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Pandemic Spending Pushes Amazon Profits to Record

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The pandemic created a perfect storm for Amazon. With more people shopping, and more people working from home using cloud services, Amazon’s profits have soared. Sebastian Herrera reports for The Wall Street Journal (abridged):

Amazon. AMZN 0.37% com Inc. reported record quarterly profit as demand remained robust for its deliveries, cloud-computing and advertising businesses, capping a blockbuster earnings season for the world’s largest technology companies.

The Seattle company’s profits in the year since the pandemic started exceeded $26 billion, more than the previous three years combined. Net income from January to March more than tripled to $8.1 billion, and revenue of $108 billion far exceeded the average of analyst predictions on FactSet.

The tech giant’s success in the past year has catapulted the company to new heights, after consumers flocked to online shopping during pandemic lockdowns. Amazon’s dominant grip over e-commerce and continued expansion into new industries have strengthened its power, although the company continues to face challenges from regulators and some employees.

Amazon’s first quarter is typically slower than its preceding end-of-year results, which are aided by holiday shopping sales. Yet the company has exceeded expectations in recent quarters. It shattered sales records last year as homebound Americans turned to its delivery services. The company’s stock price rose 76% in 2020.

Amazon’s achievements have come as regulators increasingly scrutinize the company’s market power. Congress has considered changes to antitrust laws that could make it easier for the government to challenge certain business strategies and practices or force tech giants to separate certain units. Last year, a congressional panel found Amazon had amassed “monopoly power” over sellers on its site, bullied retail partners and improperly used seller data to compete with rivals.

In a response to its critics, Amazon is raising pay for many of its employees. Herrera reports elsewhere in the Journal:

Amazon. AMZN 0.37% com Inc. is raising wages for its hourly employees after a majority of workers at one of the e-commerce giant’s warehouses voted not to unionize.

The company said Wednesday that more than 500,000 of its employees would see pay increases of between 50 cents and $3 an hour. Amazon, which offers a starting wage of $15 an hour and employs roughly 950,000 people in the U.S., said the raises represented an investment of more than $1 billion.

The pay increase covers a variety of workers and schedules, but averaged over the total number of employees Amazon said would be affected, it would amount to about $40 a week per worker.

Amazon said its starting wage is still $15 an hour. The company declined to say what the average raise will be for workers and said that depends on factors such as how long an employee has been at the company.

A company spokeswoman said Amazon decided to pull forward its pay review from the fall to increase wages now. She declined to say if the raises were tied to the union election in Bessemer, Ala., but said they are related to hiring and maintaining competitiveness for workers. Amazon said it is now hiring for tens of thousands of jobs across the U.S.

Thanks to the Pandemic by 2025, America’s Biggest Retailer May Be Online

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According to a report by Edge by Ascential, which claims to deliver “one of the industry’s most accurate and actionable sales-driving data, insights and advisory solution sets,” by 2025, Amazon.com will outpace Walmart in retail sales. Bloomberg‘s Spencer Soper reports:

Amazon.com Inc. will supplant Walmart Inc. as the biggest U.S. retailer by 2025, according to a new report, suggesting the e-commerce giant has too much momentum for Walmart to stop despite big investments in its own e-commerce offerings.

By 2025, U.S. shoppers will buy US$632 billion worth of products at Amazon and retail afflilites including Whole Foods Market, surpassing Walmart’s US$523 billion, according to the report by Edge by Ascential, which measured the value of all goods sold by each company online and in stores with the exception of gasoline. Edge by Ascential helps brands sell products online and in stores.

To assess the relative size of Amazon and Walmart, Edge used gross merchandise volume, which measures how much money shoppers spend at each company. Traditionally company size is measured by comparing revenue, but doing so in this case doesn’t capture the full picture because the two companies have different models.

Amazon generates most of its sales from the approximately two million third-party merchants on its site, charging these sellers a commission that is typically 15 per cent of a given product’s price. What the merchants collect doesn’t show up on Amazon’s income statement.

While Walmart has a growing online operation and third-party marketplace, it remains mostly a traditional retailer, buying products from wholesalers and marking them up. Most products Walmart sells show up as revenue, so by that measure Walmart will outstrip Amazon for several years.

The report doesn’t include revenue from Amazon’s cloud computing division or advertising sales. It includes sales from both retailer’s affiliates, including Whole Foods for Amazon and Sam’s Club for Walmart, but doesn’t include fees for subscriptions like Amazon Prime or Sam’s Club.

