James G. Rickards is the editor of Strategic Intelligence, the latest newsletter from Agora Financial. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street.
President Trump has ratcheted up his war of words against Amazon.
Late last week, Trump tweeted that Amazon is having a negative impact on competing retailers, as well as the federal and local governments:
I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.) and are putting many thousands of retailers out of business!… This Post Office scam must stop. Amazon must pay real costs (and taxes) now!
Then there was this morning’s tweet:
Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country… not a level playing field!
Trump’s campaign against Amazon is nothing new.
He sent out a string of tweets last summer raging against Amazon’s monopolistic business practices. Here’s one from last August, for example, that sounds a lot like last week’s tweets:
Amazon is doing great damage to tax paying retailers. Towns, cities and states throughout the U.S. are being hurt — many jobs being lost!
But Trump’s attacks against Amazon are not just economic — they’re also personal.
Amazon CEO Jeff Bezos also owns The Washington Post, which is strongly anti-Trump. Trump sees The Washington Post as the unofficial leader of the resistance to his administration. The president has even referred to the newspaper as the “Amazon Washington Post.” And he knows it’s been out to get him.
What does all this mean?
It means there’s an excellent chance that Trump could pursue antitrust legislation against Amazon.
Trump’s logic is simple. 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.
Antitrust law enforcement in the United States is a bit like the weather — unpredictable in the long run and highly changeable.
The Justice Department can go years or even decades without bringing a major antitrust case and then suddenly decide the time has come to send a message to big business, with emphasis on the word “big.”
When that happens, there is always one company that stands out from the crowd as a kind of sitting duck for ambitious prosecutors. Today, the sitting duck is Amazon.
When the case against Amazon begins, the stock will tumble. Amazon’s stock price is vulnerable under the best of circumstances because it ran up so far so fast. The bad news of an antitrust case will be the catalyst that causes investors to dump the stock in a desperate race to get out ahead of the crowd. Selling will feed on itself.
The selling contagion will spread to the rest of the FAANG stocks (Facebook, Apple, Netflix and Google) and to the Nasdaq as a whole.
Amazon stock was down as much as 6% today, based on Trump’s latest attacks. And the Dow is down almost 500 points at writing. The S&P and Nasdaq are also getting hammered.
But this could just be the beginning.
These companies are already vulnerable because China has threatened sanctions against U.S. technology companies. Technology stocks, led by Apple, dragged the broader market lower last week when the news broke. These threats of course come in retaliation against Trump’s latest promise to crack down on Chinese theft of U.S. intellectual property.
Any antitrust action Trump pursues against Amazon will trigger another correction or worse in U.S. stocks.
But investors who can read the antitrust tea leaves correctly stand to make huge profits when the Justice Department strikes.
for The Daily Reckoning