June-July 2021

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AMAZON’S PREDATORY CAPITALISM

Which Side Are You On?

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June/July 2021

AMAZON’S PREDATORY CAPITALISM

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Amazon Primeval

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The Face of the Resistance

As the company extends its reach into nearly every aspect of American life, it’s trying to shift the conversation away from antitrust.

The author of How To Resist Amazon And Why has plenty to say about the problems he says Amazon causes.

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Maximum Rage

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Amazon’s ‘Patriotic’ Tax Gambit

Amazon workers aren’t as concerned about the minimum wage as they are about brutal working conditions.

PHOTOGRPAH: (AMAZON) REUTERS/LUCAS JACKSON

Bezos and Amazon are supporting higher taxes—a move that’s less counterintuitive as it appears.

Amazon workers hustle to meet their quotas in the Robbinsville, New Jersey, fulfillment center.

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Amazon’s New Silk Road

28

Amazon Subprime

29

Five-Star Fakery

30

Surveying the Amazon

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Luckbox Leans in with Scott Galloway

The big American online retailer has become inextricably intertwined with China—but do Americans care?

Counterfeit merchandise on Amazon Marketplace can be life-threatening.

Customer reviews are a great resource, except when they’re phony.

Taking the nation’s pulse on its thirdlargest company.

This speaker, podcaster, entrepreneur, best-selling author and professor of brand and marketing strategy shares his latest thoughts on Amazon.

June/July 2021 | Luckbox

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editor in chief ed mckinley managing editor yesenia duran associate editor mike reddy editor at large garrett baldwin editorial intern kendall polidori technical editor mike rechenthin contributing editors vonetta logan, tom preston Taylor Swift performs during the iHeartRadio Jingle Ball concert at Madison Square Garden.

p. 35

tactics

trades

life, luxury & the pursuit of happiness

essential trading strategies

actionable trading ideas

INTERMEDIATE

RECORD HIGH

35 Making a Buck in the Band

47 The Futures of Technology

NORMAL DEVIATE

38 Amazon Primed

ARTS & MEDIA

40 What Drives Us

INSERT

CHEAT SHEET

Risk Mechanics

contributor’s guidelines, press releases & editorial inquiries editor@luckboxmagazine.com

CHERRY PICKS

51 Retail Options

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52 Fiscal Stimulus, Inflation and the Dollar’s Next Move

media & business inquiries publisher: jeff joseph jj@luckboxmagazine.com

ADVANCED

49 Breaking the Butterfly’s Wings

CRYPTO

54 Big Tech Banking

Luckbox magazine, a tastytrade publication, is published at 19 N. Sangamon, Chicago, IL 60607

BOOK VALUE

41 The Luckbox Bookshelf

DO DILIGENCE

56 Retail Bargain Hunting

Editorial offices: 312.761.4218 ISSN: 2689-5692

TRADER

42 Meet Rich Dvorak

THE PREDICTION TRADE

FAKE FINANCIAL NEWS

editorial director jeff joseph comments, tips & story ideas feedback@luckboxmagazine.com

FOREX

contributing photographer garrett roodbergen

Printed at Lane Press in Vermont

THE TECHNICIAN

luckboxmagazine.com

58 The Changing Course of Amazon

44 Business Forecasting Models

8 Black Mirror Bodega

EQUITIES

CALENDAR

FUTURES

Luckbox magazine

61 Prime Numbers @luckboxmag

45 June 2021

THE LAST PICTURE

64 The Future of Antitrust

62 Grain: The Next GameStop?

On the cover: Illustration by Michelle Thompson

2019 & 2020 Best New Magazine Folio Award for Custom Content

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Luckbox | June/July 2021

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5/13/21 11:16 PM

AMAZON: WHICH SIDE ARE YOU ON? The activist wife of a United Mine Workers organizer wrote those lyrics after the county sheriff and a gang of company thugs broke into her family’s home. It was in 1930s Kentucky at the outset of a decade-long clash that became known as the Harlan County Wars—the epic movement to unionize the mines. The song has become an anthem for union workers everywhere and has been performed by Pete Seeger, Natalie Merchant, Tom Morello and the Dropkick Murphys.

Its timeless lyrics still capture the feelings of today’s workers as they try to organize unions at notoriously harsh Amazon fulfillment centers. But those efforts can fail, as they did this spring in Bessemer, Alabama, when Amazon reportedly intimidated employees, practically forcing them to vote no to unionize.

Amazon’s lawyers were probably smart enough to avoid breaking any labor laws or regulations in the union-busting schemes, but they undoubtedly contorted the rules in ways their framers never intended.

But bending the rules has become a specialty for Amazon.

Amazon is consolidating its control of government at all levels. It now owns a huge share of the cloud computing capacity vital to a growing number of clients in municipal, county and state governments.

My daddy was a miner He’s now in the air and sun He’ll be with you fellow workers ‘Til every battle’s won Which side are you on?

Which side are you on?

—Which Side Are You On?, Florence Reese, 1931 It manipulates cities, luring them into sharing valuable data and offering up sizable tax breaks and other incentives in the hope of landing Amazon offices or distribution operations.

The company spares no expense in its efforts to lobby Congress and government agencies. The strategic focus of its 115 lobbyists on particular government officials and departments serves as a preview of what industries the company is plotting to dominate.

Meanwhile, the very existence of the USPS may be in the hands of Amazon. But even while the company relies on the postal service for some deliveries, the two compete for the more lucrative deliveries.

Amazon’s Ring Video Doorbell records the piracy of the packages the company itself delivers, but that security comes at the expense of Big Brother-style surveillance that bodes ill for the future.

The company’s forays into facial recognition technology pose another threat to privacy and could become doubly scary if Amazon combines that tech with the home security cameras it already sells.

Then there’s the seemingly endless scandal of Amazon’s tax avoidance. The nation’s third-biggest company, headed by the world’s richest man, pays only a pittance

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to support all of the government services it enjoys.

Free marketers laud Amazon as a big winner in the game of capitalism. It delivered a record performance in 2020 with annual revenue up 38% to $386 billion, a yearly increase of over $100 billion.

But the company trashes the free market to achieve those results.

It capitalizes on its immensity and wealth to eliminate healthy competition by absorbing or simply wrecking smaller companies.

On Amazon Marketplace, it takes unfair advantage of third-party sellers by charging exorbitant fees, filching sales data and appropriating product ideas.

The Luckbox take on the sins of Amazon has appeared in print before, namely in the September-October 2019 big tech issue called Time for New Rules.

This time, Luckbox again reached out to Amazon to tell its side of the story but didn’t receive a reply. Be that as it may, this obviously capitalist publication is taking a stand against Amazon’s predatory capitalism.

Which side are you on?

Ed McKinley Editor in Chief

Jeff Joseph Editorial Director

Two ways to send comments, criticism and suggestions to Luckbox Email feedback@luckboxmagazine.com Visit luckboxmagazine.com/survey A new survey with each new issue.

Luckbox | June/July 2021

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WHAT IS THIS THYNG?

Open Outcry What, if anything, should be done about Amazon?

Amazon is a virtual monopoly, and it should be regulated like a monopoly. They make a lot of money for shareholders but they bully everyone else and only the government is large enough to control them.

—David Brown, Dayton, OH Let the market forces play out. Their decline is inevitable even if it takes 50+ years.

—Richard O’Leary, Tallahassee, FL As with any large employer, I believe they should be compelled to create a better working environment and pay a living wage. However, given that the folks in Alabama had a chance to unionize and refused to, I’m wondering if the benefits of working for Amazon don’t outweigh the drawbacks that we consistently hear about. I know several people who work for Amazon, and there is no doubt that some positions are grueling, but I know of others who seem safe, sane and well-compensated.

—Cathy Keibler, Milltown, IN Nothing, because Walmart is trying to do the same thing e-commerce wise.

—Anthony Primozich, Edmonds, WA We should leave Amazon alone. Instead, the government should encourage and support other online retailers to grow. Maybe economic incentives for small online retailers to get into the market will lead to economic growth. That is why we are setting up our own small online retail store without going through Amazon fulfillment business.

—Art Villamor, Fremont, CA I’m boycotting them. Maybe we need to apply some antitrust or anti-monopoly laws.

—Dave Shedd, Buffalo, NY

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Great article on SPACs. I have invested in a few SPACs and have done well but have noticed the frenzy has stopped. It was also great to read exactly how and why SPACs are formed. Keep up the great work!

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SPECIAL NOTE TO READERS Now that COVID is no longer keeping the Luckbox team cooped up inside, we’re heading outside to find some fresh air and new stories. Look for the next issue of Luckbox in your mailbox around the first week of August. Not a print subscriber? Visit getluckbox.com.

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5/13/21 11:07 PM

SHORT INTEREST

AMAZON’S PREDATORY CAPITALISM

“Big Government is bad. Big Corporations are bad. Big Tech is bad. Big Hollywood is bad. Any massive accumulation of power is bad.”

SEE PAGE 12

“Is the fight to resist Amazon hopeless?

I am not actually sure, but I for one won’t go down without a fight” — Danny Caine, author of How to Resist Amazon and Why

—Tweet from Sen. Ted Cruz (R-Texas)

SEE PAGE 18

“Amazon has put a drill into the cracks of American society and won’t stop until it’s extracted everything it can. A world left in fragments may not bother Bezos, since he plans (perhaps a touch optimistically) to leave it. The rest of us, however, are likely to remain earthbound.

And a prerequisite of making a good life here on the ground is to bring the power of SEE companies like Amazon and of CEOs like Bezos crashing down.”

PAGE 12 —How Amazon Exploited a Weakened America, Sarah Leonard, The New Republic, April 2, 2021

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Luckbox | June/July 2021

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Do you support or oppose Amazon workers forming a union to negotiate on working conditions?

Support Oppose

77% 16%

—Poll conducted by GBAO Strategies and the AFL-CIO, April 5, 2021

SEE PAGE 22

Giant corporations like Amazon report huge profits to their shareholders— but they exploit loopholes and tax havens to pay close to nothing in taxes.

That’s just not right—and it’s why I’ll be introducing a bill to make the most profitable companies pay a fair share.

—Tweet from Sen. Elizabeth Warren (D-Mass.)

SEE PAGE 28

“Amazon [reports that] it blocked more than 10 billion suspected phony listings last year before any of their offerings could be sold … destroyed 2 million counterfeit products sent to its warehouses last year before they could be sold … spent more than $700 million last year on its fraud anti-counterfeiting efforts.”

—ABC News, May 10, 2021

SEE PAGE 24

“Besides price, reviews are the most important factor in purchasing decisions.”

SEE PAGE 29

—2019 Amazon shopper survey by Goat Consulting

June/July 2021 | Luckbox

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FAKE FINANCIAL NEWS

Black Mirror Bodega Amazon Go stores combine the ambiance of the inside of a vending machine with mundane sandwiches

By Vonetta Logan

A

s consumers shift from conspicuous consumption to experiences, they’ll find a plethora of places to spend money.

Want to be a ropin’, ridin’ cowboy? Go to a dude ranch. Want to throw a heater over home plate? Do a spring training boot camp.

Want to clandestinely put a bacon, egg and cheese breakfast sandwich into your bra and then just walk out like an early-aughts Winona Ryder? Go to an Amazon Go store.

Amazon Go stores eliminate cashiers by combining computer vision, depth sensors and machine learning to record what merchandise shoppers take off the shelves.

Amazon opened the first of its smallish convenience stores in 2018 and now operates 27 in four cities—New York, Seattle, San Francisco and Chicago. The stores offer ready-to-eat meals and snacks for breakfast, lunch and dinner, as well as other sundries.

Amazon also plans to build full-scale cashier-less Amazon grocery stores. Keep in mind that Amazon also owns more than 500 Whole Foods Market locations that it acquired in 2017 for $13.7 billion.

So, what’s it like to stroll breezily through a store and then walk out without interacting with a single soul? First of all, it’s not as “easy breezy” as one might imagine. Shoppers have to download the Amazon Go app to a cell phone and sync it with an Amazon account.

Do that before leaving the house or risk having a turnstile punch your junk while

With little chance for human contact, Amazon Go seems like an introvert’s paradise.

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bystanders point and laugh.

It’s also worth mentioning that this is the fourth Amazon app on my phone. I have the original Amazon app, the app that controls my Alexa devices, the Whole Foods app and now the Amazon Go app.

Anyway, the time had come to engage the tech at an Amazon Go. At lunch time, I hopped into my car and headed to Ogilvie Transportation Center, a massive train station where commuter lines converge in downtown Chicago. According to Metra, the organization that wrangles a lot of those trains, more than 100,000 commuters pass through Ogilvie daily in non-pandemic times. That’s pretty good foot traffic for a Black Mirror bodega.

On the day I visited, Ogilvie wasn’t crowded. On the first floor, a modern food court offers Dunkin’, Burrito Beach, Popeyes, Panda Express and others. (I’ll explain later why I’m mentioning this.) Take the escalator up to the second level, and there’s a beautifully lit sign for Amazon Go. Instead of metal prongs, a row of what looks like subway turnstiles has sleek transparent panels that silently whoosh open and closed like the pod bay doors on Star Trek. Simply scan the QR code on your cell phone and you’re in!

They didn’t post a ton of clearly written directions on how to enter the store.

Information about the app appears on a flat-screen TV, but the messages rotate. I looked up everything I would need to do before I got there, and the app does have a handy “tutorial.” But the experience remains far from intuitive.

As I was browsing the store and taking notes, an older black man stopped on the other side of the turnstiles and bellowed, “How the heck do you get in here?” I told him he needed an app. “An app?” he said. “Why there got to be an app for everything? Is it

free?” I told him the app was free but was linked to an Amazon account and needed a credit card. “Shoot, forget this then,” he replied, “ain’t nobody got time for that.” Then he walked away.

I wanted to interview patrons, but the store was literally empty. One other man did come in, but he grabbed a Red Bull and fled before I could ask him any questions.

The store reminded me of a slightly fancier Hudson News, the airport chain stores where travelers can grab the latest Danielle Steel along with a snack. Amazon Go has some interesting options like chicken banh mi sandwiches and flat iron steak entrees, but most of the prepared food looked like sad, cold convenience-store fare. I ended up selecting a chicken quesadilla for $6.49, chicken tortilla soup for $4.99 and a kombucha for $3.29.

There weren’t any employees in the store, and the footprint was probably 1,000 square feet to 1,500 square feet. As I looked up, I saw dozens of cameras mounted to the ceiling and did my best to test the system. I put some yogurt into my bag, walked around the store, then put it back. I was only charged for the items I walked out with—not for anything I picked up and put back.

Most of the merchandise was foodbased, but one aisle did offer greeting cards, Amazon Basics phone chargers and even prophylactics. Sadly, Jeff Bezos does not care if they are ribbed for my pleasure. But this is the perfect way to buy sanitary napkins or condoms without awkward conversations with your local cashier!

But remember that first-floor food court I mentioned earlier? When you enter Ogilvie, your senses are delighted by the smells of fried chicken, Chinese spices and Cinnabon baked goods. Everything in the Amazon Go store is

Luckbox | June/July 2021

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PHOTOGRAPHS: VONETTA LOGAN

cold, and the store just smells like capitalism.

So, I’m not totally sure of the store’s purpose.

If you’re going to have to sit on a train riding out to your suburban estate, you might prefer fried chicken to a cold curry chicken wrap. Other passengers who have to smell the meal might disagree. However, if someone is arriving in Chicago and needs something to stick in the office fridge for lunch, this might hit the spot. Amazon Go offers more “healthy” options than the food court, but then some of us hate salads with the burning passion of a thousand suns.

From a societal impact standpoint, as a person of color, I will say it’s nice to have a store with a baseline model that doesn’t include having employees follow you around the whole time to make sure you’re not stealing. Yes, even in 2021, when I take my J. Crew-clad self to some retail establishments, I get followed around. Sometimes I like to stop suddenly so the shopkeeper runs into me, but alas. The app unlocks the turnstiles as you exit, and you literally walk out the door with your bag of booty. The app tracks how long you were in the store then sends a receipt.

I took my food home for a taste test. I wanted to pan sear my chicken quesadilla, but I wouldn’t have that option in my office, so I popped it into my microwave. I did the same with the chicken tortilla soup. Everything was flavorful and well-seasoned, but it wasn’t any different from what I could get from the graband-go section of my regular grocery store.

The $4.29 mini cheesecake that I snatched up on impulse was very good.

So in conclusion, the store is an introvert’s paradise. I use self-checkout 95% of the time. I hate small talk. I hate lines.

I hate large groups of people. There’s an adrenaline rush grabbing merchandise and then walking out, but concerns arise about some people not having access, regardless of how tech-savvy they are.

And Amazon now knows I have a sweet tooth and hate salad. They say they only keep data on shopping habits for 30 days, but who knows? Expanded to a full cashier-less grocery store, the benefits would definitely outweigh the novelty. But sometimes a girl just wants a spicy two-piece with mashed potatoes and a biscuit.

Vonetta Logan conceals her worries about Amazon knowing she has a sweet tooth and hates salads.

Vonetta Logan, a writer and comedian, appears daily on the tastytrade network and hosts the Connect the Dots podcast. @vonettalogan

June/July 2021 | Luckbox

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AMAZON’S PREDATORY CAPITALISM

A giant puppet resembling Amazon CEO Jeff Bezos dominated an International Workers’ Day rally in New York’s Union Square in May. The next month, employees at an Amazon facility in Alabama voted against unionizing.

1998

Walmart sues Amazon for stealing trade secrets. Amazon settles out of court.

IMDb (information source for films) $55m

1994

Jeff Bezos leaves Wall Street to launch Cadabra in his suburban Seattle garage.

2002

KEY Notable Acquisitions Amazon Prime Members

Amazon Web Services (AWS) launched to provide cloud computing.

1995

The company, renamed Amazon, begins operating as an internet bookstore. In two months, weekly sales reach $20,000.

10

1997

The company’s IPO (AMZN) for $18 per share raises $54 million.

1999

Time names Jeff Bezos Person of the Year for popularizing online shopping.

2001

The company survives the burst of the dotcom bubble.

2005

Amazon Prime memberships introduced

PHOTOGRAPH: (PROTEST) REUTERS/ANDREW KELLY

$8B

Luckbox | June/July 2021

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Success has rewarded Jeff Bezos. Twenty-seven years ago, he was a Wall Street refugee peddling books online with the help of a $250,000 loan from his parents. These days, he’s preparing to set sail in a 417-foot schooner that set him back $500 million. His company posted revenue of $368 billion last year, an increase of more than $100 billion from the year before. Profit for 2020 increased 84% year-over-year. But Amazon’s predatory capitalism causes collateral damage.

Just ask the pickers working frantically to meet fulfillment center quotas. Or visit a ghostly Main Street where a way of life is withering away as the world embraces internet shopping.

Amazon Primeval

The Tax Gambit

Phony Reviews

The Resistance

The China Connection

Consumer Consensus

Labor Unrest

Counterfeit Goods

Galloway on Amazon

p. 12

p. 24

p. 18

p. 26

p. 22

Audible (audiobooks publisher) $300m

2010

Quidsi (parent of Diapers.com) $545m

20,700

2012

Kiva Systems (now Amazon Robotics) $775m

56,200 $34B

2009

Zappos (online apparel and shoe retailer) $1.2b

Amazon’s market share of total U.S. retailing (x-cars and entertainment) reaches 5%, 49% of U.S. online spending. Buys 20,000 delivery vans.

2014

Twitch (video game streaming service) $970m

117,300

230,800

566,000

$89B

2011

The company begins offering Amazon Music and Amazon Video.

Amazon surpasses Walmart in market capitalization.

54 million members

2017

p. 32

2020

48-hour global Prime Day sales reach $10.4 billion, up from $7.2 billion a year earlier.

Zoox (autonomous vehicle company) $1.2b

1,298,000 $233B

2015

p. 30

p. 28

2018 2008

p. 29

Whole Foods Market (upscale grocer) $13.7b

EMPLOYEES REVENUE

$386B

2021

Amazon workers in Bessemer, Alabama, vote 1,798 to 738 against unionizing.

200 million members

Sources: Employee numbers, Statista; revenue numbers, MacroTrends

June/July 2021 | Luckbox

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AMAZON PRIMEVAL As the company extends its reach into nearly every aspect of American life, it’s trying to shift the conversation away from antitrust

BY GARRETT BALDWIN

F

or years, Amazon hadn’t faced the antitrust scrutiny that plagued rivals like Apple and Alphabet. But now Jeff Bezos finds his firm at the center of an intense ideological battle over the role of big tech companies in the U.S. economy.

