DECEMBER 2018 INVESTMENT REPORT:
DO ME’S & TEQUILA’S INVESTMENT THOUGHTS: Remember, I told you all, that this Donald Era, would end REALLY UGLY; more ugly than you or I could EVER imagine.
WE only hope, that the Donald Moat WE built with OUR Portfolios, holds.
Tequila plug the leaking holes…”
“FORM A BOX…Hold, Hold, Hold the Moat; for this is OUR Future.”
It looks like this December is going to be the WORST December since the Great Depression.
December of 2018 was the worst December in years. The DOW dropped 8.7% in December.
For the Year, 2018, The Dow was down 5.6%; S&P 500 was down 4% and the NASDQ was down 6.4%
The Markets are now lower than the highs in Jan. 2018 = The SUGAR HIGH has worn off.
AND NATURALLY: Donald claims he is not to BLAME.
Not his Policies, Not His Actions, Not his Tweets, Not his LIES, Not his Rhetoric, Not his Statements, Etc. Etc. Etc.
He is BLAMING it all on the Fed. Chair Powell & Democrats =
“YOU SAID WHAT?”I hope you ALL, now realize, that Donald is very Dangerous and that now that he is UNDER ATTACK from all sides…
The Danger Level is like beyond reason (Though I am not saying, Donald is 100% blame for the big markets drops—but he is responsible for a lot of the DROP).
For you Donald Fans, now that he has caused you to lose $$$ =
DO YOU NOW UNDERSTAND THE DANGER OF DONALD???!!!“What do you think Tequila?”
T: “The Man Comes Around.”
“You are RIGHT, Tequila.”
Since, Donald won the election, I have been humming this song.
Now, I hum it constantly and put myself to sleep humming such; right after I finish my PRAYS for America, The World & Most Important, Mother Nature.
Here is the SongThe Man Comes Around
Johnny Cash
"And I heard, as it were, the noise of thunder
One of the four beasts saying,
'Come and see.' and I saw, and behold a white horse"
There's a man (Muller & State AG’S) goin' 'round takin' names
And he decides who to free and who to blame
Everybody won't be treated all the same
There'll be a golden ladder reachin' down
When the man comes around
The hairs on your arm will stand up
At the terror in each sip and in each sup
Will you partake of that last offered cup
Or disappear into the potter's ground?
When the man comes around
Hear the trumpets hear the pipers
One hundred million angels singin'
Multitudes are marchin' to the big kettledrum
Voices callin', voices cryin'
Some are born and some are dyin'
It's alpha and omega's kingdom come
And the whirlwind is in the thorn tree
The…
Please PRAY!!!INVESTMENT ARTICLES:--12-07-18:
seekingalpha.com/article/4226947-fed-might-full-control-inflation-cramers-mad-money-12-6-18 U.S.-China trade relations; the White House seems to have two China policies.
In one camp there are the trade warriors, led by Larry Kudlow and Steven Mnuchin who want to do business, and in the other camp, there are the cold warriors aiming to slow China's rise as a global superpower with slowing, or even stopping, trade with China.
The cold warriors believe some pain needs to be taken, even if it hurts corporate profits, to prevent China from challenging the U.S. hegemony.
In the past few days, there was news from both camps. While trade warriors are trying to come up with a better trade policy that includes pausing the rise in tariffs, the other camp saw spike in trade fears after the arrest of a Huawei global CFO on the charges of selling American technology to Iran.
The arrest occurred in Canada on Saturday and the stocks fell on the fears of escalating US-China trade tensions.
"This means any tech company that does a huge amount of business in China, including Apple (NASDAQ:AAPL) or Micron (NASDAQ:MU) or Intel (NASDAQ:INTC) or Skyworks (NASDAQ:SWKS) or Qualcomm (NASDAQ:QCOM) or Broadcom (NASDAQ:AVGO), is worth a little less today than it was yesterday," said Cramer.
--12-26-18:
www.msn.com/en-us/money/markets/9-reasons-the-us-will-have-a-recession-next-year/ar-BBPLHXm?li=BBnb7Kz&ocid=U147DHP --12-29-18:
www.cnbc.com/2018/12/28/art-cashin-market-lost-couple-thousand-points-due-to-washington-chaos.html Turmoil in Washington, D.C., has caused unnecessarily drastic declines in the stock market in recent weeks, UBS' Art Cashin told CNBC on Friday.
