Amazon's Legal Showdown

FTC Chairwoman Lina Khan prepares for a major lawsuit against Amazon, pitting consumer benefits against market competition... [The Daily Peel... ]() September 6, 2023 | Peel #537 Silver banana goes to... [Masterworks. ]( In this issue of the Peel: - Consumer strength expected to remain resilient at least through 2024 with a strong job market and promising spending behavior, despite the risk of rising interest rates. - Airbnb and Tesla stocks soar due to inclusion in the S&P index and strong demand in China, respectively. Manchester United and Illumina experience significant losses, one due to withdrawal from sale and the other over new CEO uncertainties. - FTC Chairwoman Lina Khan prepares for a major lawsuit against Amazon, pitting consumer benefits against market competition. Market Snapshot Happy Wednesday, apes. And welcome to historically the worst month of the year for stocks. We’re already two days in, but it never helps to be reminded of potentially impending misery, right? Now that we’re all in great moods, it’s relieving to know that equities primarily sold off yesterday. As traders switch their gambling back to stocks from sporting events over the long weekend, the slow start to the month comes amid low volume, rate trepidation, and a major slowdown in earnings season. The small-cap index of the Russell 2k suffered the worst with a 2.11% loss while the Nasdaq’s 0.08% “selloff” led. In the meantime, the long end of the yield curve continued to move higher. That’s great for anyone in the market for some new fixed income exposure, but complete trash if you want to not be homeless anytime soon. The 10-year settled above 4.25% while the 2-year shot back above 4.95%. Let’s get into it. 257 Everyday Investors Got 32% Returns on a Banksy [image]( Mm-hmm, sure. So, what’s the catch? We know it may sound too good to be true. But tens of thousands of investors are already smiling all the way to the bank, thanks to the fine-art investing platform Masterworks. Because these results aren’t cherry-picking. Masterworks has delivered a profit with each of its 16 exits, including net returns of [+10.4%, +27.3%, and +35.0%,]( even while financial markets plummeted. But art? Really? Okay, skeptics, here are the numbers. Contemporary art prices: - [outpaced the S&P 500 by 136%]( over the last 27 years - have the lowest correlation to equities of any asset class - remained stable through the dot-com bubble and ’08 crisis Got your attention yet? Over 800,000 people have already signed up, and offerings can sell out fast, but Daily Peel readers can [skip the waitlist with this exclusive link.]( See important disclosures at [masterworks.com/cd](=) Macro Monkey Says The Consumer Hits the Gym No, obviously we’re not talking about you, but the American consumer in general has managed to keep that summer physique into early September. They’re looking lean, mean, and carrying a whole lot of green. Go ask someone how they think the economy and the average consumer are faring right now. Odds are they will break down in tears on the spot, but according to the data, everything has mostly been not-so-awful. Let’s take a look. According to a publication from Goldman Sachs, they expect consumer strength to remain resilient at least through 2024. One of the key features of that argument includes: [image] [Source]() As we can see, real income growth has slowed. However, compared to years - or, even decades - prior, it’s growing at a much faster clip. The boost in real income growth along with a concentration in households with a “high propensity to spend” is a major yet somehow underrated driver of GDP, at roughly 2/3rds to 70% of the overall economy. "As we can see, real income growth has slowed. However, compared to years ... prior, it’s growing at a much faster clip." Meanwhile, finding a job in the aggregate (aka, not one specific job but any exchange of time for money) has rarely ever been easier in U.S. history. With an unemployment rate of 3.8% and a labor force participation rate approaching 63%, the labor market mixed with the consumer spending above suddenly makes a lot of sense. To put the cherry on top, Goldman forecasts 3% real income growth in 2023. Now, their source for that could be David Solomon’s crystal ball, but it’s a big deal to put a big firm’s name behind a claim like that. At the same time, the thesis obviously carries risks, including: [image] [Source]() "... as Goldman brings up, interest income should rise as well. The only problem is that interest income is far more pertinent to those on the wealthier end of the spectrum ..." Three words: rising interest rates. Rising rates most certainly can stall an economy (just look at the housing market) and certainly bring loan delinquency into question, but at the same time, and as Goldman brings up, interest income should rise as well. The only problem is, interest income is far more pertinent to those on the wealthier end of the spectrum, aka those with a lower spending propensity. And, the exact opposite is true as well. Anything in this realm can be possible and if the last few years are any proof, it seems to be whatever is the opposite of what we think is going to happen…happens. All in all, Goldman forecasts that real incomes and spending will continue to outperform overall GDP growth, driving that increase at the same time, as long as labor and wage markets hold up. Long story short, despite the generally off/mid vibes in the minds of consumers, their behaviors suggest otherwise. Keep spending and remember that every dollar is just a contribution to this wonderful charity we call the U.S. economy. What's Ripe Airbnb (ABNB) ↑ 7.23% ↑ - There’s nothing quite like being invited to the cool kids' table, huh? Airbnb and its shareholders experienced that firsthand yesterday upon their invitation to the big leagues. - Recently, S&P Global announced the pending results of their quarterly rebalance behind