Our market letter returns January 7,2013 Happy Holidays

Twelve o Clock on New Year s Eve in colored gold  Stock Photo - 14420264New 2013 golden year,  illustration Stock Photo - 16455055

GOLDMAN SACHS: How To MAKE A Killing In The Stock Market In 2013

goldman sachs

goldman sachs (Photo credit: alyceobvious)

The call made by David Kostin is for the S&P to gain 12% from here, anding 2013 at 1575. If you add in dividends, the gain is 14%.

So if you just buy the S&P 500, you should do pretty fantastic next year.

Why is Kostin so bullish?

The firm sees 2013 growth GDP growth of about 2%, S&P revenue growth of 4.4%, margins staying flat where they are, and S&P earnings of $107 (up from $100).  After we get past the fiscal cliff, S&P multiples will expand modestly by about 5%.

So how can you do even better than the 12%?

Kostin suggests a few different avenues.

  • Bet on cyclicals (like materials and tech) over defensives (like healthcare and consumer staples).
  • Stocks that have experienced both high-risk adjusted EPS growth and risk-adjusted actual growth.
  • Bet on BRICs exposure over domestic exposure.

This last point is particularly interesting. One of the big themes of 2012 has been the outperformance of US exposure vs. foreign exposure.

Now Goldman sees this reversing. Growth is expected to bounce back, and Goldman is above consensus in its BRICs growth estimates.

And Goldman isn’t alone.

In BofA/ML’s equity outlook, it also sees a return to over-performance among companies with foreign exposure.

foreign exposure


Bottom line from Goldman: Buy stocks, buy BRICs, and cyclicals.

This is a very bullish outlook.

QE 4 Update/ Review

English: President Barack Obama confers with F...

English: President Barack Obama confers with Federal Reserve Chairman Ben Bernanke following their meeting at the White House. (Photo credit: Wikipedia)

The Big Picture

Link to The Big Picture

  • Our market letter will return in the New Year
What Is The Purpose of QE?

Posted: 25 Dec 2012 02:00 PM PST

As detailed earlier in the month, the Federal Reserve announced more stimulus, otherwise known as QE4, at its recent meeting.

Lots of the discussion thus far has focused on whether or not QE will happen and not on the purpose of QE.

What we discuss below is a good example of economists discussing the probability of QE rather than why QE is necessary or what it will accomplish.

So, what is QE supposed to do?  Bernanke told us in his speech over the summer in Jackson Hole:

“After nearly four years of experience with large-scale asset purchases, a substantial body of empirical work on their effects has emerged. Generally, this research finds that the Federal Reserve’s large-scale purchases have significantly lowered long-term Treasury yields. For example, studies have found that the $1.7 trillion in purchases of Treasury and agency securities under the first LSAP program reduced the yield on 10-year Treasury securities by between 40 and 110 basis points. The $600 billion in Treasury purchases under the second LSAP program has been credited with lowering 10-year yields by an additional 15 to 45 basis points.12 Three studies considering the cumulative influence of all the Federal Reserve’s asset purchases, including those made under the MEP, found total effects between 80 and 120 basis points on the 10-year Treasury yield.13 These effects are economically meaningful.

LSAPs also appear to have boosted stock prices, presumably both by lowering discount rates and by improving the economic outlook; it is probably not a coincidence that the sustained recovery in U.S. equity prices began in March 2009, shortly after the FOMC’s decision to greatly expand securities purchases. This effect is potentially important because stock values affect both consumption and investment decisions.

