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Is Google a Monopoly Yet?

The Growing Case for Antitrust and How Investors Can Hedge the Risk

Written by Jason Stutman
Posted September 14, 2018 at 8:00PM

For months now, pressure has been building on U.S. tech giants as political rhetoric from both sides of the aisle has shined a spotlight on their national influence and power.

That pressure reached a new peak this week after a “bombshell” video showed Google execs bemoaning the election of Donald Trump at a staff meeting in November of 2016.

In the video, a somber Sergey Brin, co-founder of Google, opens the conversation by recognizing how upset and sad most people at Google must be because of the election results. He proceeds to tease any potential Trump voters, saying that there is another small group who Google should also be thinking about... the group that’s excited that marijuana is now legal in California.

Brin goes on to explain how he is deeply offended by the election results and speaks as though Google operates as a uniform political think tank. He bemoans the fact that there are so many people out there who don’t share “the values we have.”

Brin is soon followed by VP for Global Affairs Kent Walker, who takes a similar approach, reassuring Google’s staff that “history is on our side” and painting Trump voters as being motivated by “fear, xenophobia, [and] hatred.”

Google CFO Ruth Porat also comes to the stage, at one point promising that Google will “use [its] great strength and resources to continue to advance [its] really important values.”

A Brewing Conservative Crusade

For many, the video seems to confirm what many conservatives have been lamenting for years: The world’s most popular search engine carries a heavy left-leaning bias and aims to use its power and influence to advance its own political values.

Google, of course, has defended the video, saying, “Nothing was said... to suggest that any political bias ever influences the way we build or operate our products,” a claim that’s frankly difficult to stand by given the contents of the video quoted above.

In any case, the video leak is especially well timed for conservatives, with midterm elections less than a month away and recent accusations of Google’s political meddling from Trump. The company’s no-show at recent congressional hearings now looks especially troublesome in context.

In the wake of the leaked video, many conservative figureheads are now demanding that Google be investigated and/or regulated. That includes elected officials such as Louisiana Attorney General Jeff Landry, who said, “I think the companies are too big, and they need to be broken up.”

That’s obviously a worrisome prospect for Google and its peers in the tech sector, but the market has so far overlooked the headlines and hasn’t priced those concerns in.

The Pin That Bursts the Bubble?

The fact that Google traded flat on Thursday, the day following the video leak, should be at least somewhat concerning for anyone invested in the U.S. markets. Just about all of Silicon Valley is now facing heightened antitrust risk, yet that risk has not been reflected in trading.

This is something that could end up being a huge shock, not just to tech companies but to the broader market if it pans out as many activists on the right are hoping it will.

After all, the five FAANG stocks now account for over 11.3% the weight of the S&P 500. Any significant decline in these equities would result in a strong ripple effect across the stock market.

Adding to the severity of this sweeping antitrust risk, Bloomberg reported on Tuesday that Attorney General Jeff Sessions is exploring a potential investigation of social media companies. Sessions will be briefed on September 25 by Republican state attorneys who are already examining companies like Google, Facebook, and Twitter.

The meeting will include a representative of the Justice Department's antitrust division and will be used to decide whether or not there’s a federal case to be made against Silicon Valley “monopolies.” If there is, the market could be in for some very serious pain.

Of course, this doesn’t mean you should be selling all your tech positions and running for the hills just yet (there’s plenty of reason to remain bullish on tech right now), but there’s certainly room for caution. It would be difficult to argue at this point that there’s any greater risk to tech stocks today than a federal antitrust case.

Why Google Might Be Unbreakable

While the idea of breaking up Google or Facebook seems unfathomable, we don’t have to look too far back in U.S. history to know we’ve been in similar situations before. There are obvious legal precedents, including the forced fracture of Rockefeller's Standard Oil Company in 1911 and the breakup of AT&T in 1982.

After all was said and done, Rockefeller’s monopoly was broken into three-dozen separate companies, while AT&T was broken into eight. Yet such a breakup might not even be possible with today’s tech giants. At the very least, it would be far more complicated.

Unlike Standard Oil’s and AT&T’s assets, which could be divided fairly easily by geographic region, Google’s assets are far less tangible in that regard. How exactly would you split up Google’s search algorithm or Facebook’s social network?

Roger McNamee of the T. Rowe Price Science and Technology Fund suggested in February that Google be broken up into as many as eight different companies

That’s one possible route, but it wouldn’t address the underlying issue of Google’s 90% market share in search. Perhaps, due to the nature of digital assets, that’s the best federal regulators could do.

In any event, investors should have their guards up in the face of the heightened antitrust risk. Vehicles to hedge include the Direxion Daily Technology Bear 1X, Direxion Daily Technology Bear 3X, ProShares Short QQQ, and ProShares UltraShort QQQ (2x).

It wouldn’t hurt to have any of those up your sleeve if things start to really get hectic.

Until next time,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.

Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.

Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.

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