08/2018 Market Commentary

Trade War Continues

Neither the United States nor China were willing to back down this month, and so, tariffs continue to increase on each side of the ocean. The two countries agreed to relaunch dialogue, but that did not stop president Trump from threatening new tariffs. Much like a kinetic war, many are harmed in the effort to win. So too, in a trade war, many are harmed before a victory may be claimed. At first, casualty in the United States hit farmers. Already affected by a pullback in the Ag cycle, crop prices have dropped even more in response to China’s tariffs. Trump has asked farmers to take the long view for the country, but that can be difficult to do as their livelihood suffers. Realizing the pain, the present administration has provided USDA assistance.

Consumer Unstaples

It used to be that consumer staples were defensive investments because consumers would reliably purchase these products, and the companies would produce stable results. (Think personal paper products, beverages, or even breakfast cereals) Each of these have been under attack lately, with sales at mature companies declining, as marketing schemes of new companies chip away at old brands. In the case of beverages, consumers are not drinking less. They are just shifting to “healthier” choices. Global soda sales are declining, and this has led Pepsi and Coca-Cola to take decisive action. The former has acquired Soda Stream to participate in the healthy shift, while the latter has made its own acquisitions and market experimentation. Coca-Cola announced that it would acquire UK-based coffee house Costa, putting Coca-Cola in competition with Starbucks.

Marginal Buyers

Last month, we discussed marginal buyers in a high valuation market. This month, we noticed an article highlighting one of the more highly valued real estate markets in the United States. In New York City, the luxury apartment market had soared for a few years, and then, it stagnated. In recent months, sales have declined, and prices have plummeted with them. We think this is a sign the marginal buyers are leaving. This can be either bad or good – bad because prices will fall or good because those with liquidity will have better buying opportunities. Will this show up in the rest of the market? We hope so. When? We don’t know.

Leveraged Loans

This leveraged loan cycle won’t be like the last one. Recovery rates are expected to be lower because the market has reached a larger size, and loans are of lower quality (fewer covenants) relative to past cycles (according to research by Moody’s Investors Service). Further, the previous cycle and the current cycle were all underwritten on assets, producing income in a declining interest rate environment. We wonder what happens to the debt service of companies struggling to make money as interest rates rise. The Moody’s warning should make investors cautious about owning BDCs, CLOs, and high yield funds through any downturn.


Another month, a lot more Tesla. The month kicked off with Tesla’s CEO burning short sellers by announcing boldly via Twitter that he planned to take the company private for $420 per share. The stock price soared until analysts began penciling out how it could be done… it couldn’t, it wouldn’t. The price fell back to its previous trading range after a week or so of active news flow. It turns out when the CEO boldly said “funds secured” that was not the case. It also turns out that he did not discuss taking the company private with the board before making the announcement – nor with any investing group. Other circumstances surrounding this event cause plenty of head scratching. The Securities Exchange Commission is now investigating the matter. We do not expect much to result from the investigation, but we think if nothing to date gives pause, then this should cause investors to press for better governance at Tesla. This CEO needs a leash; at the very least, take his social media away or require that he screen his posts through the legal department first. Big money managers have a fiduciary responsibility to their clients’ capital. What about Tesla? It is up to investors to force corporate responsibility through governance.

Tesla has made plenty of splashes during the month over whether it could meet production goals (which have been elusive throughout the company’s entire history) for the month of August and the rest of the year. Evercore analysts toured the production facilities and concluded Tesla was on track for producing 6,000 Model 3s per week by the end of August. Then, Tesla concluded August by missing the Model 3 production target by 30%. Don’t worry. They still expect to meet third quarter production goals…

Elsewhere, a UBS analyst says the $35,000 Model 3 cannot be made profitable, but then again, did Tesla ever intend to sell a $35,000 mass market car? Not without tax credits, it seems.

Here is one final note related to Tesla, referencing this article. Something you should never be caught saying, especially not quoted as saying is: “I was impressed with their negative free cash flow.”

Bond Bubble

The bond bubble rhetoric continues. Although not the point of this article, often we hear “don’t buy bonds because there is a bubble, buy stocks”. However, if we are to believe there is a bond bubble, then why own stocks and why no mention of a stock bubble? Stocks are a residual, junior claim of the earnings and assets of a company. If one is to expect losses to bond holders, then what are we to expect of stock holders? At least with bonds the holder can expect to be paid regular cash flows and have contractual claim to principal value. What do stocks holders get? higher prices? We think not, but we’ve been wrong before.