While there is substantial evidence that the Federal Reserve’s asset purchases have lowered longer-term yields and eased broader financial conditions, obtaining precise estimates of the effects of these operations on the broader economy is inherently difficult, as the counterfactual–how the economy would have performed in the absence of the Federal Reserve’s actions–cannot be directly observed. If we are willing to take as a working assumption that the effects of easier financial conditions on the economy are similar to those observed historically, then econometric models can be used to estimate the effects of LSAPs on the economyModel simulations conducted at the Federal Reserve generally find that the securities purchase programs have provided significant help for the economy. For example, a study using the Board’s FRB/US model of the economy found that, as of 2012, the first two rounds of LSAPs may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred.15

This is not the first time the Federal Reserve has laid out this argument.  In a November 4, 2010 Washington Post op-ed, the day after QE2 was approved, Ben Bernanke defended their actions with the following passage:

Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

Federal Reserve Board Chairman Ben Bernanke said Thursday that a controversial $600 billion bond buying plan has contributed to a stronger stock market. “Our policies have contributed to a stronger stock market just as they did in March 2009 when we did the first iteration of this program,” Bernanke said at a Federal Deposit Insurance Corp. forum on small businesses. “A stronger economy helps small businesses more than larger businesses. Interest rates are higher but that’s mostly because the news is better. It has responded to a stronger economy and better expectations.”

To sum it all up:

• The Federal Reserve buys Treasury bonds in order to push down interest rates, making them an unattractive investment (last shown here, page 6) .

• Investors respond by moving out the risk curve and buying assets like corporate bonds and stocks, pushing them higher.  The Federal Reserve believes this happens via the portfolio balance theory.

• But according to the Federal Reserve, moving out the risk curve does not include buying agricultural or crude oil futures, so do not blame them for higher food or gasoline prices.

• Higher asset prices create a wealth effect, which increases spending and confidence and improves the economy. The Federal Reserve believes this has helped create 2 million jobs.

We agree with half of what is written above.

• QE does produce lower interest rates, or at least the belief that rates are too low.  This then pushes investors out the risk curve which is why stocks have such an immediate and positive reaction whenever QE is speculated.

• The Federal Reserve is playing politics in regards to the effect of QE on commodity prices.  There is no reason to believe the risk curve ends at low-rated stocks.  How much QE affects food and gasoline prices can be debated, but to argue there is no effect at all, and will never be an effect under any scenario, merely because the Federal Reserve does not want to answer for these higher prices, is just wrong.

• The argument that higher asset prices produce a wealth effect is only partially correct.  Two conditions must be met for a wealth effect to ensue.  Net worth must reach a new high and it must be perceived to be permanent.  This is why housing produced such a powerful wealth effect before 2006.  Home prices always went up and their gains were perceived to be permanent.  Currently we have a retracement of losses and a widespread distrust of financial markets.  These conditions will not produce any wealth effect and we believe they have not.

QE is great for Wall Street as it produces more volatility (brokers like this), higher stocks prices (fund managers like this) and draws lots of attention (analysts like this).  It is not good for Main Street because it does not create wealth.  QE’s effects are not perceived to be permanent, so it does not lead to higher GDP or job growth.

What Will The Federal Reserve Do?

In Septmber we noted that the median expectation in a survey of primary dealers calls for $500 billion of additional purchases heavily tilted toward mortgage-backed securities.   If the purpose of QE is to push stock prices higher, then the Federal Reserve has to deliver at least $500 billion in purchases.  Otherwise it will disappoint risk markets.

Right now, if we have to guess, we believe the Federal Reserve will announce purchases of less than $500 billion. In January the Federal Reserve adopted an inflation target of 2.0%.  As we detailed in a conference call last month (transcripthandoutaudio), inflation expectations are running well above this target.  One measure of inflation expectations, the 10-year TIPS inflation breakeven rate, is shown below.  Further, in April, when Bernanke was asked if he would adopt a suggestion from Paul Krugman to expand the target to 3%, he flatly rejected the idea (explained here).

The hawks will argue expected inflation is too high to add more stimulus, an argument which will carry some weight.  The compromise will be a program of less than $500 billion in purchases which will disappoint the markets.

Click to enlarge:

Source: Arbor Research







Wishing you all the best ( our market letter will return in the New Year )


Pine Cliff Energy Trading Alert

This is not based on fundamentals of the PRODUCTION/ operation – rather :

1) new executive

2) big money behind the potential acquisitions

3) recent move up in price likely orchestrated by the new management to build a value for a paper  based acquisition


4) little stock available except at higher prices

Level 2 Quote

Market Maker Shares Bid Price Ask Price Shares Market Maker
15,000 0.950 0.960 6,500
1,000 0.910 0.990 15,000
10,000 0.900 1.000 7,000
5,000 0.890 1.060 20,000
5,000 0.860 1.100 1,500
1,000 0.760 1.200 12,000
500 0.750
7,000 0.740
11,000 0.730
10,000 0.710

Google And Motorola Are Working On A Top-Secret ‘X Phone’

Image representing Google as depicted in Crunc...

