Amazon.com, Inc. (NASDAQ:AMZN) is one of the most impressive firms in America right now, but that doesn’t mean its destined for eternal success. In some cases, in fact, companies that are extremely successful can be punished for it. The veteran investor Douglas Kass reckons that the government might be planning a move on Jeff Bezos firm.
Kass, who leads Seabreeze Capital Management, wrote “I am shorting Amazon today because I have learned that there are currently early discussions and due diligence being considered in the legislative chambers in Washington DC with regard to possible antitrust opposition to Amazon’s business practices, pricing strategy and expansion announcements already made (as well as being aimed at expansion strategies being considered in the future.”
Just how likely is it that the e-commerce firm will be split up or curtailed?
Amazon is not a monopoly
Anti-trust law in the United States has changed quite a bit since the trust busting of President Theodore Roosevelt. It is not the practice right now to simply label a firm a monopoly and split it up as a result. Instead the government would have to find some way in which Amazon.com, Inc. is abusing its market position. It would also need to prove that these actions tended to harm consumers.
That’s a high bar. There is no way that Amazon could be considered a classic monopoly, but the firm may be considered to have a dominant market position in, for example, electronic e-commerce retail. The government could charge that e-commerce is a separate market from ordinary retail.
Regulators could even, as happened to Alphabet Inc (NASDAQ:GOOG) recently in Europe, claim that Amazon was using its dominance in one market abusively in another market. Mr. Kass didn’t outline what part of the business he thought of as vulnerable and didn’t describe a timeline for the case.
Despite the lack of a clear legal argument, the “Amazon.com, Inc. (NASDAQ:AMZN) is a monopoly” story has gained steam. Both New Republic and The New York Times have recently leveled the charge at the company.
Short Amazon at your peril
Even if Mr. Kass is right about “Peak Amazon,” shorting the firm isn’t likely the best idea for most investors. As John Maynard Keynes’ adage explains, the market can stay irrational much longer than you can stay solvent. Mr. Kass is in the enviable position of being in charge of millions of other people’s money, and takes less risk by betting it.
That’s not to say, however, that Amazon.com, Inc. (NASDAQ:AMZN) is safe. Voices other than Mr. Kass’ have suggested the firm is monopolistic. Burt Flickinger of the Strategic Resource Group told Fox Business earlier this week that it is “definitely time to rein it in with Robinson-Patman Antitrust Laws.”
Mr. Flickinger is still predicting growth in the firm’s value, however. He said he would hold the stock until 2020 before getting out ahead of anti-trust risks.
It’s assumed that Mr. Kass sees those risks coming much sooner. Holding stock short can be expensive, and holding it short for more than three years is a very difficult position to defend.
For those thinking of following Mr. Kass it might be a good idea to look at his history. Though famed as a stock picker, Mr. Kass’ political predictions are less than reliable. Last year he predicted we’d be living under President Clinton. That was not because she was going to beat Donald Trump in the election. Rather he predicted, quite publicly, that then-candidate Trump would drop out of the race long before the election.