“The pandemic has permanently shifted consumer habits from in-store to e-commerce,” said Deren Baker, CEO of Edge by Ascential. The main beneficiary is Amazon because Walmart is still playing catch-up even though it’s been spending to add features to its online store, including launching a Prime-style subscription service last year. Amazon, meanwhile, continues to build fulfillment centers around the country in an attempt to speed up delivery and erase the advantage Walmart enjoys with curbside pickup at its more than 5,000 locations.

Dick Young’s Safe America Chapter III, Part I.

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The People’s Chemist writes, “State -of -the art science methods prove masks fail to block viral spread. Viruses are everywhere – so tiny a grain of salt is 1,000 times larger.” The medical journal Influenza and Other Respiratory Viruses showed “no relationship between mask/respirator and protection against influenza protection.”

The People’s Chemist concludes, “We can rest easy knowing that the best way to avoid illness is to protect and bolster the immune system.”

Over the past two years, I have assembled a package of trusted supplements that appear to be useful in bolstering the immune system.

Originally posted February 1, 2021.

The Vanguard Wellesley Way

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Vanguard Wellesley is a fund we have long admired at Young Research. It was once a go-to fund for clients, readers, close friends, and even dear family members.

What gave Vanguard Wellesley Income so much appeal?

Wellesley is the more conservative and younger cousin of the Vanguard Wellington Fund—the nation’s oldest balanced mutual fund.

Over its almost 51-year history, Wellesley has invested an average of 65% in bonds and 35% in stocks. The bonds are primarily intermediate-term investment-grade corporates; the stocks are dividend-paying blue-chip names.

Wellesley’s Baptism by Fire

Wellesley was started in July of 1970. Not great timing for a fund with a bond-heavy allocation. Over the first 11 years of Wellesley’s life, interest rates more than doubled. Remember, when interest rates rise, bond prices fall.

How did Wellesley do during one of the worst onslaughts on record for bond investors?

It performed like a champ.

Wellesley was down only twice during that 11-year period—a loss of 3.5% and 6.4%.

Wellesley is still managed by Wellington Management, but as the fund has gained heft, its universe of opportunities has dwindled to levels we no longer find appealing.

The Vanguard Wellesley Way of investing in a mix of investment-grade corporate bonds and dividend-paying stocks remains, however a winning strategy. Wellesley’s 65-35 allocation has offered consistency and relative stability for conservative investors, especially those investors in the later stages of retirement.

Vanguard Wellesley Income this Century

The chart below highlights the performance of Vanguard Wellesley’s 65-35 mix so far this century. With two of the worst bear markets on record, one of which saw the over-hyped Nasdaq composite fall by over 80% from its high, Wellesley marched higher with much shallower corrections.

An Open Market Alternative to Wellesley

For clients of our investment counsel firm, we have taken what Wellesley (and Wellington) pioneered and improved upon it (in our humble opinion of course).

We focus not only on blue-chip dividend payers, but also smaller high-quality dividend payers and we especially like companies that have a record of making regular annual dividend increases. We have greatly expanded our universe of available common stocks by investing in both U.S. and international dividend payers. Foreign markets are loaded with higher-yielding names.

Long-time followers and readers of Richard C. Young’s Intelligence Report will know this common stock strategy as Young Research’s Retirement Compounders® strategy.

Protection from U.S. Dollar Debasement

We have further improved on the Wellesley Way in our managed portfolios by building on my over five decades of experience following and analyzing global currency and precious metals markets.

Why? With deficits now measured in the trillions, who wouldn’t want at least some protection from the ever-rising risk of U.S. dollar debasement?

Bond Investing: Opportunity and Flexibility

Our bond strategy is where you may find the most value. Buying individual bonds is not the province of individual investors. Individual investors are left out of the primary market, where new issues can come to market at deep discounts to bonds already trading on the secondary market. We participate in the new issue market on behalf of our investment counsel clients.

Importantly though, we aren’t so big that we are effectively forced to build bond portfolios for clients that mirror an index. We also have free reign to invest across the fixed income markets. If long-bonds look risky or don’t offer enough return, we can favor short-term bonds. If low-grade bonds are being given away, we have the ability to take them. Vanguard Wellesley maintains about the same maturity and quality portfolio regardless of how the fixed income landscape evolves.

My Key West Garden Office

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The view of the garden from my office.

Hard to believe it has been nearly 30 years since I walked away from dealing with investing clients, prospects, or the financial media. I also stopped speaking at capacity-filled investment conferences around the world from New Orleans to Switzerland to Hong Kong.