Image via CrunchBase

Reuters) – Google Inc is working with recently acquired Motorola on a handset codenamed “X-phone”, aimed at grabbing market share from Apple Inc and Samsung Electronics Co Ltd, the Wall Street Journal said, citing people familiar with the matter.

Google acquired Motorola in May for $12.5 billion to bolster its patent portfolio as its Android mobile operating system competes with rivals such as Apple and Samsung.

The Journal quoted the people saying that Motorola is working on two fronts: devices that will be sold by carrier partner Verizon Wireless, and on the X phone.

Motorola plans to enhance the X Phone with its recent acquisition of Viewdle, an imaging and gesture-recognition software developer. The new handset is due out sometime next year, the business daily said, citing a person familiar with the plans.

Motorola is also expected to work on an “X” tablet after the phone. Google Chief Executive Larry Page is said to have promised a significant marketing budget for the unit, the newspaper said quoting the persons.

Google was not immediately reachable for comments outside regular U.S. business hours.

Amazon And Google Are On A Collision Course In 2013

* Amazon, Google rivalry will escalate in 2013


* Companies compete in increasing number of areas

* Areas include: Ads, retail, mobile, cloud computing

SAN FRANCISCO, Dec 23 (Reuters) – When Amazon.com Inc CEO Jeff Bezos got word of a project at Google Inc to scan and digitize product catalogs a decade ago, the seeds of a burgeoning rivalry were planted.

The news was a “wake-up” call to Bezos, an early investor in Google. He saw it as a warning that the Web search engine could encroach upon his online retail empire, according to a former Amazon executive.

“He realized that scanning catalogs was interesting for Google, but the real win for Google would be to get all the books scanned and digitized” and then sell electronic editions, the former executive said.

Thus began a rivalry that will escalate in 2013 as the two companies’ areas of rivalry grow, spanning online advertising and retail to mobile gadgets and cloud computing.

It could upend the last remaining areas of cooperation between the two companies. For instance, Amazon’s decision to use a stripped down version of Google’s Android system in its new Kindle Fire tablet, coupled with Google’s ambitious plans for its Motorola mobile devices unit, will only add to tensions.

The confrontation marks the latest front in a tech industry war in which many combatants are crowding onto each others’ turf. Lurking in the shadows for both Google and Amazon is Facebook with its own search and advertising ambitions.

“Amazon wants to be the one place where you buy everything. Google wants to be the one place where you find everything, of which buying things is a subset,” said Chi-Hua Chien, a partner at venture capital firm Kleiner Perkins Caufield & Byers. “So when you marry those facts I think you’re going to see a natural collision.”

Both companies have a lot at stake. Google’s market capitalization of $235 billion is about double Amazon’s, largely because Google makes massive net earnings, expected by analysts to be $13.2 billion this year, based on a huge 32 percent net profit margin, according to Thomson Reuters I/B/E/S. By contrast, Amazon is seen reporting a small loss this year.

Amazon shareholders have been patient as the company has invested for growth but it will have to start producing strong earnings at some stage – more likely if it grows in higher margin areas such as advertising. Google’s share price, on the other hand, is vulnerable to signs of slowing margin growth.


Not long after Bezos learned of Google’s catalog plans, Amazon began scanning books and providing searchable digital excerpts. Its Kindle e-reader, launched a few years later, owes much of its inspiration to the catalog news, the executive said.

Now, Amazon is pushing its online ad efforts, threatening to siphon revenue and users from Google’s main search website.

Amazon’s fledgling ad business is still a fraction of Google’s, with Robert W. Baird & Co. estimating Amazon is on track to generate about $500 million in annual advertising revenue – tiny, given it recorded $48 billion of overall revenue in 2011. By contrast, 96 percent of Google’s $38 billion in 2011 sales came from advertising.