Cognitive Biases

WSJ Numbers explored some flawed consumer thinking that we found interesting and thought we would share. What’s better – 50% more product or 33% lower price? Here is the article.


We have not talked about Teva Pharmaceuticals in a while. The major news during August was that Teva’s competing product to EpiPen was approved by the FDA. Now, we will wait for the business execution. EpiPen is a commercial name that is ubiquitous for the product, which we think could make it a difficult market to penetrate. We are hopeful, and the timing couldn’t be better since EpiPen (parent company Mylan) has experienced a few controversies in recent years and is currently suffering a supply shortage.


Apple’s market capitalization reached $1 trillion during August. A first for the market. Wow. That is twelve zeros and one big company. A quarter of the trillion value sits on balance sheet as cash.

02/2018 Market Commentary

Market Risk and Volatility

The life insurance industry is being blamed for the market volatility experienced in February due to their volatility-controlled products. Much of this rests on variable annuities, which experienced trouble during the financial crisis. Since then, life insurance companies have acted to “de-risk” products so as to minimize their balance sheet risks. But risk is only transferred and/or not correctly evaluated (bottled up even). Sure, volatility-controlled products and practices erupted in February, but it is hard to blame what happened on the life insurance companies alone. They exasperated the results, but they did not cause them. It is akin to blaming sellers for lower prices  (it is a required condition of lower prices but not a fundamental cause). The cause, as we will find out, is that market values are high, and investors became fickle.

Insurance and Reinsurance

Two large insurance and reinsurance groups have received takeover interest. Swiss Re has been approached by a large Japan-based investment vehicle about a substantial minority investment. On the other hand, XL Group has received strong interest of possible acquisition from Allianz. Much of recent mergers and acquisitions were between small and mid-sized insurers and reinsurers. Swiss Re and XL Group are mid- to large-sized. Such continued acquisition interest underscores the amount of capital that remains committed to the sector. As previously noted, Ballast does not believe broad insurance market hardening will occur until capital is flushed. This can come in two forms (1) capital market losses (investments on balance sheet) and (2) insured losses. More than likely, this insurance market will require both, but we remain tuned in as opportunities are likely to arise along the way.

General Electric

We wrote about GE previously, and February proved to be another interesting chapter for the company. The SEC announced that an investigation, management cut forecasts on accounting changes, and a major board shake-up are all in the works.


We read a hedge fund piece suggesting that a fundamental business shift would be triggered by a credit ratings downgrade. GE sells long-term service contracts on its industrial products. Purchasers are sensitive to long-term credit ratings because they want the counter party to be around in X number of years to perform on the contract. The hedge fund suggested that a downgrade would be catalyzed by recent deterioration at GE, and sales would suffer following downgrade, creating an air pocket. The implication was that GE now needs to raise equity capital (something GE does not want to do) to prevent a rating downgrade. The case presented was interesting, but we disagreed. To better understand, we contacted the hedge fund and investor relations of GE. Neither have responded yet but we continue to follow GE with interest.

China / Anbang

Many are not likely to recognize the name Anbang, but it is one of the largest finance and insurance groups in China. It was fast growing thanks to the help of Wealth Management Products, a risky financial product used across the country to finance China’s rapid growth. During February, Anbang was taken over by China’s insurance regulator because of market risks it posed on the economy. Observers called it too big to fail. Either way, we see this as an important moment. As one of the largest insurers in China (and certainly not the only one to extensively use the risky products) we think China is crossing over into challenging waters as they attempt to wring out the market excesses while maintaining stability. We are not convinced that an insolvent market as big as this one can be made solvent without reverberations elsewhere.


Another month, another takedown by Amazon. Walmart reported disappointing online performance, and the stock price reacted by falling 10% in a day, which is a very large move for a company as big and stable as Walmart. This caught our attention, but like our commentary on the broad market pullback, Walmart’s price drop was hardly meaningful. It reversed price gains back to November 2017 levels, at which time the stock price jumped 11% on encouraging online sales. The market giveth and the market taketh away… We are still interested in Walmart so long as the price continues to decline and the dividend yield becomes more attractive.

