Outside Q1 earnings this week two major events happened that provide hints of the future. As we have been saying for years at the Saxo Strategy Team, inequality and social unrest will drive the biggest policy change in many decades. The globalization and favouring of capital over labour that has been the key trend since the early 1980s are likely about to come to an end.
Antitrust will change under Lina Khan
Lina Khan’s claim to fame came already as a law student when she published an article outlining why Amazon should be regulated. Now she is the would-be commissioner of the US Federal Trade Commission (FTC) and was appearing before the Senate in her confirmation hearing. Her ideas of antitrust regulation is essentially going back to its original roots formulated during the breakup of Standard Oil more than a 100 years ago. US antitrust methodology centered around market power, but the idea lost traction over the decades as two world wars, an economic depression, and post-war economic boom in the 1950s and 1960s made antitrust irrelevant.
Underneath the surface the academia weight swung in favour of antitrust focusing on consumer welfare instead of market power. This led in general to a multi-decade rise in mergers and acquisition, and rising Herfindahl-Hirschman Index (HHI – measuring industry concentration), and a weak FTC allowing market power to grow as long as the perceived consumer welfare was improved. But as Khan has shown, the market power of Amazon squeeze suppliers and their profit limiting their ability to raise wages, and this has been allowed under the framework that Amazon lowered prices for consumers.
Lina Khan will make the FTC more aggressive and potent, and the Senate hearing on Wednesday on antitrust when Apple and Google were in the firing line of politicians for their market power controlling the digital gateway for the entire digital economy through their app stores. Companies such as Spotify, Tile and Match Group were testifying and accusing the two technology giants of anti-competitive behaviour. Lina Khan when asked about Google and Apple, said that the FTC will look much more closely at the market power of technology giants. Our mega caps basket was among the worst performing themes yesterday as investors discounted the potential negative impact from future antitrust regulation.