In October 2020, Congress questioned the business practices of the technology behemoths and recommended remedies for their excesses in a report called Investigation of Competition in Digital Markets. It rivals a Tom Clancy novel in length, and it convinced Amazon to try to shift the focus of the public narrative away from regulatory reform.

Meanwhile, Congress remains divided over whether to rip giant tech companies asunder through antitrust action. It should take drastic action, according to such luminaries as Sen. Elizabeth Warren

Amazon CEO Jeff Bezos speaks via video conference during a hearing of the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law on “Online Platforms and Market Power,” in the Rayburn House office building on Capitol Hill in Washington, D.C., July 29, 2020.

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(D-Mass.); Facebook co-founder Chris Hughes; antitrust scholar Tim Wu, who’s on President Biden’s National Economic Council; and Lina Khan, Biden’s nominee to head the Federal Trade Commission.

Congress could also follow the advice of Federal Communications Commission head Tom Wheeler or former chair of the Council of Economic Advisers Jason Furman.

Both favor regulating big tech the way the European Commission has tried, which includes requiring companies to take responsibility for anything illegal that’s distributed through their sites and preventing them from giving preference to their own services over those of rivals.

Whoever’s advice prevails, give Amazon credit for a rare feat. Antitrust concerns have united firebrand politicians on the left and right. The issue has spurred Sens.

Warren, Mike Lee (R-Utah), Josh Hawley (R-Mo.) and Amy Klobuchar (D-Minn.) into action.

During a confirmation hearing, Sen. Ted Cruz (R-Texas) said he looks forward to working with Khan.

The gesture was a rare endorsement for government intervention from the Texas senator.

As Warren said so many times during her unsuccessful bid for the 2020 Democratic presidential nomination, she has a plan. This time, it’s a plan to investigate and break up firms like Amazon. What’s more, Klobuchar and Hawley have both laid out their plans for action in their books on antitrust.

In her book Antitrust: Taking on Monopoly Power from the Gilded Age to the Digital Age, Klobuchar blames Robert Bork’s actions in the 1970s and the conservative movement of the 1980s for creating the conditions that gave rise to modern monopolies.

Bork, whose Supreme Court nomination was rejected by the Senate in 1987, had argued that a primary purpose of antitrust action should be to lower consumer prices.

In the 1980s, Reagan Republicans

PHOTOGRAPH: GRAEME JENNINGS/POOL VIA REUTERS TPX IMAGES OF THE DAY

AMAZON’S PREDATORY CAPITALISM

Luckbox | June/July 2021

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PHOTOGRAPHS: (WARREN) ROD LAMKEY/CNP/SIPA USA VIA REUTERS CONNECT; (HAWLEY) TOM WILLIAMS/POOL VIA REUTERS; (LEE) DREW ANGERER/SIPA USA VIA REUTERS; (KLOBUCHAR) TASOS KATOPODIS/POOL/ABACAPRESS.COM VIA REUTERS CONNECT

opposed government intervention in business in general.

Klobuchar offers 25 policy ideas to combat monopolies, including overturning Citizens United v. Federal Election Commission, the court case that prohibits government from restricting political contributions by corporations, unions and other organizations.

Hawley writes for a right-wing audience in his book, The Tyranny of Big Tech, offering a “red meat” narrative centered on how big tech stifles conservative voices. It’s billed as “the book that big tech doesn’t want you to read,” yet it’s selling on Amazon.

Go figure.

Hawley also alleges in the book that Amazon began “ripping off its own vendors by the late 2010s, according to the FTC.” Amazon gathers data about customers of third-party sellers who use its site and then capitalizes on that information by launching its own competing products. To many, that alleged activity lies at the core of the antitrust question about Amazon’s role in commerce.

Should Amazon operate as an e-commerce platform while it sells its own branded products in competition with its own sellers? Amazon offers cheaper alternatives that range from yoga mats to batteries in its AmazonBasics line.

Moreover, critics complain that it doesn’t share the data with the vendors who generate it. That could help explain why Amazon-branded batteries now outsell Duracell on the Amazon platform.

The report from Congress puts it this way: “Amazon’s pattern of

exploiting sellers, enabled by its market dominance, raises serious competition concerns.”

Rigged searches?

Allegations also swirl about pay-toplay marketing. The Federal Trade Commission contends that thirdparty products rank higher in Amazon search results if the seller buys other Amazon services, like cloud computing.

Hawley suggests that Amazon prohibits sellers from offering lower prices on other e-commerce platforms.

What’s more, Washington is again rehashing the untimely demise of Diapers.com, a widely cited case study of Amazon’s supposedly ruthless approach to competition.

Back in 2009, Amazon wanted to purchase Diapers.com parent Quidsi. After Quidsi refused, Amazon slashed its prices on diapers and other baby products by 30%, according to Khan’s Yale Law Journal report, Amazon’s Antitrust Paradox.

Khan noted that Amazon was “on track to lose $100 million over three months in the diaper category alone.” But Bezos’ strategy weakened Quidsi, forcing it to put itself up for sale.

Walmart made the best offer, but Khan said Quidsi executives chose the lower Amazon bid “out of fear.”

After buying and shutting down Quidsi sites, Amazon immediately hiked diaper prices.

When the alleged Diapers. com power play came up during a Congressional hearing, Bezos testified that he didn’t remember it.

For many Americans, the convenience of ordering from Amazon outweighs concern for the rights of entrepreneurs and workers.

FAIR OR FEAR? Sen. Elizabeth Warren (D-Mass.)

Co-sponsor of The Pandemic AntiMonopoly Act

“Today’s big tech companies ... have bulldozed competition, used our private information for profit and tilted the playing field against everyone else.”

Sen. Josh Hawley (R-Mo.) Co-sponsor of The Bust Up Big Tech Act

“It’s past time to bust up Big Tech companies, restore competition and give the power back to the American consumers.”

Sen. Mike Lee (R-Utah) Co-sponsor of The One Agency Act

“The Silicon Valley fairy tale of innovation and technological progress sold to Americans has turned into a corporatist nightmare of censorship and hypocrisy.”

Sen. Amy Klobuchar (D-Minn.)

Co-sponsor of The Competition and Antitrust Law Enforcement Reform Act

“We have a major monopoly problem in this country, which harms consumers and threatens free and fair competition across our economy.”

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Give Amazon credit for a rare feat: Fear of the company’s supposedly monopolistic power is uniting firebrand politicians from the left and right.

Monopoly power?

Congress said in its report that Amazon “has monopoly power over many small- and medium-sized businesses.” One reason is that too many small businesses “do not have a viable alternative to Amazon for reaching online consumers.”

Amazon “has engaged in extensive anticompetitive conduct in its treatment of third-party sellers,” the report also stated.

Tales of Amazon supposedly leveraging power over small businesses abound on blogs, Reddit posts and chat forums.

Take the case of Molson Hart, founder and CEO of Viahart, a manufacturer of plush animals and other toys. Each year, Hart recounts his business activity on Amazon.

In 2020, 93.4% of Viahart’s sales came from Amazon. Its own website generated just 1.3% of sales, eBay represented 1.5% and Walmart accounted for 3.4%.

As Hart noted, distinct advantages come with selling on Amazon. The company’s incredible logistics enable it to reach any U.S. customer in two days.

Yet, he criticized what he views as the extreme difficulty of relying on Amazon. He even described his seller relationship as “being Amazon’s bitch.”

In 2018, Hart’s company paid Amazon $1.95 million for storage, marketing, discounts and other expenses. Even so, he said, Amazon doesn’t care if he fails or leaves.

Viahart’s contribution amounted to 0.014% of Amazon’s revenue.

“There are thousands of companies out there eager to take our place,” Hart said.

He also noted that Viahart has nowhere else to sell as successfully and contended that Amazon leverages that knowledge. He estimated that a suspension by Amazon would likely plunge his company into bankruptcy within six months.

But Amazon drives a hard bargain.

For every $100 in sales on his Amazon store, Viahart receives just $48.25 in return. Walmart’s payout to Viahart comes in at $54.50, and eBay pays $57.50. On its own website, the firm generates $83.10 for every $100 in sales.

But good luck promoting a tiny website to the masses.

Then there’s the arbitrary nature of Amazon’s payouts to third-party merchants. Amazon pays sellers based on the age of the account and the associated risk—as decided by Amazon.

Inconsistency can become troubling, too. Payments might arrive daily or might be spaced 45 days apart, according to Hart, who added that 45 days can feel like a long time after manufacturing and shipping products.

Such actions could represent another anticompetitive problem, said Lara O’Connor Hodgson, president of Now Corp., a system that helps businesses receive immediate payments. Amazon’s accounting practices could affect vendors’ credit and cash flow, she noted.

Amazon’s largest lender is its vendor network, Hodgson said. If the company has 45-day payment terms, Amazon enjoys the equivalent of short-term, zero-interest loans from its vendors, she maintained. (See Never let a crisis go to waste, below.)

Never let a crisis go to waste

America was offered a false choice during the COVID-19 crisis: Collapse into Mad Max-style anarchy or allow Amazon to consolidate power. The nation chose the latter. Since the crash of March 2020, Amazon stock has surged more than 125%.

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Do Americans care?

Negative stories about vendors’ Amazon experiences are gaining the attention of more Americans.

Small Business Rising, a coalition of entrepreneurs, is spending big to tell the public about Amazon’s impact on their livelihood. In addition, it’s lobbying Washington to break up big tech and consider policies to “level the playing field.”

The coalition is striving for those goals at a time when the public is becoming more skeptical of Amazon’s policies. A CNBC/Survey Monkey survey of roughly 10,000 Americans found that 59% believe Amazon is bad for small businesses, while 22% think the company benefits small businesses. Just two years ago, 37% thought Amazon was bad for small businesses, and 33% thought it was good.

Yet that doesn’t stop consumers from using the Amazon platform more than ever before. The firm has signed up 147 million Prime members in the United States. While Americans might believe Amazon hurts small business, they put their own convenience first.

Co-opting the narrative Amazon has become one of the fastest-growing spenders on lobbyists.

Back in 2013, it was already shelling out a hefty $3.5 million on lobbying, according to OpenSecrets, the website of the Center for Responsive Politics, a non-profit research group.

But by 2020, Amazon’s $19 million lobbying tab was second only to Facebook’s outlay, as reported by Public Citizen, another non-profit that tracks lobbying spending.

OpenSecrets also noted that Amazon had recruited the vast majority of lobbyists from the ranks of former government employees, a heavy commitment to revolving-door hiring. Those lobbyists have contacts in government and deep knowledge of the regulatory process.

One goal of Amazon’s extensive

lobbying effort is to keep the government’s hands off of its business. And even many of those who believe Amazon is damaging small business would argue that over-regulating the company would distort the free market or encourage Congress to pick winners and losers.

But Congress creates policy. The government’s alphabet soup of agencies write and enforce regulation.

That’s why corporations and their lobbyists have shifted some of their attention to the latter.

One can draw a straight line from Amazon’s lobbying efforts to its expansion into new markets.

Sketchy alliances Amazon began lobbying the U.S. Postal Service in 2012. A year later, it announced a contract for the USPS to start Sunday delivery of Amazon packages.

Many praise Amazon’s partnership with the USPS. The post office can use some help because it has struggled with the transition from mail to email and bears the burden of paying pensions.

The relationship with Amazon has breathed some life into the USPS, which now makes more money from package delivery than First Class Mail.

But Amazon has established a pattern of engaging in cooperation and then becoming a competitor. So how long will the partnership with the USPS last? New data suggests not too long.

Supply chain consultant MWPVL International noted last fall that Amazon is replacing the USPS with its own network. Amazon shipped 67% of its own packages to consumers in 2020, the firm said. That figure is up from 50% in 2019, and MWPVL expects it will surpass 85% by 2023.

That’s not all Amazon is doing to build its network through influence.

It began lobbying the Department of Agriculture in 2006. A year later, it launched its grocery delivery service.

ACCOUNTS PAYABLE Large retailers often use accounting practices that delay payment to vendors. “Net 60,” for example, means a firm like Amazon pays vendors 60 days after receiving an invoice.

That forces vendors to find capital to meet business obligations—such as paying suppliers—for two months. And they might have to make payroll four times while awaiting payment. It forces vendors to act as banks for Amazon or other larger customers. Net 60 or Net 90 terms can disrupt a vendor’s balance sheet and tarnish its credit rating. One can also argue it puts certain vendors at a competitive disadvantage.

Ethical concerns arise over Net 60 if Amazon sells products that compete with merchandise small businesses sell on the Amazon platform.

In theory, it interrupts vendor cash flow while Amazon enjoys new cash flow from sales. With 60 days to pay the vendor, Amazon can cycle cash into the production of its house-branded competitive products. At the end of last year, Amazon’s accounts payable, including funds owed to vendors, stood at $72.5 billion and had increased 53.7% year-over-year.

$2.5 billion

Expected cost of the Amazon HQ2 campus

$19 million

Amazon’s 2020 lobbying budget

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In 2013, it began lobbying the Federal Aviation Administration.

A year later, it started testing drone deliveries.

That same year, Amazon started lobbying the Treasury Department.

It would soon reach a deal that saw the state of Texas drop demands for $269 million in back taxes.

In 2016, the company began lobbying the Department of Defense.

The reason? To expand the already stunning reach of Amazon Web Services, or AWS. Following the launch of AWS in 2006, the company pursued large government contracts. Under the Obama administration, the government shifted away from costly physical data centers to using AWS. Amazon claimed in 2012 that 2,000 public sector organizations used Amazon Web Services. In 2017, Amazon won a contract with U.S. Communities, a co-operative-purchasing coalition, to provide Amazon services to 90,000 local governments.

As a result, Amazon wields significant power over government information and has a platform for advocating public policy.

Amazon has become one of the fastestgrowing spenders on lobbyists.

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Small world Amazon’s hiring practices can seem like attempts to buy influence. Last November, it hired Jeff Ricchetti, the brother of President Joe Biden counselor Steve Ricchetti. The timing aligned with Biden’s 2020 statements calling for higher corporate taxes on tech firms. A coincidence, right?

Of course, Ricchetti’s hiring doesn’t quite compare with Amazon’s biggest influencer. In 2015, the firm hired former Obama White House spokesperson Jay Carney. He serves as the company’s senior vice president of global corporate affairs.

Why hire Carney? Was it because he once worked as a newspaper reporter and knows how to influence op-ed pieces? Or because he was

then-Vice President Biden’s press secretary a few years ago?

Either way, Carney once served the leader of the free world, and now he serves Amazon. He’s taken to the job by using Twitter and media outlets to unleash his wrath upon reporters and politicians, reportedly at the direction of Bezos.

Carney’s also championed his employer’s cause on the issues of frequent truck accidents, the unsuccessful unionization attempt at a fulfillment center in Alabama and the company’s piddling federal income tax bill.

In a New York Times op-ed, Carney even bragged that the firm raised its wages to $15 an hour to address criticism from Sen. Bernie Sanders, without mentioning the company hires temps and independent contractors for less than that amount.

While attempting to showcase the company’s embrace of progressive economics, Carney largely ignored Sanders’ concern about Amazon’s working conditions.

The strategy of shifting the narrative reached new heights when Amazon backed a fledgling trade association called the Chamber of Progress run by Adam Kovacevich, a former senior director of public policy at Google. This tech coalition includes Facebook, Google, DoorDash and Uber. It’s “devoted to a progressive society, economy, workforce and consumer climate.”

The organization says it backs policies that “build a fairer, more inclusive country.” That includes bold action to mitigate climate change, fight income inequality and campaign for progressive taxation.

Why support those causes?

Because behind the scenes the Chamber of Progress opposes reform or repeal of Section 230 of the Communications Decency Act, which immunizes websites from liability for third-party content.

It also opposed unionization of Amazon’s workforce at its Alabama

fulfillment center and resisted classifying Uber and Lyft drivers as employees and providing them healthcare.

In some Washington circles, the Center for Progress’ very existence strikes a note of absurdity.

Krystal Ball, a progressive pundit who co-hosts Rising, a web series produced by The Hill, broke out laughing on the air when she announced the group’s mission.

Moments later, liberal Max Alvarez, host of the Working People podcast, characterized the organization as part of the “progress-industrial complex.”

“This is a vicious attempt to co-op something good and repackage it to make more profit and gain more power,” Alvarez said. The association’s commitment to a progressive workforce was laughable, he contended. “These are the companies that destroyed the workforce.”

Big tech companies have “cloaked themselves” in woke ideology, according to Glenn Greenwald, journalist and author. The real motive is to advance their own economic agendas and stifle antitrust efforts, he said.

Policy versus platform It’s no coincidence that Amazon decided to open its second headquarters (HQ2) in Arlington, Virginia. There, its team can keep an eye on its growing investment in American government. The $2.5 billion campus will be a quick taxi (or helicopter) ride from the nexus of D.C. power.

And if the American people hold the power in D.C., it’s clear that the people don’t care what happens with Amazon. Despite outspoken criticism from think tanks and policy advisors, Amazon thrives, while bending institutions to its will.

Convenience seems to push aside concern for the rights of entrepreneurs and workers. It harkens back to decades of foreign manufacturing and cheap labor practices by large

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PHOTOGRPAHS: (KHAN) POOL/SIPA USA VIA REUTERS; (WU) REUTERS/BRENDAN MCDERMID

companies—out of sight, out of mind.

In fact, Amazon enjoys a strong public image in some quarters.

Republicans regard the military, local police and Amazon as America’s most-trusted institutions, according to a poll by Georgetown and NYU. Democrats listed Amazon as No 1., followed by colleges and universities, and the military.

This suggests that widespread boycotts won’t quell Amazon’s power. Actually, the fate of Amazon’s influence may come down to two people: the aforementioned Lina Khan and Tim Wu. President Biden nominated Khan, one of America’s top antitrust scholars, to lead the Federal Trade Commission. Critics of Big Tech have lauded her famous academic paper, “Amazon’s Antitrust Paradox.”

The paper, which Khan wrote during her time at Yale, reframed “decades of monopoly law,” according to The New York Times.

Khan argued that current antitrust law fails to address the practices of firms like Amazon and

instead concentrates on reducing consumer prices. She provides examples, like those mentioned earlier, of Amazon schemes to knock out competition and gain market power.

Khan has served as an aide during Congressional antitrust investigations in tech firms and has received praise from both sides of the aisle. If confirmed for FTC commissioner, she would serve alongside allies inside the White House, such as Tim Wu, another Biden appointee.

Wu serves on the president’s National Economic Council and has warned that today’s monopoly power resembles the excesses of the late 1800s. He is the author of The Curse of Bigness: Antitrust in the New Gilded Age and has apologized for the government’s lax behavior on mergers and acquisitions among tech firms during the Obama administration.

The two-person band of Khan and Wu will face a Goliath in Amazon and its wall of money. They stand as the last line of defense for antitrust opponents before Amazon becomes too big to fail.

Amazon, not satisfied with killing off local stores and traditional retailers, had begun ripping off the vendors on its own platform by the late 2010s, or so complaints to the Federal Trade Commission alleged. Amazon used data gleaned from third-party sellers on its site to launch its own competing brand of staple items, called Amazon Basics—and then gave preference to Amazon Basics in the search results. The FTC complaint alleged Amazon went further yet, tying the prominence of a third-party seller’s products in the Amazon search results to that seller’s purchase of other Amazon services, like its cloud-computing operation, Amazon Web Services (AWS).

Those tactics weren’t new. Amazon was already notorious for forcing its sellers to agree never to offer lower prices at other outlets or on other platforms. Amazon was known to employ ruthless tactics to stamp out online start-ups, especially those offering staple goods. It built its proprietary digital services using parts of open source code from third-party developers. And Amazon famously played hardball in contract negotiations with vendors by slowing delivery of orders to extract pricing and other concessions.

The company even allowed counterfeit products to thrive in its store to force sellers like Nike, which preferred to manage distribution itself, to play ball. Even after Nike gave in and offered its shoes on Amazon’s storefront, the counterfeit sales continued. It was simple power politics.

Given the size of its audience—almost 40% of online commerce in America moved across its platform—and the reach of its distribution channels, Amazon could singlehandedly cripple the companies with which it did business. And it wasn’t afraid to try.