"I think we lost maybe a couple of thousand points that we didn't need to because of the disruptions that we saw," including the ongoing government shutdown and President Donald Trump's attacks on the Federal Reserve, the longtime trader said on "Power Lunch."
"A little more quiet in Washington" may have allowed the major averages to climb more steadily as routine year-end selling tapered off, said Cashin, who is director of floor operations for UBS Financial Services at the New York Stock Exchange.
Trump continued his rebuke of the Fed on Tuesday, criticizing the central bank for raising interest rates "too fast" after its latest hike. The remarks led to a Wednesday statement from a White House advisor that Fed Chair Jerome Powell and Treasury Secretary Steven Mnuchin, both Trump appointees, were not at risk of being fired.
"The president doesn't seem to realize that the more he talks about what the Fed should do, the more that inhibits the Fed from doing it because they don't want to look subservient to what's going on. So that's a bit of a problem," Cashin said.
Jack Bouroudjian, chief economist, co-founder and director of the Universal Compute Exchange, agreed with Cashin, telling CNBC that the only thing investors really need to worry about in 2019 is "if the Fed loses its independence." READ MORE…
--12-27-18 An Important Read for those of you with Rental Property:
www.thestreet.com/personal-finance/taxes/how-is-rental-income-taxed-14816849?puc=yahoo&cm_ven=YAHOO&yptr=yahoo --12-09-18: A Good Read:
www.bloomberg.com/news/articles/2018-12-08/the-2018-contrarians-who-got-it-right-what-they-re-saying-now?srnd=premium --12-02-18 A MUST READ:
www.msn.com/en-us/money/mutualfunds/investing-legend-jack-bogle-says-theres-a-big-problem-with-index-funds/ar-BBQjNmO?li=BBnb7Kz --12-04-18 A MUST READ:
www.msn.com/en-us/money/markets/the-thing-the-bond-market-most-feared-is-beginning-to-happen/ar-BBQrHWl?li=BBnb7Kz&ocid=U147DHP The bond market sees storm clouds on the horizon, despite the trade ceasefire between President Donald Trump and China.
But not all strategists agree with the dire warnings, though they do note some unusual behavior.
On Monday, the difference between the 10-year Treasury yield, at 2.97 percent, and the 2-year yield, at 2.82 percent, dramatically narrowed by 5 basis points, the biggest one day move since late March.
Traders have been watching the difference between the yields on various Treasurys for months, along what is called the yield curve between the longer and shorter-term bonds.
And in this time, the longer duration 10-year yield has gotten closer and closer to the yield on the 2-year.
If the two should flip, and the 2 -year yield actually rises above the benchmark 10-year, that inversion would be a signal of a recession.
The two yields are currently just under 15 basis points apart, the narrowest since around the time they last inverted in June 2007.
What's worrisome for some is that on Monday, the difference between the yields on the 3-year and 5-year, and those of the 2-year and 5-year, inverted. READ MORE…
--12-05-18:
www.bloomberg.com/graphics/2018-corporate-debt/?srnd=premium Behind the Debt Binge That Now Threatens Markets
By Shannon D. Harrington, Sally Bakewell, Christopher Cannon and Mathieu Benhamou
Masayoshi Son and Elon Musk leveraged their dreams to the hilt. Patrick Drahi stockpiled debt to build a global cable empire.
Michael Dell loaded his computer company with risky loans to buy out activists threatening his control.
And a group of Chinese developers borrowed big to expand in the nation’s booming property market.
Call them the titans of junk.
They’re the headliners in a decade-long, $11 trillion corporate borrowing frenzy, fueled by central banks that flooded the global financial system with ultra-cheap money.
Investors have been lending to virtually anyone willing to pay a decent yield.
But now the easy money is coming to an end. Policy makers, after driving interest rates to unprecedented lows, are hiking those rates for the first time in 10 years.
For many companies, it will bring new financial pressures. And for some of them, those pressures could trigger disaster.
Bloomberg News delved into corporate filings, debt offerings, M&A deal tables and bond indexes to find the biggest beneficiaries of this decade of loose lending.
The search identified 69 companies spanning the globe that have boosted their debt levels by 50 percent or more in the past five years and now have at least $5 billion of debt.
Together, they’re sitting on almost $1.2 trillion of bonds and loans, most of it rated junk and the majority due within the next seven years.