But Amazon’s newly developed “DSP” technology, which taps into the company’s vast store of consumer purchase history to help marketers target ads at specific groups of people on Amazon.com and on other websites, could change all that.

“From a client’s perspective, the data that Amazon owns is actually better than what Google has,” said Mark Grether, the chief operating officer of Xaxis, an audience buying company that works with major advertisers. “They know what you just bought, and they also know what you are right now trying to buy.”

Amazon is discussing a partnership with Xaxis in which the company would help Amazon sell ads for the service, Grether noted.

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Windows 8 Is A Flop : New York Times

Microsoft’s attempt to regain relevance and defend its core franchise with Windows 8 is off to a “shaky,” “tepid” start, says the New York Times.


Emmanuel Fromont, president of the America’s division of Acer, the number four PC maker, tells Nick Wingfield at the Times sales of Windows 8 PCs are coming in worse than expected. “It’s a slow start, there’s no question,” says Fromont.

Fromont isn’t the only person telling this story. At the end of November, Asus CFO David Chang said, “Demand for Windows 8 is not that good right now.”

And in the Times’ story, NPD analyst Stephen Baker is quoted as saying, “I think everybody would have hoped for a better start.” (NPD previously issued a negative report on the state of Windows 8.)

There are two reasons Windows 8 sales are slower than expected.

  • Windows 8 is a new experience with a steep learning curve that is intimidating some consumers.
  • Consumers are buying iPads, and delaying upgrades of their Windows-based PCs.

We didn’t reach out to Microsoft for comment on this story, but we know what it would say.

Microsoft would say it’s still too early to judge. It would say NPD’s data set is incomplete. It would say that it announced 40 million Windows 8 upgrades, which is better than it did with Windows 7 over a comparable period of time.

All of those are legitimated rebuttals. This is an ongoing story for Microsoft. But at first glance, it’s just not looking great for Microsoft.

Nederlands: Logo van Microsoft Windows 1.0, 2....

Nederlands: Logo van Microsoft Windows 1.0, 2.xx,3.xx, 95, 98, Me en 2000. (Photo credit: Wikipedia)

Americas’ Growing Oil Production – Glut May Drive Prices to $ 50

King Abdullah ibn Abdul Aziz in 2002

King Abdullah ibn Abdul Aziz in 2002 (Photo credit: Wikipedia)

( still the U.S. imports 8 million barrels a day)

The U.S. expanded its oil production this year by the most since the first commercial well was drilled in 1859, upending a belief that Americans were increasingly hooked on foreign crude.

Domestic output grew by a record 766,000 barrels a day to the highest level in 15 years, government data show, putting the nation on pace to surpass Saudi Arabia as the world’s largest producer by 2020. Net petroleum imports have fallen by more than 38 percent since the 2005 peak and now account for 41 percent of demand, down from 60 percent seven years ago, moving the U.S. closer to energy independence than it has been in decades.

Seven years after President George W. Bush declared “America is addicted to oil, much of which is imported from unstable parts of the world,” the country has so much crude that it was able to join Europe in choking off exports from Iran without pushing U.S. benchmark prices over $100 a barrel. And refining capacity helped make the U.S. the world’s largest fuel supplier. Even in Venezuela, where Exxon Mobil Corp. (XOM)’s assets were seized, more and more cars run on gasoline made in America.

“The U.S. has a huge lead in the 21st century in maintaining its superpower status,” said Ed Morse, global head of commodities research at Citigroup Inc. in New York. “There was absolutely no way to anticipate the level of growth in the oil supply.”

Faster, Cheaper

America’s latest oil rush was spurred by new technology that has made drilling faster, cheaper and better at unleashing oil from rock formations, even as it has raised alarms among environmentalists about the potential danger to drinking-water supplies and intensifying greenhouse-gas emissions.

Producers, eager to profit from prices that have remained above $75 for more than two years, deployed as many as 1,432 rigs, the most in records going back to 1987. Trucks bearing pipe traversed Wyoming’s high desert plains and Oklahoma’s back highways, geologists pored over well logs from Colorado to New Mexico, and landmen trying to secure mineral rights crowded into courthouse record rooms from North Dakota to the Gulf Coast.

