The Amazon Effect

The Amazon machine is a fascinating one.  On one hand, Amazon's story is one of the triumph.  An entrepreneur such as Amazon founder Jeff Bezos was able to build nothing into a global empire.  The epitome of capitalism and the American Dream.

On the other hand, many people have been hurt because of such capitalism.  The independent bookstore has physically closed up shop.  However there are still some that continue to battle the good fight, see our post   The Man Who Took on Amazon and Saved a Bookstore.  It's proof that business can survive no matter what, they may just not look the same as they used to.

Full article via The Nation here

• From the start, Jeff Bezos wanted to “get big fast.” He was never a “small is beautiful” kind of guy. The Brobdingnagian numbers tell much of the story. In 1994, four years after the first Internet browser was created, Bezos stumbled upon a startling statistic: the Internet had been growing at the rate of 2,300 percent annually. In 1995, the year Bezos, then 31, started Amazon, just 16 million people used the Internet. A year later, the number was 36 million, a figure that would multiply at a furious rate.
• Two decades ago, there were about 4,000 independent bookstores in the United States; only about 1,900 remain. And now, even the victors are imperiled. The fate of the two largest US chain bookstores—themselves partly responsible for putting smaller stores to the sword—is instructive: Borders declared bankruptcy in 2011 and closed its several hundred stores across the country, its demise benefiting over the short term its rival Barnes & Noble, which is nonetheless desperately trying to figure out ways to pay the mortgage on the considerable real estate occupied by its 1,332 stores across the nation. It is removing thousands of physical books from stores in order to create nifty digital zones to persuade customers to embrace the Nook e-book readers, the company’s alternative to Amazon’s Kindle.

Buying a Piece of America: Why Chinese Shoppers Love U.S. Brands

This article in the Atlantic gives an interesting perspective on how Americans are viewed in China.  Author and advertiser Tom Doctoroff provides an excerpt from his book What Chinese Want: Culture, Communism and China's Modern Consumer.

• Americans can often carry a somewhat simplistic view of China and the Chinese people. Although apprehensive about the rise of this economic juggernaut and its impact on the American way of life, the images China casts are rooted in the past: dusty, robotic, gray, and ultraconformist.
• The Chinese, on the other hand, are fascinated by America, although often perplexed by its inherent contradictions. The United States is both free and unfair, creative and fashion challenged (some Chinese describe blue button-down shirts and khaki pants as our uniform), sporty and grossly overweight, institutionally robust and politically dysfunctional, individualistic and self-deluded (they love to laugh at narcissistic, talent-free American Idol contestants). They are amazed that a nation of 300 million self-starters does not come apart at the seams.

Don't Fight the Fed....Again

I was listening to Dennis Gartman, author of The Gartman Letter on Bloomberg which surprisingly I have started listening too more than CNBC.  For those that don't know Gartman, is a closely watched figure within the financial community.

In his interview with Tome Keene, Gartman touched on the fact that he wasn't bullish enough when it came to stocks this year.  And why was this, simply put "don't fight the fed".

As we have talked throughout the year, the Fed with it's easing monetary policy is crushing savers with low interest rates and pushing people into stocks or higher risk assets whether they want to or not.

One way we have advised people to address this issue is if you have to be in stocks, buy high quality stocks.  What do we mean by high quality stocks?  Let's review the following below

1. Debt, look for companies that have a low debt, either on an absolute term or as a % of capital or equity
2. Cash Flow, strong companies are able to generate enough operation cash flow to the point where it can cover capital expenses or dividends without having to borrow
3. Revenue, even in tough times can a firm take mark share away from competitors without giving up profits?  Look for smooth revenue up trends but beware of out of control growth which cannot be sustained.

What do all three of these metrics have in common?  Companies can not easily manipulate these figures with accounting adjustments that they can do with income.  Debt is debt, cash is cash, and Revenue while it can be affected is a little harder to adjust.

Companies that check all three of these boxes is a company that likely deserves further research and analysis as a potential buy.

Although some people may speculate that high quality especially dividend paying companies may be in a bubble after a year or so of running up in price, we disagree.  As the Fed continues to poor liquidity into the market and bonds prices escalate further, high quality stocks are likely the best way to beat the Fed at it's own game.

Go here for the full radio interview on Bloomberg

Is It Better to Buy or Rent?

This is a very good tool for those of you who are asking the question of weather to buy or to rent? Go here to access this interactive graph courtesy of the NYT.