Reading the Fine Print

  • The end of retail?
  • ‘Tiny stocks’ open
  • Is Tesla a Ponzi scheme?
  • Risk is back
  • In the mailbag

That’s right, we admit it. Your analyst is one of those people that need to read all of those annoyingly long terms and conditions. We find it hard to lie and agree to something we may not agree with.

Most people probably don’t give it a second thought; they probably see it as more of an annoyance. They click and submit.

After all, ticking the box only takes seconds. Reading the fine print could take hours, and we want to get to what we need quickly. Though the more accurate term might be ‘scan’, not read.

In truth, who has time to read the whole thing in detail from top to bottom? The length is ridiculous more often than not.

But, have you ever wondered exactly how long the fine print is?

Well, Choice Australia has. In fact, they were so curious that they went as far as hiring an Aussie to read out loud — in one go — Amazon Kindle’s terms and conditions.

All 73,198 words.

More than the average book length, which is 64,000 words.

How long did it take him?

Just eight hours and 59 minutes.

Choice Australia also filmed it. You can watch the poor bloke slowly getting frustrated in digestible episodes that last an hour and one minute; alternatively, there is the one minute and 17 second abbreviated version.

This is all part of Choice’s initiative to ban companies from having long and unreasonable terms and conditions. Don’t get me wrong, Amazon is definitely not the only one with lengthy contracts.

But you may be agreeing to more of Amazon’s terms and conditions very soon, as the company expands into Australia.

More on this after the markets.


Over the weekend, the Dow Jones Industrial Average fell 30.95 points, or 0.15%.

The S&P 500 fell 7.15 points, for a 0.30% drop.

In Europe, the Euro Stoxx 50 gained 0.24 points, or 0.01%. Meanwhile, the FTSE 100 fell 0.06%, and Germany’s DAX index added 0.18%.

In Asian markets, Japan’s Nikkei 225 is up 252.47 points, or 1.36%. China’s CSI 300 is down 1.34%.

In Australia, the S&P/ASX 200 is up 11.60 points, or 0.20%.

On the commodities markets, West Texas Intermediate crude oil is US$49.85 per barrel. Brent crude is US$52.24 per barrel.

Gold is trading for US$1,273.72 (AU$1,685.64) per troy ounce. Silver is US$17.83 (AU$23.60) per troy ounce.

The Aussie dollar is worth 75.59 US cents.

The end of retail?

Amazon has finally confirmed rumours that they will be coming to Australia.

How will it disrupt retailers?

Nobody is really sure yet, but things are not looking good for retailers or shopping centres.

The chart below shows how Amazon has affected large retailers in the United States in the last 10 years. Most major companies have had a decline in market value, while Amazon’s has increased by a whopping 1,934%.

chart image

Source: Visual Capitalist
Click to enlarge

As reported by The Australian Financial Review:

Macquarie Equities has estimated that Amazon’s Australian sales could reach $14.5 billion by 2025, representing 25 per cent of online sales, by taking share from department stores, electrical and home appliance retailers, sporting goods and clothing retailers and, to a lesser extent, food retailers.

The thing is, Amazon doesn’t have big expensive stores to maintain. Amazon competes on price, range and delivery times. Electronics, electronic media and toy sellers could be the most exposed.

The most affected could be sellers of electronics and physical and electronic media.

Retailers are right to be worried, and they are preparing for war. Their weapons?

Deadly loyalty programs and in-store experiences.

Yet this could represent an invaluable opportunity for smaller retailers.

As Citigroup analyst Bryan Raymond told the AFR:

Amazon will need to incentivise small and medium sized companies to shift their focus to the Australian marketplace rather than continue to sell on the more established US, UK and European Amazon platforms and eBay in Australia.

The thing is, the Australian market is quite different from the US market.

Australia only has a population of 23 million, compared to the 318 million people residing in the US. And the country is huge, so logistics will be a challenge.

According to NAB, the Australian online retail market in 2016 was worth $21.65 billion, with the biggest share in homewares and appliances. And buying Australian-made products is a big priority. 81% of that amount was spent on Australian retailers.

Compare that to the US$385 billion Business Insider predicts will be spent online in 2016 in the US.

It will be a tricky market for Amazon, but Australian retail will need to adapt or die.

‘Tiny stocks’ open

For the past two weeks, Kris Sayce has written to you about his and Sam Volkering’s ‘tiny stocks’ project. He invited you to watch a special three-part video series. That ran from Friday through to Sunday. Unfortunately, it’s no longer available. But, if you did tune in, and you liked what you saw, remember to check your email inbox today.