—Excerpted from The Tyranny of Big Tech, Josh Hawley (2021)

WIDESPREAD BOYCOTTS WON’T QUELL AMAZON’S POWER. THE FATE OF AMAZON’S INFLUENCE MAY COME DOWN TO TWO BIDEN APPOINTEES: LINA KHAN AND TIM WU. June/July 2021 | Luckbox

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How is Amazon different from other companies?

THE FACE OF THE RESISTANCE Author Danny Caine is raising Cain about the problems he says Amazon causes

BY ED MCKINLEY

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We’ve never seen a company quite as big that does quite as much.

It started as a retailer and then expanded into a third-party online retail platform. Now, it’s into home security video surveillance and web hosting. I see a lot of parallels with Walmart and its rise in the ‘90s and its effect on small businesses.

But from where I’m sitting, Amazon is a much bigger threat than Walmart ever was simply because of how big it is and how many things it has its fingers in.

Amazon sometimes sells at a loss.

What’s the strategy behind that?

They look to catch customers in a flywheel. You get hooked into Amazon products, and you just keep spinning around within their ecosystem. You’ve got a Prime subscription so that’s where you get your video streaming and where you get your groceries. That’s where internet advertising is targeted to you, and the Ring Video Doorbell is owned by Amazon. You just keep spinning around that flywheel, and Amazon is collecting more and more data about you. That makes it easier and easier for them to extract money from you.

They also say they’re driven by customer obsession. That doesn’t mean they’re obsessed with customers—it means they want their customers to be obsessed with them. One way to get people onto the flywheel is with really cheap retail goods and shipping that’s very fast and appears to be free. So

they’re selling a book at a loss. When I buy a hardcover book from a publisher for my store, I pay $15 and sell it for $26.99. Amazon might sell it for $10. They’re either getting a bigger discount from the publishers, which is a problem, or more likely they’re selling it at a loss. And that’s just to get people hooked in.

You’ve said that Amazon bends the rules of capitalism. How?

They’re selling at a loss to drive their competition out of business. That’s predatory pricing and it’s illegal.

It’s also incredibly difficult to prove.

The way government interprets antitrust law, the burden of proof for predatory pricing is extremely high, so it’s rarely prosecuted.

Amazon tried to buy Diapers. com, but Diapers.com refused to agree to a deal. So Amazon dropped all of its prices on competing products, and Diapers.com either had to go out of business or sell to Amazon. As soon as that was resolved, Amazon raised the prices.

How well does Amazon treat workers?

Well, this is a big one. Because Amazon is one of the most profitable companies in the world, other companies are going to look to Amazon for inspiration and tricks. They’re going to mimic the way Amazon handles jobs, which is not good.

Next-day shipping for Prime subscribers is built upon a huge network of fulfillment centers, and the workers in those centers are facing dangerous conditions.

They’re pushed to incredible quotas and expected to maintain a pace they can’t hope to achieve. They’re working 12-hour shifts with the feeling that they can never catch up.

The grueling effect on mind and body makes Amazon fulfillmentcenter work twice as dangerous as warehousing industry peers, and Amazon workers are twice as likely to get injured as workers in other

PHOTOGRAPHS: COURTESY DANNY CAINE

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ots of people complain about Amazon, but Danny Caine is doing something about it.

Caine, a poet and the owner of The Raven Book Store in Lawrence, Kansas, is the author of the book How to Resist Amazon and Why. He sat down with Luckbox to detail what he sees as problems with the giant retailer and tech company.

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warehouses.

Amazon relies on third-party contractors for a ton of what they do. That provides a linguistic loophole: When they say employees get $15 an hour, they might not necessarily mean the third-party contractors. Many of the people driving those vans are third-party contractors who work for private shipping companies. But those private shipping companies have only Amazon as a client, and the owners started their companies with Amazon loans. The contractors’ employees are wearing Amazon shirts and driving Amazon vans, so they’re basically Amazon employees, but by calling them third-party, Amazon can escape responsibility for what happens in those vans, where those drivers can go to the bathroom or who gets injured when fatigued drivers hit people.

Amazon is putting us on the wrong track for worker rights in this country. When the workers try to unionize, Amazon resorts to extensive union-busting tactics. It successfully busted up a unionizing effort in Bessemer, Alabama, with a massive intimidation campaign against those workers.

Early in the pandemic, Christian Smalls was raising the alarm about coronavirus protections at the Staten Island Amazon fulfillment center where he worked. He was fired and scapegoated in that they tried to make an example of him.

All he was doing was trying to make his workplace safer.

How does Amazon treat third-party sellers?

The average fee that Amazon extracts from those sales is 30%. As a small business owner, I can tell you that if I had to hand over 30% of every sale to my landlord, it would be unsustainable. We wouldn’t last more than a couple of weeks.

Amazon has its own legal system for appeals and discipline of third-party sellers. It’s notoriously

punitive and capricious. There’s a whole industry of lawyers who work only with Amazon sellers trying to get their accounts back after they’ve been banned, often for silly reasons.

Amazon also has been caught stealing intellectual property and ideas from those third-party sellers to make their own store brand.

Amazon is both the provider of the platform and a competitor on that platform. That allows them to collect data on these third-party sellers, determine which products are profitable and then create their own competing products.

What’s up with Amazon and the post office?

During its rise, Amazon was seen as a possible savior for the post office, and the USPS even renegotiated its union contract to allow Sunday delivery for Amazon packages. But at this point, it seems more like Amazon is trying to build its own competing version of the USPS. It relies on the USPS to get merchandise to distribution centers, and then from the distribution centers Amazon lastmile drivers take them to that last stop on the journey. The USPS has a mandate to deliver to every address in the United States, but Amazon can look at a delivery and say, “Well, it’s too expensive for us to get there. We’re still going to make the USPS do this.”

Amazon packages going third and fourth class are getting prioritized over USPS Priority shipments. That means people were getting medications late. The USPS is getting pushed around by Amazon quite a bit.

the Ring doorbell is that you can share video from your doorbell with the police department. This is appealing to police departments because, like Amazon, the police are interested in collecting data.

It raises all kinds of privacy concerns like sharing video of someone without their consent with the police department. That’s a civil rights problem—a wealthy white person sits safely inside a home, sending video of a person of color to a police department that has a history of racist practices. It’s a dangerous game. Giving them that kind of access to all this surveillance is really frightening to me.

Another frightening thing is that Amazon is working hard to develop facial recognition technology.

A couple of Amazon execs are hinting that they might merge facial recognition technology into Ring. If you’re in some database,

A STORE THAT BUILDS COMMUNITY The Raven Book Store in the college town of Lawrence, Kansas, bills itself as a purveyor of print on paper. But friends and neighbors view the storefront retailer as much more than that. Besides resisting Amazon and advocating for the USPS, the store wins awards, publishes zines, plays host to visiting authors, forms partnerships with local cultural institutions and provides a home for two cats.

What about law enforcement’s involvement with Ring Video Doorbells?

Amazon bought Ring after the product was developed, and they have turned police departments into a salesforce for this technology. One feature of

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Amazon records and stores everything you ever say to Alexa, and human employees can access it. Amazon keeps track of every click, gesture and move a customer makes in any of its spaces and it hangs on to that data. This is central to their mission. Former Amazon executive James Thompson echoes many others when he says, “They happen to sell products, but they are a data company.”

What emerges from Amazon’s watching and listening habits is a company that’s obsessed with gathering customer data. Their constant refrain is that they’re obsessed with customers, but their obsession doesn’t just stem from making sure customers are happy.

They’re obsessed with being able to hear their customers and record what their customers say in their own homes. They want to see out of their customers’ front doors in high definition.

According to Amazon, this is all in the name of safety and customer convenience. Amazon wants customers to trust them with their data, citing these good intentions as evidence. But it’s worth bearing in mind two things we know about Amazon: Data is incredibly profitable to them, and they are incredibly ruthless in getting what they want. Do they want to watch you and listen to you to keep you safe, or do they want to watch you and listen to you to wring more profits out of you?

— Excerpted from How to Resist Amazon and Why

They look to catch customers in a flywheel. You get hooked into Amazon products, and you just keep spinning around within their ecosystem.

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and you walk in front of the wrong doorbell, you’re going to get your video automatically sent to a police department without your consent, triggering the facial recognition.

Facial recognition technology works poorly on dark skin and frequently misidentifies people of color.

Is Amazon taking on some of the characteristics of a government?

It’s becoming a government unto itself. Amazon has its own postal service with its fleet of third-party delivery drivers. It has its own court with its third-party seller discipline system. It’s collecting taxes from those sellers at 30% per sale.

Amazon knows that the only limits to its power are the government and antitrust law enforcement. Jeff Bezos is building a mansion in Washington, D.C., and picked Arlington, Virginia, for the second headquarters. The current Amazon spokesman, Jay Carney, was the Obama press secretary. Amazon’s really concerned and making sure that the government is on its side.

The cozy relationship between the federal government and big tech is souring a little bit on both sides, which I see as a good thing. But local governments still love it when Amazon moves to their area and builds a fulfillment center or opens offices. But Amazon wants these humongous packages of tax breaks and corporate welfare. It won’t open a facility without that, so you’ve got municipalities and counties and cities bending over backwards.

Elected officials are giving a free pass on taxes to this company for them to bring these dangerous, lowpaying jobs to an area. That doesn’t seem like a great deal long-term.

It collects data on cities the same way it does with consumers. The cities invited to apply for HQ2 put together these giant packages of data and demographics and handed it over to Amazon for free.

Many thought it was a foregone

conclusion that it was going to pick New York and Washington, D.C., for the second headquarters, and ultimately it did. But now they have all this great, super-valuable data about 400 cities and how much exactly those cities are willing to give over in tax breaks for Amazon to open up there. It was just another data-collection scheme.

What can people do to resist all this?

The individual consumer is welcome to boycott Amazon if that’s their choice. But Amazon is so big, I’m not sure that that’s the best strategy for successfully resisting it. It isn’t going to feel one person canceling a Prime subscription.

Leaning on the government is really important. Be in communication with your elected officials about these issues and about changing the way antitrust laws are enforced.

Support the small businesses that are building your community— doing the work that Amazon isn’t interested in. A bookstore, an organic co-op or a stationery store, a record store is going to feel the addition of a new regular customer.

What actions are the government taking?

Lina Khan has been nominated as commissioner of the Federal Trade Commission, which is a huge deal. She’s a leading architect of this nascent antitrust movement, a super-influential thinker and a harsh critic of Amazon and big tech. To have her in a position like FTC Commissioner is an important sign of progress in reining in big tech and these monopolies. At her confirmation hearing, she drew kind words from both sides.

The left and the right hate big tech for different reasons. When bipartisanship is so rare, I am encouraged to have both sides similarly irritated by this monopoly power. That might be an indication something will happen.

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Talking heads.

Their time is up.

It’s our time now.

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Amazon workers aren’t as concerned about the minimum wage as they are about brutal working conditions

BY ED MCKINLEY

A year ago, ex-Amazon employee Chris Smalls and other demonstrators protested what they viewed as a lack of COVID-19 safety measures at an Amazon fulfillment center in Staten Island, New York. He claims he was fired for dissenting and is now organizing a union at the facility.

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Then there’s the surveillance and control that Amazon maintains.

“They have GPS bracelets that track where you are within the workplace,” Vachon noted. “And if you spend more than a certain number of minutes—even in the bathroom— you’re getting docked pay for unproductive use of your time.”

Organizing at Bessemer Conditions at Bessemer prompted disgruntled workers to join forces with the Retail, Wholesale and Department Store Union, which is part of the United Food and Commercial Workers Union, an international organization with 1.3 million members.

The RWDSU sent staff members to Bessemer to help print leaflets, make T-shirts and produce buttons—all designed to generate excitement around the campaign to unionize. “But the unionization effort came from the workers themselves,” Vachon emphasized.

Union organization usually proceeds slowly, but the Bessemer campaign came to a vote unusually quickly, arriving in just five months, according to Vachon. Organizers generally want to win over 50% of the workforce before acknowledging that they’re even thinking about a union.

The organizers wanted a bargaining unit of 1,500 workers, meaning that’s how many would cast votes for or against. But Amazon successfully petitioned the National Labor Relations Board to expand the unit to 5,800 members, substantially diluting support for the union, Vachon said. Having to convince that many more people to vote in favor of the union also created a lot of work for the organizers, he noted.

A key factor in the Bessemer situation was the high turnover of employees, which is 100%, according to Vachon. That means more employees leave the job during the course of a year than the facility employs at any one time.

PHOTOGRAPH: REUTERS/LUCAS JACKSON

MAXIMUM RAGE

mazon employs blatant union-busting tactics to keep harried workers from organizing at its giant fulfillment centers, according to observers of recent events at the company’s facilities in Bessemer, Alabama, and Staten Island, New York.

The result? Despite what many consider harsh and even dangerous working conditions, employees at Bessemer resoundingly rejected unionization in April by a vote of 738 in favor and 1,798 opposed.

But experts contend that many of the workers actually had little choice but to vote against their own interests.

Union organizing at Bessemer began the way it often does, with a handful of dissatisfied workers talking discreetly among themselves about grievances and deciding to do something about it, said Todd E. Vachon, facility coordinator at the Labor Education Action Research Network at Rutgers University.

“Quite a few workers who started working at the warehouse previously had unionized jobs,” Vachon told Luckbox. “So they’re used to having all the benefits and contract protections of a union.”

Pickers who move merchandise around in the Bessemer fulfillment center weren’t as concerned about earning higher wages as they were about how fast they have to work, how many packages they have to handle per shift and how many injuries can result, according to Vachon.

Amazon might require workers to pick 400 items per hour, which translates to 4,000 to 6,000 per 10-hour or 12-hour shift, noted Chris Smalls, a former worker at the company’s Staten Island fulfillment center.

“It’s common to have people taking pain medicine or muscle relaxer because the body’s put to the test every day,” said Smalls.

That’s why Amazon places vending machines in the facilities to dispense over-the-counter pain medication.

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Workers who signed on just before the election had little knowledge of the issues that led to the drive to unionize. What’s more, new employees were more susceptible to Amazon’s union-busting techniques.

Amazon required new hires to attend a meeting on their first day on the job. Company representatives used the occasion to lecture the new employees on the evils of unions and to warn them that their jobs would disappear if the company shuttered the fulfillment center after it unionized.

Then managers handed the new employees a ballot on unionization and directed them to use the mailbox right outside the door of the conference room to mail in their no votes.

The United States Postal Service had installed the mailbox there at Amazon’s request, specifically for that purpose, Vachon said.

“A lot of the workers did just that,” he said of those who followed directions and voted no. “It was part of their intake to the job.” Many wanted to change their vote after experiencing life in the fulfillment center and learning what the union could do for them, but by then it was too late.

Holding mandatory anti-union meetings on company time is legal, but it’s against the rules for union organizers to talk to employees during working hours. Organizers seized the opportunity to talk to workers when they were stopped at a red light outside the fulfillment center, but Amazon persuaded the town to change the timing of the light to minimize traffic backups, Vachon said.

Those actions helped Amazon halt the union movement in Bessemer, but they didn’t prevent unrest from spreading to some of the company’s other facilities. In fact, the clash in Alabama inspired Chris Smalls to take action at Amazon’s fulfillment center in Staten Island, New York.

Smalls began working for Amazon in 2015 as a warehouse associate and was soon promoted to process

assistant, a job better known as assistant manager. He helped open two Amazon facilities before the company sent him to Staten Island.

COVID at Staten Island At first, Smalls wasn’t trying to unionize at Staten Island. He simply wanted the company to combat the spread of the COVID19 virus by providing masks, hand sanitizer and cleaning supplies, and by observing social-distancing recommendations.

Instead, Amazon responded to the pandemic by imposing silence, according to Smalls. “They informed me at my managers meeting not to tell any of the employees that somebody tested positive because they didn’t want to cause a panic,” he said.

The company also ignored the pandemic in other ways, Smalls maintained. Amazon proceeded with a gathering for all the Staten Island workers in the middle of March in 2020. “New York was the pandemic epicenter of the world,” he said, “and we’re throwing full-on parties with DJs, popcorn and candy. We had nobody enforcing any kind of safety.”

Smalls began talking one-on-one about his safety concerns to anybody in management who would listen.

When they failed to answer his questions, he began sending email messages to managers farther up the chain of command.

Next, Smalls staked out a spot in the fulfillment center cafeteria and began spending 10 hours a day warning employees about the lack of safety measures in the facility. He was campaigning for a 14-day shutdown at the plant to ride out the incubation period of the virus.

Within a week, management placed Smalls in quarantine in what he considers an attempt to silence him. Amazon didn’t quarantine anyone else in his department, not even the employee who traveled to work in the same car as Smalls, he noted, adding that “it just didn’t make any sense.”

Smalls broke the quarantine to continue bringing his message to fellow workers, and Amazon terminated his employment at the end of March 2020.

Another unionization effort A little over a year later, Smalls was back, setting up shop with a tent, banners, loudspeakers and a barbecue grill at a bus stop outside the Staten Island fulfillment center to organize an independent union there. His supporters were also talking to workers disembarking from the Staten Island Ferry from Manhattan.

“How do we educate the youth on what a union represents,” Smalls asked of the task the organizers face.

“That’s the fun part about it, but also the most challenging part about it.”

Meanwhile, Staten Island employees have told Smalls that out-ofstate managers are dressing down and working alongside warehouse associates to find out what’s going on with the union-organizing effort.

It’s a gambit that can backfire.

“None of the managers can do what any of the entry-level workers do,” Smalls said of the grueling regimen at the facility. “So who’s really valuable and who’s not?”

But change doesn’t come easily as Amazon and other large employers continue to use the nation’s labor laws to prevent unionization, Vachon said. “What’s needed is a reset of the power balance, an update of U.S. labor law to give workers a fighting chance to bring home a bigger piece of the growing economic pie and not just make more pie for Jeff Bezos and Amazon shareholders,” he maintained.

But Smalls hopes to prevail. “That building needs some type of change,” he said, “and I know once it gets to the vote, we’ll probably be the ones on top.”

Vachon put it this way: “It’s a class war: Except they’ve got tanks and bombers, and you’ve got sticks and pebbles.”

GPS BRACELETS TRACK AMAZON FULFILLMENTCENTER PICKERS. THEY’RE DOCKED IF THEY SPEND MORE THAN A CERTAIN NUMBER OF MINUTES IN THE BATHROOM.

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AMAZON’S PREDATORY CAPITALISM

I

AMAZON’S TAX GAMBIT

t’s no surprise that President Joe Biden has introduced sweeping proposals to raise taxes on corporations and wealthy individuals.

Biden campaigned for the White House, in part, on the platform of raising taxes to fund infrastructure spending.

“A fireman or a teacher pays 22%, while Amazon and 90 other major corporations pay zero in federal taxes,” then-candidate Biden said on the campaign trail.

While the average taxpayer may not feel the pinch if the individual tax rate is raised only for those making more than $400,000 annually, the story is different (and far more complicated) for corporations. Despite Amazon’s status as the best-known example of a company avoiding significant tax burdens, it may stand to win in the long run if the federal government hikes corporate taxes.

Jeff Bezos and Amazon are supporting higher taxes—a move that’s less counterintuitive than it appears

BY CHRISTOPHER VECCHIO

Corporate welfare One of Biden’s rationales for raising taxes on corporations was that the 2017 Tax Cut and Jobs Act (TCJA)

The firms

Fourteen of the 55 companies that had pre-tax income greater than $1 billion but paid $0 in federal taxes.

(Figures are in millions of dollars); Source: itep.org Company name

U.S. pretax income

Current federal income tax

Effective tax rate

Total (all 55 companies)

$40,482.00

-$3,497

-8.60%

Industry

Charter Communications

$3,680.00

-$7

-0.02%

Telecommunications

Nike

$2,873.00

-$109

-3.80%

Miscellaneous manufacturung

Salesforce.com

$2,630.00

-$12

-0.50%

Computers, office eqiup, software, data

Dish Network

$2,532.00

-$231

-9.10%

Telecommunications

American Electric Power

$2,163.00

-$138

-6.40%

Utilities, gas and electric

Danaher

$1,583.00

-$321

-20.30%

Miscellaneous manufacturung

DTE Energy

$1,531.00

-$247

-16.10%

Utilities, gas and electric

Xcel Energy

$1,456.00

-$13

-0.90%

Utilities, gas and electric

Consolidated Edison

$1,227.00

-$2

-0.20%

Utilities, gas and electric

Nucor

$1,220.00

-$177

-14.50%

Metals & metal products

FedEx

$1,218.00

-$230

-18.90%

Miscellaneous manufacturung

Advanced Micro Devices

$1,208.00

n/a

0%

Computers, office eqiup, software, data

FirstEnergy

$1,108.00

-$14

-1.30%

Utilities, gas and electric

Fiserve

$1,100.00

-$25

-2.30%

Financial data services

24

freed many corporations from paying federal income taxes despite turning significant profits. The TCJA reduced the statutory federal corporate income tax rate to 21% from 35%.