Inflation & Interest Rates

Popular narrative right now is for rising inflation and, as a result, much higher yields. We disagree with the former and doubt the latter.


First, inflation. Inflation has fallen and barely budged since the financial crisis despite herculean efforts of central banks. The only major inflation evident was through asset prices but not very much through consumer or producer prices. The collapse of commodity prices was no help, nor has it created deflation. So, now that the commodity complex appears to have been stabilized, fears have renewed at the (slightest) advance in inflation metrics that inflation will take hold, and interest rates will have to rise dramatically. For a variety of reasons, we think this line of thought is unfounded, and such commentary is inconsistent.


Then, rates. The Federal Reserve appears to be determined to raise rates at the front-end of the curve (includes overnight loans or t-bills) and will no doubt accomplish this. The Federal Reserve will get much help from the Treasury, which now must issue a lot of debt in coming years to fund the US Government’s deficit – expected to be close to $1 trillion (that’s a ‘T’) in 2018. The Treasury has indicated much of this funding will be done with short-term debt. But the long-end of the curve (includes 10- and 30-year bonds) are less likely to move substantially higher. (They could, but we are skeptical.) The major bond market participants in the long-end of the curve are pensions, insurance companis, et al, and their business and underlying demographic situation is unlikely to change near-term – (That is, pensions still need to be invested with the long-term stability of fixed income and life insurance companies continue to grow retirement & income protection products that rely heavily on the security fixed income provides.) If it exists anywhere, the supply and demand imbalance in fixed income markets that could drive rates higher, in our opinion, rests on the front-end of the curve. This is not worrisome to us.


Despite our beliefs that rising inflation is not yet around the corner and that long-term rates are unlikely to rise substantially in the near-term, we are adding positions to portfolios that we think provide protection against either condition, while still rewarding the investor in the interim.


We have discussed Teva nearly every month of the newsletter. February should be not different. Two things occurred (1) Teva reported full-year 2017 financial results that showed revenues falling faster than many analysts expected and (2) Standard & Poors finally joined peers Moody’s and Fitch in junking the credit ratings. S&P downgraded the credit ratings two notches from BBB- to BB. The shift to “junk” ratings is important because it leads to greater constraints on raising capital, and Teva is highly leveraged.


One other noteworthy Teva event during February was that Berkshire Hathaway purchased a chunk of Teva’s stock. When Berkshire (as equity holder) is subordinate to Ballast (as bond holder) we feel even better about our thesis.

01/2018 Market Commentary


Moody’s downgraded a story we’ve covered in previous posts to below-investment-grade ratings, aka “junk” or “high yield”. This is the second such rating agency to downgrade Teva to junk. That means the bonds now officially transition to the high yield markets, typically making bond yields more attractive. This is the next leg of our thesis playing out. Remember, we think there is long-term value in a large generic pharmaceutical company like Teva.

Microchip Security Flaws (Intel)

Intel has a been a stock we’ve kept an eye on recently, as it is a high-quality company with industry leading technologies and a high probability of remaining a key force in the tech industry for years to come. To boot, Intel pays a dividend, which seems ever rare in this new technology growth wave.


In early January, a researcher discovered a major security flaw to chip architecture called ‘x86’. There were many manufacturers impacted, but none more so than Intel. The flaw impacts computers dating back to the mid-90s and the fix, if there is one, could dramatically slow computers – a costly proposition. Intel and the tech sector fell in price on the news. Ballast perked up even more on the pull-back of Intel’s price, but investors quickly brushed off the news, and the price ran away from sensible levels. It didn’t help us that Intel released strong, estimate-beating earnings figures that sent the stock rallying an additional 10% higher.

TV Programming (Netflix)

Netflix stock has been invincible and continues to defy traditional valuation methods. With no (to little) earnings and a massive negative cash flow, the stock price continues to rise. Market capitalization for Netflix increased by $10bn as the price jumped from $225 to $250 after the company announced 2 million new subscribers, which was higher than expected. As one commentator put it, and we paraphrase: “that is $5,000 per subscriber, or that $5,000 would hit the top line after just 35 years at today’s subscription pricing”. Let that settle in. That represents revenue [not income] over 35 years’ time. Are investors valuing this company correctly?


