The Amazon Delta.

Now I am not a multifaceted equity geek, though I know my EBITDAS from my P/Es, but thee Amazon results do not sound like a cracking return. Granted, it beats the return on German Bunds which are currently negative yield out to about 7 years, but it isn’t the sort of profit margin you’d think a behemoth retailer would be churning out. So on that basis - sell. And a resultant 15% vanishes off their stock price.

But though that profit looks rubbish, what I do know is that whatever the profit margin is, even my mother uses them as first port of call for buying commoditised goods. The way Amazon is taking over retail, not owning their shares would be like not owning shares in oxygen. Ah, now here is an interesting point. We don’t own shares in oxygen because oxygen isn’t owned by anyone and is free, though it is exceedingly vital to life. So if we think of Amazon as the ultimate oxygen of retail, providing us with free retail respiration, then shouldn’t we think that though it isn’t making much money at the moment, one day, when they hit the critical level, they can do what OPEC should be doing and start to close the taps on us consumers and crank up margins.

Amazon may be looking like a charity with respect to profits, but it has the capacity to be a complete and utter bastard to it’s users. In this respect owning Amazon shares is a bet on their utter bastardnesss against the likelihood of anyone being able to replicate what they do to act as competition. I really don’t know where the competition is. Ebay is fast becoming the Friends Reunited of online trading and I haven't spotted anyone else on the horizon. So whilst Amazon may be turning in profits that look like a Google tax bill, I am ultimately wary of what the retail Borg can ultimately do. Like most tech companies, it isn't about the actual here and now profit, it is about the rate of change. The delta on the profits.

The next question to ask is 'was the Amazon price reaction nothing to do with Amazon per se but more a reflection on market fragility?’. Was that spat a clue towards a general market sell off ahead on ‘not much’ or a fracture in the FANG complex, or even a spin on a Unicorn / commodity spread? Oil is continuing to go higher and commodity stocks versus tech are closing in on the spread. As with most pieces of evidence left lying around in financial crime scenes, the evidence can be used to support all sorts of arguments. I will, perhaps, use it to support the argument that the last review I left on a Bosch food slicer has been the butterfly wings to the next financial crisis.

There is one other explanation. Instead of manipulating tax domiciles to reduce tax, it may just be easier not to make any profits on which one has to pay tax. Profits may be small, but the behemoth is growing.

Now for something completely different - FX. Something happened yesterday that worried me. Someone said they were watching FX for clues towards other market moves. Now whilst I would grant you that FX moves in emerging currencies in times of stress are important (TRY, ZAR etc) watching FX for signs of anything other than intelligent life is pretty pointless. FX markets spend all their days watching other markets for clues as to what to do as they are, in effect, the overlapping central part of a multi-circled Venn diagram of other assets (FX is NOT an asset by the way. A currency may be, but not an asset). So when I hear that other asset markets are looking at FX for clues I know confusion reigns.

Finally a comment on UK Brexit. I don’t think that all my friends are stupid, in fact I think quite a lot of them are pretty smart on recognised measures. But the one outstanding feature I see is that most of my friends in finance think that they will vote OUT in a BREXIT poll. This process is not going to be easy on UK assets. Whilst many say that finance would emigrate to Frankfurt or Paris on an exit, first I disagree that the exodus would be huge and second I would be buying real estate in Dublin before Paris or Frankfurt.