The Curious Case In Amazon’s “Thanks, But No Thanks” HQ Reversal

Some laughed, some cried. Some jeered, some cheered, while others felt the ending left everyone perplexed.

As much as it fits the bill, this is not a theater review for some play running in New York. No, what the above aptly describes is the reaction of the now defunct Amazon™ headquarters that was going to be built in Queens.

And just like anything in New York the critics are out in full force with not a one seemingly on the same page. So much so it would be fair to say even the critics are criticizing the critics.

Remember when Sinatra belted out “If I can make it there…” and people across the fruited plain dreamed weary eyed?

Today, not so much. And with Mr. Bezos abrupt reversal of making it his #2 HQ shows, maybe, making it there isn’t as important as it once was. After-all, lest we forget, the original plans were for one #2 location.

Amazon changed that in the end to also include Virginia. So much for the all importance of NY in the eyes of Amazon right from the get-go. It seems far too many (like the politicians et al.) forgot that little wrinkle. In other words, #2 was really more like #2-of-2, which further proved the dilution of the once foregone conclusions of the NY imperative.

However, as I’ve stated on my show over the recent months, Amazon’s reversal is not as much of a head-scratcher when viewed via the current status of the financial markets. e.g., Amazon’s share value and subsequent market cap from September thru December ($2050 to $1307) equaling a $734 loss in a near straight line.

And as much as everyone is screaming about BTFD’s (buying the f’n dips) in the broad indexes. Amazon as of this writing has far from recovered. As a matter of fact is still down from those highs nearly $400, which brings me back to my point.

There was a time not that long ago (like say, in September) that if Mr. Bezos mentioned any (any!) sort of expansion in regards to Amazon the stock value rocketing higher.

Today? The once all important driver of the indexes (remember FAANG?) is not even keeping up with them. Something is clearly amiss and I am of the belief that Jeff (I use the familiar only for ease) himself is acutely aware of this, and this is the true reasoning behind the abrupt 180º escape from NY.

For Amazon to follow through on its plans there had to be two things at play. The first: extract enormous beneficial concessions to make the plan viable because the operating margins are near minuscule to start with.

And second: only if the share price remains impervious to those margins can it remain feasible. Hint: Amazon’s shares are still down nearly $400 from only months ago, suggesting, the term “impervious” no longer applies.

This is the reason, I believe, for why the shovel never reached the ground. In other words, when it comes to all the reasoning given such as protests, ill-will from politicians and more. I am of the contention these were the convenient vehicles for excuses in reasoning, not the true underlying cause. And if I’m correct the implications go far wider than just this latest corporate/political name calling. i.e., it’s bigger than just NY.

One of the underpinnings as to why this latest deal, then no deal needs to be appreciated is that when it comes to both the company Amazon and it’s founder Jeff Bezos, there is one thing which is undeniable:

When the entirety of the capital markets was on its knees (circa 2008/09) and the share value of even the most stalwart of corporate representatives were being slashed in ways that would make the Grim Reaper envious. Once The Federal Reserve under Mr. Bernanke’s tutelage fired up the printing presses under its many iterations now known as QE (quantitative easing) Amazon led by Mr. Bezos became acutely aware that business fundamentals were no longer relevant (such as making a profit) and narrative (i.e., what I call “future hype”) was now the business model of the day.

And it was in that moment that Mr. Bezos took this new paradigm and ran with it far faster and far greater than anyone else, emphasis on anyone.

For those that may forget, Amazon in 2008 was dangerously dancing between the $30 and $40 range and there were many (which I was one) that thought that based on even this low value it was overpriced. The reasoning? They barely, if at all, made any profit. i.e., the business model was unsustainable and was only a matter of time till this retail experiment failed. That is – until QE.

That’s when the paradigm began morphing from: how much can you make? To: how much you can lose while promising you’ll make it up sometime in the future? And even doing that eventually became a misnomer. See Snapchat’s™ IPO filing for proof of concept.

During this initial period I believe Jeff either understood this new paradigm or, was just the initial recipient and put what we all call “2+2” together on the fly. For with every subsequent earnings call from late 2009 through 2010 and beyond, the more Amazon promised – regardless of the costs – the more Amazon-the-stock was rewarded.