Here are a couple additional thoughts regarding Netflix. Between 2010 and 2016, original TV shows have more than doubled. Netflix original content is fifth most popular on its own platform behind CW (owned by CBS & Time Warner), Fox, Disney, and CBS. On its own platform! Each of those named leaders is already working on building their own platform or partnering to do so.


Our final thought regarding Netflix is from David Einhorn, a respected manager of hedge fund Greenlight Capital. We thought he framed it succinctly when he wrote in a recent letter to investors:


“[Time Warner] and Netflix now have roughly the same enterprise value, despite [Time Warner] having a better library, an exciting content creation engine and substantial current profitability.”


Time Warner owns Warner Brothers, HBO, TNT, TBS, CNN, Cartoon Network, etc. and an exhaustive list of accompanying TV and Movie content.


Speaking of highly valued stocks defying traditional valuation methods, Tesla is now among the largest car manufacturers by market capitalization. However, they hold this ranking with no profit, with only a fraction of the vehicle production/sales, and with unproven ability to meet targets and scale production. We like a successful visionary and innovative company as much as the next person, but we offer caution against pricing for perfection. Are “investors” renting or owning this stock?


Last year was a bad loss-year for insurance and reinsurance companies. January 1st was a big day for the industry because much of the property catastrophe reinsurance business is (re)priced on that day each year. Pricing increases or decreases can give indication as to whether the insurance market is hardening (as with price increases) or softening (as with price decreases). Overall, the news delivered modest price increases, and so, we think the industry could be in for a status quo of a soft market. We continue to monitor.

General Electric

GE, as it is commonly known, has been in downsize mode ever since its financial unit nearly collapsed the company during the financial crisis. The company has shed countless assets in effort to reduce risk and boost stock price performance that has been anemic going back to the days of Jack Welch. GE was considered a model company under Jack Welch and his six-sigma regime. (GE was practically considered a management university.) However, this may have been a facade given the long poor share price performance. A recent announcement highlights that management may have been good at window dressing too. GE announced its reinsurance unit would take a $15 billion reserve charge and require statutory capital contributions. GE will accomplish this by suspending GE Capital’s dividend to the parent company, allowing for contributions to the financial unit. This was disappointing, but not very surprising given the poor financial health of Genworth, the life insurer that the GE unit reinsures. GE’s share price has suffered from this and other announcements, and management has reduced the dividend to shareholders. Investors have been fleeing, but Ballast sees opportunity. After all, GE remains a leading industrial group, manufacturing aircraft engines, locomotives, power generation turbines, healthcare equipment, and oil & gas equipment & services. We continue to monitor GE.

Howard Marks on Market Risks

There is much to be said about investing and risks, especially given the recent years’ runup in asset values. Rather than presenting more of our thoughts here this month, we offer a few quotes from a recent memo to investors by Howard Marks, a respected investor and founder of Oaktree Capital. (Bold type as presented by the author).


[Re: today’s market prices] Most valuation parameters are either the richest ever (Buffett ratio of stock market capitalization to GDP, price-to-sales ratio, the VIX, bond yields, private equity transaction multiples, real estate capitalization ratios) or among the highest in history (p/e ratios, Shiller cycle-adjusted p/e ratio).  In the past, levels like these were followed by downturns.  Thus, a decision to invest today has to rely on the belief that “it’s different this time.”

It appears many investment decisions are being made today on the basis of relative return, the unacceptability of the returns on cash and Treasurys, the belief that the overpriced market may have further to go, and FOMO [“fear of missing out”].  That is, they’re not being based on absolute returns or the fairness of price relative to intrinsic value.  Thus, as my colleague Julio Herrera said the other day, “valuation is a lost art; today it’s all about momentum.”

The potential catalysts for decline that we have to worry about most may be the unknown ones.  And although I read recently that bull markets don’t die of old age or collapse of their own weight, I think sometimes they do (a dollar for anyone who can identify the catalyst for the collapse of the bull market and tech bubble in 2000 – it’s not easy)


For one thing, I’m convinced the easy money has been made.  For example, the S&P 500 has roughly quadrupled, including income, from its low in 2009.  It was certainly easier for the p/e ratio to go from the low teens in 2011-12 to 25 today than it would be for it to double again from here.  Thus, the one thing we can say for sure is that the current prospects for making money in U.S. equities aren’t what they were half a dozen years ago.  And if that’s the case, isn’t it appropriate to take less risk in equities than one took six years ago?