While many are household names like Dell Technologies Inc. and Tesla Inc., others are privately held entities that avoid the scrutiny of the S&P 500 crowd—companies such as specialty-chemicals maker Avantor Inc. and IT firm BMC Software Inc.
But, chances are that anyone who socked away cash into a retirement account during the past five years has lent them money.
Investors have parked trillions of dollars in mutual funds and exchange-traded funds that buy junk bonds.
Pension funds in Canada have started leveraged-finance lending operations. Insurance companies have helped bankroll leveraged buyouts.
And, in an echo of the subprime mortgage bubble a decade ago, investors from Sydney to Seattle snapped up hundreds of billions of dollars in AAA rated securities known as collateralized loan obligations that are actually backed by the debt of junk-rated companies.
The central banks that enabled the borrowing will now have to manage a precarious dance: weaning markets off their stimulus without triggering a stampede from one of the most crowded trades in a generation.
That could culminate in a full-blown crisis.
“There can be a self-fulfilling prophecy here,” said Christian Stracke, global head of credit research at Pacific Investment Management Co. in Newport Beach, California.
“These companies really do require confidence, and if you have a mix of market volatility with unexpected fundamental weakness, then that could create a much more difficult situation than investors are expecting.”
Until then, there are few signs that the borrowing is slowing down. But there are plenty of signals that its only getting riskier.
In the past 18 months, institutional investors have snapped up $1.6 trillion of leveraged loans in the U.S. alone, data compiled by Bloomberg show.
That’s more than the three previous years combined.
What’s more is that private-equity funds, which typically use junk debt to fund the bulk of their buyouts, are sitting on record amounts of money earmarked for such deals.
In other words, more junk-debt titans are likely to emerge before it’s over. READ MORE…
--12-07-18 A GOOD READ:
www.marketwatch.com/story/kevin-oleary-is-right-about-cars-and-his-logic-can-save-your-retirement-2018-10-29?siteid=yhoof2&yptr=yahoo --12-11-18 AN IMPORTANT READ:
www.msn.com/en-us/money/personalfinance/heres-how-much-money-to-save-if-you-want-to-retire-rich-according-to-wealth-manager-david-bach/ar-BBQLNHh?li=BBnb7Kz Getting rich starts with paying yourself first, says self-made millionaire and wealth manager David Bach.
In short, that means, "when you earn a dollar, the first person you pay is you," he writes in his bestselling book "The Automatic Millionaire."
More specifically, if you want to retire rich, he says, "save 15 percent to 20 percent of your pretax income in a tax-advantaged retirement account, such as a 401(k), 403(b) or IRA.
If you want to be "rich enough to retire early," he adds, contribute 20 percent or more to a retirement savings account.
These percentages come from Bach's "pay yourself first formula," which he created to give you an idea of what your financial standing will look like depending on how much you save. Here's the full formula:
Dead broke: "Don't pay yourself first," writes Bach. "Spend more than you make. Borrow money on credit cards and carry debt you can't pay off."
Poor: "Think about paying yourself first, but don't actually do it," he writes. "Spend everything you make each month and save nothing. Keep telling yourself, 'Someday … '"
Middle-class: Save 5 percent to 10 percent of your pretax income in a tax-advantaged retirement account.
Upper-middle-class: Save 10 percent to 15 percent of your pretax income in a tax-advantaged retirement account.
Rich: Save 15 percent to 20 percent of your pretax income in a tax-advantaged retirement account.
Rich enough to retire early: Save 20 percent or more of your pretax income in a tax-advantaged retirement account.
Keep in mind that "everyone's life is different," Bach writes, "but this should give you a benchmark to shoot for or plan around."
Saving 10 to 15 percent of your income may sound daunting, but it'll be easier to do if you make it automatic — meaning, you have your contributions automatically taken out of your paycheck and sent straight to your retirement account. READ MORE…
--12-17-18:
www.bloomberg.com/news/articles/2018-12-16/china-s-tesla-wannabe-nio-eyes-luxury-cars-amid-sluggish-market?srnd=premium WE own NIO
--12-04-18:
www.thestreet.com/investing/stocks/fedex-ups-fall-after-morgan-stanley-note-on-amazon-air-14800359?puc=_htmltten_pla&cm_ven=EMAIL_htmltten&tstmem=70008502&utm_source=newsletter&utm_medium=email&utm_campaign=TTEN&utm_term=FedEx%2C+UPS+Fall+as+Morgan+Stanley+Says+They+Face+Risks+From+Amazon+Air WE own AMZN & so FAR, loving it…
It's not only those racing white vans that are cutting off FedEx and UPS trucks to deliver your Amazon order, it soon will be the mega online retailer's jets, too.
