Zak Mir – Hot Online, Dixons and the Gold Conspiracy Theory

It is official, everything online is hot. Indeed, it is not only so hot that companies like Amazon (AMZN) and Google (GOOG) do not need to pay any tax, and even Ocado which had to be rescued in November is now worth over £1.5bn after the tie up with Morrison Supermarket (MRW).

What a tie up it is, given that in 2010 Ocado (OCDO) lost £12m, in 2011 it lost £2..4m, 2012 £0.6m and this year should lose £6m. Next year was forecast to be different – a profit of £1.09m. So how does all this work for a company on a PE of 700 plus? Very well, apparently. £170m will be paid by Morrisons to Ocado to buy the Dordon “Customer Fulfilment Centre” (a warehouse?)  with an additional nearly £50m to integrate the centre within  Morrisons systems.

I cannot help thinking however that rather than coughing up the better part of a £0.25bn for the Ocada deal that it would have been better for Morrisons to have simply set up their own “Customer Fulfilment Centre” and then waited for Ocado to go bust! I understand fully that buying into an existing business enables Morrisons to hit the ground running in the online grocer space, and that it has bought into the “expertise” of a company which has managed to serve up a flat / losing profits profile for the best part of a decade (sarcasm).  But the fact of the matter is that as things stand, online is literally a loss leader to grab market share at a time when margins are being squeezed for supermarkets. It may make sense for the 7 Day MBA brigade, it does not make sense to me apart from being something of a panic move on the part of Morrisons.

Onto another company on the High Street which has also pulled back from the jaws of death like Ocado, and that is Dixons Retail (DXNS). What is interesting here is the way that while the recovery in the share price from below 10p at the end of 2011 has not only been welcome, but relatively easy to catch on a technical basis, there does seem to be material fundamental problems to me – which is right – the chart or the story? Have the fears  and reasons associated with the 2011 collapse really gone away?  I would say that they have not. Even with Dixon’s going online – so that you do not have to interact with their delightful shop assistants (!), there is still the issue of every man and his dog being able to sell you the latest iPad or tablet at a cheaper price. Presumably such minor details will not prevent the shares heading higher in the run up to the Q4 update, sales should be up 10%, but what of margins and profits in the long term?

Finally, I was intrigued by the news flow accompanying the collapse of Gold last month. If you followed the logic, the metal was due to rebound on the basis that while it was being sold, on “paper” in the futures market / ETFs etc, that in the real world the Indians, Chinese and central banks were all buying up truckloads of the stuff. Well, they might have been, but all this has not so far been enough to prevent another sub $1,400 dive following a failure well below $1,500. This was a failure below the former 2 year support at $1,522.

The May failure below March support echoes the March $1,620 failure below $1,626 January support. Such breakdowns with no resistance / support overlaps are only seen in the most bearish of situations, and I would suspect that is precisely what the Gold price is actually serving up right now. The conspiracy theory I heard at Master Investor is that Gold is being shorted deliberately to undermine its “store of value” appeal, and save the U.S. Dollar and / or the T Bond. All of this is to prevent the U.S. going bust. That said, this conspiracy came from the same source which suggested that the second Iraq invasion was designed to prevent the Euro replacing the U.S. Dollar for Oil pricing in the Middle East… I’ll leave the conspiracy theorists to it!