12/2017 Market Commentary


The cryptocurrency, Bitcoin, had a very active month, and each day we watched in amusement. The month started with Bitcoin climbing to dizzying heights, and by December 18th reached an intraday high of 19,511 (up from 9,654 at the beginning of the month). For anyone that does not want to do this math, that is almost exactly 200% price appreciation. Millionaires were seemingly minted every minute. Does that remind you of markets past? Things have certainly become chaotic price peak. You will recall in our previous month’s commentary we highlighted the introduction of Bitcoin futures, which debuted December 18th on exchange CME. Bitcoin crashed to an intraday low of 10,775 on December 22. That is 45% off the high – Merry Christmas. It has been volatile, to say the least, so we will see what January brings.


December was another major month with big headline for Teva. The company announced that it would move forward with layoffs, cutting 25% of its worldwide workforce, closing manufacturing plants, and suspending its dividend to save a projected $3bn in annual costs. Credit spreads widened (indicating rising risk) over the announcement period while the stock traded higher over the same period. We think one of the groups is thinking about risk incorrectly.


It is not surprising that Israeli workers, citizens, and politicians are not happy. Teva is like a national champion for Israel. Although we do not see Teva as having a choice with the restructure, these conflicting stakeholders could gum-up cost-cutting initiatives, setting the timeline back.


Moody’s followed up by putting the credit ratings of Teva on review for possible downgrade, citing the execution risk, the potential negative ramifications of cost cuts, and the impact of restructuring on cash flows through 2019. The bonds currently have a Baa3 rating, which is the lowest notch of investment grade. Just one notch downgrade would put Teva in “junk” territory. If this happens, combined with Fitch’s current BB+ rating, Teva would likely be considered high-yield, and it could face greater hurdles as it refinances some of its heavy debt burden.


Disasters in Insurance and Reinsurance

As we have previously written, the insurance and reinsurance industry has been in soft market (and lower profitability), marked with excess capital and competitive pricing. Historically, the insurance market moves from soft to hard in cycles. Deficient capital is what pushes the market back to hard pricing (and higher profitability). What typically leads to capital deficiency are record catastrophes (Hurricane Katrina 2005) or major reserve deficiencies (Asbestos in late 1990s).


The current situation may be a little different since many non-traditional reinsurers that were not in previous cycles are now in the market. These non-traditional competitors include hedge-fund and pension-fund backed reinsurance companies and insurance-linked securities and catastrophe bonds. The backers were drawn to higher potential returns not available elsewhere in capital markets. They have indicated commitment to reinsurance even in the face of heavy catastrophe losses. So, it seems that it may take both heavy catastrophe losses and capital market losses to draw the non-traditional capital providers back to their normal state.


The year 2017 added up to be a very expensive year for insurers and reinsurers. According to an FT article, total economic losses are estimated to be at $306bn, and some catastrophes continue to rage on – like wildfires in California. This topic resurfaces in December for couple of key reasons: 1) significant events continue now (the fires mentioned), and 2) January 1st of each year is important for the industry because that is the day most property catastrophe reinsurance policies are re-priced, or renewed (“1/1 renewals”). According to the FT article linked above, “early signs from the negotiations [leading up to 1/1] suggest that prices have not been rising by as much as some insurers were expecting.” The results of the 1/1 renewals will provide clues as to where the market is headed.

CVS + AET and Humana

In early 2017 several major health insurance mergers were blocked by the US Justice Department on anti-competition grounds. The announced acquisitions of Humana by Aetna and of Cigna by Anthem were unwound with billions lost to Aetna and Anthem, but especially the latter. Anthem obliged themselves to pay $1.85bn to Cigna if the deal was called off, and this did not include banker fees for vetting the deal, attorney fees for fighting the Justice Department, attorney fees for merger preparation activities, or attorney fees for lost time in the whole mess. But that is beside the point. A couple of these groups have taken a fresh approach to acquisition, and we are likely to see copycats and investment opportunities.


CVS will acquire Aetna for approximately $69bn in a move that is said to reshape the health industry. Combining the two groups could better address costs by providing basic care and health services at CVS’s existing pharmacies and retail clinics. The move is unlikely to face the same challenges as the Aetna and Humana merger.