And if Wall Street was going to reward Amazon for forsaking profits at the expense of growth and narrative? Then he was going to give them a run for their money – literally. For he would spend to grow and propel a narrative so large it would culminate in him becoming the richest man in the world.

Then: QT happened (quantitative tightening) and with it, so too the bid of Amazon’s shares at any price, for so far – they aren’t being bought at even the same rate as the indexes it once nearly propelled on its own.

And here’s where the rubber-hits-the-road in my estimation…

For if Mr. Bezos concluded rightly (which I’m in that camp) then subsequently ran with the implications resulting from QE as a business structure. i.e., if they’re gonna reward me to spend, them I’m gonna spend till their wallets run dry.

One must also need to hold the same observation (which again, I do) that if he was smart enough to understand the implications on the way up, he should be just as smart to recognize its implications should it be turned off. And it is here where the true “why” resides and where I believe NY became a no-go. Or said differently: He (Jeff) knows precisely that.

Here is where I’ll also contend that any “luck” moniker he may have acquired by those in the business community as a result from QE gets brushed aside as proving any “luck” aspect has been replaced by shrewd, tactfully calculated business brilliance, with the fortitude to change direction mid-stride, regardless of the cat-calls and more of others.

To bolster this point he is now doing similar in his home base of Seattle creating the gnashing-of-teeth now from the Atlantic to Pacific. Many are pontificating that this is in direct opposition to calls from unions, politicians and more about wages, taxes, etc.

Again, all valid assumptions, however, I feel they are just the vehicle of the moment to build the narrative for excuse.

Using the current political situation and uproar against corporate entities along with any CEO wealth bashing thrown in for good measure Bezos understands the power in using narrative running probably better than any other CEO currently. (To reiterate, this is all my conjecture.)

I also believe he is tuned-in far more intuitively to the resulting success in his share value as importantly as to where that came form, along with the implications if it is no longer going to be the force to front-run against – than front-running (or retreating) in the opposite direction makes absolute perfect business sense. Hence the sudden multiple about-face on grand scales.

The issue here which is also noteworthy is the implications that if Mr. Bezos intuitive understanding of what is about to further escalate via the resulting QT initiative, along with the already raising of interest rates is correct. And there’s more reasons to think it is rather than not. This means that all the incessant blathering about how earnings, valuations, “Goldilocks’ economy” and more has been nothing more than absolute garbage – and really never was.

Or, again, said differently: It’s been the Fed, it’s always been the Fed, and without the Fed there is no there there, anywhere.

I believe Bezos gets this probably better than anyone. And, if he’s willing to make such dramatic moves to the howling of politicians and others everywhere, regardless – is it not curious no one else seems to be thinking the same?

Then again, when it comes his judgement in other matters, he still appears to be thinking along the lines of a 12 year old.

However, with that said, when it comes to “pictures?”

The above may be painting something far more revealing than those sent via his email.

© 2019 Mark St.Cyr

Some Things Bear Repeating: What If Musk’s Behavior Is A Total Ruse?

I posed the above back in September of 2018, the reasoning is simple: if one applies “Occam’s Razor” to Elon Musk’s seemingly irrational behavior when it comes to being a CEO of a multi-billion dollar concern on the leading edge of the electric car market. What comes into view may not be what any investor may want to see, let alone, acknowledge the possibility there of.

For those that forget the “Occam’s Razor” principle: Occam’s Razor is the problem-solving principle that essentially states that “simpler solutions are more likely to be correct than complex ones”. When presented with competing hypotheses to solve a problem, one should select the solution with the fewest assumptions (source: Wikipedia™)

To say that the continuing behavior of Mr. Musk has been anything less than “complex” would be an understatement, which is why I brought this into the discussion in the first place and for those looking for any possible insight.

As I type this there has been more C-Suite defections (CFO, etc.) since that original article and the so-called “arrangement” made with the SEC and others as to oversee Elon’s social media proclivity has been nothing short of leaving one to conclude “what oversight?” Not to mention the intentional, direct shaming of said body, again, publicly, on the same media he is supposedly been warned to tread carefully on.

So much for respecting, never mind heeding any warnings, no?

