In Praise of (Some) Regulation

  • (“Lean in” or lean on?) Sheryl Sandberg sandbags news story
  • An unholy Big Tech trade-off
  • Enter the deep state (Clapper, NSA, WMDs, etc.)
  • The four-decade bull market in bonds might be over
  • “Your statement on Monday was totally wrong”… America at perma-war… And more!

The Facebook executive who encouraged women to “lean in” to their ambitions apparently was “leaning on” a major media outlet to suppress a newsworthy story.

kirsten

We learned this week that a few years back, Meta Platforms COO Sheryl Sandberg pressured the Daily Mail to kill a story about her boyfriend at the time — Activision Blizzard CEO Bobby Kotick. Seems Kotick was the target of a temporary restraining order by an ex-girlfriend.

“Working with a team that included Facebook and Activision employees as well as paid outside advisers, Ms. Sandberg and Mr. Kotick developed a strategy to persuade the Daily Mail not to report on the restraining order, first when they began dating in 2016 and again around the time they were breaking up in 2019,” per The Wall Street Journal.

Yes, disclosure would have had a material effect on Activision’s share price. But Sandberg’s carefully crafted PR halo was also at risk.

As the Journal put it oh-so-delicately, “Ms. Sandberg’s legal and public-relations advisers, both inside and outside Facebook, worried that a story would reflect negatively on her reputation as an advocate for women.”

This tawdry tale isn’t as significant as, say, the Hunter Biden laptop… but it’s another illustration of the present-day nexus between Big Government, Big Tech and Big Media.

As we’ve mentioned for more than two years now, there’s a move afoot in Washington to rein in the power of Big Tech via some sort of antitrust legislation.

Our Jim Rickards spotted the trend: Four decades of thinking about antitrust were about to be thrown overboard. Since the 1980s, the Beltway operated on the assumption that “big” doesn’t always equate to “bad” — as long as the consumer benefits from “bigness.”

No longer: How much does the consumer really benefit from the “free” services of Facebook and Google when the actual cost of those services is the consumer surrendering any pretense of privacy?

With that trade-off in mind, antitrust legislation targeting Big Tech is gaining bipartisan purchase on Capitol Hill.

The Senate bill is sponsored by Minnesota Democrat Amy Klobuchar and Iowa Republican Charles Grassley. A similar bill in the House is sponsored by the top members of the Antitrust Subcommittee — chair David Cicilline of Rhode Island and ranking member Ken Buck of Colorado.

Writes the tireless Glenn Greenwald this week on his Substack site: “The amount of bipartisan support each bill has garnered — and the widespread animosity toward Big Tech reflected by this congressional support — has shocked Google, Amazon, Apple and Facebook lobbyists, who are accustomed to getting their way in Washington with lavish donations to the key politicians in each party.”

Enter the deep state: This week, seven former national-security and intelligence-community types signed an open letter urging Congress to drop the whole thing.

Their rationale: Any legislation that reins in Big Tech might have the effect of undermining the deep state’s censorship priorities.

Or as they put it, “U.S. policymakers must not inadvertently hamper the ability of U.S. technology platforms to counter increasing disinformation and cybersecurity risks, particularly as the West continues to rely on… these firms to push back on the Kremlin.”

In other words, Congress must not do anything to limit Big Tech’s powers of censorship because Russia Man Bad.

“The majority of this letter,” says Greenwald, “is devoted to repeatedly invoking the grave threat allegedly posed to the U.S. by Russia as illustrated by the invasion of Ukraine, and it repeatedly points to the dangers of Putin and the Kremlin to justify the need to preserve Big Tech’s power in its maximalist form. Any attempts to restrict Big Tech’s monopolistic power would therefore undermine the U.S. fight against Moscow.”

The irony is rich: “There has never been any private disinformation campaign that could remotely compete with official lies in terms of importance and influence,” tweets independent journalist Matt Taibbi.

“These CIA hacks begging for more control over online information flow just want license to lie even more easily.”

That’s not just hyperbole: The first signatory on the letter is Obama’s Director of National Intelligence James Clapper. A few years back, Clapper engaged in not just “disinformation” but outright perjury…

fire james clapper

In March 2013, Clapper was asked by Sen. Ron Wyden (D-Oregon) whether the National Security Agency collects “any type of data at all on millions or hundreds of millions of Americans?”

