Former White House economic advisor and Goldman Sachs alumni Gary Cohn made some very interesting statements this week. I would like to highlight the term “interesting” for a few reasons, the first being: the context of his claims. And the second: the implications of that context.
I am going to propose that this should not be taken in isolation, but rather, should be viewed in a more overarching context when included amidst other signaling that has the potential to, once and for all, change business (again!) as it is currently now known.
And by that, I mean just that: everything.
Currently Mr. Cohn is railing against Facebook™ (FB) and others stating that it is they whom are acting in an irresponsible manner when it comes to being responsible citizens, as opposed, to what it claimed banks have been. Here’s an excerpt from a recent article in BI™. To Wit:
“In ’08 Facebook was one of those companies that was a big platform to criticize banks, they were very out front of criticizing banks for not being responsible citizens,” the banker said.
“I think banks were more responsible citizens in ’08 than some of the social media companies are today. And it affects everyone in the world. The banks have never had that much pull.”
Now whether or not one wants to question or agree with that premise, I believe, is irrelevant. What I do believe is a far more important set of consequential questions are:
Why the comparison at all? Why now? And maybe even more germane: Why Mr. Cohn?
Hint: I would imagine there’s significant money and/or power to be made here. But that’s just me.
As of late FB stock has done nothing more than just vacillate in the lower range of its initial double-digit percentage loss from its all time highs. As of this writing its clawed back to around the $185 level.
Some would say, in the bigger picture, that’s not such a bad level. But in reality, all it’s been able to do (so far) is scratch-and-claw its way to unchanged for the year. i.e., seems all that “great value” that was told/sold at around $220 still isn’t worth a double-digit % On Sale! sale price.
Again, at least not yet, which in itself shows potential for further downside as opposed to up.
Which brings me back to my first questions of : why? e.g., Why compare or conflate FB, or any other social media outlet for that matter, with the likes of banks and the financial crisis?
What if we were to ask another set of questions, such as:
How does the government get its hands on social media, not by force, but rather, by everyone clamoring for it to be done as to both “Save democracy!” as well as “Save their 401K!?”
If I pose it that way suddenly, that other “why” question as in “why Mr. Cohn?” begins to become more relevant, yes?
FB stock is probably ubiquitous across all retirement funds of one form or another. One would probably be hard pressed to not find any of the others (e.g., Twitter™ et al.) in some form of ETF or other instrument. Their valuations alone have been responsible for the lions share of gains in the “markets” over the last few years. And especially the last 18 months in-particular.
It could be argued that if the social media juggernaut of endless riches has is indeed ended (which I have argued ad nauseam just that) there are far more retirement accounts and ETF holdings at risk of falling in unison than there are actual people still using these platforms. And that’s not including all the algorithmic trading bots trying to front run all the bot farms relentlessly still clicking away pretending to be human as to keep advertising fees aloft. But again, that’s just me.
It was only days ago that a 23 page white paper was released via Sen. Warner detailing potential policy proposals to regulate social media and technology firms. (take notice the blanket qualifier “technology firms” for further cues)
Now taken as a single event something like this seems pretty normal, especially in light of the current political turmoil. However, throw in the sudden appearance and finger-waving via Mr. Cohn, along with the context? Suddenly, as stated by Freedom Williams “Things that make you go Hmmmmm” pops front of mind.
So here’s what I’m driving at…
Should the social media (and quite possibly the entire tech space in toto) suddenly begin spiraling a la dot-com 1999 style, it would be just the opportune time for government intervention to suddenly appear and imply “For the sake of democracy!” they need to take over (as in heavy-handed) and regulate the entire social media and tech space.
However, in conjunction for having to take this drastic action which they (of course) would deem as a necessity (i.e., here comes the selling points) they would in fact through taking this regulation (with a heavy heart smiled the grim reaper) be putting a governmental implied “put” under all the stock values.
Why? Because you would not be able to start or administer another without said government approval, therefore, solidifying (as in closing) the market. aka: kill any and all competition.
After all: if social media can now be compared in the same light (as you are now beginning to see?) as strategically important as banks? Do you see my point here?
In a market rout: would or does the Federal Reserve suddenly openly buy FAANG stocks or ETFs? Or better yet, does the Fed, ride in on some glistening stallion of monetary intervention to save not only the banks, but all those constituents and 401K holders with all that “great tech value” stuffed into their balance sheets? All to a unison chorus openly shouting for government action to come in and “save the day!?” (and their portfolios)
Again, if they are suddenly assumed to now be as “systemically important” as banks, why wouldn’t the Fed. intervene? Especially if its “banks,” along with many a politicians (powerful politicians at that) constituents 401Ks are loaded to the gills with them? Are they suddenly less important than buying mortgage-backed securities to “save the system” of 2008?
If “democracy” is at stake as the now battlecries are being shouted, can the Fed. just turn a deaf ear?
And if you don’t think things like this are thought out or, at least floated about, well before hand as to see what type of early reaction may be. May I call your attention back to then House Speaker Pelosi and others when they were trying to make a case that the government may have to take over 401K accounts and turn them into government holdings aka U.S. Treasuries, you know, for your own protection?
If you believe that the above is just a bunch of hyperbole and ill-informed reasoning, I’ll just say this:
That’s what they said when I first proposed the Federal Reserve was actively involved in the markets back in 2009.
Today, that “tin-foiled-hat conspiratorial gibberish” is now accepted – and taught – across academia as: prudent monetary policy.
Makes one go “hmmmm” indeed.
© 2018 Mark St.Cyr