This weekend’s Night of the Long Knives is about a lot more than free speech, but it’s also not really about the alleged abusive monopoly power of the tech giants—Google, Apple, Twitter, Facebook, Amazon et. al.—which have launched a reign of political aggression that is unparalleled in US corporate history.
So before conservatives (and especially libertarians) start yammering for a rescue by Big Government in the form of an anti-trust crackdown on the above malefactors (or section 230 repeal), a moment’s contemplation of free market economics is warranted.
Here’s the spoiler alert: Thanks to the money-printing madness of the Fed, Big Tech doesn’t operate on the free market where it counts most of all—that is, with respect to the capitalization rate of its earnings and cash flows. The resulting vast over-valuation of company stocks and the windfall wealth it has conferred upon top executives and insiders has, in turn, freed the latter to pursue political virtue-signalling without sweating its potential negative impact on their own bank accounts.
As to the basics, corporations on the free market do not play politics in the manner the above culprits are clearly doing with their deplatforming of the Donald & friends and denial of service to Parler; those moves self-evidently have nothing to do with business and everything to do with politics.
To the contrary, businesses on the free market are inherently motivated to maximize profits, returns on invested capital and future prospects. They do so by pursuing cost efficiencies, improved products, managerial and technological innovation, better marketing and customer service, and countless more commercial paths to competitive advantage.
Even if they decide to deny service to certain classes of potential customers, such moves usually reflect a commercial calculus. That is, a conclusion that these potential customers will prove to be insufficiently profitable (i.e. for not paying on time or litigating excessively) and, in extremely rare cases, that providing services or products to certain potential customers might compromise brand integrity with the broader public.
By the same token, political virtue signalling for its own sake rarely enhances competitive advantage, meaning that business owners and managers have an overwhelming incentive to keep their politics at home, or to exercise them in the political market place via public advocacy, lobbying and political contributions.
To be sure, the tech giants have been doing the latter in a big time way for years, and so be it as long as America’s electioneering rules foolishly allow PACs and special interest group money to rule the roost. But what has happened in the culminating chapter of the nation’s 4-year bout with TDS ( Trump Derangement Syndrome) amounts to something far more sinister.
That is, Bezos, Dorsey, Zuckerberg, Cook, Pichai and tens of thousands of their stock-option bearing subordinates have been unshackled from the competitive imperatives which largely keep politics out of day-to-day commercial operations. Accordingly, essentially exempt from the free market’s normal injunction to “take care of the business” first and foremost, they have been free to indulge in political virtue signalling without shareholder push-back or suffering a noticeable dent in their stupendous personal wealth.
Moreover, they have attained this lamentable estate because Big Tech’s ample (and largely justifiable) corporate earnings no longer drive their hideously over-valued stock prices. Instead, their stocks represent trillions of speculation driven bottled air arising from the Fed’s destruction of honest price discovery and transformation of Wall Street into a rank gambling casino, which the insanity of Tesla’s stock price (and that of hundreds of like and similar momo cult stocks) attest to daily.
To cut to the chase, for the reasons amplified in what follows, we believe that a rational free market would value the reported earnings and free cash flows of the above Big Tech Five at about $2.2 trillion, not the speculation-driven $5.7 trillion at which they trade today.
That makes for $3.5 trillion of bottled air and a stunning 2.6X overvaluation.
More importantly, it means top executive stock portfolios are bulging with such egregious windfalls that Jeff Bezos, for instance, is apparently not loath to give up AWS’ (Amazon Web Services) earnings from providing server farm capacity to Parler in order to make a political statement. Nor, you can be sure, was the motivation defensive because any of AWS’s thousands of customers were threatening to walk owing to its providing server services to Parler.
The same is true for the app store fees from Parler forgone by Google and Apple or the potential conservative traffic lost to Facebook and Twitter owing to their deplatforming the Donald & friends. There was no earnings or business upsides from these moves, and no defensive business reasons to jettison the Donald & friends or Parler, either.
Instead, the Big Tech Five have jumped headlong into the selective speech “moderation” and purported law enforcement game (e.g. prevention of “incitement”) because they can, and because it apparently provides “psychic” rewards to top executives who already have all the monetary rewards they could possibly desire.
Needless to say, the implications are unambiguous. The once and former conservative party is now facing an existential risk of extinction owing to the monster of its own creation, or at least acquiescence. That is to say, it learned to love the destructive money-printing and debt monetization follies of the Fed because it relieved Republicans of the hard work which is their core mission in America’s two-party democracy: Namely, fighting for fiscal rectitude and standing against the beltway racketeers and special interest lobbies in behalf of ordinary taxpayers, current and future, born and unborn.
In Part 2, we will amplify at length our case for the $3.5 trillion over-valuation of the Big Tech Five that threatens to extinguish what remains of democratic governance in America. But suffice it here to consider the single greatest malefactor among this weekend’s Long Knives assailants—the abrupt cancellation of Parler’s server farm contract by Amazon (AMZN).
The elephant in the room here, of course, is that Amazon’s $1.57 trillion market cap is patently absurd, and stands near the epicenter of the massive stock market overvaluation owing to the Fed-fueled speculative mania on Wall Street.
To wit, no company that has been around 30 years with LTM sales of $348 billion and which had sported 3-year and 8-year sales growth rates of just 25% per annum prior to the lucky stroke of a lifetime arising from the Covid-Lockdowns order-from-home stampede by consumers, is worth 64X LTM free cashflow and 90X LTM net income
These valuations are just loony tunes and are a classic case of momo chasing gone wild. For crying out loud, even with the tailwind of tens of millions of consumers locked out of the malls and stores and perforce reduced to keeping themselves in toilet paper, bottled water, baby formula, movies and endless more via Amazon’s on-line and streaming services, the company only posted $17.4 billion of Covid-bloated net income during the September LTM period.
For want of doubt, that figure had posted at just $11.6 billion during the December 2019 LTM before the Covid/Lockdown era goosed AMZN’s results to a farethewell. Likewise, free cash flow had posted at just $21.7 billion during the December 2019 LTM period, representing a 32% growth rate or just half of its current 64X free cash flow multiple.
So if you value Amazon at a more rational 25X and 18X its Covid-bloated net income and free cash flow, respectively, its implied market cap is $435 billion, not $1.57 trillion. That is, Amazon’s stock is currently bloated by upwards of $1.1 trillion of bottled air!
Consequently, Jeff Bezos has so much discardable walking around wealth that even after the most expensive divorce in world history he will never notice the ding from asphyxiating Parler—even after paying billions for a potential breach of contract suit.
Indeed, like the other four Big Tech Titans, he has become the most dangerous threat to democracy ever to arise in America because the fools in the Eccles Building have rendered him immune to the normal laws, incentives and imperatives of honest free market capitalism.
As we will essay further in Part 2, the solution is not to dust off antiquated anti-trust doctrines, which are still as wrong today as they were 30, 50 and 100 years ago.
The right answer is for a genuine Opposition Party to recognize that the #1, #2, and #3 factors threatening liberty, capitalist prosperity and democratic governance in America today are the Fed, the Fed and the Fed, respectively; and that nothing short of root and branch eradication of Keynesian central banking can right America’s dangerously listing ship of state.