“At least 55 of the largest corporations in America paid no federal corporate income taxes in their most recent fiscal year despite enjoying substantial pretax profits in the United States,” according to the Institute on Taxation and Economic Policy, or ITEP. That’s not quite the 90 that Biden referenced while campaigning, but it’s still significant.

ITEP’s study detailed a potential fiscal windfall for the government if it collected taxes from giant companies that weren’t paying a dime.

“The 55 corporations would have paid a collective total of $8.5 billion for the year had they paid that rate on their 2020 income,” the institute said. “Instead, they received $3.5 billion in tax rebates. Their total corporate tax breaks for 2020, including $8.5 billion in tax avoidance and $3.5 billion in rebates, comes to $12 billion.”

Closing loopholes that enable American corporations to avoid paying taxes could bring in anywhere from $100 billion to $1 trillion over a 10-year period, which would pay for a significant portion of the Biden administration’s infrastructure plan. The American Jobs Plan, as the infrastructure package is called, would cost an estimated $2.3 trillion but could be subject to months-long negotiation.

Bezos plays his hand What about Amazon paying no federal taxes? Well, it turns out that it wasn’t one of the 55 companies that paid no federal corporate income taxes in 2020. According to Amazon’s 10-K filings for 2019 and 2020, the company paid an effective tax rate of 1.2% in 2019 ($162 million) and 9.4% in 2020 ($1.8 billion).

Facts are facts, and the simple reality is that Amazon has paid less in federal taxes in recent years than

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it would have had it paid the statutory corporate tax rate of 21%. But its tax burden has risen in each of the past two years. The coronavirus pandemic may have permanently changed consumers’ purchasing habits, so it isn’t far-fetched to think that Amazon’s profits will continue to grow—as well its effective tax rate burden.

Former Amazon CEO and current chairman Jeff Bezos is seemingly sensing which way the winds are blowing, not just on his company’s balance sheet but also in Washington and overseas.

Less arbitrage In April 2021, Bezos and Amazon came forward with a statement indicating support for the Biden administration’s plan to raise the statutory federal corporate income tax rate from 21% to 28% (the effective tax rate falls closer to 24%). The company issued the statement against the backdrop of Treasury Secretary Janet Yellen forging a path forward with her international contemporaries to end tax arbitrage opportunities by imposing a global minimum tax.

Already, the effective U.S. corporate tax rate is in line with those of the 37 countries that belong to the Organisation for Economic Co-operation and Development, or OECD. (see chart, right.)

In a sense, if Secretary Yellen accomplishes what she set out to do alongside the OECD, then corporate taxes are going up not just in the United States but around the world. That may have the long-term benefit (from the U.S. Treasury’s perspective) of preventing corporations from domiciling overseas for more favorable tax treatment in any of the many countries that still have a lower corporate tax rate than the United States. That, in turn, can help fund infrastructure spending.

support for higher corporate taxes is simply good politicking, insofar as a hike in corporate taxes looks like a fait accompli.

By getting ahead of the curve, Bezos is helping to reposition Amazon’s corporate image in a manner that gives it a patriotic air— sacrificing corporate profits for the sake of helping to rebuild America—after a series of setbacks that have irritated politicians on the left and the right. After all, Bezos and his newspaper, The Washington Post, were a favored punching bag of former President Donald Trump, and Amazon defeated a unionization effort in Alabama, much to the chagrin of progressive Democrats.

While The American Jobs Plan carries a hefty price tag that may ultimately produce higher corporate tax rates domestically alongside the OECD’s efforts to put a floor on corporate tax rates globally, Amazon relies on infrastructure to remain profitable. Amazon needs reliable airports, roads, bridges and tunnels if it’s going to meet customers’ demands for shipping goods faster and faster. It also needs improved telecommunications infrastructure for its rapidly growing cloud service, which has an increasingly monopolistic-like hold on the internet.

Of course, Bezos and Amazon stand to benefit in the long run if the infrastructure spending bill gets passed into law. Making Amazon more reliable, more responsive, more able to meet its customers’ demands will only put more pressure on brick-and-mortar businesses that have been struggling for years to compete at scale. From Bezos and Amazon’s perspective, paying a few more billions in taxes over the next few years may be worthwhile if it helps cement market dominance that yields hundreds of billions in profits over that same timeframe.

Buying goodwill Taking a step back, it’s clear that Bezos and Amazon’s statement of

Christopher Vecchio, CFA, a senior currency strategist for DailyFX, forecasts economic trends in a number of countries. @cvecchiofx

U.S. CORPORATE TAX RATE IN MIDDLE OF THE PACK Composite ellective average tax rate rates in the OECD, 2019 Source: taxfoundation.org

United States 2017

37.5%

Chile

31.06%

France

30.34%

Australia

29.89%

Germany

27.53%

Japan

27.16%

Mexico

26.77%

Spain

24.96%

Canada

24.61%

United States 2019

24.60%

Austria

23.83%

Belgium

23.04%

Israel

21.97%

Italy

20.74%

United Kingdom

18.37%

Poland

15.31%

Ireland

12.00%

Hungary

9.96%

AMAZON’S SUPPORT FOR HIGHER CORPORATE TAXES IS SIMPLY GOOD POLITICKING BECAUSE A HIKE LOOKS LIKE A FAIT ACCOMPLI. June/July 2021 | Luckbox

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AMAZON’S A NEW SILK ROAD The big American online retailer has become inextricably intertwined with China—but do Americans care?

BY ANDREW PROCHNOW

mazon and China can’t seem to get enough of each other.If something’s made in China, then Amazon (AMZN) probably sells it—that’s the executive summary.

Given that Walmart (WMT) followed a similar path to the East over the last several decades, that probably doesn’t sound like a jaw-dropping revelation. But just the same, the average Amazon customer probably has no idea just how closely interlinked Amazon is with the Middle Kingdom.

Start with a revealing statistic: Roughly 40% of all Amazon Marketplace sales in the United States are linked to Chinese merchants, according to Forbes magazine. As of January 2020, 49% of the 10,000 top sellers on Amazon Marketplace were based in China, while 47% were in the United States. (See “Top Amazon sellers,” p. 27.)

China appears likely to make further inroads into Amazon’s global marketplaces this year. In January, 75% of new vendors on Amazon’s U.S. Marketplace were domiciled in China. That’s not a trickle—that’s a flood. And it indicates that Amazon’s operations depend heavily on Chinese manufacturers, suppliers and vendors.

Considering that China accounts for an estimated 30% of the world’s total manufacturing, its dominance at Amazon may not seem surprising. “Made in China” has long been the mantra of global companies seeking cost advantages associated with China-based production—a trend that began in the 1980s and continues today.

But, one has to wonder if Amazon’s

customers care where their purchases originate—especially if they’re satisfied with the price, quality and delivery.

A recent development may indicate they’re indifferent. Not long ago, Amazon attempted to improve transparency in its marketplace by requiring third-party sellers to share more information with customers about the location and nature of their operations. But access to the facts hasn’t changed the behavior of online shoppers—at least not yet.

Customer reviews and price both influence American online consumers, market research indicates. And recent moves by Amazon’s competitors suggest that other mega-retailers are catching on to the importance of those factors.

In one example, Walmart recently dropped the requirement that sellers in its marketplace are registered in the United States.

Walmart is clearly trying to expand its global network of roughly 85,000 third-party vendors to compete more effectively with Amazon’s network of more than two million vendors. Besides opening its marketplace to overseas-based vendors, Walmart is reviewing the commissions it charges on sales.

Walmart takes a 3%-20% cut on most merchandise, while Amazon’s rate ranges from 6%-45%, depending on the product. Recently, Walmart is telling new international vendors they won’t have to pay a commission—at least not for a “limited time.”

Despite new tactics, Walmart continues to lag behind Amazon in attracting third-party international sellers. That may be due to the efficiency of Amazon’s FBA (Fulfill-

Amazon can deliver China-sourced goods to an American front porch in a day or two.

It’s logistics, not magic.

26

PHOTOGRAPH: SHUTTERSTOCK.COM/LUCKBOX ILLUSTRATION

AMAZON’S PREDATORY CAPITALISM

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ment by Amazon). FBA permits domestic and international vendors to store products in Amazon’s fulfillment centers, where Amazon workers locate, pack and ship the goods after receiving an order.

FBA is what brings products sourced from China and other international locations to customers’ doors so quickly. The key is that most Amazon products are already in the United States when a consumer clicks the “buy” button. Overseas goods ordered from Walmart can take as long as three weeks to arrive.

But don’t overlook the fact that Walmart operates more than 400 stores in China and employs more than 100,000 people there, many for sourcing and international logistics.

That huge presence in China has helped Walmart climb to the second-highest rung of the U.S. e-commerce ladder, right behind Amazon.

Last year, Walmart surpassed eBay (EBAY) to claim the second-largest share of U.S. online retail sales. The top-five list now reads: Amazon, 38.7%; Walmart, 5.3%; eBay, 4.7%; Apple (AAPL), 3.7%; and Home Depot (HD), 1.7%.

The fact that Walmart allowed foreign sellers into its marketplace underscores the critical role China plays in the supply chain behind the American online shopping experience. And, for now, it appears that American consumers aren’t that sensitive to where their products originate. The question is how long that indifference will last. (See, Top online marketplaces, right.)

At critical points in history, Americans have taken a keen interest in where products are manufactured. During World War II, for example, buying American became a matter of patriotic pride.

Andrew Prochnow, an avid, longtime options trader, has written extensively on professional tennis and contributed articles to Bleacher Report and Yahoo! Sports. @andrewprochnow

TOP AMAZON SELLERS

The number of top Amazon sellers based in China has surpassed U.S. sellers. While 49% of the top Amazon sellers have their headquarters in China, only 47% are in the United States.

Source: marketplacepulse.com

USA

58%

57%

58%

58%

58%

37%

38%

37%

37%

37%

Dec ′18

Jan ′19

Feb ′19

Mar ′19

CHINA

OTHERS

56%

55%

53%

53%

53%

39%

41%

42%

43%

43%

Apr ′19 May ′19 Jun ′19

Jul ′19

Aug ′19 Sep ′19

51%

50%

50%

44%

46%

46%

Oct ′19

Nov ′19

Dec ′19 Jan ′20

TOP ONLINE MARKETPLACES AMONG CHINESE SELLERS

Amazon leads the pack for the percentage of e-retailers in China selling goods on their marketplace.

Source: Payoneer Inc.

62%

45% 40% 28% 19% 8%

Amazon

Wish

AliExpress

75% of Amazon’s new vendors are in China

eBay

Lazada

Other

5%

4%

3%

3%

2%

JD.com

Cdiscount

Etsy

Newegg

Linio Jumia

49% of the 10,000 top sellers on Amazon Marketplace are in China June/July 2021 | Luckbox

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47% 49%

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AMAZON’S PREDATORY CAPITALISM

Counterfeit merchandise on Amazon Marketplace can be life-threatening

BY HITHA HERZOG

I

t started with a phone call to 911.

A senior producer for a daytime talk show in New York City frantically dialed the emergency helpline to summon the fire department. A combination hairdryer and brush—an office favorite known as the “Revlon One-Step Hair Dryer and Volumizer”—had blown up, burst into flames and singed an electrical outlet. As firefighters cordoned off the bathroom, the producer noticed her device was not the Revlon brush everyone in the office swore by. Instead, it was a counterfeit mistakenly picked up on Amazon.

28

Caveat emptor The accident that gave new meaning to “hairdresser on fire” wasn’t an isolated incident for Amazon.

Last year, the CEO of Birkenstock yanked all of the company’s products from the site, accusing Amazon of “modern-day piracy.” And in 2016, a family filed suit against Amazon after a counterfeit hoverboard they bought on the site blew up and started a fire that burned down their home.

Amazon has invested $400 million and hired a staff of 5,000 to help monitor the Wild West that is its Amazon Marketplace. Executives have launched a “we care a lot” attack on counterfeits and stolen IP addresses on behalf of their vendors, but it’s different behind the scenes.

The hands-off business model that made it easy to sell on the site did little to vet or police third-party vendors. As of April, 1.9 million active sellers were crowding onto Amazon Marketplace and accounting for more than half of Amazon sales, totaling more than $118 billion. About 407,000 have joined Marketplace in 2021. That equals 3,234 new sellers every day, or 134 every hour, or two every minute.

What’s more, 25% of Marketplace sellers are from China. And Amazon is taking 15% or more of the revenues made from third parties.

Lack of accountability paired with the sheer volume of counterfeit products potentially puts customers at risk. A mom in Brooklyn, New York, recounts purchasing inexpensive baby formula labeled “Enfamil” on Amazon Marketplace. The seller was identified as being from the United States, and the price of the formula—which usually ranges from $45-$55—was $25 a can. She couldn’t resist the deal.

What happened next was terrifying. “I fed my baby girl the formula, and that night she woke up sick and lethargic,” the woman said. “She was in and out of consciousness when I decided to take her to the hospital.”

Turns out she had melamine poisoning—a chemical found in fertilizers.

“I’ve never felt so enraged, terrified and let down all at once,” said the mother. “When I called Amazon they asked if I wanted a refund. I asked for a refund on our hospital bill.”

Nonperishable food is frequently counterfeited and sold as legit, according to a report by the Organization for Economic Co-operation and Development. Pirated goods account for 3.3% or $509 billion of world trade and include clothing, footwear, watches, toys, pharmaceuticals, beauty products and electronics in addition to food. The category is up from $431 billion in 2013.

Path of least resistance The site is saturated with suspect sellers because it’s easy to become a third-party vendor, and it’s also hard for authorities to identify who the sellers are.

“There are many different checkpoints as manufacturers of counterfeit items ship their merchandise,” said Lara Miller, Senior Counsel and VP of Corporate Strategy at International AntiCounterfeiting Coalition.

“Trade routes are complex and for good reason. They throw the scent off for authorities trying to bust up the ring. False documents that misrepresent the original point of departure, who it’s from and the packaging it comes from make it extremely difficult for authorities to track. Add in the complexities of shipping from different countries where regulations are much more relaxed, and the flood gates open up.”

Hitha Herzog is the Chief Research Officer of H Squared Research, a data-driven research firm for registered investment advisors. She is the author of Black Market Billions: How Organized Retail Crime Funds Terrorists. @hithaherzog

PHOTOGRAPHS: SHUTTERSTOCK.COM, LUCKBOX ILLUSTRATION

AMAZON SUBPRIME

“The hairbrush was labeled REVLON when I made the purchase online,” she said in disbelief. “I looked at the price, saw a deal and ended up purchasing something that was clearly fake and hazardous.”

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FIVE-STAR FAKERY

BY TEODORA DOBRILOVA

O

nline shopping. It’s faster than traditional shopping, and things get delivered to the front door. No annoying queues, no talking to humans and, perhaps best of all, shoppers can scroll through Amazon in pajamas while drinking raspberry wine.

What’s not to love?

As it turns out, there may be one thing: customer reviews.

Reviews are important. Nearly 95% of shoppers read them before making a purchase, according to PowerReviews data. But besides the arguably off-topic and hard-to-read ones, what percentage of Amazon reviews might be downright fake?

Teodora Dobrilova is a tech enthusiast, author at Review42, and the editor-in-chief at TechJury. @techjuryo

270% The increase in conversion that reviews can drive

4X

How much having five reviews can increase the likelihood of a purchase

82%

How many shoppers seek out negative reviews

4.34: Average rating for products by verified buyers

3.89: Average rating for products by anonymous reviewers —Spiegel Research Center Study (June 2017)

“INAUTHENTIC REVIEWS MADE UP LESS THAN 1% OF ALL REVIEWS ON AMAZON IN MARCH [2018] BUT EVEN ONE IS UNACCEPTABLE.” —Amazon spokesperson responding to a BuzzFeed News article titled “Inside Amazon’s Fake Review Economy”

75% 21% 4%

“Fully” or “somewhat” trusted reviews on Amazon Only trust verified purchaser reviews

Said they don’t trust Amazon reviews “at all”

—CPC Strategy Consumer Shopping Study (2019)

42%

Of consumers said they’ve written product reviews

3%-10%

Write reviews postpurchase when asked

55%

Of the consumers who aren’t writing reviews cited needing motivation to do so —PowerReviews Study (2016)

RED-FLAGGED REVIEWS 55.6% Weight-loss pills reviews 58.2% Bluetooth speakers reviews 67% Testosterone boosters reviews —Reviews deemed “questionable” by ReviewMeta analysis, The Washington Post (2018)

Bemused by reviews?

Use free tools that analyze Amazon reviews, such as ReviewMeta or Fakespot.

Repetitive comments raise red flags with reviews. If a particular review seems suspicious, check the poster’s account. If the reviewer has written several similar reviews or has submitted a lot of reviews in a short period of time, the answer seems obvious.

Editor’s Note: This article was originally published at review42.com and adapted with the author’s permission.

June/July 2021 | Luckbox

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AMAZON’S PREDATORY CAPITALISM

SURVEYING THE AMAZON In April, the digital experience management software company Sitecore released its Amazon-focused survey. And in May, Investor’s Business Daily and TechnoMetrica collaborated on a big tech poll (IBD/TIPP).

So, Luckbox conducted a survey of its own, asking readers some of the same questions as the other surveys, for comparison purposes, and some original questions.

The following pages comprise the most thought-provoking results from all of the aforementioned surveys, taking the nation’s pulse on its third-largest company.

75.9

96

%

%

Belong to Amazon Prime

Shop on Amazon

What is the main reason that you shop on Amazon?

Easy and convenient purchase process . . . . . 34.1% Fast, free shipping . . . . . . . . . . . . . . . . . . . . . . . . 26% Broad selection . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8%

On average, how often do you make purchases on Amazon?

Never . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2% At least once a year . . . . . . . . . . . . . . . . . . . . . . . 13% At least once a month . . . . . . . . . . . . . . . . . . . . . 47.2% At least once a week . . . . . . . . . . . . . . . . . . . . . . 37.8%

Should Amazon be broken up?

NO

YES 39.2%

60.8%

Would you boycott Amazon for a full month to send a message about its anti-competitive business practices, poor labor relations, detrimental effect on brick-and-mortar retail businesses or other issues?

Yes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.3% Maybe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.7% No . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44% Source: Luckbox Reader Survey (May 2021)

53

30

%

Called for the breakup of Amazon

%

Opposed breaking up Amazon

Source: IBD/TIPP

30

40

%

of U.S. shoppers would like to reduce the amount of shopping they do on Amazon

30 54 %

of U.S. shoppers feel guilty after they’ve shopped on Amazon

%

of U.S. shoppers surveyed typically go to Amazon first when shopping online before checking search engine results

Source: Sitecore

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AMAZON’S PREDATORY CAPITALISM

LUCKBOX LEANS IN WITH SCOTT GALLOWAY What do you say to those who believe Amazon is winning at capitalism?

The fact that Amazon is now “too big to fail” is less a testament to the firm simply “winning at capitalism” than it is to our country’s outdated antitrust laws and lax enforcement.

Don’t get me wrong: Amazon is an extraordinarily innovative company and a world-class operator. Jeff Bezos is one of the strongest CEOs we’ve ever seen. But scale and wealth ultimately accrue advantages that distort the functioning of the free market. Healthy capitalism is defined not just by profits, but also by real value creation, which relies on having stringent checks on monopolies so companies like Amazon can’t just continue amassing wealth by exploiting their own dominance. For those who really feel Amazon is being treated “unfairly” (which it isn’t), remember: Antitrust isn’t punishment, it’s oxygenation. After Ma Bell was broken up in the early 1980s, the spinoff companies grew faster than the market, and we kicked off a digital communications revolution that is still unfolding today.

In your most recent book, Post Corona, you criticize what you view as Amazon’s abuse of its power.

What aspects of Amazon’s influence concern you most?

