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March 28, 2018 | How AMZN Could Fall Below $200

Rick Ackerman

Rick Ackerman is the editor of Rick’s Picks, an online service geared to traders of stocks, options, index futures and commodities. His detailed trading strategies have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders. Barron’s once labeled him an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. His professional background includes 12 years as a market maker in the pits of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader.

Traders savaged AMZN on Wednesday, knocking $30 billion off the company’s market value following a report at Axios.com that Trump thinks the retailer is too powerful.  The timing of this oft-rehashed story undoubtedly was orchestrated by shakedown artists on Wall Street who stand to make hundreds of millions of dollars as the stock swings violently up and down, eventually coming to a relative state of repose in a week or two. Even so, the “news” ginned-up by Axios raises the question of whether Trump might be right.  Putting aside his well-known hostility toward Amazon and its founder, Jeff Bezos, it is plainly obvious that the retailer actually is too powerful.  The reason most of us don’t care is that Amazon continues to deliver, with amazing speed and at excellent prices, every product a shopper could conceivably want or need.

Amazon is so good at this, especially when dealing with customers in the boondocks and in densely packed urban areas, that it could raise prices at will.  So why hasn’t it done so? The reason is that, at least for the time being, Bezos would rather grow market share than his bottom line. But imagine what could happen as the Seattle-based behemoth gets closer to its implicit goal of monopolizing the world of retail. Presumably, they would have even more pricing power than they have now — enough to charge whatever they want. When customer protests start to grow in size and intensity, Amazon will put out a press release that says, in effect, Hey, we’re finally making a profit! Does anyone have a problem with that?

Pitchfork Rabble

Third-party retailers would have to kowtow or risk being cut adrift.  If the resulting price hikes were to occur in conjunction with a bear market and an economic recession, every shopper in America will start looking at Amazon the way Trump does.  And then what? If you think the U.S. Government would never try to regulate Amazon the way it does public utilities, you’re in for a surprise. With pitchfork rabble marching on Washington to demand “fair prices,” you had better believe that Trump, or whoever else is in the White House, would happily oblige.  Under the circumstances, it is not inconceivable that Amazon shares that have recently traded as high $1617 could fall below $500 — or even below $200. That’s what happens at bear market bottoms: Things sell for prices that we could never have imagined in good times. Don’t think it couldn’t happen again. (Incidentally, I will continue to chart AMZN’s ups and downs diligently, since the stock remains the single best proxy we have not only for the mindset of fund managers, but for the health and direction of the U.S. economy.)

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March 28th, 2018

Posted In: Rick's Picks

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