The U.S. will produce an average of 6.41 million barrels a day this year, a 14 percent increase from 2011, according to a Dec. 11 report from the Department of Energy. It’s the biggest annual gain in the number of barrels since the industry began when Pennsylvania’s Drake well ignited the first American oil rush in 1859, department data show. Saudi Arabia pumped 9.7 million barrels a day in November, according to data compiled by Bloomberg. The Paris-based International Energy Agency said last month the U.S. is on track to become the top producer in about eight years.

‘New Thing’

“The shale oil revolution is a new, new thing,” said Francisco Blanch, the head of commodities research for Bank of America Merrill Lynch in New York. “It has come out of nowhere in the last year and a half.”

The nation’s stockpiles increased by a record 13 percent this year, and U.S. refiners are paying less for crude than much of the rest of the world. Landlocked by export restrictions and limited transportation, the glut of U.S. light, sweet crude — cheaper to process than the high-sulfur, sour grades pumped by Saudi Arabia and Venezuela — pushed domestic prices down to as much as $28 a barrel less than Brent, the European blend that sets prices for more than half the globe’s oil.

That discount handed Gulf Coast refiners an advantage over competitors and helped the U.S. become a net fuel exporter last year for the first time since 1949, surpassing Russia as the world’s largest. Venezuela quintupled its imports from the U.S. this year to a record 196,000 barrels a day in September, according to Energy Department data.

Global Clout

Rising output from the U.S. has also increased the nation’s sway in the global market by forcing the Organization of Petroleum Exporting Countries into an unpalatable choice: Increase production to bring prices down and maintain market share; or keep prices high to sustain state spending, and thereby subsidize the competition from U.S. producers, which can provide crude to domestic refineries at a lower price.

The unprecedented gains came so quickly that the industry is rushing to regroup. The 500-mile Seaway pipeline, which was reversed last year and now carries U.S. crude south to Gulf Coast refineries instead of moving imports north, will expand to 400,000 barrels a day as early next year from 150,000 now.

Northeastern fuel makers, on the verge of insolvency a year ago, have begun replacing foreign cargoes shipped by tanker from Africa, Europe and the Middle East with cheaper domestic oil brought in by rail. A pipeline shortage has boosted profits at tank-car maker American Railcar Industries Inc. and at BNSF Railway Co., owned by Warren Buffett’s Berkshire Hathaway Inc.

Exports Limited

Even if there were enough pipelines to carry more crude from swelling storage hubs to the coasts, oil exports are limited by rules imposed by Congress following the 1973 Arab oil embargo.

Exports may be necessary to avert a surplus that would depress prices and discourage drilling, said Bank of America’s Blanch. West Texas Intermediate oil, the U.S. benchmark contract, could fall to as low as $50 a barrel within the next two years unless the rules are eased to relieve the glut, he said. Until prices drop, it may be difficult for politicians to persuade the American public to allow expanded exports.

“What I see is basically an inability to go out and explain to the public that we have to change the rules before the prices give us the signal,” Blanch said. “If you’re in the White House, why are you going to change the crude-export rules that the U.S. has right now when the country is still importing 8 million barrels a day of oil?”

Forestalling Glut

At least one member of the Obama administration has begun making the case that the U.S. is building toward a crippling surplus. Adam Sieminski, head of the U.S. Energy Information Administration, the statistical arm of the Energy Department, said limited transactions with other countries may help forestall excess supplies that could undermine prices and hobble the industry.

“That’s going to be a policy decision of the Congress and the administration,” Sieminski said. “It’s just a question of what the economics are.”

The surge in oil output, coupled with record natural gas production, allowed the U.S. to meet 83 percent of its own energy needs in the first eight months of 2012, on track to be the highest since 1991, Energy Department data show. The last time self-sufficiency was achieved was in 1952. While the U.S. still imported some petroleum then, exports such as coal more than offset foreign cargoes.