One of Amazon’s most gangster moves is turning expenses into revenue streams—for example, the firm now sells its data center to other companies as a service.

This ability, combined with the

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company’s sheer wealth and data on its customers, means that Amazon can afford to take massive, unlimited risks in creating new offerings (ahem, healthcare), which will only make the company more indispensable to Americans and the world and, therefore, more difficult to regulate.

Given Amazon’s significant lobbying efforts, can regulators and Congress create and enforce meaningful antitrust legislation? How would you assess the political will of both parties to come together on this?

President Joe Biden has given us reason to be optimistic, putting forward Lina Khan and Tim Wu for important roles. Senator Amy Klobuchar, arguably the most effective member of Congress, is laser-focused on this issue, along with Warren and others. Plus, big tech has become a sort of common enemy across party lines. Major lawsuits against Facebook and Google were launched by the Trump administration. So, my hope is that there’s enough political and cultural pressure to put real checks on big tech’s power. That said, writing and implementing laws takes time, so any change will be slower than most people would like. We need to keep in mind that the problem of antitrust—really, the problem of concentrated power—has been festering for decades and goes beyond Amazon and even beyond big tech. Too many industries have been allowed to consolidate for too long. There’s a lot to be done.

PHOTOGRAPH: COURTESY SCOTT GALLOWAY

Scott Galloway is a speaker, podcaster, entrepreneur, best-selling author and instructor of brand and marketing strategy at the New York University Stern School of Business. His books include The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google ; The Algebra of Happiness, and Post Corona: From Crisis to Opportunity. Galloway has been calling for the breakup of the big tech companies since 2017. Luckbox reached out to him after watching him rail against “crony capitalism” in a recent appearance on Real Time with Bill Maher. Here, he shares his latest thoughts on Amazon.

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WHAT, IF ANYTHING, SHOULD BE DONE ABOUT AMAZON? For starters, we have got to fix a tax code that permits one of the most successful companies in history to pay almost nothing in federal income tax. Taxes funded the development of the internet—the communications system on which the firm itself runs—and a thousand other aspects of the innovation ecosystem that Bezos and his team enjoyed in building Amazon. What’s more, paying taxes is how we all, Amazon included, ensure the health of that ecosystem in the future.

Obviously, Amazon needs to be better regulated. It can’t be allowed to use data from its Marketplace customers, for example, to market competing products. That’s even against Amazon’s own internal rules, but we learned in last year’s Congressional hearing that they do it anyway. Requiring them to spin off Amazon Web Services would give a newly independent AWS the freedom to innovate without regard for Amazon’s retail business interests.

—Scott Galloway, @profgalloway

The first step is to solve the platform problem by keeping Amazon from competing with the third-party retailers on the Amazon Marketplace platform. That would take away a lot of Amazon’s leverage over those thirdparty sellers. If the federal government interpreted the Sherman Antitrust Act as having authority beyond just lowering prices, Congress wouldn’t even need to pass new laws to do it.

—Danny Caine, author of How to Resist Amazon and Why, @mistercaine

Amazon should definitely be broken up because they have too much power.

They’re controlling the market, the media, the internet, the propaganda, the surveillance systems, the Pentagon and the White House.

PHOTOGRAPH: (SMALLS) REUTERS/LUCAS JACKSON/FILE PHOTO

—Chris Smalls, labor activist who was fired by Amazon, @shut_downamazon

I used to think there are monopolies in need of being broken up. The argument against Amazon, Facebook and Google is that they enjoy an insurmountable advantage. The barriers to entry are too difficult for any competitor to get past. And the few who come close end up being bought by those monopolistic companies, thereby securing their advantageous position.

Where my argument falls apart is in forgetting the power of the market.

The very companies I was suggesting need breaking up, like Amazon, were the disruptors to previous monopolies, like Walmart. It was Facebook’s disruption of MySpace. Google’s displacing Alta Vista. The list goes on.

It’s not that monopolies no longer exist. However, the exponential pace at which technology advances, combined with a free market, ensures a shorter and shorter shelf life for any monopoly. Amazon will be broken up, as will Facebook and Google. New companies will come along with a better offer and determination to remain independent. They’ll turn down the quick buck from a buyout in pursuit of something larger. So, we don’t need regulators to do the dirty work. The market will take care of it.

—Dylan Ratigan, author of Greedy Bastards, global market strategist at tastytrade and co-host of the Truth or Skepticism podcast, @dylanratigan

For those who really feel Amazon is being treated “unfairly,” remember: Antitrust isn’t punishment, it’s oxygenation.

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trends life, luxury & the pursuit of happiness

RECORD HIGH

Making a Buck in the Band Music streaming gives artists exposure but not much else

By Kendall Polidori

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usic streaming gives relatively unknown artists a bigger microphone but a smaller paycheck. The mic’s larger in the sense that musicians reach a sizeable audience more quickly than ever before, but the resulting royalties won’t cover the bills unless a performer is approaching the popularity of Taylor Swift, Amazon Music’s Top Artist for 2020.

Those trends matter because the pandemic has given streaming services a boost as fans seek music to fill their lonely hours of isolation.

Before COVID-19, platforms like Amazon Music, Spotify and Apple Music were already gaining market share at the expense of radio and live shows, and now they’re more quickly crowding out older ways of listening.

But is the convenience of listening to the latest Dua Lipa track with the simple tap of a finger worth making up-and-coming musicians struggle to make ends meet?

“There’s no reason you should be working day shifts at McDonald’s if your band is raking in 100 million streams a week,” said Nick Bilski, a Chicago musician in the band SŌK. To stay afloat, he works at Guitar Center and teaches music lessons.

“The losers are the 99% of artists who aren’t at Beyoncé’s level of fame,” said Ben Sisario in a New York Times article. “And they’re angry about not sharing in the music industry’s success.”

But streaming has its advantages for some denizens of the music business.

Platforms profit Streaming services generate 83% of global music industry revenue and provide something the industry never had before: regular monthly revenue, Sisario said in The Times article. “To oversimplify, the big winners are the streaming services and the large record companies,” he noted.

And the winners have a mountain of cash to divvy up. Streaming revenue in the United States amounted to $10.1 billion, according to the Recording Industry Association of America.

Streaming services “pay out roughly 60% to 70% of their annual revenue to ‘rightsholders,’ a group that includes musicians, record labels, songwriters, publishers— anyone who has a financial stake in the sales of a given record,” according to a Pitchfork article.

But at least artists have an easier time getting their music onto digital distribution platforms like DistroKid, cdbaby, tunecore, Record Union and Reverb Nation than they did in the days of having to convince a record label to release their songs.

Musicians choose which streaming distributor they want based on benefits and features.

Vivian McConnell, a Chicago musician who goes by the stage name of V.V. Lightbody, has been on streaming platforms for the past 10 years. Today, listeners can find her recordings on Amazon Music, Spotify, Apple Music, Pandora Premium, Deezer and TIDAL, but the money is not what keeps the lights on. She would prefer not to think about how often she’s

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streamed but feels she has to pay attention to the numbers because that’s how a majority of listeners now consume music.

Some of the singles McConnell has on streaming services were released through a record label that collects a large percentage of the streaming royalties. She released others independently, and their royalties come directly to her. Combined, her nine singles not associated with a record label have been streamed 90,000 times since 2018, earning her $455 (60% of streaming royalties).

A musician living in the United States needs three million plays annually to earn a gross income of $12,000.

The payout to artists Every streaming service offers a slightly different payout. In “Streaming service payouts,” below, there are nine platforms in order of how much they pay artists per digital stream, and how many streams it takes to earn a dollar.

A song might need a minimum of 250 plays to make $1. One track reaching 10,000 plays on Spotify equals roughly $40 in streaming royalties.

“At an average payout of $0.006 per song stream, a musician living in the United States needs three million plays annually to have a gross income of $12,000,” according to a Hypebot article. And the number of streams required to make a buck gets larger when members of a band divide the royalties.

On the brighter side, streaming tends to pay royalties directly to artists. When musicians relied on sales of CDs, vinyl or cassettes, the profit was larger but split up among as many as 10 different types of contributors. Key players in the making of a CD, for example, include the artist (6%), producer (3%), songwriters (4%), distributor (22%), manufacturer (5%), retailer (30%) and record label (30%).

Suppose a band with four members who write their own songs was selling CDs for $16 and receiving a royalty rate of 11%, thus clearing $1.76. The producer would take 3% of that, leaving the band $1.71. Distribution would then cost 43 cents, leaving the band with $1.28. So, each of the four band members would get 32 cents.

That’s why it takes around 1,500 song streams to make as much money as selling one album.

Artists fight back In self-defense, artists sometimes hire attorneys to track compensation, said Christopher Johnson, assistant director of education for an organization called Lawyers for the Creative Arts. His clients often feel they aren’t fairly compensated, so he does the math to ensure their number of streams matches the royalties they receive. But with plat-

Streaming service payouts Streaming Service

Payout per digital stream

Streams to earn a dollar

Amazon Music Unlimited

$0.0119

84

Napster

$0.0106

95

TIDAL

$0.0099

102

Apple Music

$0.007

143

Google Play Music (now YouTube Music)

$0.006

167

Deezer

$0.006

167

Spotify

$0.00437

229

Amazon Music

$0.00402

249

Pandora Premium

$0.002

500

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forms like Spotify mostly relying on subscriptions to fill their pool of royalties—and with people either listening for free or paying $4.99$9.99 a month—there isn’t much money for royalties.

“The most successful artists are the ones who are able to find every little niche market for their stuff, whether it’s in film, TV, etc.,” Johnson said.

Collective bargaining and protests can help, too. McConnell belongs to the Union of Musicians and Allied Workers’ (UMAW) Chicago chapter, which campaigns for larger payments from streaming platforms. She recently took part in a demonstration outside Chicago’s Spotify headquarters to demand the company pay its artists a penny per stream.

Some musicians found a reason for hope in April when Apple Music announced its intention to begin paying artists one cent per stream.

“As the discussion about streaming royalties continues, we believe it is important to share our values,” Apple said in a letter. “We believe in paying every creator the same rate—that a play has value and that creators should never have to pay for featuring.”

No other streaming platform has made that promise, and money alone won’t solve all of the problems musicians have with streaming.

“It is a really awesome tool for discovering new music, but [as an artist] you have to be actively pushing yourself out of the algorithm,” McConnell said. “Smaller artists are being overlooked. If people are using streaming apps, they really need to know that it doesn’t support artists at all.”

But the failure to nurture performers isn’t stopping the apps from growing. At the end of Q2 2020, Spotify’s 155 million paying subscribers gave it a 34% market share, Apple Music’s 72 million subscribers were good for a 21% share and Amazon Music had 55 million subscribers for a 15% share.

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Every year, Amazon Music increases its market share, and its Amazon Music Unlimited subscription pays artists more than its competitors unless Apple lives up to its penny promise.

While platforms are competing for market share, artists are fretting about compensation. Determining who collects royalty checks often raises issues, especially when a band with several members is involved, according to Daliah Saper, a trademark, copyright and media attorney in Chicago.

Music royalties are always confusing, and the confusion increases with digital streaming because of the multitude of ways to split music and the differences in platforms’ payouts, Saper noted. “Artists have to be educated and they have to understand all of the different ways they can exploit their music. Artists get into these collaborations and then they’re confused as to why they’re getting a fraction of a fraction of a fraction of that stream.”

Getting noticed Even though a majority of artists are not making much money from digital downloads or streaming, they can still use them to promote themselves.

In one example, Diego Martinez, a Brooklyn-based musician known as Di Ivories, uses platforms to his

advantage. He leans on Spotify to build a fanbase and make it onto playlists but goes to Bandcamp and Amazon to sell merchandise and make slightly more money. Most of his income as an artist comes from merchandise sales, he said.

It’s up to artists to do the work and not just wait for the streams to come in, Martinez said. He wants to see his number of streams grow but wants to see that growth turn into monetary value.

To make money and grow as artists, musicians have to become players in every sector of the music industry, Martinez said. That means planning single releases so they make it onto curated playlists, promoting themselves frequently through social media, devoting time to creating and selling solid merchandise, playing live shows whenever possible and strategizing every move to ensure it will provide benefits in the long run.

In the short run, Martinez monetizes his music by registering with Broadcast Music Inc. (BMI), an organization that collects royalties for songwriters and publishers when anyone uses their music commercially.

“It’s more important for artists to find their own way,” Martinez said.

“If not, then they’re just a starving artist. In reality, we all are.”

Music Streaming Services’ Market Share

Source: Business of Apps Data source: Counterpoint

Here’s how many times fans streamed songs by the nation’s biggest hit-makers.

1. Drake 5.6 billion 2. Juice WRLD 5.3 billion 3. YoungBoy Never Broke Again 4.7 billion 4. Lil Uzi Vert 4.0 billion 5. Post Malone 3.8 billion 6. Pop Smoke 3.7 billion 7. Taylor Swift 3.6 billion 8. Lil Baby 3.6 billion 9. The Weeknd 3.5 billion 10. Da Baby 3.4 billion

Source: HITS

U.S. Music Apps’ Reach of Mobile Users in 2019 Other 13%

YouTube Music 5%

TOP 10 MOSTSTREAMED ARTISTS IN 2020

Tencent Apps 12% Amazon Music 15%

Spotify 34%

Amazon Music 8.8%

Apple Music 21%

Apple Music 23.8%

Google Music 11.7% iHeartRadio 13.9%

Spotify 23.7%

Pandora 16.9%

Source: Business of Apps Data source: Verto Analytics/Statista

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THE NORMAL DEVIATE

Amazon Primed Public enemy No. 1, or Wall Street hero? Either way, odds say Amazon will dominate competitors for a long time to come.

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onsider the great accomplishments of humankind—harnessing fire, inventing the wheel, discovering electricity, achieving flight. Let’s add Amazon to that list. Amazon (AMZN) didn’t invent the internet, or even online shopping, but it used the power of technology to reshape human habits and created $1.7 trillion in market value in the process. Amazon became a refuge during COVID-19. It saves consumers time and money. It introduces products no one knew existed. After all, necessity is the mother of invention.

Amazon’s runaway success invited the world to hang a “kick me” sign on its back.

It’s not the biggest company in the world, but

it’s near the top. And it’s the biggest company that’s so well known to the public. Americans don’t see Apple trucks driving down the street or keep an eye on the driveway to see if Google delivered a package. So, Amazon becomes a convenient, personalized target for anyone with a gripe against capitalism.

On the other hand, Amazon can bring scorn down upon itself simply by implementing a business model. It angers conservatives by booting Parler off of Amazon Web Services.

It enrages liberals by quashing attempts at unionization. It offends small businesses by stealing customers and big businesses by investing big dollars to compete in their industries. In that way, Amazon seems like

Protestors in Los Angeles displayed their solidarity with union organizers at the Bessemer, Alabama, fulfillment center in March 2020. Workers in Bessemer voted no on the union a month later.

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a Bizarro Santa Claus, delivering something for everyone to hate—despite bringing jobs to the unemployed and next-day delivery to insatiable consumers. It takes products to a global marketplace for sellers willing to play by its rules.

Wall Street loves Amazon, giving it a valuation that far exceeds its direct retail competitors like Alibaba (BABA), Walmart (WMT), Costco (COST) and Target (TGT). Amazon’s price-to-earnings ratio is 81, while Alibaba’s is 26, Walmart’s is 29, Costco’s is 37 and Target’s is 23. That, in turn, makes Amazon’s market cap much higher than those of the other companies, too. Wall Street might respond by citing Amazon’s lobbying power in Washington, praising its superior website, and noting its diversification into strong performers like the cloud and streaming video. But the Normal Deviate isn’t about fundamental analysis and doesn’t give a damn about what Wall Street thinks. It’s about probabilities and different ways to think about them.

Amazon is dominant now—no question.

And it’s a very valuable company. But what if those other companies begin to outperform?

Could they someday have a market cap equal to Amazon’s?

To answer that question, let’s break into the probability formula and look at the part that models the random walk, or Brownian motion. (r — 2/2)t The “ ” is the volatility of the stock, “t” stands for how long into the future the probability is being evaluated and “r” is an interest rate, usually a current benchmark risk-free rate. That rate is the expected return of the stock or asset that is equal to at least the rate on a Treasury bill, for example. If there were no possibility of earning at least that riskfree return on a risky asset, then there would

PHOTOGRAPH: REUTERS/LUCY NICHOLSON

By Tom Preston

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be no need to invest in it instead of a T-bill.

Those variables combine in the formula to describe a stock behavior that rises by “r” but gets knocked down by “ .” That’s the random up and down price action investors see most of the time.

But mathematically, that “r” can be set to any expected growth rate in the stock.

It simply makes the theoretical stock price increase by that rate over time. Think the stock will grow 10%? Stick .10 in the formula for “r.” Keep in mind that it’s just a guess. A trader might not want to do this for trading purposes because it will make all options prices and probabilities far off from current market values. But it’s fine to use it to see a theoretical probability of a stock reaching a higher price if it grows by a certain rate.

The test is to see if the market capitalizations (the number of shares outstanding times the stock price) of Amazon’s competitors might reach its market cap in the future.

There are three big assumptions. First, volatility stays at its current level. Second, the number of shares outstanding doesn’t change.

Third, the growth rates are constant. Let’s also assume that Amazon grows by 10% and Alibaba, Walmart, Costco and Target grow by 20%—twice as much as Amazon—every year for five years.

Now, let’s see the probabilities for Amazon’s competitors to catch up.

Alibaba has the best chance, with a 16% probability of having a price high enough to make its market cap equal to Amazon’s.

Walmart is next, with 2%. And the probabilities of both Costco and Target reaching Amazon’s market cap are less than 1%.

OK, let’s take it out 10 years, with Amazon growing at 10% a year and the other stocks growing at 20%. Alibaba has a 29% probability of reaching Amazon’s value, Walmart has a 17% probability, and both Costco and Target have a 1% probability. Looks like Amazon

Amazon has become a Bizarro Santa Claus, delivering something for everyone to hate. doesn’t have much to worry about for quite some time.

Now, what happens in the future is anybody’s guess. But regardless of whether one loves or hates Amazon, it’s likely to continue to dominate market cap vis-à-vis its competitors. That’s not to say its competitors’ stock prices won’t rally, but they probably won’t rally enough to make them a threat.

Tom Preston, Luckbox features editor, is the purveyor of all things probability-based and the poster boy for a standard normal deviate. @fittypercent

Listen Here Truth or Skepticism

Tom Sosnoff, entrepreneur, options trader and co-CEO of tastytrade, joins Dylan Ratigan, businessman, author and former host of MSNBC’s The Dylan Ratigan Show, for a weekly podcast covering everything from sports and investing to politics and monetary policy. One’s an iconoclast, and the other’s a contrarian. Tune in each week find out who is who.

It’s unscripted and unpretentious—some like to think of it as rants, but refined.

The Prediction Trade

If you can trade it, or bet on it, you can bet they will talk about it on The Prediction Trade—the only podcast for gamblers, traders, investors, math freaks, data geeks and superforecasters devoted to the intersection of probability, prediction and profit. Each episode features expert guests with proprietary forecasting models and insights into the outcomes of prediction market events. So whether you live to bet or bet to live, check out the next episode of The Prediction Trade.

Truth or Skepticism and The Prediction Trade are available on your favorite podcast platform.

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ARTS & MEDIA

WHAT DRIVES US

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the Dead Kennedys, Lars Ulrich of Metallica; and Steven Tyler of Aerosmith. As Flea notes in the film, there’s “only one reason to do it—because you f—— love it.”

In a world dominated by music streaming, music aficionados might forget that musicians used to tour to make a name for themselves.

Besides radio and television, it was the only exposure a band could get. For Grohl, making it in music requires packing equipment into a van like a game of Tetris, shoving six people in the back and driving around the country to play as many live shows as possible. And there’s no good reason for it other than making that deeper connection with the audience.

The movie connects the act of touring in a van to the 1960s journey of Ken Kesey and The Merry Pranksters, who piloted a day-glo school bus across America, experimenting with acid. The pranksters lived by the doctrine of “you’re either on the bus, or off the bus,” literally and figuratively.

The bus and its psychedelic paint job inspired the Beatles’ Magical Mystery Tour.

What Drives Us entertains music fans while revealing what drives musicians. But it glosses over the struggles and toxicity of touring with no place except for the van to call home. It did not fail to address how an individual band member’s problems become the group’s problems, though.

