your device.” And so it's very different than forcing someone to use a product they don't want to use. But it's a condition of getting them to use a product they do want to use. There is a bipartisan—and I hate saying that—but a bipartisan increase in those who believe big is bad. And the big tech crackdown for all the different things that people might be concerned about legitimately with privacy, with data, with censorship, you know, there's other social and cultural issues at stake here. But the one that is Linda con FTC, and the one that does Biden DOJ seem to want to go after is more related to size.

EICHER: And so David, how do you distinguish this case from other trust busting cases in history, say, the Teddy Roosevelt era, or when Taft broke up Standard Oil, or in the Reagan years the breakup of Ma Bell into all the baby bells?

BAHNSEN: Yes. And so I am not going to say that I think it was the right thing they did at the time. I believe the trust busting done by Teddy Roosevelt has a mixed legacy. And it would take us an hour to walk through the legal nuances. But is that different in the entire category than what is going on here with Apple? Yes, it is. It's categorically different. Most people now believe there was legitimacy to a lot of the trust busting, including both Ma Bell and big oil at the time. I would add what they ended up doing made the companies richer, not poorer, particularly the Rockefellers, with what we now consider to be Exxon. It was Standard Oil then, and there was spread, there was so many different things that went on with it. But big is better, is one side of the equation, and big as bad as the other. And my view is let the consumer decide and don't use the arm of government to legally squeeze out competition that could help consumers, and allow other people to compete. Most monopolies, in my opinion, are not created by a greedy business. They're created by a greedy business getting in bed with the government.

EICHER: David, the Fed had another opportunity to cut interest rates last week. It chose not to, but the market seemed to be cheered by Fed Chair Jay Powell's words last week.

BAHNSEN: Well, it was actually a really significant week in the markets. But Powell press conference was highly confirming to everybody paying attention that he does intend to continue going forward with their plan of cutting rates later into the year. The markets rallied hundreds of points on Wednesday after his press conference, where he also alluded to Okay, yeah, it looks like we're going to have to stop some of our quantitative tightening or slow or quantitative tightening in the months ahead. And then it rallied again, hundreds of points Thursday, although it gave some back on Friday. But though, hitting all time highs in the s&p and the Dow on Wednesday and Thursday, was really a byproduct of investors thinking okay, The Fed is not getting cold feet about cutting the rates, they are still going forward. And that was the big market story of last week. For me, the big story is no surprise there whatsoever about the Fed. I've been saying that all year long. However, the valuations continue to get very expensive. And it will be quite interesting to see what happens in the weeks and months ahead with some of these expensive NASDAQ stocks, but still on the Fed.

EICHER: It’s still on the Fed, David, it's still telegraphing three quarter point rate cuts this year, there are enough meetings left to get that done. Oh, sure.

BAHNSEN: And of course, three rate cuts is another way of saying 75 basis points. They can get 75 basis points done in two rate cuts do 51 and 25. The other the market was pricing and six rate cuts at the beginning of the year. It's now pricing in for the Fed is saying three in their own predictions or dot plots. So that's what the market is looking at 75 to 100 basis points coming out of the current Fed funds rate by the end of the year.

EICHER: All right, defining terms this week, David. It's going to be an acronym, SPAC. S-P-A-C. SPAC was the method that former President Trump used to merge his social media company Truth Social, with a more highly capitalized, publicly traded company. And the deal closed on Friday. Voila! He's got several billion dollars more of net worth on paper. And I have to wonder whether he can leverage that this morning, satisfy the judgment against him in New York. But we just have to see on that. But all day long on Friday, David, we heard this acronym. SPAC. Define the term for us.

BAHNSEN: Yeah, so basically, a SPAC stands for special purpose acquisition company. And they've actually been around a long time. But they got very, very popular a number of years ago, and it's a backdoor way a company can go public. So what would happen is a person can raise the money and then say, I'm going to pick a company to acquire. So the investors are not investing in a company, because they don't know what it is yet. They're investing in a person or an outfit, who's saying we're gonna go find a company. Then if they don't like the company, they can get their money back. And if they do you like it, or they can let it go, and then it will eventually go to IPO. So it does still IPO. But by going through a SPAC it avoids what's called an S-1 filing where you're having to go to the street and reveal all the information about your company. And you don't have to do that filing where you're giving away all this information about your company, because the SPAC allows you to go public without the same regulatory filings. Now, why would anyone do it? Well, because they're trying to get in on the ground for the next big thing that someone is going to buy. And most of these went really poorly. There were some that did well, but this Trump social media company Truth Social, they went through a SPAC early in the SPAC process. And eventually it went way, way up, then the stock totally crashed. And now it's somewhere in the middle. And people are waiting to see what will happen with it. The way SPACs work, and the pros and cons of their existence in our capital markets, is kind of immaterial to this particular situation, or President Trump. Right now the company is going to either end up being worth something or it isn't. And the courts are either going to give him an extension on what he has to file or give them some relief and how much he asked to post or they're not. But yeah, he owns a certain amount of shares that he obviously couldn't sell, that are worth on paper a certain amount of money that might help with this bail requirement. So yeah, as you say, it's a TBD I think in the days ahead, perhaps even in the hours ahead, we'll know, more.

EICHER: Okay, David Bahnson, founder, managing partner and chief investment officer of the Bahnson group. David's latest book is Full Time: Work and the Meaning of Life. And you can find out more by visiting the website for the book fulltimebook.com. David, have a great week. We'll talk to you next week.

BAHNSEN: All right. Thanks so much, Nick. Good to be with you.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.