That's the word from Morgan Stanley analyst Ravi Shanker who on Tuesday, Dec. 4, released a note to investors about the risks faced by FedEx Corp. (FDX - Get Report) and United Parcel Service Inc.
"We think the market is missing the risk Amazon Air poses to UPS/FDX growth," wrote Shanker, in the note that brought turbulence to the shipping giants' stock. FedEx was down nearly 7% and UPS tumbled 7.7% on Tuesday.\
As Amazon plans to take delivery of 40 planes and build out a shipping hub that could handle 100 jets, the retailer will threaten the revenue potential of both FedEx and UPS, said Shanker, adding the two could take a hits of around 2% in "potential revenue lost" over 2018 and get knocked by more than 10% by 2025.
Shanker's analysis caused Morgan Stanley to lower UPS's price to $87 from $92 and FedEx to $230 from $240.
Domestic air makes up close to a fifth of revenue for the shipping companies.
In addition, Amazon will probably save more money by building, rather than buying, its air program, which was announced about two years ago, said the analyst.
By next year, Amazon may save up to $2 billion with the jet program. AND 12-08-18:
seekingalpha.com/article/4227023-amazons-next-catalyst?ifp=0 --12-05-18:
www.bloomberg.com/news/features/2018-12-05/almost-every-electric-scooter-comes-from-this-chinese-company?srnd=premium FUTURE IPO
Scooter-sharing company Lime recently relayed a troubling message to its users: a portion of its fleet was at risk of bursting into flames.
The startup recalled about 2,000 vehicles, less than one percent of its scooters, following its Oct. 30 warning message.
The situation brought to mind scenes from three years ago of those skateboard-style conveyances known as hoverboards catching fire and promptly falling out of use. Would spontaneous combustion sink the scooter next?
Lime placed the blame on a manufacturing defect at one of its suppliers, Beijing-based Ninebot Inc.
But the company isn’t just any scooter assembler. Ninebot has quietly become the single-biggest source of scooters deployed in U.S. cities.
The little-known manufacturer is an essential provider for just about everyone trying to ride the rise of “micro-mobility,” a movement that aims to transform urban transportation through the proliferation of cheap alternatives to cars and mass transit.
The scooter trend began last year with the launch of Bird Rides Inc. in Santa Monica, Calif., setting off a venture capital-fueled boom in micro-mobility.
Investors soon poured in hundreds of millions of dollars, giving Lime and Bird valuations north of a billion dollars, while Uber Technologies Inc., Lyft Inc. and major carmakers rushed to launch scooter services of their own. All of this brought more business to Ninebot.
Uber now sees Bird and Lime as potential acquisition targets, in part to address the difficulty in getting enough scooters to put on the road, according to reports in the Information and Financial Times. READ MORE…
--12-05-18:
seekingalpha.com/article/4226117-t-worth-65-117-right-now?ifp=0 WE own T and buying more on Dips…
--12-04-18:
seekingalpha.com/article/4226379-markets-convinced-china-truce-cramers-mad-money-12-4-18 U.S. markets had a huge sell-off on Tuesday with the Dow down 3.1%, S&P 3.24%, and Nasdaq 3.8%, as there was no certainty and the markets hate 'master-blaster, Mad Max confrontation'.
Trump made positive comments over the weekend that a trade deal with China has been reached, but it seems investors are not sure. Economic advisor Larry Kudlow and Treasury Secretary Steven Mnuchin want a deal because it's good for business…
While Robert Lighthizer wants no deal because it's not about trade, but about slowing the rise of China as a global superpower by not funding that rise with the USA's input.
"The president seems to actually enjoy these face-offs. They've become his style. The White House is the Thunderdome: two policies enter, one policy leaves. But the markets crave certainty," said Cramer.
"I think it's starting to dawn on major-league money managers that maybe they misjudged the President.
Maybe he simply doesn't take this stuff seriously enough to be considered dependable, even as what really matters to his base is the ratings, which means the White House version of 'The Apprentice'," he added.
The Fed is on auto-pilot as well with its agenda of pushing a December rate hike.
