Amazon and Trump – An Opportunity

The market’s been on easy mode the past 18 months. Trump-induced market freakouts have become a regular occurrence and follow a predictable pattern. Presidential tweets have sent many stocks tumbling, only to rebound a short time later. Those with patience and a decent understanding of the way the U.S. government works have received many free lunches.

Consider Trump’s latest victim, Amazon (AMZN). Through a series of scathing tweets, the President claimed that Amazon is killing brick-and-mortar stores nationwide and bankrupting the postal service. He also suggested they aren’t paying their fair share of taxes. The end result is spooked investors who are afraid the leader of the United States government will take punitive action against Amazon in the near future.

Many investors misunderstand the powers of the Presidency. It’s very difficult for Trump to act without Congress, and many of the tools available to him as Chief Executive can be challenged in court.

It’s true that the President can use anti-trust laws to try to break up monopolies (and Trump has labeled Amazon a monopoly), but so long as internet users can still type “www.walmart.com” into their browser, there’s little reason to expect a court to agree with him.

What about Amazon’s deal with the post office? Trump doesn’t have the authority to tear up the contract.

Suppose Trump is able to get Congress to go along with him and push Amazon on the tax issue, forcing Amazon to collect sales tax for all the third party vendors who sell through its platform. Even in this scenario, Amazon wins. The new law would almost certainly affect all online retailers. Collecting sales tax on a national level is difficult. You need to know the applicable city, county and state tax for each customer and keep this data updated as local laws change. Amazon’s economies of scale would give it a competitive edge. In fact, it would likely drive more vendors to use Amazon’s marketplace and skip the headache of trying to comply with tax law on their own.

Amazon shares are down almost 15% from their high last month, though nothing about the company has materially changed. This presents a solid opportunity to buy shares at a significant discount. It won’t take long before cooler heads prevail and the market realizes the dip is unfounded. Investors who are comfortable with more risk can look at out-of-the-money options expiring in two to three months. By then, earnings will be out and nobody will care about a handful of old tweets. If Amazon regains its all time highs, there’s a lot of profit to be made in a very short period of time.

 

[Disclaimer: I own AMZN shares. I purchased them in the $900s and plan on holding them for the foreseeable future. All ideas expressed on this site are my personal opinion only and not a recommendation to buy or sell any security or other asset.]

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