Google joining the trillion dollar club isn’t anything to cheer

The ‘Fangs’, companies that have joined the $1 trillion club or are seeking to do so, are now seen as safe havens, a place to run to when investors get nervous. They’re finding life entirely too easy, James Moore says

Investors are flocking to Google and co instead of buying up government bonds (Reuters)

Towards the end of last week Google, or rather its owner Alphabet, joined a very exclusive club. With the shares having enjoyed a strong run, it hit a market value of $1 trillion.

Previously only Apple, Amazon, Microsoft and Aramco had achieved that distinction. Three of those are the search giant’s American tech peers while the fourth is the Saudi state oil company.

Amazon has since lost the title, but the others have kicked on. There are some Americans who would see the fact that four of the five have been produced under the star-spangled banner as a source of pride and a symbol of the American economy’s strength and virility.

In some respects that’s true. By contrast to Aramco, a majority state-owned natural resources concern, the other trillion dollar titans were all founded and built up by entrepreneurs and their backers. They have ushered in revolutionary changes in a remarkably short space of time.

Because of their work, the west coast of America is at the cutting edge of a new industrial revolution, with universities, venture capitalists and an impressive population of highly qualified highly talented workers creating a booming local economy and an important contributor to America’s national economic vim in the process.

But their presence as far from an unalloyed benefit even in the regions they call home.

The critically acclaimed film Last Black Man in San Francisco gave voice to those left behind by the wave of gentrification in San Francisco that’s been part fuelled by the region’s tech boom. The same goes for Chuck Prophet’s searing “Alex Nieto”, a song written about a Latino security man who was shot by police after being wrongly seen as a menacing intruder in a neighbourhood in which he’d lived all his life.

Beyond the American west coast, Amazon has played an important and oft-debated role in the decimation of the UK high street. Google’s use of its customers data, and it’s dominance of the advertising market are also causes of discomfort. And you can find more examples like that.

One of the questions these issues raise about these titanic companies is whether it’s become too easy for them.

The FT’s John Plender recently highlighted an intriguing development in the world’s investment markets that gives voice to just how easy.

When faced with global instability, investors have started to see the “Fangs”, trillion dollar techs such as Google and Apple and their peers who would like to join them (Netflix, Facebook) or rejoin them (Amazon) as safe havens.

This, as Plender pointed out, turns traditional wisdom on its head.

He blamed “ultra-loose monetary policy” which has served to make the more traditional haven of government bonds deeply unattractive on the one hand, together with the Fangs’ vast cash-generating capacity, rich balance sheets and deep liquidity on the other.

Put more simply: They’re throwing off so much cash they’re as much of a sure thing as it’s possible to find.

Tech businesses already lend themselves to monopoly. If you want to buy something Amazon is the natural destination of choice because if Amazon doesn’t have it in its vast product range there’ll surely be someone on its marketplace that does, a marketplace that small businesses really need to be on, regardless of cost. Facebook? It’s social networks are where your friends area.

The most liquid businesses, like these, attract more liquidity, become more liquid, attract more liquidity. And there’s no competing with it.

These companies also act aggressively to both keep themselves at the top and also to keep themselves comfortable while they’re there. Potential competitors can, and are, bought up at an early stage, which is what Facebook’s been doing with other social media firms. WhatsApp is an example.

The transnational operations the Fangs have facilitate their diverting business to the lowest possible tax locales. They can afford the priciest lobbyists, lawyers and accountants, and so on and so forth.

Small wonder, then, that skittish investors have started to flee to a business area that was once seen as among the riskiest when the world’s geopolitical situation starts to look wobbly. Safe havens are exactly what these companies have become.

They are overdue tougher scrutiny, but beyond the EU’s top competition watchdog Margrethe Vestager and one or two of the feistier left-leaning Democratic presidential contenders in the US such as Liz Warren, there aren’t many willing to step up to the plate to provide it.

Google really doesn’t deserve our applause for breaching the $1 trillion barrier. Those who are at least attempting to keep it and its peers in check surely do.