Overseas Shocks

That interconnectedness means U.S. consumers will still be vulnerable to supply shocks overseas, Sieminski said. An Energy Department forecast shows the country will import 10 percent of its needs in 2035. That doesn’t account for slowdowns because of new regulations, which may tighten because drilling has been linked to groundwater pollution and earthquakes, he said.

Then there’s the problem of how burning all these fossil fuels may contribute to climate change, said Anthony Swift, an attorney with the Natural Resources Defense Council in Washington.

“There’s a real environmental cost to investing billions of dollars in new sources of carbon-intensive fuels when we know we really need to be investing in clean energy,” Swift said. “It’s better for our environment, better for our economy and better for energy security.”

Tightened automobile-mileage requirements helped reduce consumption of petroleum products by 16 percent through September since peaking in August 2005, a drop of 3.5 million barrels a day, Energy Department data show.

Dakota Boom

The U.S. oil boom began in 2004 with a North Dakota well completed by Continental Resources Inc., which confirmed that a combination of two technologies could unlock profitable amounts of crude in pockets deep underground.

Continental paired horizontal drilling, in which the well is bored at an angle to run lengthwise along the richest slice of rock, with hydraulic fracturing. Better known as fracking, the process forces a high-pressure stream of sand, water and chemicals underground to crack apart the rock and free the crude. Since then, North Dakota’s oil production has increased to 728,000 barrels a day, surpassing Ecuador, an OPEC member.

Harold Hamm, Continental’s founder and chief executive officer, has called for expanding U.S. production. The company estimates the Bakken and other formations under North Dakota contain the equivalent of 27 billion to 45 billion recoverable barrels of oil. By comparison, Nigeria has an estimated 37.2 billion barrels of proven reserves, according to OPEC.

Wildcatters Compete

Hamm’s success set in motion an oil rush that spread across the U.S. as wildcatters competed to be first to new prospects. Chesapeake Energy Corp. made a deal in early 2007 to buy a million acres of Wyoming’s Powder River Basin, near the Teapot Dome formation that gave its name to the notorious bribery scandal of the 1920s.

Exploration intensified in Oklahoma’s Mississippi Lime, the Eagle Ford Shale in Texas, Ohio’s Utica formation, Louisiana’s Tuscaloosa Marine shale and New Mexico’s Bone Springs.

Competition grew heated as oil prices above $75 encouraged more drilling. In one Wyoming courthouse, the county clerk brandished a cattle whip to keep order among the crowds of landmen packing in to research mineral rights. Joe Thames, a Denver-based contract lease buyer who has worked for companies such as Chesapeake, said rivals once followed his best landman from his motel to try and find out where he was buying.

‘Big Gamble’

When results of EOG Resources Inc. (EOG) 2009 Jake well in northeastern Colorado leaked, lease prices quintupled in less than two months, said Bob Coskey, a Denver geologist. That play, called the Niobrara, turned out to be smaller than people thought, Coskey said. Overnight, acreage outside the best zones became almost worthless.

Hanging over this activity is the specter of past busts. The last boom in the late-1970s came crashing to a halt in 1985 when Saudi Arabia, in an effort to regain declining market share, flooded the world with crude and sent prices to $10 a barrel in 1986. U.S. production fell for 21 of the next 22 years.

“It’s a big gamble,” said Mike McDonald, an Oklahoma wildcatter and president and co-owner of Triad Energy Inc. “Everyone thinks it’s Beverly Hillbillies: You shoot a gun and oil comes out. It’s not.”

It was unclear until this year whether producers would be able to replicate Hamm’s results outside of the Bakken. The answer is yes. Texas pumped the most oil since 1988. Output from Wyoming grew 7 percent, the biggest jump in records going back to 1981, Energy Department figures show. New Mexico’s increased by 13 percent, and Oklahoma’s by 18 percent.

Morse, whose bullish predictions of U.S. energy self- sufficiency early this year met with skepticism, said North America will be able to meet its own needs by 2020. The pace of growth and the potential for worldwide gains driven by ever- improving technology toppled the theory that the world supply of oil had had peaked and begun an inexorable decline, he said.

