Bofa/Merrill: We Believe Amazon is a $500 Billion Company

The fan boys at Bofa/Merrill (God I hate that fucking name) are out tonight, supporting the shit numbers that Amazon put forth. No mention of their absurd $100-700 mill operating net income guidance–just boolish talking points.

Maintain Buy; A setback but not a thesis changer While 4Q was disappointing, our long-term thesis is based on Prime drive market share gains (Prime customers grew a healthy 51% in 2016) and AWS valuation creation (higher than expected AWS margins suggest bigger long-term profit potential) and we believe our thesis is intact. We see Amazon as the best 3-4 year growth story in the sector on eCommerce penetration and cloud adoption, with a potential market cap of $500bn. We think 1x our 2016E GMV (over $200bn estimated) plus 5x our 2016E AWS revenues (over $12bn in estimated) could provide some valuation support.

Actually, I’m gonna walk back what I said in the first paragraph. Paul Bieber, likely the Father of Justin, said the $100-700 mill guidance was “neutral to positive.”

That makes sense. Nothing inspires confidence like a 700% range in possible earnings outcomes. It’s like playing a leisurely game of Russian Roulette, only with your money–instead of your brain.

Bieber maintained a $775 p/t.

Jim Grant is the most moribund person in N. America. Nevertheless, he’s widely followed and respected in the interest rate world of librarians and yield scavengers.

Jim believes the Fed will “recant and reverse” its policy and enact another round of QE. Jim believes, deep down, the Yellen Fed are filled with a bunch of no-nothing assholes, better deserving to run iced cream’d parlours in Brooklyn, than the largest central bank the world has ever known.

Jim Grant’s bow tie game is strong and proper.

He’s a ticking time bomb. Sooner or later, he’s going to throw a chair at the camera, or spit on someone, because of Yellen’s hawkish position on rates. I’d like to see him interview one of the more hawkish Fed heads, like Bullard, and bear witness to a Mortal Kombat Cramer fatality move being performed for us, live on CNBC.

Cramer speaks truth in this clip, aired tonight on Mad Money. By pursuing a hawkish stance on rates, the Fed is hurting main street. They’re completely delusional about the specter of inflation and have been the sole cause of panic in the globe since the December rate increase. More than that, their failure to take the March rate hike off the table has exacerbated an already tenuous situation–which has caused investors to flee from the field of battle and seek refuge in treasuries.

The main impediment for U.S. companies these days is China and the strong dollar. While the Fed may not be able to fix China, they can most definitely cease pandering to the Europeans and start easing back on the strong dollar policy–that is having a deleterious affect on U.S. industry.

Cramer has been killing it as of late.

While perusing the Bloomberg website for some good video clips, much to my delight, I stumbled upon his Lordship, Howard Lindzon of the Coronado, discussing events of worldly importance. His takes on Facebook, Google and Apple will go down as legendary.

He called Google the new Berkshire Hathaway and how Amazon would one day become the world’s biggest company. He did mention Netflix in a Freudian slippish type manner–before delving into his ancient age and how Facebook appeals to his demographic.

His core thesis for success is to capture human beings at the tender age of 8, coercing them into becoming customers–and then spitting them back out into the matrix after the elderly age of 80.

BEHOLD.

“There are still people living in the bush…bearish days everything we built will fall into the ocean.”

Lord H. Lindzon, 2016

If you’re wondering the background behind Lord Lindzon, it’s his estate at Coronado– overseeing the pacific ocean– where he raises livestock and produces fresh corn and oranges for the United States and Monaco.

What sort of company gives operating income guidance–ranging $100-700 million v an estimate of $650 million?

Amazon sees Q1 operating income of $100-700 mln vs ~$650 mln estimate; revs $26.5 -29.0 bln vs +22% y/y to $27.7 bln consensus

I’ll tell you the sort of company. It’s the type of company THAT DOESN’T GIVE A SHIT ABOUT MAKING MONEY. Jeff Bezos is an evil villain, who is wholly consumed with world domination. He wakes up thinking of ways to destroy mom and pop stores, as well as large box retailers. He is winning–because Wall Street has provided him with time. Sooner or later, Wall Street will run out of patience and throw his stock into the streets.

The company missed by 0.58 and was light on revenues too.

