Noted investor Doug Kass made headlines Friday (July 14) claiming that "Washington" has begun antitrust talks on Amazon.com Inc. (Nasdaq: AMZN) and, not surprisingly, I got a blizzard of emails from anxious investors asking if they should be selling or even shorting Amazon, too.
To which I have but one reply...
...not unless you like handing over your money to line someone else's pocket.
The real question - and the one you should be asking - is why Kass is saying what he did and who stands to benefit. Then make your decision on how to play the situation for profits.
I'll help you do both right now.
The first thing you should do when you see a story like the Amazon antitrust one is take stock of who's saying what and whether that person is credible or just a smooth operator with a hidden agenda.
The answer in this case is pretty clear.
Douglas Kass is president of Seabreeze Partners Management Inc. and a brilliant investor I both respect and admire, not the head of some fly by night research firm you've never heard of. He's been active in the markets for 45 years and has a long, well-documented record of success.
That means he's credible.
The second thing you should do is take a close look at what he's actually saying.
What Kass Is Saying - and What He Isn't
In this case, it's that he's learned that there are "early discussions and due diligence being considered in the legislative chambers in Washington, D.C., with regard to possible antitrust opposition to Amazon's business practices."
This is a little more nuanced.
For one thing, I've told you that it is only a matter of time before politicians warm up the antitrust arsenal for an assault on what may be the finest example of capitalism in financial history.
So, if correct, this isn't news... at least to us anyway.
For another, President Trump himself has made no bones about the possibility of pursuing Amazon CEO Jeff Bezos "because he has a huge antitrust problem," according to comments he made during a 2016 interview with FOX Business Network's Sean Hannity. So, Kass could be merely stating the obvious.
However, the real key for me is that neither the Federal Trade Commission nor the Congressional Subcommittees on Antitrust Law have commented in response. Obviously, though, they can't in the event of an active investigation or, as is potentially the case in this instance, one that's just getting started.
Which brings me to the meat and potatoes and what you need to know to play the situation profitably.
What Traders "Talking Their Own Book" Means for You
Doug Kass stated very explicitly that he is "shorting Amazon today," which means he is engaging in a very nasty, time-honored Wall Street practice referred to as "talking your own book."
It's nothing more than a thinly veiled smash-and-bash tactic intended to scare you out of your wits and make you sell whatever stock's being mentioned so that traders can profit.
If you've never heard the expression before, "talk your own book" means making a few well-placed comments that potentially move the markets or specific stocks in a direction that benefits the positions you already hold.
In Kass' case, that's shorting Amazon (meaning he's bet that the stock will decline - here's exactly how that works).
The game works in both directions - up and down.
For instance, if traders want to push prices higher, they can work to build momentum to the point where computerized arbitrage programs kick in with "buying of their own." If they've had enough, they can slip out the back door by selling into the strength they've created as new party-goers are attracted to the proverbial party.
If they want to push prices lower, traders can simply walk away from the "bid," a tactic used with alarming regularity, and success against unsuspecting retail investors who are none the wiser. Absent consistent buying, sellers have no choice but to lower their "ask" until the buyers come back.
Or... they can "talk their own book."
Television host and former hedge fund manager Jim Cramer talked explicitly about how this is done on "The Daily Show with Jon Stewart" during a stunning March 12, 2009, interview, which referenced earlier footage from a Dec. 22, 2006, interview he did with "Daily Ticker" host Aaron Task.
During this now-infamous appearance, Cramer noted that he'd encourage anyone who's in the hedge fund business to do it because it's "legal and it's a very quick way to make money. And very satisfying."
He also told Task that while it's illegal to create an impression that a stock's down all by yourself, "you do it anyway because the SEC doesn't understand it." And you do it in such a way that you get the story-hungry media to do your dirty work for you, making prices move accordingly.
More commonly, though, bigger firms like JPMorgan Chase & Co. (NYSE: JPM), Goldman Sachs Group Inc. (NYSE: GS), PIMCO, or any of a dozen other behemoths will simply release a "research report" that is interpreted as gospel by the mainstream media and swallowed hook, line, and sinker by millions of unsuspecting investors as a reason to buy or sell.
Guess Who the Target Is
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The Internet allows prominent traders like Kass to engage a much broader audience than they would otherwise be able to, including - ta da - retail investors like you and me.
That's, of course, exactly what they want to see because it gives them the ability to buy or sell every last incremental counterparty for maximum gains... right before they reverse and move a given stock in the complete other direction.
With billions at their disposal, traders like Kass capitalize on the disarray created by news outlets, other trading firms, and the retail investors they prey on.
So how do you play this for profits?
I see three possibilities:
- If you think Kass is onto something and you're a very aggressive trader, consider shorting Amazon like he is. Just understand that Kass is exceptionally well capitalized and has a wide variety of hedging tools at his disposal to manage risk... most of which are designed to separate you from your money.
- If you think Kass is right but that the government won't act for a bit, tighten up your trailing stops "just in case" Amazon takes a header when the real story breaks.
- If you think Kass is playing the investing public the way Goldman Sachs reportedly does by trading against clients on everything from Greek debt swaps to the Facebook Inc. (Nasdaq: FB) IPO to Chinese companies, then get ready to buy using a lowball order to pick up shares "on sale."
My preference is option No. 3.
Why?
Because it's Amazon versus everybody else. Longer term, that means there is more upside than downside ahead no matter what the government does.
Put the clamps on and break it up?
Fine... there's a dozen multibillion-dollar businesses operating right now under Amazon proper. Doing so would unlock all kinds of value and allow you to buy shares or add to existing positions at a huge discount.
Amazon is a digital native, not a widget maker competing in conventional markets like so many analysts and government apparatchiks believe.
The company competes in digital data storage, provision, transactional capacity, e-commerce, logistics, cloud computing, and more. And that, in turn, means the company will continue to create opportunities that cross traditional boundaries most people still don't understand, let alone even recognize as being chock full of profit potential.
This isn't about simply being big or even being better. It's not about the potential antitrust enforcement.
Investing in Amazon is about buying into a competitor in industries that have never recognized it as such. And, in the course of doing so, playing by new rules that will lead to new profits.
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The post Before You Sell Amazon or Short It, Read This First appeared first on Total Wealth.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.