Now we have what everyone is deeming a disastrous public relation roll out for a lower price model, along with more, for lack of a better word, ill-advised social media proclamations over the past days and weeks. All while the SEC has supposedly been looking into whether or not to bring Elon back into the fray with another, maybe more punitive sit down along the lines of “what we have here is a failure to communicate” type meeting of the regulatory minds.

It kind of makes no sense, that is, until you apply Occam’s Razor which lends to me to conclude just maybe all this craziness makes complete sense. That is, if one dares to contemplate: what if he wants to be removed as CEO, forcefully, by a regulatory body? And if so, why? What would be the upside? And if so, would it outweigh the downside?

My conclusion (as I made back then) is: Yes.

All conjecture of course. However, as I said back then, when you view it through the example I used, is it all so crazy? Here’s that example or rationale from my aforementioned article. To wit:

After all, what CEO in their right mind would take to a platform that has the potential for upcoming SEC scrutiny for being used in violation for stock manipulation and openly state he was thinking about going private – and – state the “funding secured” when he knows right well what such a statement would mean to his credibility, not to mention liability if it wasn’t for the fact that he was having some sort of breakdown?

Again, if we play this out in theory, is it so far-fetched to hear in some court should the need arise make the following argument:

“Dear members of the jury just look at my clients actions only days following the SEC launching an investigation. He goes on a popular podcast, knowingly being recorded on audio and video discussing his company among other topics and then – openly smokes weed. Does that sound like a person that is in control of his faculties or, is this someone who is past the point of stress and has moved into the area where medial council should have been sought?”

Are you beginning to see my point?

Now I’m quite aware that Elon has made some bizarre statements and more prior. But (and it’s a very big but) could the latest “weed controversy” be more of a doubling down to make relevant past transgressions for possible future defense narratives should the circumstances warrant?

Here’s what I know: If I were in Elon’s shoes at this moment looking at the possibility of criminal charges and more coming down the pike possibly sooner rather, than later. And, I’ve also been well aware, as well as followed the plight of Elizabeth Holmes and how things are stacking up against her and her once heralded company during this still evolving fall out, all while making or taking mental notes on how she conducted herself during all of it. I might conclude that my best defense may not be one of stoic type strength, but rather: out of control good intentions run amok caused by enormous stress trying to keep all prior promises.

The result? A different form of the “insanity defense.” i.e., Sure take most of my money, just don’t take my freedom.

“Sounds a bit crazy” you say. It’s a fair point but let’s just contrast and compare for a moment playing out my conjecture.

Elizabeth Holmes loses everything in the end. e.g., Her money, her business, her reputation, along with, possibly, her freedom. She’s now a pariah when it comes to the business world.

Musk?

He loses (again, only for example purposes) most of his money, possibly, still leaving him wealthy beyond most. He loses his company, but it is purchased by a rival such as GM™ or other and his vision lives on. His reputation either stays intact (amongst certain circles) if not grows further, because he is seen in many an eye as, not some devious entrepreneur, but one that tried “too much, and took on too much” and was overwhelmed and paid the ultimate price of losing his business. i.e., becomes the face as a business executives martyr.

And last but certainly not least, doesn’t face jail time, because – It wasn’t intentional – he was “insane!” type or legal posturing and defense.

If you had the resources to pay for the legal advice Mr. Musk is assuredly has been afforded: Would you not expect someone on your legal team to offer some, if not all of the above? Doesn’t mean you’d take it, but I do know this…

If I’m thinking it, I’d be damn upset if my legal team hadn’t suggested similar before I did. Therefore, if I’m thinking it just by casual observation and construction?

I have to by fault, consider that it is entirely possible. Especially when it seems to settle so many unexplainable results.

With the new exposé documentaries in books and more (Theranos, Ms. Holmes and more). Is the above that much of a stretch when you look at Musk’s continuing of what most have deemed “bizarre” behavior?

Or asked differently: Is there a method to all this madness? Maybe it’s all not as crazy or irrational as it seems at first blush. But it is something worth the attention for discussion, is it not?

Again, all my conjecture and remember, I’m also a great fan of Musk, but that doesn’t mean the answers to many questions may be in the same world of bizarre as the actions of a CEO of a multi-billion dollar concern displays.

All I do know is this: It’s getting harder to tell what’s crazier. The questions? Or, the answers?

© 2019 Mark St.Cyr