Date: 4/26/2022
Author: Mr. X
I wasn’t planning to write a series. However, it appears that I have. When you take a step back, you can see that something bigger is at work – perhaps something historic.
Over the last three weeks, we’ve seen a major political shift – possibly a political realignment. Key Republican leaders, much to the displeasure of their court intellectuals at publications like National Review, have expressed a willingness to use state power against corporate interests. Far more importantly, a faction of economic elites, namely Peter Thiel and Elon Musk, seem to be aligning with a populist movement. The Republican Party is also poised to take back the House and possibly even the Senate – something which would have seemed unimaginable on January 7, 2021. The only guy who might screw this up is the man who made it possible in the first place – former president Donald J. Trump.
Let’s start with what’s happening to one of America’s most iconic companies. This is Disney [DIS], which is part of the Rogue Investing Daily Model Portfolio. The reason it is part of the portfolio is because it has been falling for most of the 2022, despite its unrivaled Intellectual Property. Florida Governor Ron DeSantis, a Republican, punished the company for speaking out on socially conservative legislation by signing a bill that would dissolve the “Reedy Creek Improvement District.” This is a special district created in 1967 that essentially gave Disney special self-governing rights, including (but not limited to) the right to build a nuclear plant.
It is by no means clear that this will hurt the company. A court battle seems likely and the move may even end up helping Disney. After all, millions of dollars in expenses that the company must currently handle would now be dumped on taxpayers. One estimate suggests Disney would actually benefit to the tune of more than $160 million. Yet the message was clear. At least some Republicans will punish companies based on political behavior. I don’t think it’s an accident that Exxon Mobil [XOM] restrained some employees’ expression of their political beliefs after that.
It’s hard to overstate the importance of this shift. Not interfering with corporate America, was once the whole point of the Republican Party. However, as companies increasingly take sides in political disputes, it’s natural that conservative voters are going to react. A 2021 Pew poll found Republicans have negative views of “large corporations” and “banks” at almost identical rates compared to independents and Democrats. And if we’re talking about Disney, an astonishing 83% of GOP voters have a negative view of the entertainment industry.
Figures within the party are also taking an anti-corporate line. Peter Thiel, one of founders of PayPal, is financially backing at least two Republican candidates in this election cycle. J.D. Vance, author of Hillbilly Elegy and a Republican candidate in Ohio, has trailed for much of the campaign but recently won Donald Trump’s endorsement. A pro-Vance PAC found that a plurality of GOP primary voters backed Vance after they found out about ‘45’s endorsement. The other candidate is Blake Masters, president of the Theil Foundation, a GOP Senate candidate in Arizona. Senator Joshua Hawley (R-MO) recently endorsed him, but Trump has yet to act. A plurality of GOP primary voters in Arizona are undecided, which means that Trump’s endorsement will probably be crucial.
The Democrats are likely to retain the seat regardless of who is nominated, but if Masters wins the nomination, it would be a significant sign about where the GOP is headed ideologically. Hawley is perhaps the leading Republican voice who wants to regulate Big Tech, introducing legislation that would strip social media companies of Section 230 protection. JD Vance has also suggested more regulation of tech companies, as has Masters. Writing in The Wall Street Journal in September, Masters said that issues about censorship and political bias weren’t the main issue. He said:
Censorship has become an issue in the first place because tech companies are simply too big. By market capitalization, America’s five most valuable companies are Apple, Microsoft, Amazon, Google’s parent company Alphabet, and Facebook. All of them are worth more than $1 trillion. Amazon controls more than half of all online retail sales in America. Google has 92% of search. Apple’s annual profit is larger than the gross domestic product of seven U.S. states.
If you are a CEO at these or other companies, sentences like these mean it is time to panic. If Republicans complain about censorship, it is easily canceled out by Democrats suggesting that Big Tech isn’t doing enough. Former president Barack Obama gave a speech saying just that less than a week ago. He suggested that democracy itself was at stake. “For more and more of us, search and social media platforms aren’t just our window into the internet. They serve as our primary source of news and information,” the 44th president said. “No one tells us that the window is blurred, subject to unseen distortions and subtle manipulations.”
Ah, but who gets to determine what is truthful information and what is manipulated? What Elon Musk does next at Twitter may determine the answer. In a heavily leveraged $44 billion deal to take over the company, Elon Musk offered $54.20 a share. (From when Rogue Investing Daily informed subscribers to look into buying Twitter, that represents about a 30% gain.) He also is explicitly making this move to protect free speech.
“Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated,” he said. “I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots and authenticating all humans.” While many progressives are unhappy about Musk’s takeover, making the algorithms “open source” will meet former president Obama’s concern about whether information is being manipulated. Furthermore, “authenticating all humans” might actually lead to a reduction in anonymous accounts and would knock out the spam bots that Russia allegedly used in the 2016 campaign.
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All this is happening at a time when Republicans look poised to take over the House. The populist takeover of the GOP was enabled, more than anyone else by Donald Trump. He pushed the party in this direction. He’s even won over people like Vance, a onetime Never Trumper.
And yet Trump is the man most likely to endanger the populist takeover now. On Twitter, many were speculating that President Donald Trump would make his triumphant return to the platform. More than anyone else, Donald Trump probably deserves the credit for these developments. It was Twitter’s ban of a sitting head of state (while allowing the leaders of heads of state like Iran’s “Supreme Leader” Imam Sayyid Ali Khamenei to keep their accounts) that led a number of people start to wonder about how much power tech CEOs really have. Even Angela Merkel, no Trump supporter, thought it was a bad precedent.
Yet Donald Trump says he is not coming back because he’s still trying to promote his own social media site, Truth Social. Many Republicans who always opposed him but remained silent no longer fear him enough to stay quiet. GOP Majority Leader Mitch McConnell is among them. Media outlets like CNN may not have liked then-President Trump, but their constant bickering was good for their business model. Now, as shown by the collapse of CNN+ in less than a month, many no longer have anything compelling to talk about. If Donald Trump returned to Twitter, we can look forward to tedious stories about what he did or didn’t tweet out today.
Well, I’d find them tedious – millions on both sides would find them enthralling.
Such spectacle distracts us from what’s really happening. I’ve always been skeptical about any bipartisan regulation of Big Tech because each side wanted something different. However, with Twitter (arguably) falling into the rightist camp, Democrats suddenly have a lot more reason to care about regulation. We could see the Biden Administration and at least some Republicans working together on certain reforms, notably the repeal of Section 230 and other protections social media platforms now enjoy.
Yet there’s a deeper significance. Corporate America no longer has a party that it can consistently count on to defend its interests. Corporate America may have tiled left culturally, but as grassroots progressives push issues like unionization, progressive CEOs suddenly risk looking like reactionaries. Meanwhile, conservatives have grown tired of free market sermons in defense of companies that they see spitting on their values. They’re also apparently willing to use Big Government to attack their political foes.
Corporate America’s best interest is for both parties to hastily compromise, setting fair ground rules for the Internet, moving forward on helping American workers, and building necessary infrastructure. But that’s not going to happen. Instead, we’ll be entering a time when companies must more often openly side with one political faction or another. That will introduce an atmosphere of permanent crisis. It’s another vector of volatility, one that may prove dominant when it comes to making investing choices.
What can I say? It worked out for us with Twitter.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing.
