“Extraordinary Popular Delusions & the Madness of Crowds” still not available on Kindle

Though millions of people are buying Kindles, the Charles Mackay classic is still unavailable in Kindle edition. (Click here to request the publisher to do so). Evidently Kindle buyers are busy reading Jim Cramer’s books, which are ever-so-conveniently already available in Kindle editions.

Amazon (AMZN) released earnings after the bell on Friday, with 85 cents EPS vs 72 cents consensus. The $9.5 billion in revs beat both the consensus top-line estimates from analysts ($9.04B) and management guidance from Q3 ($8.13-9.13B).

But the earnings beat came with its dose of bad news, too. Gross margins were down 260bps sequentially and 65bps year-over-year (on a pro forma basis) and international operating margins were down 45bps sequentially and 43bps YoY.

In addition, Amazon was forced to cave to publisher MacMillan’s eBook pricing demands, and will be repricing certain books from $9.99 to $14.99 contingent on consumer response.

Meanwhile, Apple announced the iPad, which will be a direct competitor to Amazon’s eBook business.

What’s all of this mean? About nothing, really. Amazon’s stock has more than tripled from its lows, its EV/EBITDA is currently at 43.6x, and its P/E at 68.79. What drove this (and every other) stock up in 2009 was a combination of onetime bank injections (via AIG CDS unwinds) catalyzing a negative convexity dynamic hedging-driven short covering rally and the combined effects of QE liquidity and the USD-funded carry trade.

Now, with QE liquidity dried and credit events flaring up left and right (Greece in crisis, sovereign CDS breaking out, CRE defaults all over the news, and the housing double-dip manifesting), it’s time to look toward the exits.

And boy are the people in AMZN exiting.

The stock is down close to 7% on 13.6M shares traded just two hours into today’s session. The margin decline and eBook repricing are the primary culprits, but beware of upcoming analyst downgrades to push more selling.

The important $116 support level is close to being taken out. If it does, the break could trigger some big selling that could eventually send this stock back to pre-Q3 2009 earnings levels back in the double digits.

But the real problem is not in what the fundamental news events cause (selling in the short term). It’s what their effects catalyze, which is a shift in momentum that will drive momo chasers (the thesis behind the entire demand in the equity market) to selling rather than buying. And this into a very illiquid market environment.

Still deciding whether or not I will be shorting in size on the breakdown, but shorting AMZN today could end up being one of the bigger trades of 2010.

Either that or the Dow 30,000 trade.


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