The film pays homage to live music. Shots of a massive crowd singing along in unison to a Foo Fighters song tug at the heartstrings of any music lover.

It gets personal with musicians by interviewing Steven Tyler as he’s perched on the dashboard of a van or filming D.H. Peligro as

he succumbs to emotion while relating an experience.

Rock musicians were drawn to the lifestyle because it satisfies the soul and enables them to share their love. Flea said it best in the film: “It’s heaven, it’s f—— paradise, it’s the greatest thing you could ever do. I felt like we were this roaming band of gypsies. We show up and we rock you.”

Music is about passion, wonder and discovering life’s true purpose. What Drives Us inspires viewers to follow their passion, whatever that might be.

—Kendall Polidori

WHAT DRIVES US

4 out of 5 An intimate look at what drove rock legends to the music industry

Nirvana drummer and Foo Fighters founder Dave Grohl directed the documentary What Drives Us.

PHOTOGRPAHS: COURTESY OF WHAT DRIVES US

After playing a show in London in the late 1960s, the Beatles were driving home during a frigid snowstorm when the windshield of their van shattered.

To stay warm, the four of them laid on top of each other on the van’s bench seat. As each rotated to the top of the pile, he swallowed a bracing slug of whiskey. That’s how the band got home without freezing to death, Ringo Starr recalls in the documentary film What Drives Us. The movie serves as a love letter to touring from iconic rock musicians who left everything behind and set out on adventures laced with uncertainty, passion and countless hours of sitting in vans and busses. There’s nothing quite like a ragged 10 hours of travel to make it to the next show.

The film reminds viewers that it takes a special person to live as a working musician and that the beauty of music surpasses mere sound. Music is about connection, not only among the members of the band but also between the band and the audience.

What Drives Us was created by people who know. Dave Grohl, the frontman of Foo Fighters and drummer for Nirvana, directed the film, and the Foo Fighters served as producers. They draw upon their experience to show what leads a person to take the blind leap of faith into the music industry and leave so much behind.

Grohl narrates when he’s not interviewing the likes of Flea from Red Hot Chili Peppers; Slash and Duff McKagan, who both made their names in Guns N’ Roses; The Edge, who earned fame in U2, Exene Cervenka, punk goddess of the band X, Tony Kanal of No Doubt, D.H. Peligro, drummer for

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BOOK VALUE

The Luckbox Bookshelf New and not-so-new books that captured our attention this month

How to Resist Amazon and Why: The Fight for Local Economics, Data Privacy, Fair Labor, Independent Bookstores and a PeoplePowered Future!

by Danny Caine

Danny Caine, the author of poetry collections like CONTINENTAL BREAKFAST and El Dorado Freddy’s, owns the Raven Book Store in Lawrence, Kansas—but he’s also vocal in his opposition to Amazon. He gives voice to his advocacy through his writing, particularly in How to Resist Amazon and Why: The Fight for Local Economics, Data Privacy, Fair Labor, Independent Bookstores and a People-Powered Future! Caine writes from a firstperson perspective, providing great detail as he explains Amazon’s unconventional business model and what he views as the harsh working conditions employees face. The book includes advice on social media activism, his thoughts on the difficulty of boycotting the company and a personal letter he wrote to CEO Jeff Bezos.

Fulfillment: Winning and Losing in One-Click America

by Alec MacGillis

In his book Fulfillment: Winning and Losing in OneClick America, investigative journalist Alec MacGillis explains how Amazon and the ever-changing world of online shopping can bring poverty or prosperity to a city and increase the economic gaps among entire regions. He explores the damage of building Amazon offices that displace a historically Black neighborhood and describes homeowners protesting the environmental impact of a new Amazon data center. He decries Amazon’s attempt to usurp control at all levels of government. Rather than just looking at the company, though, MacGillis concentrates on how its tactics harm ordinary people.

Goliath: The 100-Year War Between Monopoly Power and Democracy

by Matt Stoller

In Goliath: The 100-Year War Between Monopoly Power and Democracy, author Matt Stoller makes the case that the conflict between concentrated financial power and consumerism has transformed American politics. That clash has resulted in the rise of populism and authoritarianism after the 2016 U.S. presidential election, he argues. Building upon his article in The Atlantic titled How the Democrats Killed Their Populist Soul, Stoller offers a plan for a new democracy, one that would encourage small businesses and local agriculture while discouraging the growth of state power.

The Tyranny of Big Tech

by Josh Hawley

Once viewed as paragons of innovation and creativity, mega-corporations like Amazon, Google, Facebook and Apple have become technological oligarchies with too much economic and political power, according to Republican Sen. Josh Hawley of Missouri. In his book The Tyranny of Big Tech, he argues that those companies pose a threat to the nation and insists that their reign must end.

To overcome the tech giants, the business model of the digital world needs to change before it’s too late. In Hawley’s view, the fate of liberty and democracy hang in the balance.

Far too often, book reviews drive away readers. But reviews present just one stranger’s view, and taking them to heart leaves great books undiscovered. The Luckbox Bookshelf offers profiles instead of reviews. Don’t look to these pages for opinions. Think of Bookshelf as a place to discover books that educate, entertain and challenge entrenched beliefs.

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TRADER 1. TweetDeck for following FinTwit trends and trader commentary 2. 15-minute charts of U.S. dollar FX pairs

1

3. Bloomberg terminal 4. Headset for conference calls and tuning in to press conferences 2 3

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5. Market notes, trading journal, and conversations with other analysts

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RICH DVORAK Rich Dvorak, IG Analyst @richdvorakfx Home/Office location Chicago Age 27 Years trading Nine How did you start trading? I opened a

brokerage account on my 18th birthday.

I discovered my passion for finance the moment I was exposed to the law of compounding interest. This passion blossomed as I learned to exploit market inefficiencies. My initial experience with investing was refined during my college years when I had the opportunity to earn degrees in both finance and economics. At the same time, my knowledge of the markets grew exponentially as the co-founder and portfolio manager of the Bellarmine University Sustainable Equity Balanced Fund. This helped me gain invaluable experience that prepared me for my first full-time job out of

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school with a derivatives exchange. The fastpaced nature of trading derivatives excited me, which led me down the road to working for a research desk where I could follow the markets closely and trade on the side.

Average number of trades per day? Two to

Favorite trading strategy for what you trade most? My favorite trading strategy takes a

many traders think being lucky is crucial for success, and others argue we make our own luck, I believe trading outcomes are a function of preparedness. We all may encounter a lucky trade at some point during our careers, but luck only lasts for so long and eventually runs out. This is why “lucky” traders end up getting washed out more often than not. Truly successful traders, on the other hand, are consistent and have tenaciously crafted their skills to master the art of trading by improving outcomes.

comprehensive approach that incorporates both fundamental and technical analysis. In my experience, there is no foolproof trading strategy that is successful over the long run.

Markets are dynamic, so I believe my trading strategy should be too. That said, conducting top-down global macro research is Step 1 of my trading strategy because doing so helps me determine a fundamentally influenced directional bias for a given market. I actively track market-moving economic data and commentary from important policymakers to help gauge this. Secondly, to prepare for possible risk events, I ensure that I do my homework by creating a decision tree gaming out potential scenarios and their probabilities.

three, but this varies depending on market conditions.

What percentage of your outcomes do you attribute to luck? Less than 1%. While

Worst trading moment? My worst trading

moment was an unforgettable and costly experience during the September 2019 Federal Reserve meeting. Markets were awaiting updated economic projections from

Luckbox | June/July 2021

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trends

FOMC (Federal Open Market Committee) officials, and considering this was in the midst of peak trade war tension between the United States and China, I anticipated downgraded outlook and a bearish reaction by equities. The Fed ended up announcing a 25-basis point interest rate cut, which I was not expecting. Although, stocks did respond negatively and started to head lower at first.

I chased the move by picking up exposure via put options on an S&P 500 ETF (exchangetraded fund), when in retrospect, I should have sat on my hands and done nothing because I did not have a well-thought-out strategy for the trade. My initial hesitation led me to practically short the intraday bottom by the time I actually pulled the trigger. To make matters worse, I continued to let the trade run on the mere hope that markets would turn back lower in my favor, and was blind to a glaring comment made by Fed Chair Jerome Powell, who hinted that

the central bank may have to resume organic balance sheet growth. This exacerbated the late-session bid beneath stocks, pushing my trade deeper into the red and to the point where my option contract was near worthless. Following this poor trading moment, I went into a self-imposed timeout and prohibited myself from trading for an entire month. I reflected on the trade during this time to understand what went wrong and how to avoid making a similar mistake in the future.

FAVORITE TRADING BOOKS Reminiscences of a Stock Operator

By Edwin Lefevre Albatross Publishers (2017) Paperback (250 pages)

Favorite trading moment? So far, the best trade of my career was going long volatility in February 2020 before market turmoil was ignited by the COVID-19 pandemic. On Feb. 18, 2020, I wrote an article that said “stocks to slide next?” right in the title, which was two days before the market topped and subsequently crashed. I often look back at this accomplishment.

HOOKED ON THE MARKETS?

Visit DailyFX.com for continuous updates on global markets in currencies, commodities, and stock indices.

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trends

THE PREDICTION TRADE

Business Forecasting Models Combining related forecasting questions into clusters can reveal bigger-picture insights for businesses and industries

By Warren Hatch

F

orecasting is an essential part of business. Companies use historical data and economic trends to make informed estimates of future sales, profits and losses.

Amazon (AMZN) and Google (GOOGL) rely on predictive algorithms to highlight specific products or search results for their customers.

Shopkeepers arrange their display windows based on their predictions of demand. Some of the forecasting is narrow and company-specific. The more challenging part has to do with broader questions, such as overall market outlook.

Consider this question: What will market conditions look like after the pandemic?

That question is of great relevance to any business decision-maker, but it’s so broad that it could be approached from many different angles, using multiple definitions.

“Market conditions,” for instance, involves multiple factors, from industry-specific trends and interest rates to consumer spending and supply chains. How do we intend to measure this? What time frame are we looking at?

Much more tractable is a narrower question: On Jan. 31, 2022, what

44

will be the average U.S. tariff rate on imports from China?

But in checking all the boxes to craft a rigorous question, narrow topics may lose their relevance to decision-makers trying to determine the prospects for their business down the line. This is the rigor-relevance trade-off.

To tackle the relevant strategic questions that decision-makers ask with the rigor that accurate forecasting requires, Good Judgment crafts sets of questions about discrete events that, in combination, shed light on a broader topic.

Good Judgment calls this technique “question clusters.” Good clusters will examine the strategic question from multiple perspectives—political, economic, financial, security and informational. These days, a public health perspective is also usually worthwhile.

Aggregating the probabilities that the Superforecasters assign to such specific questions generates a comprehensive forecast about the strategic question, as well as early warnings about the deeper geopolitical or business trends underway.

The Good Judgment team developed this method in a research study

sponsored and validated by the U.S. Intelligence Advanced Research Projects Activity from 2011 to 2015, where the Superforecasters outperformed the collective forecasts of intelligence analysts in the U.S. government by 30%.

Since then, the Superforecasters have refined and expanded their approach to evaluate emerging consumer trends, inform product development and understand the factors driving commodity markets.

As an example, in a question cluster forecasting the technological landscape, the Superforecasters estimate emerging trends in electric car sales, hydrogen-fueled vehicles, the growth of Starlink services and social media regulation, among others.

Independently, these forecasts are crucial for some companies and investors and informative for the discerning public. Taken together, they point to trends that are shaping the future of the business world.

The same technique can be applied to Amazon. The traditional approach of security analysts is to build a fixed model that predicts valuation based on dividends, cash flow and other objective metrics.

A question cluster approach can uncover critical subjective variables and quantify them—such as the risk of a regulatory crackdown or shifts in labor relations—to make the analyst’s model more robust.

“In business, good forecasting can be the difference between prosperity and bankruptcy,” says co-founder of Good Judgment Philip Tetlock. Successful businesses rely on forecasting to make better decisions. Using clusters of interrelated questions is one way to ensure those forecasts are both rigorous and relevant.

Warren Hatch, a former Wall Street investor, is CEO of Good Judgment Inc, a commercial enterprise that provides forecasts and forecasting training based on the expertise and research of the Good Judgment Project. @wfrhatch

BOOST FORECASTING ACCURACY WITH GOOD JUDGMENT’S ONLINE TRAINING Based on the book Superforecasting by Phil Tetlock, this course is designed for people who want to improve their forecasting accuracy using scientifically validated methods and Good Judgment’s practical expertise. The course provides a solid foundation for novice forecasters in such fields as finance, strategy and consulting.

Special for Luckbox readers: Use code Luckbox20 at checkout on goodjudgment.com for 20% off.

Tune in to Season 2 of The Prediction Trade podcast from Luckbox for all-new ways to make money forecasting the financial markets, politics, crypto, sports and other events.

Will Amazon announce the spin-off of Amazon Web Services (AWS) in 2021?

FORECAST Yes 4% *199 forecasters on gjopen.com, as of May 3, 2021

Luckbox | June/July 2021

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CALENDAR

PHOTOGRAPHS: (U.S. OPEN) DANIELLE PARHIZKARAN-USA TODAY SPORTS; (WIMBLEDON) REUTERS/ANDREW COULDRIDGE/FILE PHOTO; (MARTINI) SHUTTERSTOCK.COM

MAY 11-July 9 Stanley Cup Playoffs 4-June 13 The 2021 French Open 2 Paris

JUNE

6 Floyd Mayweather vs.

Logan Paul Miami

9-11 DTC Day Largest Direct-ToConsumer (virtual) conference in North America

12-13 Amazon Web Services Summit Online, Americas

15-17 Nasdaq 44th Virtual Investor Conference

17-20 The U.S. Open Golf Championship San Diego 28-July 11 The Wimbledon Tennis Championships London

19 Juneteenth

19 National Martini Day

20 Father’s Day

20 Summer Begins Longest day of the year

TBA Amazon Prime Day

The U.S. Open The 121st U.S. Open Championship is scheduled for the Torrey Pines Golf Course in San Diego. This year, a limited number of vaccinated spectators will be on hand to witness the event. A year ago, Bryson DeChambeau collected $12.5 million for first place at the Winged Foot West course without spectators in the gallery. In April, the Masters Tournament allowed a few fans on-site at Augusta National Golf Club in Georgia. That’s when Hideki Matsuyama made history as the first Japanese man to win a major golf championship. This year’s open will have a different layout than it did in 2008. The course will be 7,300 yards instead of 7,643 yards, and the par-four 14th hole will play closer to 437 yards.

Wimbledon Organizers are expected to limit the crowd at Wimbledon this year to 25% of capacity unless the British government eases restrictions. About 500,000 attended the tournament during its 13-day run in 2019. Stars slated to play include Novak Djokovic, Roger Federer and Rafael Nadal. Djokovic intends to surpass Federer’s and Nadal’s records of 20 grand slam singles titles.

Switzerland’s Roger Federer, seen here in action against Serbia’s Novak Djokovic, is expected to compete at this year’s socially distanced Wimbledon.

National Martini Day Martini recipes aren’t lengthy. Just mix gin (not vodka) and vermouth, and garnish with an olive or a twist of lemon. But variations can tailor the cocktail to please even those with the most discriminating taste buds. The perfect martini’s bright taste is based on a mix of 50% dry vermouth and 50% sweet vermouth. But to please those who like dry vermouth, use dry white vermouth instead of adding more gin. For a wet martini, add more vermouth. Stir the drink because shaking can dilute it.

June/July 2021 | Luckbox

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tactics essential trading strategies

INTERMEDIATE

The Futures of Technology A new futures product helps investors balance exposure to tech stocks

By Michael Gough

T

he line between retailing and technology has blurred. Who can decide whether to call Amazon a retailer or a tech company? What about Target? In certain cities, Amazon offers in-person shopping while e-commerce represents almost a fifth of Target’s revenue.

But classifications aside, the retailing and tech sectors have both ballooned since the start of the pandemic. Just check out the S&P 500 versus XLK, a technology sector exchange-traded fund, or ETF, and XRT, a retail sector ETF. (See “Diversification,” right.)

Instead of choosing between the two, why not try a product that balances the best of both? Recently, the Small Exchange launched a market that fits the bill. The Small Technology 60 (STIX) futures product provides exposure to tech stocks but breaks the category down into four subsectors: information tech, retail tech, media tech and biotech.

So, roughly a quarter of the product provides exposure to retail technology companies. The breakdown creates a nice balance between the exposures of both XLK and XRT with some added benefits that only futures contracts can provide.

Futures afford a number of benefits over stocks and ETFs, the largest

Diversification This chart shows the Small Technology 60 Futures balance exposure among information tech, retail tech, media tech and biotech.

100% 80% 60% 40% 20% 0% -20% -40% Jan ‘20

Jan ‘20

Jan ‘20

of which is their capital efficiency.

To demonstrate that idea, consider the amount of exposure an investor obtains by investing in one contract of STIX versus one share of XLK or XRT. One contract of STIX provides about $6,550 worth of exposure versus just $140 and $90 for XLK and XRT, respectively.

Calculate the amount of exposure for STIX by multiplying the current price by 100 because the contract has a $100 multiplier and the exposure amounts per ETF are just the

Jan ‘20

Jan ‘20

Jan ‘20

Jan ‘20

current prices of the ETFs. It’s important to equate those exposures to derive a cost per exposure. To get the same amount of stock exposure as STIX with XLK or XRT requires roughly 47 shares and 73 shares, respectively. Calculate that by taking the amount of exposure of one STIX future and dividing it by the current price of XLK and XRT. Now that the exposures are roughly equivalent, observe the cost to trade each product in (Exposure,p. 48.)

Jan ‘20

May ‘21

The retailing and tech sectors have both ballooned since the start of the pandemic.

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The cost savings obtained from using STIX for retail tech exposure are substantial, even in a margin account. Compare a theoretical return on capital for each product.

The average historic daily moves for these products since the start of the year are listed in Theoretical return, (right) along with their theoretical returns on capital had an investor captured this full move in profit.

While futures do come with options-like complexities, such as contract multipliers and expiration dates, they shouldn’t be an ignored product class. Whether an investor is looking for stock, commodity or interest-rate exposures, futures can afford significant capital savings that investors can use to hedge, speculate and invest.

Michael Gough enjoys retail trading and writing code. He works in business and product development at the Small Exchange, building index-based futures and professional partnerships.

2106-tactics-intermediate.indd 48

Exposure To get the equivalent of one contract of STIX requires roughly 47 shares of XLK or 73 shares of XRT. That’s calculated by dividing the amount of exposure of one STIX future by the current price of XLK and XRT. Exposure Amount

Cost to Trade

1 Contract of STIX

$6,550

$550

47 Shares of XLK

$6,580

$6,580 (or $3,290 with 50% margin)

73 Shares of XRT

$6,570

$6,570 (or $3,285 with 50% margin)

Theoetical return Traders can save a lot of money by using STIX for retail tech exposure, even if with a margin account.

Historically Average Dollar Daily Move

Theoretical Return on Capital

1 Contract of STIX

+/- $98

17.80%

47 Shares of XLK

+/- $91

1.40%

73 Shares of XRT

+/- $183

2.90%

Check out this futures course for beginners

5/13/21 10:30 PM

tactics

Cheat Sheet #15

Rem o and ve s this ave page !

Risk Mechanics Knowing how and when to evaluate and control risk

T

rading is commerce, and commerce is the relationship between the markets’ vast number of buyers and sellers—all aiming to end the day with a profit. Some will win, and others will not.

As in all of the many manifestations of commerce, trading has rules for success.

They’re the mechanics that drive the outcome. While these guidelines differ depending on the business, success does not happen by accident.

One aspect of the “mechanics of success” is knowing how and when to evaluate and control options trading risk.

This cheat sheet can serve as a guide on how to approach risk in the options market. The goal is to set realistic expectations through repeatable mechanics, that are rooted in mathematics and statistics.

Mike Hart, a former floor trader at the Chicago Stock Exchange and a proprietary futures trader, specializes in energy markets and interest rates. He’s a contributing member of the tastytrade research team. @mikehart79

1

First, understand the potential for loss before entering into a trade.

Primary Risk Controls

2

Defined Risk

Size, Width of Wings

Undefined Risk

Size, Delta Exposure

Next, consider how well you’re prepared for a large and unexpected move. Having an effective approach is essential. These are three key factors: Trade many non-correlated products Under 60% total at risk for all positions Portfolio duration greater than 21 days

3

4 Active Investor Alert!

Follow @mikehart79 on Twitter for daily trading ideas and tactics.

