Tougher Antitrust Policy Will Target Big Tech; Our Odds on Size of Covid Bill

by Greg Valliere, AGF Management Ltd.

WITH AN IMPEACHMENT TRIAL COMING and signs of progress on the Covid bill, the Biden Administration’s focus on tougher regulations has gotten little publicity — but it’s percolating on several fronts.

THE FIRST REGULATORY FOCUS obviously is climate change, with the U.S. back in the Paris climate accord. And Biden has used executive orders to kill the Keystone Pipeline and ban new extraction of energy on federal land. The antipathy toward fossil fuels in this new administration is intense.

NEXT COMES ANTITRUST: After several years of generally mild antitrust enforcement, this will heat up — especially against the tech sector. Last fall we thought there wasn’t much of a threat from Washington for tech companies, but it’s clear now that headline risk will be intense. Both parties hate tech — the Republicans allege censorship, and Democrats want more competition.

“WE HAVE A MAJOR MONOPOLY AND COMPETITION PROBLEM,” Sen. Amy Klobuchar told the New York Times last week. Klobuchar, the Minnesota Democrat, will be the leading antitrust policymaker in Congress. She will release a book this spring that will blast corporate concentration.

LEGISLATION IS COMING: Klobuchar will introduce a bill soon that would target huge tech companies that gobble up smaller firms. Her bill would set tougher new standards that would block such acquisitions, and she would increase funding for antitrust enforcement at the Justice Department, which is expected to aggressively target anti-competitive mergers.

SIGNIFICANTLY, KLOBUCHAR’S BILL would NOT break up existing companies, as many liberals advocate. This is among the most successful industries in American history, and it has spent an enormous amount of money to make its case in Washington, with Facebook leading the way with $20 million for lobbying last year; Amazon is second with $18 million. Much more is spent on direct contributions.

OUR BOTTOM LINE is that the industry will face headline risk from both parties, with more hearings and public floggings. But with the massive government antitrust case against the industry still many years from resolution, Big Tech will easily survive.

THERE WON’T BE ANY BREAKUPS: The industry will simply have to cool it on mergers that raise anticompetitive issues. It faces countless lawsuits in the states and globally, but the impact on earnings will be modest. As for bad publicity, that goes with the territory.

* * * * *

OUR ODDS ON THE SIZE OF THE COVID BILL —

WITH NEARLY TWO-THIRDS OF THE PUBLIC favoring a “go big” Covid relief bill, there’s a sense of momentum in Washington that a package will pass within a few weeks.

IF IT’S NOT BIPARTISAN, Democrats don’t care — polls show the public overwhelmingly wants Joe Biden’s $1.9 trillion bill, and voters aren’t particularly concerned about whether it comes from a reconciliation process that excludes Republicans.

THERE ARE PLENTY OF DETAILS TO COME: Biden is willing to reduce the eligibility threshold for recipients of government checks, and a minimum wage hike may get watered down or killed. And there will be talk of revenue offsets, but we’re still a few months away from a serious focus on tax hikes.

HERE ARE OUR ODDS ON THE FOUR COVID BILL SCENARIOS:

1. Chances of gridlock and no quick bill — Zero percent, there will be a bill by March.

2. Chances of something close to the GOP’s $618 billion package — Zero percent, the Democrats would never accept it.

3. Chances of a few Biden concessions, pushing the price tag down to around $1.5 trillion — 70 percent, the most likely outcome.

4. Chances of Biden getting nearly everything he wants, close to $1.9 trillion — 30 percent, cannot rule this out, but moderate Democrats might balk at that price tag.

BOTTOM LINE: The $900 billion approved a few weeks ago hasn’t been spent yet, so there’s going to be an infusion of well over $2 trillion into the economy in the next few months — a great story for the stock market but a potential concern for the bond market.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

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This post was first published at the AGF Perspectives Blog.