The Blog Of The Securities Industry Professional Association


Securities Regulation Suffers

The SIPA has been rather obvious in its support of President Trump both before and after the election. Not to gloat but we did correctly predict in 2015 what everybody thought was impossible and correctly called the press and democratic/republican meltdown.  Click here so we can gloat! Donald Trump vs Peter Pan and the Lost Boys   By and large we believe he has the country headed in the right direction , however his latest foray into the business practice of Amazon is bewildering to say the least.  Trump has lifted/modified hundreds of restrictive regulations that choke our economy in the name of a spotted snow owl or a warming earth that is still getting pounded with freezing temps and snowstorms in April.  While we believe this is a good step, it’s obvious he has not even looked at the strangling regulations that have gripped Wall Street and is driving small financial firms out of business.

Amazon is enormously successful for two reasons: First, they provide a service that is no longer offered by the big box stores. Amazon allows users to go online and buy virtually anything in seconds while you are sitting in your bathrobe (hopefully) and drinking coffee.   Within a day or two they mobilize their distribution centers and a package of almost any size will be at your door and usually at a 10-20% discount compared to the big box stores.   Despite what many soon to be out of business stores (Sears, JC Penny, Macys, and Best Buy) think, not everybody likes to shop.  In the past hundred years we had no choice but to go to a store.  If you needed a TV, a frying pan, a hammer or millions of other things you had to get in your car and go to a store and face lines, poor customer service and pay a premium.  Amazon allows you to bypass the line, save money and not be disrespected by some clerk who closes her lane because he has a break coming.   I recently was in a “SUPER WALMART” in Florida and it literally is about a quarter mile long. I grabbed some bug killer and fertilizer and went to the checkout line in home and garden. There was one lane out of four opened and ten people on line.  A polite guy with a yellow vest on was standing nearby doing NOTHING, so I asked him if they were going to open another lane.  He very politely told me: No.  I went into the main part of the store and there are a total of 25 lanes that are available….but only 7 were open.  I have always found this quite puzzling:  Why build 25 lanes if you will never open up more than 7 or 8 lanes?   This mentality is like putting parachutes into a brand new car knowing it’s highly unlikely they will ever be used unless perhaps you drive off a cliff.  This mentality is why Amazon is doing so well.  Don’t blame Amazon because they are doing it better and more efficiently and continue to grow their distribution centers nationwide to get even more efficient.

The second reason Amazon is so successful is that they face little or no competition due to egregious securities regulation.  The history of capitalism has taught us that copycat businesses are the greatest form of flattery and the best way to stoke the fires of competitiveness and keep prices low.  The big three auto makers in Detroit were a monopoly for 75 years and their products began to decline. They were making cars nobody wanted but buyers had no choice but to buy a 1972 Pontiac that was 30 feet long, made of chrome and got 8 miles to the gallon.   Then along came Honda and Toyota and suddenly there was competition.  The big three had to start changing or face extinction.   With the success of Amazon since 1995, how is it possible nobody has tried to duplicate this process?   Securities regulation has stifled capital formation and growth, forming a monopoly for some sectors.   Raising capital to form a competitor for Amazon would require a prospectus and a few hundred million in capital to buy infrastructure and sources; however it is almost impossible to be a startup company today.  Brokerage firms will not touch a small offering for fear of regulators and lawyers.  Even if they did get involved, the legal costs to comply with the offering would eat up millions of dollars. There was once a time when multiple small firms would combine to raise money for companies and with hard work and some luck the company would take off and the firms would have options and warrants in house to build off of.  Today it appears that only billion dollar offerings are conducted and that is usually reserved for the hedge funds or institutional clients of the top Wall Street firms.
We believe President Trump should concentrate on easing securities regulations, which in turn could present competition to Amazon and others.  In fact, we believe fair competition against Amazon will also help the U.S. Postal service.  They will have multiple companies trying to strike a deal for their service instead of just E-Bay and Amazon.

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April 8th, 2018



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