By Mike Hart

Following a large move, evaluate positions based on the risk profile and the profit-and-loss statement.

Naked Risk

Defend the trade and follow the principles of rolling

Defined Risk

No action required. Give it time and let the probabilities play out

Unchecked, size can pose the greatest risk to a portfolio. These guidelines help maintain consistency: A lways trade small, any single trade should not be greater than 5% of accounts BPR K eep trade size consistent across all trades W hen possible, scale with delta and not contracts

June/July 2021 | Luckbox

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tactics

ADVANCED

Breaking the Butterfly’s Wings Transform a low-profit, low-risk trade into one with higher profit but higher risk

By Michael Rechenthin

The traditional butterfly Here’s a low-risk trade done for a small debit. While the reward can be great, the probability of landing on the short strikes is low. $175 $150 PROFIT/LOSS

$125 $100 $75 $50 $25 $0 $-25 130.0

132.5

135.0

137.5 140.0 142.5 STOCK PRICE

145.0

147.5

The bearish broken wing Traders employ this strategy for just a small credit. The drawback is the max loss can be greater than the max profit. $150 $100 $50 $0 $-50 $-100 $-150 $-200 $-250 130.0

132.5

135.0

137.5 140.0 142.5 STOCK PRICE

145.0

147.5

150.0

The bullish broken wing This is done for a small credit. It provides a considerably greater opportunity for profit. The downside is the loss can be greater. $200 $100 $0 $-100 $-200 130.0

132.5

135.0

137.5 140.0 142.5 STOCK PRICE

145.0

147.5

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150.0

PROFIT/LOSS

The idea is to place the short strikes where you expect the stock to land.

The butterfly, in this example, will profit when it lands between 137.25 (ITM plus debit paid) and 140.75 (OTM minus debit paid). The breakeven is narrow, but the risk is small, and the potential is large.

To increase the probability of success, the butterfly can be “broken” so that the spread width is uneven and done for a credit instead of a debit. This makes the butterfly change from a low probability of profit, low-risk trade to a higher probability trade with higher risk.

Here’s the reason: Instead of profiting only if the stock “hits” a particular price at expiration, traders can make a smaller profit if the stock goes in one direction as well. So, the position can profit from two scenarios instead of just one.

The bearish broken wing shows an example of a bearish broken-wing butterfly using calls: Buy one 142 call using the June expiration; sell two 143 calls using the June expiration; and buy one 147 call using the June expiration for a 0.50 credit.

This example of a bullish brokenwing butterfly (see The bullish broken wing) uses puts: Buy one 132 put using the June expiration; sell two 137 puts using the June expiration; and buy one 139 put using the June expiration for a 0.45 credit.

Notice these are unlike the previous “traditional” butterfly where the long strikes are of an equal distance from the short strike. By “breaking” the wings on the butterfly, this adjustment can turn the trades from a debit to a credit and thus drastically improve the probability of making money on the trade.

PROFIT/LOSS

T

he butterfly, a low-probability, low-risk options trading strategy, doesn’t maximize profit, but it lessens risk. That’s why investors use it for speculation.

Say a trader thinks Amazon (AMZN) priced at $3,500 isn’t going to move much by expiration. Then, the trader could buy a traditional butterfly. It would cost roughly $350 but have a possible profit of $3,600. That’s an approximate return of 10 times the amount at risk. But the probability of it hitting that price will be low, making it a “speculative” trade.

A traditional three-step butterfly setup is as follows: 1. Buy one in-the-money (ITM) option; 2. Sell two at-the-money (ATM) options; 3. Buy one out-of-themoney (OTM) option.

The entire trade is done for a small debit. Traders use this strategy in higher implied-volatility environments. The credit received for selling the two ATM options lowers the costs. The cheaper the butterfly, the less capital is used, and the max loss is minimized. For example, the bond exchange-traded fund (ETF) TLT is trading for 139: Buy one 137 put using the June expiration; sell two 139 puts using the June expiration; and buy one 141 put using the June expiration.

Traders can do that for a 0.25 debit, or a total price of $25. (See The traditional butterfly.) Calculate the max profit by taking the amount paid and subtracting by the width of the long ITM and OTM strikes from the two ATM strikes. Because the width is two and the amount paid is 0.25, the max profit is $175. The max loss will always be the amount paid, which is 0.25, or $25. The butterfly strikes can be shifted up or down, depending on whether a trader feels bullish or bearish at expiration.

150.0

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trades actionable trading ideas

CHERRY PICKS

R I PE & J U I CY T RADE IDEAS

Retail Options

By Michael Rechenthin he list of retailers, right, is sorted from high to low with respect to volatility.

Etsy has the highest volatility among the group, while Costco has the lowest. So how should these stocks be traded?

Let’s examine a semi-aggressive bullish strategy and a semi-aggressive bearish strategy for Etsy and Costco. These are debit spreads, so the risk associated with them is capped—the only risk is the value paid for the spread. But the potential profit is the width of the spread minus the amount paid for the debit spread.

Traders can create debit spreads in the same manner as the two shown. Generally, the idea is to create the spread so that the breakeven is below the current stock price for a bullish strategy, and the breakeven is above the current stock price for a bearish strategy. With that strategy, the stock doesn’t have to move much to provide a profit.

For example, for Etsy, the breakeven for the debit call spread is: The long call of 160 + the debit paid of 2.88 = 162.88 breakeven

T

And the breakeven for the debit put spread is: The long put of 170 – the debit paid of 2.52 = 167.48 breakeven Michael Rechenthin, Ph.D., (aka “Dr. Data”) heads data science at tastytrade. @mrechenthin

Take the high road Etsy has the highest volatility among the powerful retailing companies in this group.

Symbol

Company

Volatility

tastytrade Volatility Score

ETSY

Etsy Inc.

55%

W

Wayfair Inc Class A

51%

Much more volatile vs. S&P 500

PETS

PetMed Express Inc.

47%

GRUB

GrubHub Inc.

46%

JD

JD.com Inc ADR

39%

BABA

Alibaba Group Holding Ltd.

36%

TGT

Target Corp.

31%

AMZN

Amazon.com Inc.

27%

EBAY

eBay Inc.

27%

WMT

Walmart Inc.

26%

COST

Costco Wholesale Corp.

22%

Slightly more volatile vs. S&P 500

Take the break Here is the breakeven for the debit call spread with Etsy and Costco.

Symbol

ETSY

COST Sign up for free cherry picks and market insights at info.tastytrade.com/cherry-picks

More volatile vs.S&P 500

Company Debit Call Spread (Bullish)

Etsy Inc. (~$167)

Debit Put Spread (Bearish)

Buy 1 ETSY 160.0 Call in June-18’21 (38 DTE)

Buy 1 ETSY 170.0 Put in June-18’21 (38 DTE)

Sell -1 ETSY 165.0 Call in June-18’21 (38 DTE)

Sell -1 ETSY 165.0 Put in June-18’21 (38 DTE)

$2.88 debit

$2.52 debit

Buy 1 COST 375.0 Call in June-18’21 (38 DTE) Costco Wholesale Sell -1 COST 380.0 Call in Corp.

June-18’21 (38 DTE) (~$381) $2.72 debit

Buy 1 COST 385.0 Put in June-18’21 (38 DTE) Sell -1 COST 380.0 Put in June-18’21 (38 DTE) $2.52 debit

June/July 2021 | Luckbox

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FOREX

F R E E- F LOAT I N G M AC RO I N S IG HTS FRO M G LO BAL CU R R ENCY T RADERS

Fiscal Stimulus, Inflation and the Dollar’s Next Move

By Ilya Spivak

he recovery from the depths of the COVID-19-induced recession has gathered meaningful momentum. In fact, global manufacturing and services are growing at their fastest pace in more than six years, according to the Purchasing Managers’ Index (PMI) survey data from JPMorgan and Markit Economics. The upswell has come thanks to an unprecedented flood of fiscal and monetary stimulus as well as the hope that the spread of vaccinations will unleash pent-up demand.

Frayed global supply chains are already struggling to keep up with such spirited growth, and pre-COVID-19 economic policies aren’t helping. The Trump administration’s nationalist approach to trade relations had challenged the smooth function of the deeply interconnected international commercial order—driving global growth to a six-year low—when the pandemic struck. Global lockdowns that followed compounded the problem.

Not surprisingly, that bid up costs.

Now, price pressures are being amplified by uneven economic reopening and still-elevated trade barriers, which continue to gum up key trade linkages like the one between the United States and China. Indeed, PMI reporting confirms that input costs are rising at the quickest pace in more than 12 years. Separately, data from Citigroup suggests that realized global inflation measures have topped analysts’ forecasts by the widest

T

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margin since early 2017.

Federal Reserve officials have been quick to dismiss worries about runaway price growth, arguing that elevated readings now are mostly due to rapid disinflation in 2020 and reflect base effects instead of a genuinely lasting pickup. That makes some sense: Prices plunged as COVID-19 containment efforts spread but have since recovered, which will cosmetically overstate the current year-on-year inflation measures that economists and traders follow.

But that’s only part of the story.

Trouble along global supply chains is palpably on display in elevated shipping costs. The Baltic Dry Index (BDI)—a benchmark for the price of transporting bulk raw materials like coal and steel on merchant ships across more than 20 international routes—has jumped to its highest level in more than a decade. Tellingly, the shipping costs at Amazon grew by an eye-watering 253% from early 2018 to the end of 2020 (revenue still grew by an impressive 117% over this period).

An element of base-effect amplification is almost certainly present

Global manufacturing and services are growing at their fastest pace in more than six years.

Predictions outstripped Data from Citigroup suggests that realized global inflation measures have topped analysts’ forecasts by the widest margin since early 2017.

JPM GLOBAL COMPOSITE PMI

20

CITI GLOBAL INFLATION SURPRISE INDEX

15 50 10 5

40

0 30 -5 -10

20

-15 10 -20 -25

0 Apr 2018 Aug 2018 Dec 2018 Apr 2019 Aug 2019 Dec 2019 Apr 2020 Aug 2020 Dec 2020

Source: Bloomberg

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in current economic growth rates, with a period of downward normalization to follow. However, the present overclocking of the business cycle probably has room to continue before this happens. The Biden administration seems determined to keep the fiscal pedal to the metal with a plan to spend over $2 trillion on infrastructure. That’s likely to keep prices pushing upward.

Against this backdrop, the Federal Reserve’s dismissive posture now might mean policymakers will be forced to tighten in a hurry as the reflationary drive proves stickier than anticipated.

Worryingly, that may come just as peaking growth rates finally convince the central bank to come in off the sidelines. Speedy tightening could thus be unintentionally overlaid with the onset of natural regression in the business cycle.

This bodes doubly well for the U.S. dollar. First, speculation about the onset of a hawkish policy reversal will probably begin to lift the currency well before Fed action actually materializes. The markets previewed such a move in March.

Next, when growth sags and risk appetite deflates, the greenback’s unrivaled liquidity is likely to attract haven-seeking as capital preservation supplants returns in the minds of investors.

The sentiment-sensitive Australian dollar seems like a natural foil for its U.S. counterpart in this scenario.

True to form, the Australian dollar to U.S. dollar exchange rate climbed alongside global shares from the COVID-19 trough in March 2020.

That rally may now be fading: Prices have broken the series of higher highs and lows defining the advance and a bearish head-and-shoulders chart pattern appears to be forming.

Confirmation on a break of 0.7564 may precede a drop below 0.72.

Ilya Spivak is head strategist for AsiaPacific markets at DailyFX, the research and analysis arm of retail trading platform IG. @ilyaspivak

BDI is climbing The Baltic Dry Index—a benchmark for the price of transporting bulk raw materials—has jumped to its highest level in more than a decade. This chart tracks the BDI’s course relative to the Producer Price Index for several regions.

US PPI Y/Y (%)

EUROZONE PPI Y/Y (%)

CHINA PPI Y/Y (%)

BALTIC DRY INDEX

6

3000

4

2500

2

2000

0

1500

-2

1000

-4

500

-6

0

Jan 2018 May 2018 Sep 2018 Jan 2019 May 2019 Sep 2019 Jan 2020 May 2020 Sep 2020 Jan 2021 Source: Chart created with TradingView Bloomberg

True to form The exchange rate between the Australian dollar and the U.S. dollar climbed alongside global shares from the COVID-19 trough in March 2020.

Australian dollar/U.S. dollar, 1W, 1DC Head Shoulder

Shoulder Neckline

Trend support from March 2020

RSI (14, Close)

Abs (ROC) (1) MA (20, Abs (ROC), 0) Chart created with TradingView

June/July 2021 | Luckbox

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CRYPTO CURRENTLY

T H E STAT E O F C RYPTO CU R R ENC IES AND DEC ENT RALIZED FINAN CE

Big Tech Banking

By Mark Helfman

oliticians have long accused big tech of monopolistic business practices, invasions of privacy, abuse of data and suppression of free speech.

Voters largely agree, at least in the United States, where a majority support breaking up Amazon and other giant internet companies.

In recent years, governments have levied fines, raised taxes, crafted new regulations, held numerous hearings and issued a variety of threats to keep huge internet companies from becoming too powerful.

Imagine what they’ll do when big tech gets into the money business.

P

Amazon printing money?

In February 2021, Amazon published several job posts for engineers with experience in digital payments and distributed software systems. It wanted them to work on a new payment product that, in Amazon’s words, will enable customers to convert their cash into digital currency.

Those posts offered scant details on the product, leading to rampant speculation about the scope and nature of Amazon’s plans.

Does Amazon plan to create a cryptocurrency, a la bitcoin?

Adding fuel to the speculative fire, the company in recent years has hired former officials from the U.K.’s Financial Conduct Authority, a seemingly unnecessary move for a company that does not provide financial services.

Unless that’s the plan.

Bigger than bitcoin With the prospect of central bank digital currencies, bitcoin-based merchant platforms and mass adop-

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tion of mobile payment technology all but guaranteed within the next decade, Amazon may want to get ahead of the curve.

It can profit from this shift by creating a natively digital, universally transferable currency that circulates freely.

More importantly, it will have control over its token and its use— with a ton of user data at its fingertips to optimize the experience of using money.

Alternatively, Amazon may want to link with bitcoin or another public blockchain as a free or low-cost payment rail, rather than create its own cryptocurrency.

While daily users of cryptocurrency often suffer high transaction fees, batching technology and so-called “second layer” platforms virtually eliminate those fees for the savviest users. If Amazon can make those complicated systems simple enough for the average person to use, it can cut payment processing fees substantially and streamline its payout infrastructure.

In that case, it can simply piggyback on a cryptocurrency that already exists.

currency, the world’s governments threatened to shut them down. In response, it scaled back its ambitions, renamed its project “Diem” and got rid of most features of cryptocurrency.

Perhaps Facebook serves as a cautionary tale for big tech getting into the money business.

Providing a service is OK. Using that service to crush competitors and extract profits from users is not as OK, but it’s tolerable until somebody comes up with a better solution.

Issuing a global, private currency that could potentially undermine the international financial order and usurp monetary control from sovereign governments doesn’t seem OK at all.

Whatever Amazon’s intent, it has legal, regulatory and operational challenges to sort out before anybody can start talking about “Amazon crypto.”

Until then, let the speculation continue.

Amazon advertised for engineers to work on a new payment product that would enable customers to convert cash into digital currency.

Mark Helfman, crypto analyst at Hacker Noon, edits and publishes the Crypto Is Easy newsletter at cryptoiseasy.substack. com. His second book, Bitcoin or Bust: Wall Street’s Entry Into Cryptocurrency, reached No. 2 on Amazon. @mkhelfman

Governmental scrutiny Governments will certainly take a strong interest in whatever Amazon’s doing.

Given its sheer size and touchpoints, Amazon’s corporate cryptocurrency could quickly match the purchasing power and market capitalization of small national currencies, perhaps even threaten the integrity of the euro, dollar and renminbi.

When Facebook tried to create a crypto-

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DO DILIGENCE

QU I E T FOU N DAT I O N HELPS P ROACT IV E INV ESTO RS U NDERSTAND T HEI R PORTFOLI OS

Retail Bargain Hunting

By James Blakeway

hen America was asked to stay home in 2020, Amazon (AMZN) was there to keep consumers stocked up, in shape and entertained with everything from face masks and toilet paper to dumbbells and exercise bikes. After the brief pullback in February and March of 2020, which left virtually no stocks unscathed, Amazon shares roared back to new highs. The stock hit its all-time peak close, topping $3,530, in August.

Despite recent ebbs and flows, Amazon stands tall as the third-largest component in the S&P 500, a $1.6 trillion behemoth overshadowed by only Apple (AAPL) and Microsoft (MSFT). While Jeff Bezos’ wealth has become notorious, he’s not the only one to benefit from Amazon’s meteoric rise. A $10,000 investment in Amazon in January 2000 would be worth more than half a million dollars today.

While leadership, strategic moves and an unsatiated hunger for more led Bezos’ firm to its current standing, it wouldn’t have been possible without one key component: the American consumer. Americans earn some of the highest discretionary incomes in the world

W

and also support their lavish spending habits with piles of credit card debt.

While Amazon captured enough of that spending to appear almost untouchable as the world’s largest retailer, it’s not without competitors that have their own advantages.

Walmart (WMT), a familiar part of the scenery across the nation, has invested considerable amounts of money to compete with Amazon online. Walmart even launched Walmart+, a service to rival Amazon Prime with customer perks that include gas discounts.

Target (TGT) bolstered its online presence recently, often matching Amazon’s overnight or two-day shipping options. Both Walmart and Target grew in 2020 and 2021, hitting all-time highs in November and April, respectively. With 40% and 23% returns last year, Target and Walmart both beat the S&P 500’s 18% 2020 return despite being overshadowed

by Amazon’s eye-watering 76% return.

While it may be tough for investors to justify purchasing any of these retail giants near record highs, the case may be stronger for Walmart or Target because they could see more

foot traffic as COVID-19 restrictions continue to lift across the country. Walmart and Target both pay dividends yielding over 1.3% annually, but Amazon still does not pay a dividend.

The other guys These three retail giants aren’t the only merchants competing for a share of America’s wallet. Besides the never-ending list of smaller retailers, some other large-cap stocks stand out for investors seeking retail portfolio exposure.

Costco (COST) saw impressive growth not only in the last year but over the last decade. However, Costco is also near record highs despite a pullback in the first quarter of this year. Investors may wish to look for a subsequent pullback in the stock price before considering adding it to their portfolios.

While many Americans write off eBay (EBAY) as an early 2000s internet fad, investors saw impressive gains in 2020 with a 40% return on the year. eBay shares experienced a steady decline from 2005 to 2011, but the last decade saw consistent growth in revenues because the site remains a top market-

Stay offshore Stock prices for U.S. retailers can seem prohibitively high, but China’s Alibaba has room to increase in value. Data as of April 20, 2021.

Company

Amazon.com, Inc.

Target Corp.

Walmart, Inc.

Costco Wholesale Corp.

eBay, Inc.

Alibaba Group

Symbol

AMZN

TGT

WMT

COST

EBAY

BABA

Dividend yield

N/A

1.31%

1.56%

0.85%

1.13%

N/A

Market cap (billions)

$1,659

$103

$397

$165

$42

$636

2020 return

76%

40%

23%

33%

41%

10%

YTD return

2%

18%

-2%

-1%

23%

-1%

All-time high (close)

$3,531.45

$208.65

$151.60

$386.80

$64.93

$317.14

Past performance is no guarantee of future results. Information provided in an EPI Report does not consider the specific profile, objectives or circumstances of any particular investor or suggest any specific course of action.

Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her investment professional. Investment suitability must be independently determined for each individual investor. QF does not make suitability determinations or investment recommendations for investors. EPI utilizes the S&P 500 as its benchmark given that the S&P 500 is considered a barometer of stock performance in the United States. Aspects of the analysis and information found in an EPI Report are based upon simulated and/or hypothetical performance. Simulated and hypothetical performance have inherent limitations and do not represent the actual performance results of any particular investment products. The EPI Report does not guarantee any results or outcomes in the financial markets. Investors should be aware of the methodology used to produce an EPI Report and the inherent limitations when placing reliance on the results. For additional information about EPI Reports, visit the QF website: quietfoundation.com.

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Embracing diversity Exchange-traded funds invest in a broad range of retailing stocks and even in consumer spending behavior. Data as of April 20, 2021.