It contains a special invitation to join Sam as he continues his search for the most exciting, exhilarating, potentially-profitable, and highly-risky stocks on the market. You should have received your invite around 2:00pm this afternoon. Check your email. Otherwise, you’ll see a reminder note in your inbox this evening at around 7:00pm.

It’s not often we allow new people to join this venture — usually, only once or twice per year. If you don’t check it out now, it’s likely you won’t get another chance until a year from now. Check what emails you received around 2:00pm this afternoon. One of them could be the most important email you’ll receive this year.

Is Tesla a Ponzi scheme?

It may be, according to AutoNation Inc. Chief Executive Mike Jackson. The truth is that, as Tesla keeps share prices and losses keep increasing, the number of sceptics is rising.

You are probably well aware of publisher Kris Sayce’s views on Tesla.

Our editor Vern Gowdie is also concerned. As he wrote on The Gowdie Letter on 21 April:

The fact that an industry insider is comparing Tesla to a Ponzi scheme should tell you that the business model is far from stable. Yet this has not deterred the mathematically illiterate, who think one minus 64 equals 49 billion.

What does Vern mean? It is not that Tesla’s CEO Elon Musk is worrying his biggest fear may be coming true. (You can read more about that here). As Vern says:

Tesla is now the second largest car maker in the US. General Motors is valued at US$51bln and Ford has fallen in value to US$44bln.

Tesla has a P/E (based on trailing twelve month, or TTM, earnings) of MINUS 64. Yes, minus 64. It is losing money and yet is valued at US$40bln. Obviously investors (or are they mugs wearing rose-coloured glasses?) have great hopes for Tesla one day turning red ink into black.

GM is still trading on a P/E of 5 and paying a dividend of 5%.

You can read more on this issue here, including the two other companies that are worrying Vern.

Risk is back

On to more surprises…or lack thereof.

As polls — finally — predicted correctly, French candidates Marine Le Pen and Emmanuel Macron will be moving on to the second round of voting. One of them will be France’s next president.

For the first time in France, the two establishment parties were eliminated in the first round.

Markets think the election is a done deal — that, as polls are predicting, Macron will win in the second round.

The euro is soaring against the dollar.

On to round two on 7 May. But, to be honest, the second round will be much harder to predict. Polls are giving the win to Macron, yet they are covering their backs; they are predicting a close 60–40 win.  

The thing is, the first round ended quite close, with Macron winning 24% of the vote to Le Pen’s 22%.  

Yet the candidates couldn’t be any further apart.

Macron, who grew up near cemeteries were victims of the First World War lie, thinks ‘nationalism is war.’ The centrist ex-investment banker is pro-Europe.

On the opposite side, Le Pen wants to end ‘savage globalisation’. She wants to restrict immigration, leave the EU, and revert back to the franc.

The truth is, whoever is elected will have a hard time passing reforms. Neither candidate has majority in the parliament, and the prime minister is also from a different party.

Yet the stakes are high. It is not just an election for France, but for the European Union as well.

In the mailbag

Subscriber Richard writes:

I agree with Selva’s analysis of the Sydney and Melbourne housing markets. 

There are the 3 factors that she points out — increasing Interest rates, growing unemployment, and a decline in population growth rates — that could all occur. 

There is also one extra factor that she did not mention specifically, “negative household formation” that could add to the disruptive factors.

Negative Household Formation happens when the household units that have formed over past years decide things are too difficult for them to continue on their own, and they “come home”. 

In my middle income suburb in Sydney, as in most other suburbs in Sydney and Melbourne, there are thousands of “empty nester” households, which could easily take back their kids in difficult times. 

Each time this happens, it reduces total household demand by one full unit.  Laws of economics do not change! Every drop in demand for housing, will put downward pressure on rents, which will put downward pressure on prices.

Thank you Richard. Completely agree. Negative household formation could be a big issue in the future if they decide things are getting too hard.

In fact, this is already happening in the US. According to a new study by the US Census Bureau, one in three people aged 18–34 live with their parents.

And young people are earning less. In 1975, only 25% of men aged 25 to 34 had incomes less than US$30,000 a year. In 2016, that figure had risen to 41%.

On a different matter, after reading Kris’ Port Phillip Insider last Thursday, did you watch Diamond and Silk? We sure did.

The truth is that we got our own Trump defender. After last week’s piece, we got a reproach from a reader for taking swipes at Donald Trump. As the reader well points out, Trump has a tough job ahead of him.

Yet, as you may already know, Port Phillip Publishing is a largely apolitical organisation. Whether it be Trump, Clinton, Le Pen…left, right, centre, or what have you…we will take swipes at anyone.

We believe in sound and stable money and economic policies, and that big government will inevitably do more harm than good.

Until next time.

Selva Freigedo