Clapper’s reply: “No sir… not wittingly.”

Three months later, thanks to the Edward Snowden NSA revelations, everyone knew Clapper was lying through his teeth. But no, Clapper was not hauled away in leg irons for a perjury trial. On the contrary, he served for the rest of Obama’s term… went on to become one of the biggest “Russiagate” promoters… and to this day gets a respectful hearing as an “expert analyst” on CNN’s payroll.

Bonus points: Clapper played a minor role in pumping up “weapons of mass destruction” before the U.S. invasion of Iraq.

And so, as hostile as we are to regulation in principle… we can’t help but wonder if the congresscritters are onto something with their antitrust legislation.

We realize, of course, that pressure from Congress is what’s partly responsible for the fact that Big Tech is so keen to exercise its powers of censorship.

We’ve chronicled the process for nearly four years now: Tech execs are hauled before Congress, roasted for enabling “misinformation” and “hate speech”… threatened with new taxes and regulations… and within days or weeks they exert some new and arbitrary form of censorship.

All along, defenders of such censorship have hidden behind the claim that “these are private companies, they can do what they want” — ignoring how they’re acting under duress.

Which, apropos of nothing, reminds us of a meme we ran across a few days ago…

twitter

Anyway, if the national security-foreign policy “blob” is rallying its forces to scotch the antitrust legislation on the grounds of “needs moar censorship”… well then, our first impulse is to support the legislation, our free-market sympathies notwithstanding. Seriously.

The best analogy we can come up with is the banks and the repeal of the Glass-Steagall Act in 1999.

Passed during the Depression, Glass-Steagall built a wall of separation between commercial banking and investment banking.

But in the heady atmosphere of the dot-com era, there was a bipartisan consensus in Washington that Glass-Steagall was a relic of a bygone era, something that was holding back the financial industry from being more “competitive” and “innovative.”

And so a Republican Congress passed and a Democratic president signed a bill repealing Glass-Steagall — in part to retroactively legalize the Citi-Travelers merger the previous year.

In the House, the vote was 343-86. One of the 86 “nay” votes came from Rep. Ron Paul (R-Texas) — which might surprise you, given his animus toward any sort of business regulation.

But he recognized the banks weren’t just any sort of business — they were thick as thieves with the government.

And they had a taxpayer backstop. Dr. Paul had seen what happened the year before in 1998 with the bailout of the Long Term Capital Management hedge fund. While no taxpayers were harmed in that rescue, he said the repeal of Glass-Steagall “bodes ill for the… future as far as limiting taxpayer liability is concerned.”

The rest is history. Freed from the restraints of Glass-Steagall, the big banks embarked on a spree of go-go trading unprecedented in its complexity and risk. The whole thing collapsed in a heap during the Panic of 2008… and taxpayers were left holding the bag.

If anything the stakes might be even higher now.

Agree? Disagree? Somewhere in between? Drop us a line — feedback@5minforecast.com — and we’ll share your feedback on Monday…

To the markets, where the major U.S. stock indexes are set to log a third-straight week of losses.

At last check, they’re all down between 1.5–1.75% on the day. That said, none of them is approaching their lows of about six weeks ago. The Dow remains above 34,000, the S&P over 4,300 and the Nasdaq a hair below 13,000.

➢For the record: Going forward, we’re not going to chronicle every jot and tittle of the Elon Musk-Twitter saga. Unless we have something unique and interesting to say, you can read about it anywhere, and we want to make the most of our available 5 Mins.

Precious metals are in line for a lousy weekly close — gold at $1,936 and silver at $24.24. Crude is looking positively tame by the standards of its volatility in recent days — down $1.55 as we write to $102.32.

The biggest cryptos have once again fallen below round-number support — Bitcoin below $40,000 and Ethereum below $3,000.

If a recession is nigh, it’s not showing up in the big economic number of the day.

The research firm Markit is out with its “flash PMI” figures. Manufacturing came in better than expected at 59.7. Services came in much worse than expected at 54.7.

