Where will you be in 2057? What will you be doing? Statistically speaking, half of the people reading this column will be dead by then. According to the actuarial tables, I've got a 43 percent chance of being alive in 40 years. In other words, I have no idea what's going to be going on 40 years from now and nor do most investors.
What makes 40 years so special? Forty years is the longest maturity of Amazon.com's newly issued bond debt. The company sold bonds totaling $16 billion to pay for the purchase of Whole Foods, an upmarket retailer of organic groceries. Of the $16 billion sale, $6 billion is denominated in "ultra-long" bonds. What makes this even more interesting is that those who wanted to subscribe to Amazon's issuance actually demanded these maturities. The other incredible detail in the Amazon story is that these bonds were sold at a little over 100 basis points above U.S. government Treasury bonds of the same maturity. In other words, investors trust Amazon nearly as much as they do the U.S. government when it comes to repaying this debt. Does this mean the "risk-less" rate is no longer risk-less or does it mean Amazon is viewed as infallible? Probably a little of both.
President Trump took a jab at Amazon early Wednesday morning, tweeting: "Amazon is doing great damage to tax paying retailers. Towns, cities and states throughout the U.S. are being hurt - many jobs being lost!" I'm not sure if such a blatant attack is unprecedented in modern American politics but I'm not aware of anything remotely as negative during my lifetime. There are several major problems with Trump's tweet and both Congress and the American public shouldn't leave Trump's attack unanswered.
The primary reason Trump made such an attack is probably because of the negative coverage he has received from the Washington Post, which is owned by Jeff Bezos, the founder and largest shareholder of Amazon. If, however, Trump tweeted this attack because he is genuinely concerned about Amazon avoiding paying state sales taxes, he is ill informed and has arrived very late to the party. Amazon was criticized for its lawful avoidance of sales tax for years, however, that issue is completely moot now. Amazon has been collecting state sales tax for over a year meaning it no longer has a tax advantage relative to other retailers. So why would Trump attack Amazon for a non-issue if not for the Washington Post's coverage?
Trump's use of his "bully pulpit" to bully the press and owners of press outlets is shameful and should be admonished. The future of a multi-national company with tens of thousands of employees should not be held hostage by a president who doesn't like what its owner or his newspaper thinks of him. This is hardly in line with Trump's pro-business attitude.
Finally, in regards to President Trump, his delayed response to the violence in Charlottesville needs to be universally condemned. There is no place for violence in political discourse and while the words of neo-Nazis may be protected under the United States Constitution's first amendment, their actions clearly are not and they need to be held accountable.
Perhaps most interesting about President Trump's recent meltdown is the way financial markets have shrugged off his words. U.S. equity markets continue to rally and are focused more on what the Federal Reserve will say and do in the coming months. Late Wednesday , the Federal Reserve's Open Market Committee will release minutes of its last meeting. These minutes will give us important insight into the views of various members and may give us hints as to what the committee will do in upcoming meetings.
While any rise in interest rates is off the table for the near future, rates could be de facto hiked by not rolling over bonds the Fed purchased as part of its quantitative easing strategy. While this column will be published by the time the minutes are released, I can predict what they will most likely say. I believe the committee will delay tightening and tapering until at least October. The committee will also note that inflation hasn't risen enough to warrant any imminent rate hikes and signal a continued accommodative interest rate environment. This should force the U.S. dollar lower in the near-term.
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