“Peak oil is dead,” Morse said.

Amazon Gains $3 billion – in nearly free money

The tech giant has quietly raised capital — at almost no cost- Praise The Fed

FORTUNE — While online shoppers were gobbling up e-deals on Cyber Monday, Amazon once again demonstrated its appetite for capital. It raised $3 billion in debt at ultra-low interest rates. Spread across three tranches of bonds that mature over 6 ½ years, Amazon will pay an average of 1.6%, which makes the loan nearly cost-free to Amazon, factoring in inflation. The unexpected debt-capital raise, Amazon’s first in 15 years, double’s Amazon’s cash stockpile. (The Wall Street Journal has a lot of the facts here.)

The swift move got me wondering what Amazon (AMZN) will do with the money. There are obvious starting points. Amazon recently cut a deal to buy its currently leased Seattle headquarters buildings for a bit more than $1 billion. It’s an odd decision, but Amazon is an odd company. It is investing heavily in new warehouses, the better to offer speedier delivery to customers, particularly in locations where Amazon recently has begun collecting state sales taxes—something it probably should have been doing all along. In my recent interview with Amazon CEO Jeff Bezos he deflected the question of whether Amazon wants to offer same-day delivery, saying the company hasn’t figured out how to make such a service economical. He said it’s hard enough investing simply to push back in the day when Amazon cuts off taking new orders.

MORE: Amazon’s Jeff Bezos: The ultimate disrupter

Given its size and growth, it’s also astounding that Amazon sells in just nine countries: the U.S., Canada, China, France, Germany, Italy, Japan, Spain, and the United Kingdom. Counterintuitively, Bezos notes that Amazon is investing particularly aggressively at the moment in Spain and Italy. New regions are a natural place for Amazon to invest its cash.

Amazon obviously continues to invest heavily in its Kindle line, which is showing itself to be a worthy competitor to Apple (AAPL) and tablets that use Google’s (GOOG) Android operating system. (The Kindle Fire uses a version of Android too.) Amazon’s Lab126—it’s Kindle design center in Cupertino, Calif.—recently listed more than 200 open job positions.

Then there are Amazon’s many business lines, many of which compete against each other. To get a sense of the breadth of Amazon’s disparate businesses. I made a list of the 25 brands Amazon links to at the bottom of its U.S. home page, including, with one exception, the way Amazon describes them:

AbeBooks. Rare books and textbooks.

Amazon Local. Great local deals in your city.

Amazon Supply. Business, industrial and scientific supplies. (beta)

Amazon Web Services. Scalable cloud services.

Amazon Wireless. Cellphones & wireless plans.

Askville. Community answers.

Audible. Download audio books.

BeautyBar.com. Prestige beauty delivered.

Book Depository. Books with free delivery worldwide.

CreateSpace. Indie publishing made easy.

Diapers.com. Everything but the baby.

DPReview. Digital photography.

Fabric. Sewing, quilting and knitting.

IMDb. Movies, TV & celebrities.

Junglee.com. Shop online in India.

Myhabit. Private fashion designer sales.

Shopbop. Designer fashion brands.

Soap.com. Health, beauty and home essentials.

Wag.com. Everything for your pet.

Warehouse Deals. Open-box discounts.

Woot. Beta deal site. [My description. Amazon’s is so confusing it defies description.]

Yoyo.com. A happy place to shop for toys.

Zappos. Shoes & Clothing.

Vine.com. Everything to live life green.

Casa.com. Kitchen, storage & everything home.

Amazon acquired many of these brands, like Audible, Zappos and IMDb. Some of the sites are clear copycats of more successful startup companies that Amazon hasn’t yet bought. Amazon includes a link at the bottom of its home page to its “Internet-based ads” business, a very real attack on the online advertising industry. It makes no mention of the robotics company it acquired this year, Kiva Systems, which continues to maintain its own web site and gives the appearance of serving non-Amazon customers.

So, how can Amazon spend $3 billion? Let us count the ways.

Available Now at AMAZON.COM ( go to books )

The Gold Investor’s Handbook – click here for   more detail on the in’s and outs of investing in gold


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