Trump’s Revenge on Amazon

Regardless of the merits or demerits of the Amazon business model, prosecutors could bring a case against “bigness” per se as an example to the rest of Corporate America and to demonstrate that the antitrust laws are an effective government tool.

And it all begins with a letter.

Antitrust suits do not start with full-blown litigation on day one. They begin with a letter of inquiry. This notifies the target company that the Justice Department is looking into possible antitrust violations and asks for the company’s cooperation in providing needed books and records.

Most companies find it in their best interests to cooperate with such requests. They hope to convince the government that “there’s no there there.”

Companies that don’t cooperate will soon receive subpoenas potentially backed up by court orders that will force cooperation. That’s one more reason to cooperate — the government will get what it wants one way or another, so it’s better to cooperate in order to earn some goodwill.

An actual case can take years to investigate and years more to litigate and appeal. But the stock market won’t wait for the process to play out. The letter of inquiry alone will be enough to trigger a sell-off.

Amazon is a public company and, under applicable securities laws, will have to disclose the letter of inquiry as soon as they receive it. Markets are on a hair trigger. They have a “shoot first, ask questions later” mentality.

More likely, the Justice Department will leak the contents of the letter before Amazon even has time to open the mail.

Once that happens, the sell-off will begin. It could even happen in the middle of the night if there is a late-in-the-day leak from the Justice Department, followed by overnight selling in Tokyo, Singapore, Hong Kong and London.

By the time you wake up in the morning, Amazon could already be down $100 per share or more.

Given the likelihood of the event and the uncertainty of the timing, you need to position yourself now to capitalize on this once-in-a-century antitrust case.

John D. Rockefeller

It would be nice to believe that the law is applied in an impartial and politically neutral way. Unfortunately, that is not the case. Even when statutes are written objectively, they are often applied based on prevailing political views. As my law professors always reminded me, “Judges read the newspapers!”

Most Americans are familiar with the current age of progressive politics, which includes figures such as Bernie Sanders and Elizabeth Warren. But this is the second progressive age in U.S. political history.

The first progressive era was from about 1890–1920 and arose partly in reaction to monopoly corporate power in oil, steel, railroads and other key industries. It was in this period that the most important antitrust laws were enacted.

The principal antitrust laws in the U.S. are the Sherman Act (1890), which outlaws any “contract… or conspiracy in restraint of trade,” and the Clayton Act (1914), which prohibits acquisitions that “tend to create a monopoly.”

Other antitrust statutes include the Federal Trade Commission Act (1914), the Robinson-Patman Act (1936) and the Hart-Scott-Rodino Act (1976). For those who are interested, the Federal Trade Commission publishes a complete guide to the U.S. antitrust laws, including applicable statutes, legal theories and enforcement agencies.

This legal arsenal has been used by the Justice Department to break up what it perceived as the largest monopolies of their time.

This led to a series of landmark cases over the past 100 years, including Standard Oil Co. of New Jersey v. United States, which broke up the Rockefeller-controlled oil trusts in 1911; United States v. AT&T, which broke up the Bell Telephone communications monopoly in 1984; and United States v. IBM, which was an effort to break up the computer monopoly in 1969.

The Standard Oil and Bell Telephone cases both resulted in actual corporate breakups. The IBM case did not result in a breakup order, but the pressure on IBM resulted in the company essentially giving away its personal computer disc operating system (DOS) to a young entrepreneur named Bill Gates, who used it to start a company called Microsoft. The rest is history.

Now that a new age of progressive and populist politics has arisen, a new wave of antitrust enforcement is coming. Big business is being attacked both from the left (Bernie Sanders and Elizabeth Warren) and from the right (Donald Trump).

There is no bigger target for this new wave of progressive and populist antitrust enforcement than Amazon.

A quick reading of the antitrust laws and familiarity with the leading cases makes it clear that the government’s legal authority is extremely broad and can be applied to almost any large company at will — especially Amazon.

Amazon’s actions in destroying competition in books and electronics give the government more than enough to go on. Amazon’s 2017 acquisition of Whole Foods and a co-marketing arrangement with Sears give other competitors even more cause for concern.

I have personal experience in this field. As a lawyer in the 1980s and 1990s, I defended one of the largest bank dealers in U.S. government securities in an antitrust case.

The Justice Department alleged that the primary dealers, including my client, were colluding to rig the prices of U.S. Treasury notes in auctions conducted by the Federal Reserve Bank of New York as fiscal agent for the U.S. Treasury.

In the course of defending that case, I retained Robert H. Bork, a legal scholar, former federal judge and Supreme Court nominee who wrote a landmark treatise on antitrust law called The Antitrust Paradox.

Bork and I eventually got the Justice Department to drop the case. Needless to say, Bork was the best possible tutor on antitrust law available.

How can we estimate the probability of an antitrust case against Amazon and the extensive stock market damage that will result?

What are the prospects for a government antitrust case against Amazon?

Bigness alone is not a violation of antitrust laws. That bigness has to be combined with some action, possibly including contractual relations and merger and acquisition activity, to provide jurisdiction for a case.

Notwithstanding legal theories, the single most important development in this case has less to do with legal analysis and more to do with politics.

The president sees The Washington Post as the unofficial leader of the resistance to his administration. The Washington Post was the newspaper that took down Richard Nixon in 1974 through reporters Carl Bernstein and Bob Woodward. (You can see this portrayed in the film All the President’s Men.)

The paper has been trying to take down Donald Trump, and Trump knows it.

So what’s the connection between Amazon and TheWashington Post? The answer is Jeff Bezos.

Just to be clear, Jeff Bezos owns less than 20% of Amazon (although that alone is enough to give him a net worth of over $80 billion).

And Amazon does not own The Washington Post at all. The newspaper is owned personally by Bezos through a separate holding company, not by Amazon.

None of that matters to Trump.

Trump’s logic is simple. In Trump’s opinion, Bezos owns The Washington Post and has influenced its political bias and attacks on Trump. Most of Bezos’ net worth is tied up in Amazon stock. In the world of billionaires and powerful politicians, the way to hit someone hard is in the pocketbook.

Trump will attack Amazon and clip Bezos’ wings by $10–20 billion as payback for what he considers Bezos’ attacks on him via the Post.

Call it “the art of the deal.”

But as I mentioned earlier, investors who prepare now for the coming attack on Amazon can reap huge gains not only on Amazon, but also on the FAANG stocks and the broader Nasdaq market.


Jim Rickards
for The Daily Reckoning

The Daily Reckoning