The new Apple iPhone X has gotten a lot of hype in media. Aside from all its new features, which are admittedly extensive, its ~50% price hike to $1,000 has received a great deal of attention. That price hike is testing a long-held economic principle which says that as prices for a good rise, demand falls. However, for the last 100 years there has been a view that rising prices could raise demand for certain goods because they amounted to “conspicuous consumption”, or saw their demand rise as prices did because owning them signaled wealth and status.
FINSUM: Apple’s new iPhone X, with a lofty $1,000 price tag, may just prove conspicuous consumption true.
Amazon taking over Whole Foods (the deal is now finally closed) has put an unprecedented level of fear into grocers. The reason why can be encapsulated in one sentence: because Amazon does not need to make money on groceries. The company is set to try to grab traffic from rivals by lowering prices at Whole Foods, but at the same time it can afford to do it by using loss-leaders extensively. Since Kroger and Target make the bulk of their money from groceries, they do not have that same luxury. Once insightful commentator says “Amazon’s using the same playbook they always have when competing with booksellers and other retailers … They take out their revenue stream by killing them slowly on price”.
FINSUM: This is really scary if you are a pure grocer because it means Amazon has pockets deep enough to go way lower on price and still come out on top. It is sort of like an investor betting against the Fed.
So one of the things that was very hard to figure during the Trump Rally, especially in bank stocks, was to what degree banks may actually benefit from the deregulation that Trump’s administration was proposing. Well, that may now be starting to change as Bloomberg has just put out a comprehensive set of new estimates for how much each bank would benefit from various types of deregulation. JP Morgan and Morgan Stanley would be the biggest beneficiaries, seeing their pretax profits jump a whopping 22%. Goldman Sachs would see the smallest percentage increase, up 16%. The calculations are based on conversations with banks as well as their own disclosures.
FINSUM: These are pretty big gains. Frankly, they are larger than we would have anticipated. Now to the pesky part about actually enacting deregulation.
Here is an eye-opener. Investors have for years been buying bank stocks in the expectation of rising rates. That idea was a major component of the Trump rally. However, the view from the inside appears to be changing, as banks don’t think rates are going up. According to the Wall Street Journal, banks have given up on rising rates and are buying up all manner of loans that have low rates locked in for long periods, a sure sign they do not expect rates to move higher. Overall, the percentage of bank assets whose rates will not rise in the next five years hit a new high in the second quarter.
FINSUM: After all the hopes of increased profitability from higher rates, everything seems to have returned to the “lower for longer” post-Crisis paradigm.
If there was ever a heavy weight partnership that had a chance to challenge a behemoth, this is it. Google and Walmart are teaming up to tackle Amazon. Walmart will pair up with Google Express and add hundreds of thousands of online items to the service. Walmart will have voice ordering using Google’s voice assistant, and the idea of the move is to challenge Amazon’s dominant position in ecommerce. Walmart is focused on voice ordering as it is a growing segment of the market, and it is evidently important for mundane items that consumers don’t care about, like ordering dish soap or toilet paper.
FINSUM: This is certainly a heavyweight partnership, but we think Amazon has such a huge head start that it will be hard to break in unless Walmart can undercut prices.
The last thing that Amazon could have wanted appears to be happening—President Trump is turning his attention towards the company. Yesterday, Trump commented that Amazon was doing “great damage to tax-paying retailers”. The comments were in a tweet and he continued “Towns, cities and states throughout the U.S. are being hurt - many jobs being lost!”. The comments following Trump’s targeting of Amazon on the campaign trail and are in line with increasing talk of the threat that technology companies pose as they move towards an oligopoly.
FINSUM: If Trump really decides to focus on Amazon, it could mean trouble for the company and the stock.