Money managers take a cue from bonds which are showing signs of a slowdown.
The Fed is expected to raise interest rates in December and this means banks will pay out more on short-term deposits than they make on long-term loans.
The Fed isn't thinking about Toll Brothers (NYSE:TOL) which had the lowest orders in the housing business in four years.
They are not thinking what the cloud can do to white-collar employment.
They are also not thinking about what the firing of a huge number of people by General Motors (NYSE:GM) and Ford (NYSE:F) is doing to blue-collar employment.
"The bottom line is this: the president's worrying people, the Fed is worrying people, and yet, somehow, they both think they're being reassuring.
They couldn't be more wrong. Today wasn't a decline, it was a free fall," concluded Cramer. READ MORE…
--12-07-18:
www.msn.com/en-us/money/companies/marlboro-maker-sinks-dollar18-billion-into-the-pot-business/ar-BBQD2MZ?li=BBnbfcL WE own CGC & ACB in this sector…
Altria Group, the maker of Marlboro cigarettes for the U.S. market, is pushing into the Canadian cannabis industry, marking the major tobacco company’s first foray into the nascent sector.
Altria agreed to acquire 146.2 million newly issued shares for C$16.25 each -- a 16 percent premium from yesterday’s close. That would give Altria a 45 percent stake in the Canadian cannabis producer.
Altria will also get warrants that will give the option to increase its stake to 55 percent.
Key Insights
The deal with Cronos gives Altria a foothold in Canada, which in October became the first major economy to legalize marijuana for adult use on a federal level.
Cronos, meanwhile, gets “product development and commercialization capabilities, and deep regulatory expertise,” the company said in a press release.
The biggest companies have avoided investing in U.S. cannabis businesses, which are legal in a handful of states, because of the federal prohibition on the drug.
That’s made Canada an attractive place for investors and businesses to push into the growing sector.Altria has been grappling with the steady decline of tobacco smoking rates and sees potential to tap into a new segment of growth as marijuana moves into the mainstream. Chief Executive Howard Willard said the investment is “an exciting new growth opportunity for Altria.” READ MORE…
--12-21-18:
seekingalpha.com/article/4229411-best-ways-play-hemp-cbd-industry?ifp=0 WE are looking at a couple of these stocks; mind you, just looking…
--12-07-18:
seekingalpha.com/article/4226947-fed-might-full-control-inflation-cramers-mad-money-12-6-18 CEO interview - Yum! Brands (NYSE:YUM)
The stock of Yum! Brands is up 12% YTD and was up 0.9% yesterday. The company had their investor conference recently and Cramer interviewed CEO Greg Creed to hear about the company's roadmap.
Creed said he believes in 'RED' which stands for relevant, easy and distinct. He plans to make all iconic brands RED. The most distinct brand is KFC with red and white strip buckets and finger licking good catchphrase.
Pizza Hut is much more relevant with lower prices and delivery and Taco Bell is more relevant with younger customers and distinctive.
"We have three global, iconic brands. We have incredible scale. We have this global diversity. We're proud of the brands, but we're dissatisfied because we didn't get more growth as not every brand is great at RED and we can have some improvement," said Creed.
He adds that the best days of Yum are still to come. The company is trying to catch up in digital with Domino's with QuikOrder acquisition that was announced yesterday.
The company plans to put 5,000 kiosks in KFC and Taco Bell by next year and has added 10,000 stores for delivery. Yum! Brands has 46,000 global restaurants worldwide and is opening 7 single restaurants in a day around the globe. No one has that footprint and no one has got that number of restaurants.
Spinning off Yum! China made rest of them dig deep and go for growth aspiration and deliver on it. Cramer believes YUM! Brands is a buy.
--12-10-18 Important Read:
www.msn.com/en-us/money/retirement/3-disadvantages-of-claiming-social-security-at-70/ar-BBQzGMB?li=BBnb7Kz --12-10-18:
seekingalpha.com/article/4227155-nvidia-much-stock-price?ifp=0 WE own NVDA and buying more very slowly on the Dips.
--12-11-18:
www.msn.com/en-us/money/retirement/how-a-subprime-banking-workaround-could-crush-your-retirement/ar-BBQLNST?li=BBnbfcN … Today, the list of players involved in shadow banking encompasses everything from pawn shops and loan sharks to elite art dealers.
They include so-called peer-to-peer lending outfits and online lenders such as Quicken Loans, Loan Depot, PennyMac, Freedom Mortgage and Caliber Home Loans.
