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Who’s Afraid Of The Big, Bad Government?
For US equities, domestic politics is an "unpriced" risk, according to Goldman.
I spent some time editorializing around that in "An Early Word On US Election Tail Risks." Long story short, volatility markets don't seem to be pricing an inconclusive election result, let alone any kind of societal upheaval in the event of a Trump loss.
There's another unpriced risk: Legal proceedings against America's tech monopolies.
A couple of years ago, Goldman set about determining whether the companies mo
Often the “forward looking equity market” does not react to any somewhat probable news until they are clubbed over the head with it.
This partly is because so much price action is now driven by volatility and trend-following algos.
As our Dear Leader pointed out last week when discussing why wars seem to have so little impact on vols which, by extension, means the markets.
Most algos are not forward-looking.
The active vs passive debate will find a winner soon enough with Berkshire being so cash heavy and algos being the shortest of term vehicles.
The government’s record has been a losing one, I think? Loss after loss, what was its last major win in an antitrust case – I can’t offhand recall.
https://www.reuters.com/legal/us-keeps-losing-antitrust-court-battles-few-expect-pullback-2022-10-04/
https://www.nytimes.com/2023/07/11/technology/lina-khan-ftc-strategy.html
There is the theory that DOJ and FTC are winning by losing, but that seems too subtle for investors much less algos.
https://www.skadden.com/insights/publications/2023/04/quarterly-insights/are-the-ftc-and-doj-losing-antitrust-battles
The coming decision in US vs Google could revive investors’ respect for the government – or sink it entirely.
You could also argue that investors are recognizing antitrust risks, by looking at the relative multiples of the mega techs.
MSFT is the highest multiple; it had its antitrust existential moment decades ago and recently beat the government in the ATVI case, so it arguably has no antitrust risk.
META settled its case and whatever the remedies were, they don’t seem to be too troubling, hence its tall multiple perhaps?
GOOG is the lowest multiple; its antitrust case is the nearest-term risk and if anyone is a monopoly in anything, it would have to be Google in search.
The AAPL and AMZN cases are recently filed so any risk and multiple impact would be years off.
The Google case just might impact Apple rather directly. Approx $20 billion of annual revenues is a placement fee from Google. That may be in play soon?
I wonder if AAPL could pivot and sell the search bar to MSFT at similar economics?
About all you can do is be prepared to react.
In my bubble all of the tech folk say they don’t use Google to search, but just have the Chat GPT window up. I wonder how prevalent this is and if it would skew Goldman’s numbers.