About that same time, Debbie and I bought two Harley-Davidson motorcycles along with a little pink Conch cottage in Key West, Florida. In the following decades, we racked-up 125,000 miles on the bikes with not a single mishap (or road beer) along the way.

Today, dodging road obstacles and traffic or riding through passing thunderstorms is not as attractive as it once was, so we have put the bikes away. Now that we aren’t riding bikes, we have morphed into more age-appropriate travel especially to Paris and our friend’s hotel/Bistro in Beaune, Burgundy.

When not traveling, I read, research, and post from my garden desk in Key West (just 90 miles from Cuba) or in Newport.

If you have followed me over the many decades, you know how conservative I am. My original Ben Graham focus on dividends, interest, and compounding has not changed a lick since I started Young Research in 1978 in a small 2nd-floor office on Thames Street in Newport, Rhode Island.

Our family was raised in Newport. Matt and Beck graduated from Rogers High School in the 80s (as did Debbie in the 1960s). Today Matt is CEO of Richard C. Young & Co., Ltd., and Becky is CFO and president of Young Research.

Debbie and I still live in Newport during warmer NE months, three blocks from where Debbie grew up. Becky and E.J. (The Survival Guy) with two of our grandchildren, Isabella and Owen, live just a couple of blocks away.

Matt and Allison (Allison also grew up on Aquidneck Island) and our three Naples grandchildren, Emma, Rick, and Jack, spend summers in the next town over.

So as you can see, we haven’t gone far! There has been no need. It is for this reason that I am shocked that a quite modest family business with a small town leafy side street main office (with no sign) can for nine consecutive years make the roster of Barron’s Top 100 (Financial Advisors) (2012-2020) And even named in the top 10 of CNBC‘s Financial Advisor 100 (2019 and 2020). How? It could be as simple as really trying to do what is right every time for conservative thinkers, just like us. I hope so. Disclosure

We think of ourselves as small town, Main Street conservatives who don’t believe in the welfare/warfare state. We are promoters of the Swiss Way. Each member of our family is a gun owner and is properly trained in the use of firearms of all varieties. For our go-to for home protection, our family all own the Henry Repeating Arms Survival Rifle.

Debbie and I feel fortunate to have been able to spend three decades in the privacy of working from home, reading, and researching in Key West and in Newport.

Every Investor Must Have a 5/10% Gold Hedge

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Originally posted August 11, 2020.

Jeff Deist of LewRockwell.com writes abridged:

Fed Bugs are people with a faith-based belief in the power of central banks (and central bankers) to engineer economic growth using “monetary policy, “despite decades of history and current evidence to the contrary. They believe tinkering with inputs and rates and velocity and flows somehow makes us richer in terms of productivity, goods, and services. They believe in financial alchemy, as economist Nomi Prins puts it, rather than precious metals.

They believe paper has value so long as government issues it and legislates its use.

Central bankers almost by definition are Fed Bugs, but so are most monetary economists, financial journalists, and politicians. And they all hate gold with a passion.

The reasons why are multifarious, but ultimately flow from their fundamental resentment of any money they do not control and cannot design. Central planning requires central money, and gold stands apart by it very decentralized nature. It is indifferent to human conceptions, and can be discovered and summoned from the earth only with tremendous risk and effort. It cannot easily be manipulated or destroyed, and its value cannot be decreed (though they try mightily). It is unchanging, unyielding, and stubbornly at odds with the political visions of Fed Bugs.
And so they hate it.

Gold quietly serves as a lingering rebuke of the entire political fiat money project—even as central banks are forced by circumstances to buy and hold it as collateral, as the ultimate hard currency and liquid asset for their balance sheets. In fact, central banks steadily bought or repatriated huge amounts of physical gold in recent years, despite the supposedly strong world economy prior to the Covid crisis.

Nixon eliminated the right of foreign governments to redeem US dollars for gold in 1971.

Jeff Deist is president of the Mises Institute, a tax attorney, and a former staffer for Ron Paul.

Dick Young’s Safe America: Chapter II, Part I

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After the inauguration of Joe Biden, and the loss of Senate control to Democrats, Republicans may feel like the end has come. It hasn’t.

Politics is cyclical. A party gets elected in a wave of support, it becomes complacent, ignores its mandate, and is replaced by another party that has impressed the people with its promises. Over, and over again.