They aren’t allowed to get money from direct deposits, the way traditional banks do, but that has not stopped big banks from dumping money into them, in the form of loans.
In fact, loans to non-bank financial firms increased six-fold from 2010 to 2017, hitting a record $345 billion, The Wall Street Journal reported. Wells Fargo coughed up $81 billion, Citigroup and Bank of America ponied up $30 billion each, and JPMorgan Chase threw in another $28 billion.
By funding these “shadow” banks, the big financial players are still in the risky loan business.
It was precisely this type of under the radar, back-door lending that led to the soaring foreclosures, cratering home values, failing banks and dwindling retirement accounts of a decade ago.
And it gets worse ...
An astonishing 6 out of 10 mortgage lenders in the U.S. are now shadow banks, according to the L.A. Times.
And they operate online and peddle subprime loans.
Shadow lending is now "larger than the world economy and poses a risk to financial stability," Bloomberg News wrote.
And early next year, Fair Isaac and Company, the creator of the FICO score, will launch a new opt-in program that will enable consumers to enhance their credit scores by using checking and savings account data.
Astonishingly, a decade after subprime lending crashed the housing and financial markets, the new ultraFICO score will boost loan approvals to those who were previously considered subpar borrowers.
Could these conditions again drive our economy into a ditch? Economists say no. But the fact that major financial players are dumping billions into subprime loans through shadow banking is only one of the factors at work.
Stock market volatility, cooling home sales and corporate debt that has tripled in the past eight years all add to the case for caution.
By using non-banks and secret back channels between their money and risky borrowers, big banks and fat cat investors jeopardize the whole economy.
It’s another reason why smart entrepreneurs and business owners need to make sure they have a “Plan B” for their retirement.
Because you never know when the greed and hubris of a few will create economic hardship and heartache for everyone -- all over again.
READ MORE…
--12-15-18:
seekingalpha.com/article/4228408-amazon-plans-save-billions-planes-vans?ifp=0 •Amazon is tired of using the "delivery boy" and hopes to save billions in the process.
•At present everything Amazon is saying points to this being a move to save money on its own operations.
•How much can Amazon really expect from its own transportation network?
For most investors, watching a stock they own increase in value by more than 30% in one year would be reason to celebrate.
However, Amazon (NASDAQ: AMZN) isn’t just any company, and investors haven’t been used to a prolonged decline in the stock.
Since late September, Amazon’s shares have struggled to get back to their old highs. Whether this is a short-term issue, or a longer-term consolidation remains to be seen.
It’s exciting when Amazon gets into new markets, but investors should be equally happy that the company is addressing its profit margins in a meaningful way.
Fulfillment costs consumed just under 15% of revenue last quarter, and Amazon is making moves to cut this expense.
The first step was to order thousands of delivery vans. The most recent step is developing its own fleet of airplanes.
Tired of using the “delivery boy”
Amazon has several reasons to develop its own delivery business. One of the most obvious is in response to a bold claim by President Trump. The President said that Amazon is, “costing the United States Post Office massive amounts of money for being their delivery boy.”
Given unwanted attention by the President, combined with billions of dollars being spent on delivery each quarter, Amazon is moving to address both issues at once.
The first step in addressing this issue has already been taken with Amazon ordering thousands of delivery vans.
The company’s delivery service (Amazon Flex) allows individuals to make money delivering packages as independent contractors.
Amazon originally had about 5,000 delivery vans, but ordered an additional 20,000 to expand this capability.
The current move is for Amazon to take delivery of as many as 40 planes by the end of this year. There is further speculation, that the company could expand this fleet to as many as 100 planes.
FedEx Corporation (NYSE: FDX) and United Parcel Service (NYSE: UPS) don’t appear to have anything to worry about presently. However, Amazon’s move to take control of some of its deliveries should give investors in all three companies a lot to think about.
Amazon’s routes will overlap, “with over two-thirds of the volume flown by UPS and FedEx combined.” According to Morgan Stanley, Amazon will save between $2 and $4 per package through these changes.
In theory, the initial rollout would save the company between $1 billion and $2 billion annually. To make things simple, savings billions is a huge reason to make these changes even if the President never made a comment at all.
Is Amazon delivery going to take on FedEx and UPS directly?