% Allocated to …

ETF Name

ProShares Online Retail ETF

SPDR S&P Retail ETF

VanEck Vectors Retail ETF

SPDR Consumer Discretionary ETF

SPDR Consumer Staples ETF

Symbol

ONLN

XRT

RTH

XLY

XLP

Expense ratio

0.58%

0.35%

0.35%

0.12%

0.12%

# of stocks held

26

101

25

63

32

2020 return

112%

42%

32%

30%

10%

Dividend yield

1.13%

0.82%

0.65%

0.82%

2.67%

Liquid options

No

Yes

No

Yes

Yes

Amazon

25.86%

1.17%

19.92%

23.55%

0.00%

Target

0.00%

1.25%

4.77%

2.69%

0.00%

Walmart

0.00%

1.14%

8.54%

0.00%

9.20%

Costco

0.00%

1.21%

5.07%

0.00%

4.75%

eBay

3.88%

1.20%

0.00%

1.04%

0.00%

Alibaba

12.87%

0.00%

0.00%

0.00%

0.00%

place for vendors and customers around the world. While eBay does pay a 1.13% dividend, the stock still sits near all-time highs, like the others, meaning stock buyers may wish to simply add the stock to their watchlists for now.

Turning attention to the international scene, Alibaba (BABA), the Chinese online retailer, operates one of the world’s largest business-to-business networks while also owning several popular business-to-consumer and consumer-to-consumer sites.

Although Americans may be unfamiliar with Alibaba, it’s a household name in China, as are its subsidiaries TaoBao and AliExpress.

Despite giving investors some headaches since its 2014 initial public offering, Alibaba is still up 145% since it was listed. Unlike major U.S. retailers, Alibaba may make a more attractive investment opportunity at current prices.

After crossing $310 in October, Alibaba retraced below $240 by mid-April, meaning investors may want to consider Alibaba for some potential upside returns in the near future.

With these retail names hovering near all-time highs, buying stock can seem a precarious endeavor because of fears of an impending correction. All of the aforementioned stocks are accompanied by liquid options markets.

That means traders willing to purchase retail firms at lower prices may look to sell puts.

Those who want to own shares now but think the upside potential is limited may look to sell call options against long stock positions.

Retailing ETFs Investors interested in long-term, diversified opportunities in the retail sector are wellserved by the exchange-traded fund (ETF) industry. For investors looking to gain exposure to Amazon, Target and Walmart, the VanEck Vectors Retail ETF (RTH) holds all three firms in their top 10 holdings, with Amazon as No. 1. Those looking for more exposure to online-only retailers may consider the ProShares Online Retail ETF (ONLN), which holds Amazon, Alibaba and eBay as its top three holdings. Other top online retailers held by the ProShares fund include Etsy (ETSY), Wayfair (W) and Overstock.com (OSTK). Traders in the market for a diverse, well-balanced fund may be interested in the SPDR S&P Retail ETF (XRT). This fund differs from the SPDR sector ETFs because it does not hold stocks according to their S&P 500 Index weighting.

Instead, the 101 stocks are held in a more balanced ratio, with no single stock currently totaling more than 1.32% of the portfolio.

The SPDR Retail ETF remains popular with options traders because of wide and deep options markets with varying expirations. The VanEck and ProShares funds do not exhibit the

same high options liquidity as the SPDR Retail fund.

Outside the retailing sector, investors can choose from among funds Evaluate any that offer exposure to portfolio with general consumer spendQuiet Foundation ing habits. SPDR funds offer both a Consumer Discretionary (XLY) and Consumer Staples (XLP) fund. The former holds Amazon, Target and eBay stock, while the latter incorporates both Walmart and Costco. All five ETFs charge fairly low expense ratios, and only the ProShares Online Retail fund comes in above 50 basis points, at 0.58%.

Investors looking for a dividend-paying ETF with retail exposure may be best-suited for the SPDR Consumer Staples fund, with a 2.67% annual yield. For options traders, the three SPDR funds are reliable for liquid options markets.

With retail stocks and ETFs, as with any smart purchase, investors should always do a little window shopping, possibly read some online reviews and, as always, do their due diligence.

James Blakeway serves as CEO of Quiet Foundation, a data science-driven subsidiary of tastytrade that provides fee-free investment analysis services for selfdirected investors. @jamesblakeway

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THE TECHNICIAN

A V E T E RA N T RA DER TAC K LES T EC HNICALS

The Changing Course of Amazon

By Tim Knight

he world of investing is fraught with uncertainty and disagreement, but one fact remains indisputable: Over the past 100 years, stocks in the United States have generally gone up in price. Pick virtually any stock at random during any point in history, and in all likelihood 10 years later that stock would be higher in price—and perhaps dramatically higher.

Some gains are merely pleasant whereas others are life-changing. One stock that has caused more than its fair share of the latter is Amazon (AMZN), which has risen an unbelievable 200,000% since its initial public offering in 1997. The ride to that jaw-dropping gain was not without its travails, however, and the stock has changed tremendously in dynamics and character during its quarter-century as a publicly traded financial instrument.

T

Wanted: a functional time machine On the website slopeofhope.com, users can enter any stock symbol, hypothetical entry date and hypothetical investment amount to see how much such an investment would be worth now. It can be mesmerizing—and often disconcerting—to experiment with different ticker symbols and different dates, playing financial “what if?” games.

An example is shown here with three popular stocks, each hypothetically purchased on Amazon’s offering date of May 16, 1997. The stocks—Amazon, Home Depot (HD) and Microsoft (MSFT)—have each done well for shareholders over the past quarter-century.

However, these stocks have prospered to greatly varying degrees. Microsoft, clearly one of the greatest stocks of the modern era, gained an impressive 2,746%, turning a modest $10,000 investment into well over a quarter of a million dollars. Home Depot, also a powerful “blue chip” stock for decades, went up even more, turning the

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Wild ride Hardly anyone has had the foresight to hang onto Amazon stock for its entire history because of its severe drawdown.

Ticker

Amount ($)

Date

Present Value ($)

Change (%)

Max drawdown (%)

Max loss (%)

AMZN

10,000

5/16/97

19,899,161

198,891.6

95.1

23.2

HD

10,000

5/16/97

381,273

3,712.7

72.8

0

MSFT

10,000

5/16/97

284,683

2,726.8

70.2

0

Amazon 3400 2200 1600 1200 800 600 400 200

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

To benefit from Amazon’s jaw-dropping gains, a trader would have had to be practically blind, deaf and dumb to the dreadful fluctuations.

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same $10,000 outlay into nearly $400,000.

Amazon, however, is in a class of its own.

The small $10,000 investment made at the IPO would today be worth about $20 million.

A larger but still reasonable investment of $50,000 would be $100 million today. It can make one yearn for a working time machine.

A couple other columns of information are just as important as the gargantuan percentage gains. One is the “Max Drawdown,” and the other is the “Max Loss.”

Max Drawdown represents how deeply a stock declined in value during a period of time. Max Loss calculates, based on the initial investment, the worst possible drop the investment experienced over the same period.

Microsoft and Home Depot, for example, never experienced a loss. In other words, money put into either of these stocks on that date in 1997 would have always shown a profit. Each of them did, however, experience a maximum drawdown of over 70% at some point. In other words, if the value climbed from $10,000 to $100,000, then fell to $30,000, that would be a 70% drawdown.

It would be hard to stomach, but at no point would investors have experienced a loss in any of their original capital. They would simply feel “less rich.”

Enduring multiple collapses Hanging onto Amazon, however, would have taken far more dedication than holding more stable stocks. The maximum loss was nearly 25%, and the maximum drawdown was an eye-watering 95.1%.

In other words, as easy as it is to fantasize about putting a small $10,000 investment into Amazon and becoming fantastically rich in the year 2021, investors would have had to endure a collapse in their holdings of more than 95%.

Of 1,000 investors, it would be surprising if even two of them had that kind of willpower.

Naturally, the most brutal drop occurred in 2000-2002 when the dot-com bubble burst.

Most stocks fell in that period, but web-related stocks were brutalized, with some disappearing altogether. Amazon was a vastly smaller company back then with no guarantee of success, so its price was eviscerated.

Another smaller but still severe drop took place during the financial crisis of 2008, when Amazon lost “only” about two-thirds of its value. Many people sold their holdings during that tumble, while some clung to their shares

Amazon: After the internet bubble burst 140 120 100 80 60

40

20

Oct ‘99 Dec‘99 Feb ‘00 Apr ‘00 Jun ‘00 Aug ‘00 Oct ‘00 Dec ‘00 Feb ‘01

Apr ‘01 Jun ‘01 Aug ‘01

Amazon: During the financial crisis 110 105 100 95 90 85 80 75 70 65 60 55 50 45 40

Oct ‘07 Nov ‘07 Dec ‘07 Jan ‘08 Feb ‘08 Mar ‘08 Apr ‘08 May ‘08 Jun ‘08 Jul ‘08 Aug ‘08 Sep ‘08 Oct ‘08 Nov ‘08

steadfastly for a while and finally surrendered when the stock bottomed. Of course, for every seller at the bottom, there is another buyer.

But the point is that precious few people held on through the thick and thin of the gyrations.

Over the long haul, Amazon has changed from a spunky, risky and relatively small company to one of the largest companies and employers in human history. During that

200,000% The rise in Amazon’s stock price since its 1997 IPO 95.1% Amazon stock’s eye-watering maximum drawdown

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transformation, the volatility of the stock (as measured by the 30-day implied volatility) has become more and more subdued, such that Amazon seems utterly placid compared to its earlier incarnation.

Another way to view this same sea change is by way of a trio of moving averages: the 50-, 100- and 200-day exponential moving averages are shown in Amazon, right, without the price data for the sake of easy viewing. The dynamism and gyrations of these lines have, year-by-year, become much calmer, with only market-wide shocks like the February/March 2020 COVID19 plunge sending tremors into an otherwise placid ascent to ever-increasing prices.

Monster gains elsewhere Examining Amazon’s history—its giant ups and its stomach-turning downs—provides some comfort for any who missed the boat (which is about 99.999999% of humanity).

Virtually no one who had the foresight and courage to put money into this upstart in May of 1997 would have held on for the duration.

It would be interesting to know what percentage of retail buyers in March 1997 still have the stock, but it’s an extremely small number.

The stock’s more recent performance doesn’t match its stellar past. It’s still highly valued and rather expensive based on any traditional fundamental metric. Anyone seeking multi-thousand percent gains had better look elsewhere because the glory days of Amazon are surely behind it. It’s easier for a $10 million company to grow 2,000-fold than it is for a $1 trillion company. There simply aren’t enough people on the planet to buy socks and air fresheners to create that kind of marginal growth.

Perhaps the biggest lesson to learn from Amazon is that the saying about “no such thing as a free lunch” applies to long-term, life-changing investments. It’s easy to look back at the fantastic gains, but to actually enjoy those gains, one has to be practically blind, deaf and dumb to the dreadful fluctuations endemic to a high-growth, high-risk stock. Human nature does not lend itself well to that kind of behavior, but for those blessed with bravado and faith, the rewards have been unfathomably large.

Tim Knight has been using technical analysis to trade the markets for 30 years. He hosts Trading the Close daily on the tastytrade network and offers free access to his charting platform at slopecharts.com.

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Amazon volatility

3400 2200 1600 1200 800 600 400 200

100 90 80 70 60 50 40 30 20 10

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Amazon

2020

3400 2200 1600 1200 800 600 400 200

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

Amazon, recent

3500 3300 3100 2900 2700 2500 2300 2100 1900

1700

Nov ‘19

Jan ‘20

Mar ‘20

May ‘20

Jul ‘20

Sep ‘20

Oct ‘20

Dec ‘20

Feb ‘21

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EQUITIES

T I M E LY V I EWS O N STOC KS IN T HE NEWS

Prime Numbers

By Emma Muhleman

espite surprisingly strong recent earnings, stock in Amazon (AMZN) has softened over the past nine months after surging in the early months of COVID-19.

The company faces tough comparisons against calendar year 2020 because many brick-andmortar retailers closed during the pandemic and consumers switched to e-commerce amid a national lockdown. Deeper analysis of the company’s first-quarter results suggests the stock should continue to outperform.

Amazon’s cloud-computing and software as a service (SaaS) segment, Amazon Web Services (AWS), drives the company’s free cash flow and is key to the long-term performance of the company’s stock.

AWS benefits from a first-mover advantage in the cloud-services business, with a multi-year head start against the competition.

Relentless innovation at AWS has also helped it maintain a sizable market-share advantage.

Only two companies have the scale, expertise and operating leverage to compete with AWS in the cloud business, namely Microsoft (MSFT), via its Azure segment, and Alphabet (GOOGL), through Google Cloud Services. But neither has been able to close the gap and catch up with AWS’s leading market share.

The consensus among market research firms puts AWS’s market share at or above 30%, with Microsoft and Google trailing far behind with roughly 20% and 7%, respectively. Both companies have focused heavily on growing their cloud businesses during the past five or more years, yet their heavy capital investment and attempts to take share from AWS have been largely unsuccessful.

Since its inception, AWS has been a cash cow, supporting Amazon’s rapid expansion of the e-commerce business domestically and abroad. In the first quarter of this year, AWS’s outperformance illustrates the strong moat it enjoys in this high-growth, highly profitable segment.

AWS’s sales growth accelerated in the first quarter, with quarter-on-quarter growth of 6% (relative to Q4 2020) and year-on-year

D

growth of 32%, bucking the trend of decelerating growth at its competitors Microsoft and Google.

AWS saw strength across the board during the first quarter, with management reporting growth in new contracts with small-tomedium-sized businesses, in addition to new contracts with several large enterprise customers.

AWS sales typically rise in the fourth quarter, making quarter-to-quarter comparisons in Q1 seasonally weak. But in 2021, AWS quarter-on-quarter dollar sales almost tripled (at $761 million) versus the first quarters of 2020 ($265 million) and 2019 ($266 million), respectively. Finally, the AWS backlog continues to grow, up 55% year-on-year, outpacing the growth in Q1 reported revenue.

Advertising revenues also drive Amazon’s cash earnings, posting a third consecutive quarter of accelerating growth, up 73% in Q1 of this year, against an impressive 68% yearon-year growth in the fourth quarter of 2020.

For the reasons highlighted here, weakness of late in Amazon stock represents a buying opportunity. The company’s true value is best approximated with a sum-of-the-parts valuation, given its diverse operations. SaaS businesses command trading multiple orders of magnitude larger than companies in the retail or e-commerce businesses (e.g., Autodesk (ADSK) trades at 54x trailing 12 months earnings per share (TTM EPS), while Walmart (WMT) sports a multiple of roughly 30x TTM EPS).

Comparing 2021 Q1 revenues to operating income (see below), it makes sense to value Amazon Web Services and Amazon’s direct advertising revenues separately from its e-commerce retail operations. Applying a 20x multiple to the JP Morgan 2022 AWS estimate of earnings before interest, taxes and amortization (EBITDA) ($38 billion), a December 2021 price target of $4,600 is firmly within reach.

Emma Muhleman works as a long/short equity analyst specializing in forensic accounting at Ascend Investment Management. @emmamuhleman1

Amazon Web Services (AWS) Drives Earnings Beat Amazon revenues and operating income by segments (in millions).

2021 Q1 REVENUES

2021 Q1 OPERATING INCOME

AWS $13,503

International e-commerce $30,649

North American e-commerce $64,366

Amazon Web Services $4,163

North American e-commerce $3,450

Intl. e-commerce $1,252

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FUTURES

A SAV V Y F U T U R ES T RA D ER’S TAK E O N T HE M AR K ETS

Grain: The Next GameStop?

By Pete Mulmat

ven corn and soybeans are not immune to the perils of social media. According to online chatter, grain prices in 2022 will hit $18 to $19 per bushel of corn, $30 for soybeans and $42 to $45 for wheat.

While those price forecasts may seem far-fetched, anything is possible and the 2020 price action on crude oil is proof of that.

The odds of $18 corn are about the same as the odds that the world will ever see crude oil trade to -$40.

Wait a minute. That did happen back in April. So, anything can happen in this environment. But is it likely? Probably not.

E

Old crop—new crop Spread trading in the grains seems to be gaining popularity these days and for good reason. With high volatility in grain markets, spread trading may be one way to take on less risk and lower margin requirements.

However, when spread trading grains it’s important to understand the difference between crop years and their relationships to each other. While new crop and old crop contracts certainly are related, they do have different factors influencing prices—and sometimes very different fundamentals. So, what does the relationship between the new crop and old crop mean?

Don’t spread too thin One way to trade the extremes in corn is to look at the old crop-new crop spread. Buying a December new crop (ZCZ21) and selling a July old crop (ZCN21) is a smaller-sized way to look for a bit of normalization to come back to the grain markets.

80 60 40 20 0

Jan 2019

62

Apr 2019

Jul 2019

Oct 2019

Jan 2020

Apr 2020

Jul 2020

Oct 2020

Jan 2021

Apr 2021

In grains, traders refer to last year’s crop as old crop. This is the grain supply that farmers grew last year and the nation is currently using.

New crop is the grain that will be harvested in the fall. The marketing season for corn and soybeans begins when crops are harvested, starting in September, and ends when the new crop harvest begins. There’s a lot of overlap in fundamentals between any grain’s old crop and new crop.

The biggest unknown factor for the next year is supply. Grain production can vary—sometimes dramatically— from one year to the next depending on how many acres are planted and how good or bad the weather is during the growing season.

Under normal market conditions, new crop contracts usually are at a premium because no one knows how the next growing season will go. This production uncertainty keeps new crop prices higher.

That can be exaggerated in a bear market, as old crop prices can go lower to try to spur demand while at the same time keeping a premium in new crop because farmers still have to grow it.

In a bull market, the relationship can flip. A bull market generally means that demand is strong relative to supply. In that scenario, many times old crop prices will be higher than new crop prices. The idea is that the balance sheet is tight now but could be better next year if production is good. When old crop prices are higher than new crop prices, this is generally a good indication of a bull market. Because of this relationship,

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old crop and new crop prices do tend to go in the same direction, but that direction is usually led by old crop.

So, in a bull market the old crop usually moves higher, faster and farther than the new crop, and in bear markets old crop usually moves lower, faster and farther than the new crop.

This year?

As of April 26, there was a 90¢ premium to the July (old crop) over the December (new crop) corn futures contract. This is a large premium to the old crop contract, even during a bull market. This is a rather interesting relationship, considering that corn has now rallied over $3 off its lows of April last year.

Back in April 2020, when corn was at its lows, the new crop December

2106-trades-futures.indd 63

contract held a 14¢ premium over July. This was a good indication of a bear market at that time.

With July now holding a 90¢ premium over December, it means that the July contract has rallied 76¢ more than the December contract during this rally off of lows. This is what traders would expect from a bull market, and this spread can indicate possible exhaustion on this upside move. It’s the biggest difference between old crop and new crop since 2013.

One interesting way to play the “extremes” in corn is to look at the old crop-new crop spread. Buying a ZCZ21 (December new crop) and selling a ZCN21 (July old crop) is a smaller-sized way to look for a bit of normalization to come back into the grain markets.

With the tight old-crop stock situation, the markets will be highly attuned to even small weather problems and arguably are already building in some risk premium because of dry conditions in the United States. This will likely spur some gut-wrenching volatility later this summer as the market reacts to every change in the weather forecast.

Remember, volatility doesn’t mean that prices just go up. It can also mean the opposite. Eventually, traders will want to take profits, and if that’s combined with ideal growing conditions or some outside market or geopolitical event, the market could see large moves lower.

Pete Mulmat, tastytrade chief futures strategist, serves as host for Splash Into Futures on the tastytrade network. @traderpetem

5/13/21 10:36 PM

The Future of Antitrust Progressive trustbuster Lina Khan, shown here testifying in April on Capitol Hill, was seemingly poised for Senate confirmation as head of the Federal Trade Commission as Luckbox was going to press. Was another 50-50 party-line vote likely? Not at all. Members of both parties seem ready to break apart the big tech companies that are dominating the economy, toying with government, freezing out competition and making shopping an addiction.

Khan, a 32-year-old Columbia Law School professor, won national recognition while still in school with a Yale Law Journal article entitled “Amazon’s Antitrust Paradox.” In the piece, she reframed monopoly law, arguing that it should go beyond simply assuring low prices for consumers.

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