OT-but certainly food for thought...for MSFT, GNET, and all techs..."the most dangerous man at the table..."
URL: cbs.marketwatch.com
Commentary
The most dangerous man at the table
Anti-trust chief Klein can be an investor's nightmare
By Donald L. Luskin, CBS MarketWatch
Last Update: 12:06 PM ET May 23, 2000
Mutual Fund Center
Mutual Understanding
SAN FRANCISCO (CBS.MW) -- There?s an old saying: When you sit down at a
poker table, take a look at the players and try to figure out who the sucker is. If you can?t
tell, then it?s you!
As manager of a mutual fund, I?ve learned it?s the same with investing. It pays to
understand the other players. Especially the biggest ones, because the biggest players
control the game. That?s why investors follow every move of mega-players like Warren
Buffett, George Soros and Julian Robertson.
When these players trade big, markets move big. Even when
they?re dead wrong. Some pundits blame George Soros? fire sale
of technology stocks for April?s crash of the NASDAQ. It
wouldn?t be the first time Soros made his own personal bottom. On
the morning of October 20, 1987, it was a massive Soros
market-order to sell S&P 500 futures at the open that made
?Terrible Tuesday? so terrible.
And let?s not forget the biggest player of them all, Alan Greenspan.
Compared to Greenspan, Soros is a piker. What?s Soros? mere
$10 billion under management compared to Greenspan?s literally
limitless investment account? For EF Hutton to move the market,
people had to listen. Greenspan likes you to listen, too. But if you
don?t, he just tells his trading desk to drive interest rates so high
that the economy falls into recession.
You?ve got to keep your eyes on Soros
and Greenspan. But there?s another
player who?s even more important. I am
referring to none other than Joel Klein,
the antitrust chief for the US Department
of Justice.
If you don?t think Klein moves the
markets -- then you are the sucker at this
poker table. Just take a look at what he did to Microsoft (MSFT: news, msgs). Is there
any bear-raider from the 1920s who could have done a more thorough job of completely
trashing a stock? And if you?re wondering why the recovery in technology stocks came
apart last week, check the timing of the announcement that the DOJ was threatening to
block the long-standing merger plans of MCI-Worldcom (WCOM: news, msgs) and
Sprint (FON: news, msgs).
The antitrust laws were designed a hundred years ago to protect farmers from the market
power of government-subsidized railroads. Klein is powerful -- and dangerous -- because
the application of antitrust laws to technology companies acts like deadly poison on the
fundamental principles of technology economics. And these principles are what create all
the upside for investors.
Technology economics are based on what economists call ?network externalities.? That
simply means that a technology product -- such as an operating system, a piece of
software, or a network architecture -- becomes increasingly valuable when an increasing
number of people use it. The Windows operating system, Pentium chips and CDMA
cell-phones are all valuable because so many people have agreed to adopt them as a
universal standard. But for any technology standard, there is a single company that
dominates -- a Microsoft, an Intel, a Qualcomm. These companies naturally achieve
enormous market shares, as well they should. But then they may find themselves in Joel
Klein?s crosshairs.
Geoffrey A. Moore has called the technology business ?the gorilla
game,? in recognition of the critical role of these dominant
standard-setters. And the gorilla game works. For a company that
hopes to become the next ?gorilla? in its category, the potential for
dominance creates potential for explosive shareholder wealth
creation. For a more modest company, the standards set by the
gorilla in its category create an efficient environment in which to
develop complementary products and services, producing stable
returns for investors. For consumers, the complex world of
leading-edge technology is made a simple -- and inexpensive --
place.
But with Joel Klein on the prowl, gorillas are an endangered
species. For Klein, dominance of a technology standard is
tantamount to monopoly. So companies that develop dominant
standards can now expect to have those standards seized without
compensation, and put into the hands of their competition. In that
kind of world, where is the incentive to develop dominant
standards? And where is the potential for shareholder wealth
creation?
If you?re an investor, it doesn?t matter whether you think Klein is
right or wrong. All that matters is that he is on the loose, and his
actions can have profound effects on individual companies and the
entire market. He?s one of the biggest and most dangerous players
at this poker table -- and you?d better keep your eye on him whether you agree with him
or not.
That?s because what makes Klein especially dangerous is that the antitrust laws are
entirely subjective. There is no strict definition of a ?monopoly,? and no objective test to
determine if a particular company is one. So investors have no way of knowing which
company or industry will be Klein?s next target. That kind of uncertainty isn?t good for
technology companies, technology consumers, or technology stock prices.
Consider these words: ??the very existence of those undefinable statutes and
contradictory case law inhibits businessmen from undertaking what would otherwise be
sound productive ventures. No one will ever know what new products, processes
machines, and cost-saving mergers failed to come into existence, killed by the Sherman
Act before they were born.?
Do you think these words were spoken by a Microsoft apologist? Hardly. They were
spoken in 1961, in a speech before the National Association of Business Economists. The
man who spoke them was -- the envelope please! -- Mr. Alan Greenspan. I don?t often
agree with Greenspan. I do this time. |
