Or AWS vs. AWS vs. AWS? As matters have unfolded, this seemingly innocuous acronym now perfectly captures the pitched battle raging between the new and old economies, and (if you will) the new and old markets.
Now, if you’re like me (i.e. the romantic type) what first comes to mind with respect to the acronym AWS is the American Welding Society, the organization that carries the proud banner for those merger agents of metallic units, those soldiers of the solder, those forgers of the functional fires — the welders of this great nation. I suggest, at this questionable pass, we take this opportunity to offer an energetic tip of the hat — to both the Society and its constituents. I mean, after all, if welders bugger things up, it can cause the rest of us untold aggravation or — worse. But they don’t bugger things up. Or at least they do so only on rare occasion. So I’ll say this: to those about to weld, I salute you.
That welders built our fair landscape – from the Empire State Building to the Golden Gate Bridge, is a matter almost beyond dispute. But, as time passed, and until recently, the most visible use of the AWS acronym might very well have been “Attention Walmart Shoppers” – that cry from the loudspeaker of the world’s largest retail outfit, alerting patrons that something special is happening in Aisle 5.
However, by all accounts, this acronym application, too, has been superseded by its progeny. Under current paradigms, the initials AWS almost unilaterally refer to Amazon Web Services – the cloud computing division of the conglomerate most likely to devour the world.
But the Wally Pipped retailers from down south are not, shall we say, taking this lying down. It now appears that the 2 latter day forms of AWS are pitted in a death match against one another; it’s Walmart vs. Amazon – corpo a’ corpo, and may the best capitalistic colossus win. While we all have borne witness to the latter eating the formers’ figurative lunch in recent years, in 2017, Walmart started pushing back. It bought itself an on-line retailer or two: most notably Jet.com (for a paltry $3.3B) and set its wonder boy/founder to the formidable task of storming the e-commerce fortress, and establishing an electronic beach-head on Amazon’s dangerous shores. As part of this effort, the much-feared clan from Arkansas issued the following warning to its legion of vendors: we’re all for your moving your data to the cloud, but in doing so, you might wish to consider using a solution not tied to any company named after a river in South America.
The message was no more nuanced than it needed to be. What Walmart wants, Walmart gets (at least until recently), and one can certainly empathize with their desire to protect proprietary data, upon which Bezos and his crew might, albeit accidentally, otherwise stumble. It was as if the Corporate Gods had convened on Mount Olympus and one was heard saying to aloud: “Attention Walmart Shoppers: nothing in your carts is manufactured or distributed by a company using Amazon Web Services”.
The whole on-line ploy worked for a while, and the ticker WMT responded accordingly, but recently, and as reported in last week’s quarterly earnings statement, the “House that Sam Built’s” fortunes in the ionosphere have flagged considerably.
As a result, while the seemingly unstoppable AMZN rocket continued its inexorable climb to the heavens, reaching by Friday’s close the lofty (and improbably round) threshold of 1500.00, the holders of WMT, as illustrated in the following graph, were not so fortunate:
Now, you should know that while Bezos continues to trounce his frenemies on the Forbes 400, and is now the world’s richest man (at least this side of Putin) by a wide margin, the Walton family (presumably including both Deadhead Bill and John-Boy himself), as holders of >1.5B shares, yielded, in excess of $2 Billion of collective net worth in the debacle. Here’s hoping (and expecting) that they will survive the blow.
But there are other, perhaps more relevant issues for us to consider. To the best of my ability to determine these matters, this may be largest earnings-related price drop of a Top 10 (until last week, when it suffered an ignominious fall to #14) market cap firm, since at least the big crash of a decade ago.
And here’s the thing: WMT earnings weren’t even that bad. In fact, they beat on most of the metrics upon which we are trained to focus, including profits, revenues, same store sales, margins, etc.
So what in the Sam Hill is going on here? Well, I’ll quickly dispatch with a couple of what I believe to be relevant, but secondary root causes. WMT soared through the stratosphere on this whole e-commerce play, but what the Web Gods giveth, the Web Gods can surely take away. If one can debate whether 92 is (forgive me here) an “Attention Walmart Shoppers” bargain, the 110 peak, manifested in those giddy days of late January, might’ve been, by the same argument, more of a Tiffany pricing metric for the name than a company that sells more Swiffer Wet Jets than diamond pendants, than it might’ve earned. I’ll also make short work of the premise that just as in the heady days of the dot.com bubble, all that should matter about a name is the strength of its web presence.