Not so long ago the GOP was in much worse straits. In 2008, after the election of President Barack Obama and Democrats’ landslide victories in the House and Senate, pundits were saying that the GOP was over for good, and that the party would never win control of anything ever again.

After a short time living under the Obama administration, Americans began to regret their votes of 2008.

As early as 2009 Democrats’ popularity began to crack. A group called the TEA Party was forming all over the nation, and in early 2010 their energy coalesced when Scott Brown, a Republican, won a special election for the Senate seat vacated by the death of Ted Kennedy, in the deep blue state of Massachusetts.

That election was the first of many that would bring Republicans complete control of the government by 2016.

Compared to 2009 when Democrats controlled so many seats, today’s picture is nowhere near as precarious for Republicans. Take a look at the table below comparing the peak of Democrat control during the 111th Congress to the balance of power during today’s 117th Congress.

*Counting swing vote Justice Anthony Kennedy as half Dem half GOP in 2008, and Chief Justice John Roberts as half and half in 2021. Copyright 2021: Young Research & Publishing

Today the GOP owns more legislatures, more governorships, more congressional seats in both houses, and has placed more Supreme Court* picks than in 2008 by far.

The truth is, once Americans see what Democrats have to offer in real life, they no longer want it.

Read Chapter 1 Part I, Part II, Part III, and Part IV.

RCY’s Brand New Investing Program – 100% Swiss: Chapter 1, Part II

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Basel, Switzerland. By emperorcosar @ Shutterstock.com

UPDATE 12.15.2020: With America’s debt load soaring, the risk to the dollar today is perhaps greater than ever.

Originally posted on July 30, 2020.

The Fed has created a disastrous asset bubble that will extend for years.

Read my series on Ron Paul to gain the full flavor for what is transpiring.

I devoted a large section of my 1987 book to inflation, gold, and Switzerland. Through the decades, I have been a big investor in both Swiss assets and gold.

In the month of August, 100% of my personal investing will be in Swiss Franc-denominated assets.

The Swiss Way

I have written in the past of the Swiss Confederation and its weak central government form (the presidency is a ceremonial office and rotates). The office has no powers above the other six members of the Swiss Federal Council. The entire Federal Council is considered a collective head of state. Switzerland is a neutral country with a low crime rate and a powerful national defense system. Instead of fielding a large standing army, Switzerland requires every man to undergo military training for a few days or weeks a year throughout most of his life. Each man is required to keep his assigned automatic rifle at home at the ready. The Swiss are powerful believers in individual liberty and freedom. They believe that there is no need for a higher legal authority to check people’s initiatives. In fact, federal court in Switzerland is not allowed to rule on any constitutional matter at the national level. The Swiss are all about keeping things at the cantonal level. Keep it local is the key in Switzerland.

There is a lot to learn for Americans from “the Swiss way.” Switzerland’s model is precisely the weak form of central government intended by our Founders. The best outline of what a constitutionally strong form of federal republic looks like is Ron Paul’s Liberty Defined. The chapter on “Empire” alone will amaze you.

Read more about The Swiss Way here.

Swiss-Charts

The Swiss Way, Chapter 1, Part III

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By RastoS @ Shutterstock.com

I have written in the past of the Swiss Confederation and its weak central government form (the presidency is a ceremonial office and rotates). The office has no powers above the other six members of the Swiss Federal Council. The entire Federal Council is considered a collective head of state. Switzerland is a neutral country with a low crime rate and a powerful national defense system. Instead of fielding a large standing army, Switzerland requires every man to undergo military training for a few days or weeks a year throughout most of his life. Each man is required to keep his assigned automatic rifle at home at the ready. The Swiss are powerful believers in individual liberty and freedom. They believe that there is no need for a higher legal authority to check people’s initiatives. In fact, federal court in Switzerland is not allowed to rule on any constitutional matter at the national level. The Swiss are all about keeping things at the cantonal level. Keep it local is the key in Switzerland.

There is a lot to learn for Americans from “the Swiss way.” Switzerland’s model is precisely the weak form of central government intended by our Founders. The best outline of what a constitutionally strong form of federal republic looks like is Ron Paul’s Liberty Defined. The chapter on “Empire” alone will amaze you.

Originally posted May 26th, 2016

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Richard C. Young & Co., Ltd.

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Disclaimer:

The information contained here is for informational and educational purposes only. It is not intended nor should it be considered investment advice or a recommendation of securities. Past performance is not a guarantee of future results. It is possible to lose money by investing. You should carefully consider your investment objectives and risk tolerance before investing.