Back at the height of the Industrial Revolution in the US, oh, say, around the time the big railroads were taking government handouts right and left to connect the east coast to the west coast of the continent, monopolies became a problem. So much so, that a few decades later, the US Congress passed the Sherman Anti-Trust Act in 1890. This law specifically outlawed monopolies.
Yet, this law has never really worked. For example, when I was growing up, if one wanted telephone service, one got it from AT&T. Yes, that changed over time, especially after the US government broke up “Ma Bell” in 1982. Simply, AT&T had control over the Bell System, a collection of phone service providers that sold phone service and long distance.
The breakup of AT&T’s phone monopoly resulted in a true competitive environment. Small and large companies alike ate up the pie. Today, AT&T is but a shell of its former massive self. In fact, many of the companies that provided land-line phone service are either gone or they have morphed into purveyors of trunk systems or Internet Service providers, as land-line phone service is moribund.
As reality would have it, though, the dissolution of Ma Bell turned out to be a one-of-a-kind enforcement act. Today, we have monopolies running around right and left. Microsoft, a decidedly sluggish giant providing mediocre products owns some 80% of the PC market, its competition effectively suppressed by restrictive license agreements with retailers.
And what about the health insurance companies? True, there are more than 125 companies out there, but of those, the top 25 own two-thirds of the revenue, and of those top 25, well, it is hard to tell who owns who. For example, the top insurer, WellPoint, is the licensee (front man) of Blue Cross, Anthem, and Blue Shield, effectively the only providers here in California.
What has effectively happened is the biggest of the big health insurers have bought up or merged with the competition and then the group (the big guys) as a whole carved up the country to control pricing. One of the mandates of The Affordable Health Care Act is to break up this collusion by fostering competition, but will it happen? I will be surprised.
- SoftBank Corp Chief Executive Masayoshi Son said on Wednesday that the top two U.S. mobile operators have an oligopolistic position in the U.S. markets. Earlier, Son declined to comment on reports that his company’s subsidiary Sprint Corp was looking to buy U.S. rival T-Mobile US. He also declined comment on U.S. regulators’ reported skepticism about a potential merger between Sprint and T-Mobile.
In today’s transforming business world, wireless providers are acting much like health insurers. Verizon and Vodafone dominate the globe and the others fight for the scraps.
- The European Commission called on Wednesday for a dilution of U.S. influence over the organization of the Internet. The European Union’s executive arm stopped short of demanding greater government control as some countries like China and Russia have pushed for. Currently, ICANN, a California-based organization operating under a contract with the U.S. government, oversees the introduction of new internet addresses.
One could argue that ICANN is a monopoly and one could argue that the US government is the overlord of that monopoly and one might not be far off, as the line between private and public enterprise is clearly blurred here. The point is that in this transforming business and economic world, the Internet (a US government creation) is, arguably, the single most important piece of the whole puzzle. It is the singular system that effectively carries all of the global information transmitted on a daily basis. It is the lifeblood of all economic activity, so whoever controls it, controls the world. Right now, as far as we know, it is still relatively free from control (don’t ask the Chinese), but what will happen say, five or ten years from now?
- Microsoft Corp denied on Wednesday it was omitting websites from its Bing search engine results for users outside China after a Chinese rights group said the U.S. firm was censoring material the government deems politically sensitive.
There is Microsoft again, only this time, the behemoth is doing the bidding of the Chinese government. Why? Well Microsoft enjoys certain advantages that other software operating system providers don’t have in China. Why? Could it be that it controls so much of the PC market that it can provide advantages for the Chinese government, you know, quid pro quo, the back-scratching thing.
The world is both changing and remaining the same (monopolies) and as investors and traders, we need to understand how this works so we can both make money and not lose money in the market. After all, the market is simply a reflection of the world business and economic environments.
My point, ultimately, is this – in the world of big, big business, corporations are not always what they seem. So caveat emptor, or, another way, check out everything before you pull the trigger, unless of course, you are simply trading the price action. If so, then who or what a corporation is, is wholly irrelevant, unless, of course, you have a moral or ethical perspective. If so, then do your due diligence and find out who or what the business truly is.
In the meantime, consider how you trade. My preference is swing trading, which is another whole ball of wax to write about.
- Move in and out of positions in steps. You don’t need to put an entire position on all at once. You can do it in stages. This is especially true when the market is making big moves. It is a good idea to put on a partial position to start, then add to that position on any downside volatility that comes along.
P.S. I like the market action today. Things are beginning to feel normal again. Yahoo! Oops, sorry Google. If you are reading this, I didn’t mean to offend.
Trade in the day; Invest in your life …