Reports Q4 (Dec) earnings of $1.00 per share, $0.58 worse than the Capital IQ Consensus of $1.58; revenues rose 21.9% year/year to $35.75 bln vs the $35.98 bln Capital IQ Consensus and $33.5-36.75 bln; operating income $1.1 bln vs ~$1250 mln estimates and $80-1280 mln guidance.

North America retail operating income +37% to $1 bln, sales +24% to $21.5 bln.

AWS operating income +186% to $687 mln; rev +69% to $2.4 bln.

Co issues in-line guidance for Q1, sees Q1 revs of $26.5-29.0 bln vs. $27.72 bln Capital IQ Consensus; operating income $100-700 mln vs ~$650 mln estimates.

Amazon is off by $82 or 12% in the after hours. It’s only down a net $30 from yesterday’s close, so the fun might just be getting started here.

Oil is leading the market higher, which means the House of Saud is your master…again.

Biotechs, however, were delivered death–indicative of risk off.

What they’ll tell you about today is that stocks bounced, soon to be bankrupt oil companies rallied, and how oversold we truly are. None of that matters when the leading industries are utilities and government bonds continue to gain steam.

This market isn’t built to rally, only to crash into brick walls in cars made from dynamite sticks. Breadth was below 60%. Participation was pathetic. If you bought into this rally, you’re playing yourself and deserve to lose all of you money, and much, much more.

This story, like the Martin Skkreli narrative, has run its course and is now boring to me. WBA is suspending their relationship with Theranos. The companies valuation of $10 billion can no longer be justified. The unicorn has been slain.

Walgreens Boots Alliance Inc. said it will stop sending lab tests to Theranos Inc.’s Newark, California, facility after U.S. regulators found severe deficiencies at the lab.

The companies have been working together to provide lab testing to consumers through a handful of Walgreens stores in California and Arizona. Theranos’s lab in Arizona, where it does the majority of its analysis, isn’t affected. Shortcomings at the California lab jeopardized the health and safety of patients, the Centers for Medicare and Medicaid Services said in a letter to Theranos made public on Wednesday.

“No patient samples will be sent to the Newark lab until all issues raised by CMS have been fully resolved,” Walgreens said Thursday.

As a group, biotech stocks are doing worse than oil stocks this year. The reason?

All presidential candidates are promising to bring forth the wrath of baby Jesus on the industry. For years, this industry has been innovating, enjoying a renaissance in revolutionary breakthroughs, partly thanks to being financed by highly priced drugs. There is a lot of push back against that now.

But more specific to the stock action, I think it’s simply a barometer of risk being shredded. After all, what is more risky than a phase 2 drug company trading with a market cap of $2 billion or more?

Today’s action is abysmal, indicative of the lack of demand for these risky assets now. It has the feel of forced liquidation, a hedge fund going bust. The underperformance v the SPY is very noteworthy.

Baker Bros is the most widely followed fund who specializes in life sciences. Year to date, they are getting poleaxed, possibly by as much as 30%.

Here are their top holdings.

Considering January isn’t even done, I’d call that a life changing event, one that would coerce any investor to consider pulling money out of the sandtrap.

Classic parlour game of smoke, mirrors and funny jokes are being played on OPEC, by none other than Vlad “the impaler” Putin.

Alexander Novak said in St. Petersburg that Russia would be willing to discuss output levels with the Organization of Petroleum Exporting Countries, Interfax reported on Thursday. Four OPEC delegates said they had not heard yet of any plans for talks. The group’s next scheduled meeting is in June.

“It’s possible that Russia could be testing the waters to gauge how OPEC members would respond to the idea of cuts,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former senior oil official at the White House.

Oil is still up, but well off its highs.

Treasuries are the honey badger of asset classes now. Despite a stronger tape, albeit rapidly weakening, TLT is unchanged–because smarter money knows what’s coming.

Just to let you know where I am now: mostly cash. I have 25% in TLT, up 6 points from basis, 33% in SPY, and the rest cash. I have zero desire, whatsoever, to take on non-systematic risk with individual longs now.

We’re in a bear market; trade accordingly.

That being said, Jeff Macke, Raul and Option Addict will be hosting our second online bootcamp, starting in a few weeks. If there is demand, we will do these once per quarter.

Macke will go over his investment philosophy in a live webinar for two days and Option Addict will discuss market technicals and set ups for another two. Raul will wrap it up with a live Exodus demo. There is extreme value add to this event. I strongly recommend coughing up the pittance for admission to get some hands on intel regarding whatever the hell this market is doing right now.

Details to follow.