Billionaire's Portfolio

November 16, 2017, 7:00 pm EST   

After some broad selling across markets yesterday, stocks bounced back today.  With that, you might expect interest rates to push up and commodities to be rising too.  That was not the case, which continues the trend of the past week (or so) of odd market behavior.

​About a tenth of the strength in the S&P 500 can be attributed to Wal-Mart.  Wal-Mart had a big earnings beat today with the best sales growth since before the financial crisis.

With that, let’s take a look at how Amazon’s war on traditional retail has affected Wal-Mart.

​It wasn’t long ago that Wal-Mart was the biggest company in the world.  It topped the Fortune 500 list from 2002 through 2005, and then again in 2007 (with a more than $300 billion market cap).  At that time, Amazon was a $25 billion company.  And then the financial crisis hit.  Wal Mart was almost put out of business because of the global credit freeze.  And then we had massive intervention to get credit moving again and to save the economy.  With that intervention came a massive fiscal stimulus package.  A huge chunk of it flooded into Silicon Valley (pension money followed it).

​And, since then, although Amazon was a decade old company at the time, Amazon has had a trajectory similar to the other big tech giants of today.  It’s more than 20 times as big today.

​For perspective, in 2006, Wal-Mart was a $315 billion company.  Today, the U.S. economy is 34% bigger than it was in 2006 (about $5 trillion bigger).  And Wal-Mart is 15% smaller than it was in 2006 (at a market cap of $268 billion).

But Wal-Mart has finally started fighting for its life.

They bought a controlling stake in JD.com in the middle of last year to access the growing middle class in China.  JD.com is the number two e-commerce site in China, but is rapidly closing the gap between itself and Alibaba (number 1).  And JD has competitive advantages over Alibaba, in that, like Amazon, it owns its distribution centers and has control over quality (unlike an ebay and Alibaba).  They’ve since upped the stake to 20% and may ultimately buy all of it.  And Wal-Mart bought the startup Jet.com in the U.S. in August of last year.  If they continue to win share in China through JD.com, this gap between Amazon and Wal-Mart may begin to start closing.

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