Humana has teamed up with private equity to acquire Kindred HealthcareThe Kindred segment for home health, hospice, and community care will be separated from Kindred Healthcare, and Humana will invest alongside private equity partners in the new company. Humana already has significant operations in “home based services” so this acquisition will increase scale and take Humana closer to health care cost drivers.


Will these deals find success or bring copycats? We are watching.


11/2017 Market Commentary

Combining our experience and daily focus, we aim to process, distill, and comment on various activities in the market place here in the Market Commentary section. Here are some insights from November events to highlight some of the things we have worked on and thought about on behalf of our clients:



We have introduced and discussed Teva in previous commentaries. There were a few meaningful updates during the month of November. The new CEO began work in early November, and later in the month, the company named the permanent CFO and announced a major restructuring of business operations.


Teva will be cutting a big chunk of its Israeli and US workforces. Considering Teva is based in Israel, we wonder how well that will go over –  even though it is crucial to righting the Teva ship. The company will not proceed with the sale of previously announced asset sales (offers were not high enough), and the specialty drug division will be consolidated into the generics division. This means that Teva will become a purely generic pharmaceutical company. This latter development does not surprise us, as the key specialty drug of Teva became subject to generic competition, so it would only make sense that it be consolidated into generics. We think this consolidation is the reason for layoffs – redundancy – and is an important step in rectifying the credit situation.


Again, we find ourselves wondering how the credit rating agencies S&P and Moody’s continue to rate the company as investment grade. Each step of the way, results have confirmed Teva is not near the track it laid out for maintaining investment grade ratings at the time of the major debt-funded acquisition of Actavis from Allergan. The asset sales and layoffs may better highlight the challenges to credit rating agencies. Credit spreads traded wider during the month and have signaled that bond investors are seeing through the credit ratings.


Times are good – or so we hear and read about almost daily. Did you know negative yielding bonds around the world reached $11 trillion (yes, that’s a ‘T’) again in November? We ask – why would central banks and investors remain committed to driving interest rates negative when things are going great? Remember, a negative yielding bond is a bond that is guaranteed to lose money if held to maturity. What negative yielding bonds suggest is that the alternatives are worse, and there is a possibility of deflation.…


November was a good month for Bitcoin, as it set a record high of nearly $11,400. This is up from as little as $200 only two and a half short years ago. One record after another, Bitcoin has been a hot and obscure sensation.


Currencies are broadly defined as representing store-of-value, unit-of-account, and medium-of-exchange. We do not believe Bitcoin has yet accomplished any of these. Store-of-value is hard to get comfortable with when each day is a 10+% point swing in value. Unit-of-account is obvious, as no one is yet reporting income and financials in stated Bitcoins. As for medium-of-exchange, how many businesses are advertising acceptance of your Bitcoins? Did you know that the transaction fees spending Bitcoin set a recent average of $10.00 USD? That $5.00 latte just cost you $15.00. How is that for medium-of-exchange?


On the other side of these is the investing world (our focus). At current, only individual investors have entered the fray. No asset manager can own it currently. But institutional adoption is not far off. This may soon come to an end as CME Group, the Chicago Mercantile Exchange, has announced intentions to launch a futures contract referencing Bitcoin. CME has futures contracts for everything from S&P 500 and WTI oil to lean hogs. Having such an exchange-cleared product is likely to turn the Bitcoin heat up even more, but we still plug our nose around this hog. Speaking of heat, Bitcoin has redefined parabolic – see accompanying chart. We called your attention to several interesting bubble and market mania books back in August, and will point you there again.

X=Time (Month & Year)   Y=Price
       X= Time (Year)   Y= Price          

Da Vinci

Speaking of bubbles, Leonardo Da Vinci’s 500-year-old piece “Salvator Mundi” fetched $450 million at a recent auction in New York. Maintaining such art work is a negative carry – think costs of insurance, cleaning, security, et cetera. Priceless…


We were struck by an Amazon announcement during November. The company scrapped plans to build a bundled video service, one that would compete with the likes of online video services SlingTV and DirecTV NOW, which compete with traditional cable and satellite providers. Amazon stopped talks with industry partners because the service would not generate enough profit. We laughed and wonder when that has ever stopped Amazon. In the nine month period ending September 30, 2017, Amazon generated $1,176 million income on $117,413 million sales (that’s $1 billion and $117 billion). That’s a 1% net margin. Amazon is 1% margin away from running a benevolent operation.