At this point, the short answer is Amazon is not going after FedEx and UPS for delivery of other company packages. There are several reasons Amazon quite honestly cannot take on the, “big two” delivery companies at the present time.
First, the size of the UPS and FedEx fleets makes going head-to-head an impossible task at present.
In total, UPS has roughly 120,000 vehicles, while FedEx Express has 85,000 vehicles and FedEx Ground reports 60,000 for a total of about 145,000.
As mentioned before, Amazon’s vehicle count stands at about 25,000. When your competitors have tens of thousands of vehicles more than you, the battle has been lost before it even started.
Second, the size of the FedEx and UPS airline fleets is far larger than Amazon at present. FedEx currently has just under 700 airliners, whereas UPS has just under 600 including what is on order.
Even if Amazon builds it fleet to 100 airliners, again the size difference is far too great to imagine any real competition for the “big two.”
To be blunt, the comparison favors FedEx and UPS at this point, but that doesn’t mean the situation will stay that way forever.
If Amazon can successfully cut costs by handling some of its own delivery, it’s certainly possible the company could go after the logistics market and the billions in potential revenue this would mean to the company. However, any move to take on FedEx or UPS directly is likely at least years away.
What’s the bottom line?
If Amazon isn’t going directly after FedEx and UPS, what is the benefit to the company? The short answer is Amazon is looking to save money on its fulfillment expenses. As mentioned earlier, the company’s fulfillment expenses have been growing faster than revenue for quite a while.
Just to put some numbers to this claim, consider that in a single quarter in 2015, fulfillment costs were $2.9 billion or 12.4% of revenue. As of Amazon’s last quarter, this same line item had grown to $8.3 billion or 14.6% of revenue.
The description on Amazon Air’s own web site makes the purpose of this venture very clear. The goal is to, “create technological solutions to help us exceed the expectations of our Prime customers through the use of our air cargo planes.”
Amazon’s job description of the Amazon Air Procurement Manager position seems to echo this thesis: “game changing air transportation solutions for Amazon’s middle-mile transportation network, with the aim of ultimately improving our customer’s experience.”
Last quarter, Amazon generated $56.6 billion in revenue and produced an overall operating margin of 6.6%.
However, the company’s operating margin in U.S. sales was 5.9% and international sales was a negative 2.5%. This is precisely why Amazon wants to attack one of its biggest expenses.
By point of comparison, FedEx generated over $3 billion in U.S. revenue and nearly $3 billion in international revenue. The company’s overall operating income margin was 6.3%.
UPS generated even better numbers last quarter. The company produced over $10 billion in U.S. revenue and over $3 billion in international revenue. UPS seems to have the leg up on its peer, with an operating margin last quarter of just under 10%.
If FedEx can generate a margin of 6.3% and UPS can post a margin of almost 10%, it stands to reason that Amazon’s thinner margins would be improved by handling more of its own deliveries.
I mentioned earlier that estimates suggest that Amazon might save as much as $1 to $2 billion per year by cutting fulfillment costs. How realistic is this estimate? READ MORE…
WE SOLD:EWQ
IQ
NVDA
IMPORTANT—PLEASE READ: “The above is for your information only. We are not in any way recommending these stocks for you to buy/sell. If you decide to, it is your responsibility to do your own research, due diligence and/or seek the advice of a Financial Planner/Broker.
You need to set your own invest goals, portfolio & diversification goals according to your age, lifestyle, income, etc. when it comes to selecting stocks/funds.
Remember, investing is a risk, so do so at your own risk; you need to put the time in to do your own research.
Our thoughts/opinions are for informational and educational purposes only. And, should not be construed to constitute investment advice.
Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security.
What is good for Do Me & Tequila might not be good for you. So be responsible, (to yourself), for your investment decisions or lack of such.
If any of what we say makes you uncomfortable, then do not read/listen to our thoughts and opinions.
Neither, Tequila or I, are compensated in any manner by the company stocks we mention in our investment emails. Some of the time, we own stocks we mention in our investment email; however, other times we do not own any.
I hope you all do realize that Tequila is a parrot (?)...even more of a reason, to do your own research & make your own decisions.”
--“"The time to buy is when there's blood in the streets."
-Baron Rothschild
--"The best thing that happens to us is when a great company gets into temporary trouble . . . We want to buy them when they're on the operating table."
-Warren Buffet
--"Be Fearful When Others Are Greedy and Greedy When Others Are Fearful."
-Warren Buffett