the index powering your 401(k) and other retirement savings. - There’s both a logical and a market-based reason for this. First, fund managers that track the index (aka, everyone) will have to buy the thing to stay equal weight to the index at a minimum. Secondly, getting into the index is certification that you’re one of the 500 coolest stocks in America. - Pair those two together and, I’m sure, some other nonsense, and that’s how you get Airbnb’s over-7% day. Tesla (TSLA) ↑ 4.69% ↑ - Speaking of cool stocks, Tesla has been the coolest of the cool for a while now. We were scared Nvidia was coming for the crown, but based on yesterday’s move, Tesla has still got some fight left. - Things just keep getting better and better for Tesla. First, [the WSJ]() reported Saturday that the firm is slated to win a big federal grant for the buildout of an EV charging network. Not bad, but what made things even better was the strong demand numbers out of China despite economic concerns for the country. - Sales in China have risen 9.3% annually on a unitary basis. Price cuts could hinder the juice to the bottom line that should give, but at the same time, the report had investors scratching their heads over alleged woes in China. What's Rotten Manchester United (MANU) ↓ 18.22% ↓ - Following soccer in the U.S. is like knowing what a kilometer is: no one does. - But, if you put money on the table around it, then we’re all ears. Hence, Manchester United’s nearly 20% plummet certainly caught our attention, all thanks to the shenanigans of the Glazer family. - The Glazers own Manchester United, which is apparently a big-name soccer team (I’m told). They’ve been looking for buyers of the team and, as of yesterday, had decided to take the team off the “for sale” market as no bidders were willing to meet their ask. - Thus, it created the single worst day in the stock’s history. But, for the English, it probably still isn’t as bad for them as what went down on July 4th, 1776… Illumina (ILMN) ↓ 5.36% ↓ - On Tuesday, Illumina illuminated investors with its plan for a new CEO after months on end with no one at the helm. And shares still dumped. - If that’s not a major middle finger to the new guy, Jacob Thaysen, a former Agilent executive. The move comes after former CEO Francis deSouza was ousted by the (in)famous Carl Icahn despite receiving ample votes to stay at the helm. - Investors seem mostly unsure of how Thaysen will handle the ongoing wars between Illumina and antitrust regulators in the EU and U.S. over its planned acquisition of DNA sequencer Grail. - Grail, which happened to be bought just as Illumina’s share price hit an all-time high in August of 2021, is a cancer screener, and according to the EU and the US, curing cancer only appears to be okay if we all share the profits equally. Might as well have been founded in the Soviet Union. Thought Banana The Moment She’s Been Waiting For Picture this: you’re 29 years old, about to graduate from Yale Law, and you just wrote an academic article about big, bad Amazon. 5 years later, the paper has resonated so well with so many people that—BOOM—now you’re the Chair of the FTC. That is what the past 5 years have been like for 34-year-old Lina Khan, the Chairwoman of the Federal Trade Commission (FTC), the US’s antitrust regulator. Per report from [the WSJ,]( the big battle she’s been waiting for is set to go down this month. "The FTC’s big lawsuit against Amazon is set to get underway this month." The FTC’s big lawsuit against Amazon is set to get underway this month. While we don’t know exactly what’s in store, years-long flirting/ hate messages between the two can give us a clue. Last month, Amazon and the agency held their “Last Rites” meeting, which is essentially where the two parties get one final chance to offer concessions before conducting a legal battle at the expense of the American taxpayer. Obviously, nothing much came of it. For their part, the FTC has outlined some of Amazon’s business practices that it waves its finger at. Most notably, these include practices around pricing, fulfillment, and access to 3rd-party data. What they didn’t do, however, was give any kind of indication of what steps the company could take to fix it. On the other hand, Amazon was having a great time talking about how dope they are. Basically, the company’s argument largely rests on the fact that certain practices around [see above] allow the firm to offer lower prices, faster delivery, and all that jazz. "... the company’s argument largely rests on the fact that certain practices ... allow the firm to offer lower prices, faster delivery ..." In the end, what we’re seeing is a real-time debate between whether we prioritize benefit to the customer (via Amazon’s scale and dominance) or a “healthy” market of competition in the industry, which has been objectively lacking…via Amazon’s scale and dominance. The showdown is set to begin later this month. You know what to do, so we don’t even have to say it, but…stay tuned. The big question: Is the benefit to the consumer more important than healthy competition in a free market economy? What steps can Amazon take to get the FTC to chill while still giving customers the thrill? Banana Brain Teaser Yesterday — A man is trapped in a room. The room has only two possible exits: two doors. Through the first door there is a room constructed from magnifying glass. The blazing hot sun instantly fries anything or anyone that enters. Through the second door there is a fire-breathing dragon. How does the man escape? Answer: He waits until nighttime and then goes through the first door. Today — I am a protector. I sit on a bridge. One person can see right through me, while others wonder what I hide. What am I? Wise Investor Says “The stock market is a device for transferring money from the impatient to the patient” — Warren Buffett How would you rate today’s Peel? 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