Both numbers remain well above the 50 dividing line between growth and contraction. Nothing here to dissuade the Federal Reserve from raising the fed funds rate by a half-percentage point at its early-May meeting.

The four-decade bull market in bonds might be well and truly over now. If you’re over 50, the rest of your life might be marked by falling bond prices and rising interest rates.

As we write, the yield on the benchmark 10-year Treasury note is down slightly on the day at 2.9%. Still, that’s near levels last seen in late 2018.

Interest rates move in giant, decades-long cycles. The peaks are short and sharp — 16% on a 10-year T-note lasted for only a few days in the summer of 1981. The bottoms, on the other hand, take several years to play out — as long as 14 years, according to research by veteran market technician Louise Yamada.

As illustration, here’s a chart of the 10-year yield going back to the early 1960s…

rising falling

Note the action in the last decade. Many a financial pundit thought “the bottom was in” in 2012. And again in 2016. And again in 2020.

The whole time, a few renegades — including our macro maven Jim Rickards — disagreed. Those renegades also included Hoisington Investment Management, some of the savviest bond investors on the planet.

Note well…

lisa tweet

In other words, if the Fed loses its nerve and aborts its plans to raise short-term interest rates for the rest of 2022… that means inflation will take off and long-term interest rates will follow suit. We would be in a new era of rising long-term rates (and falling bond prices) — like the 1940s through the 1970s. Bad news for bond investors.

It’s a big deal if Hoisington is sounding this alarm. Still, it’s not a certainty: As Jim Rickards told us last week, the Fed will likely stick to its guns at least through September.

After that… well, stay tuned.

“Your statement on Monday was totally wrong,” a reader writes.

“The invasion of Ukraine was not solely Putin’s call. The Russian constitution — which they do follow — prohibits foreign invasions without the approval of the Duma.”

The 5: We concede we’re not experts on the Russian constitution.

If “they do follow” it over there, then is there a provision to hold the president accountable if he wages war without the Duma’s approval? Something akin to impeachment? And is such a procedure underway?

Seems like we’d have heard about that, even — or especially — from mainstream sources.

Of course in these United States, the legislative branch ceded its war powers to the executive many decades ago. Congress hasn’t fulfilled its obligation under Article 1, Section 8 “To declare War” since World War II.

A reader offers another corrective of sorts to our 9/11 commemoration, republished yesterday…

“The error in the story is the idea that there ever was a good time in America. From the firing of the first musket for a revolution the history of America has been one of war.

“Everything in the USA west of the Appalachians was earned by war and another war then another. Heck, we had a good war with everyone and anyone north, south, west and mostly east.

“Has there really ever been a good time?

The 5: A good question, seeing as Tuesday was the 247th anniversary of “the shot heard ’round the world” at Lexington Green.

Your editor has long been tempted to think the United States lost its innocence when it embarked on foreign adventures in the late 19th and early 20th centuries — the annexation of Hawaii, the Spanish-American War, World War I.

But even a hard-core small-government Jeffersonian has to blanch — as I did a few days ago — when encountering Jefferson’s 1803 letter to future president William Henry Harrison, then governor of the Indiana Territory.

In the letter, Jefferson lays out an explicit scheme to burden the Indians with large debts to white traders… which the Indians would settle in the form of land.

“In this way,” he wrote, “our settlements will gradually circumbscribe & approach the Indians, & they will in time either incorporate with us as citizens of the US. or remove beyond the Missisipi.”

Yeah, you can’t pin it all on Andrew Jackson, Trail of Tears, etc.…

More feedback to the 9/11 commemoration: “I know you are a wealth of financial information, and yet what I find most valuable is the historical perspective/insights presented above Mr. Gonigam’s signature.

“If we do not see how we got to the state of current affairs and pierce the fog of egos who place limited self-interest above the big-Self ideals that forged American primary fundamental values then our collective light as a nation dims.

“I am a super-big fan of your intellectual prowess, and if the pen is mightier than the sword then you are my choice as an effective policymaker rather than the republocrats spending us into financial hardship for the benefit of a few.”

The 5: Surely that’s the first time I’ve seen my name in such close proximity to the phrase “intellectual prowess.” You’re too kind…

Try to have a good weekend,

Best regards,

Dave Gonigam
The 5 Min. Forecast

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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