Instead, I will make the aggressive leap of logic that for the first time in several quarters at any rate, large, arguably over-owned securities have found themselves subject to the formidable forces of gravity. This does not preclude them from rising, but now, if the WMT episode can be extrapolated, they are subject to potential merciless punishment for any disappointments issuing forth from their C-Suites. There are of course exceptions, most notably the now indisputably AMZN-led tech cabal, but one wonders if even these widely adored capitalist juggernauts might not one day face a reckoning of their own.
At present, however, it appears that market participants view these enterprises as being infallible. In fact, I’d go so far as to opine that investors somehow view buying FAAAAANG shares as being their best option for risk reduction, and I hardly need to convey – to this audience in particular – how deeply this offends my sensibilities.
But that’s where our affairs stand for the moment, and I reckon we’ll have to live with the consequences. We’re now entering the quiet period of the quarter. Earnings are nearly all posted, and, as we’ve been tracking, they were highly gratifying to observe in their unfolding. Last week’s galactically gargantuan and potentially petrifying Treasury auction came and went without doing gratuitous violence to the yield curve. Yes, we’ve got Feb macro numbers to crunch, and Fed Chair Powell makes his maiden address to both houses of Congress next week. In addition, at some unspecified point in March we will have to endure yet another of those wearying debt ceiling dramas. Shortly after St. Paddy’s Day, Chair Pow will take to the FOMC podium for the first time – in all probability to announce another hike in overnight rates. But aside from that, and after a rollicking first seven weeks to the year, we may perhaps have cause to give thanks to the dearth of data set to assault our senses – at least till early April, when the information flow will again be fast and furious.
In the meantime, perhaps as a harbinger of our immediate fortunes, the technicals associated with the Gallant 500 are behaving in such a way as to bring a smile to the faces of the Tom DeMarks and Louise Yamatas in our midst. The selloff earlier in the month (remember that?) unfolded in such a way that not only did the Citadel of the 200-day Moving Average hold strong, but the index bounced jauntily as it touched this threshold:
Friday’s rally took the SPX above its more forgiving 50-day Moving Average, and perhaps this indicates that equities can do some open field running here. But I doubt it.
I am more inclined to think that we may trade between the yellow and the purple lines displayed on the left. But I’d be remiss if I failed to mention that Spoo has now slipped back into that dangerous 27 Club: the one which claimed the lives of Jimi, Jim and Janis. This time round, the climb to 28 may be less of a cake walk.
From a broader, longer-term perspective, 2018 is shaping up to be pretty interesting. As indicated above, investors are starting to punish even former favorites who fail to meet their hopes.
Further, and as also discussed in last week’s installment, the ingredients for the Inflation Pie, and for higher rates across the curve, are all on the table, and how they bubble in the oven will go a long way towards determining our near-term fortunes.
I also believe, though I won’t hit this one too hard for now, that the next 3-5 months are enormously important from a political perspective. With: a) the average mid-term House gain by the minority party clocking in at about 30 seats: b) the Republicans now holding only a 24 seat edge; c) the near-certainty that if the lower chamber flips, they will bring articles of impeachment against Trump; and d) the empirically demonstrated high correlation between mid-year performance and mid-term elections firmly in view, a lot is riding on both economic and market fortunes between now and, say, Labor Day. Both sides know this, and what I see is a pitched battle between parties, with one of them seeking to gun the economy, while the other seeks to stifle it. One thing is certain: the markets will react to these skirmishes.
But pitched battles, as indicated above, are part of the human condition, as is our propensity to endure. In the end, history shows that the honors devolve to the most stalwart among us. If the pattern holds, then the American Welding Society may well outlast either Walmart or Amazon, and if so, we might do well to take some joy in this outcome. Next year marks their 100th of glorious operation, and I’ve been looking around for details about their Centennial Jubilee. Their headquarters, somewhat improbably, are in Miami, FL, and come what may, I’m going to try to attend the festivities.
For reasons that should be all too clear, I hope to see you there.