Monday, April 28, 2014

Amazon: A Microcosm Of Corporate Capitalism’s Perilous Future

There have been a small list of Wall Street darlings that I have written about as poster children for the crisis yet to come.   As noted on here ad nauseam, the stock market represents absolutely no semblance of reality or value.  It has become nothing more than a bubble of criminal proportions created by renter capitalism and the fraud of this class of people who thieve off the backs of others.  Just like nearly everything else in our dystopian reality, financial markets are contrived and manipulated through state fraud and corruption.  To only question is to what extent.

One of those poster children is Amazon.  This is a company that doesn’t know how to make a profit.  And it never has.   But they make it up on volume.   What can you buy with $80 billion in revenue but no profit?  Not even a cup of coffee.   That is Amazon.  This is a company that has gone from no sales to $80 billion sales in less than two decades.  Never have they created a measurable and consistent profit.  Let alone enough of a profit to fund its growth.    So, how does Amazon stay in business?  As noted on here in prior posts, Amazon’s business in many ways is very similar to the Boston Chicken scheme that created working capital out of thin air by floating their payables.  Rapid growth is what hides the fact that Amazon’s business model isn’t a business model at all.   Rather, it’s a scheme that sustains itself only through growth at all costs.  

Amazon and Boston Chicken both used high growth rates to magically-create ever-greater needs of working capital to fuel their growth.   Diversification, or as I have called it on here before, diworsification, is Amazon’s answer to keep this scheme going.   As long as they sell more and more different types of items, they are able to continue to grow their payables float and, thus, grow working capital.  This is then used to expand the business with rapid growth void of profit.   This is exactly what Boston Chicken did.  This dynamic has allowed Amazon to push the issue of profitability into some far off mystical Garden of Eden where profits will automagically flow like milk and honey.  So far, they have used this scheme for nearly 20 years.  And, in the process, they have become too-big-to-fail with 120,000 employees.  

Besides no company actually being able to manage the hundreds of disparate businesses they are now in, Amazon has no realistic plan that will create a company that can actually pay for itself.  While Amazon pushes into endless new ventures and markets, Boston Chicken accomplished the same dynamic of pushing profitability into the future by rapidly growing their restaurant store base.  And, thus franchise fees provided a float scheme that allowed them to continue funding the operation at a feverish pace under the faux appearance of sustainability and profitability.   But, the restaurants themselves were unprofitable.  Just as Amazon’s business ventures are unprofitable.  So, as revenue from store growth for Boston Chicken abated, the reality of unprofitability led to a cash crunch and the rest is history.  ie Bankruptcy.   Amazon’s future has yet to be written but Boston Chicken certainly taught us that you can’t pay your bills with revenue.  Wall Street is apparently too stupid or too incompetent to understand this.  Which is why Amazon’s stock has been inflated and reflated time and again.  And, was recently inflated to a level discounting earnings going back to the fall of the Roman Empire. (A price to earnings ratio of 1,500 years current earnings.  A number that seems likely to stretch to infinity,  aka zero earnings, soon enough.)

A recent Bloomberg article states that increased spending is limiting Amazon’s profit.  This article is completely baseless and is representative of the ignorance and incompetence that has become so pervasive in mainstream journalism.   In actuality, it is only Amazon’s increased spending that actually allows it to survive.  Because without growth, the “chickens” of its profit-less business model come home to roost.   (Not to be confused with Boston’s tastier Chickens.)

Now, you may like shopping on Amazon.  Who wouldn’t?  I shop there regularly.  You get to buy products at below market prices while Amazon absorbs the losses.  It’s a little more of that unaccountable something-for-nothing dynamic America’s corporate, banking and political leadership have ingrained in our psyche.  But would you be willing to pay, say, 30-50% more for Amazon’s convenience?  And, would you have supported Amazon from its inception with much higher prices?  In other words, would you have purchased all of the items if its business model actually had to pay for itself?  Doubt it.   Price elasticity isn’t in their favor for discretionary consumption items.  But we may yet find out the answer to this question. 

Interestingly,  Amazon’s founder is one of the richest people in the world.  Yet, his company has never been able to make any money.  How is that?   More importantly, how exactly did Amazon get enough money to create a gargantuan, unprofitable business whose failure threatens our economy?  This while millions of people in this country are denied their economic determinism and are forced into corporate wage slavery?  Isn’t it plausible that those millions of Americans could have actually created sustainable businesses with that money?  Rather than creating a working capital scheme whose day of reckoning is imminent?  And, all of the human talent and resources wasted in doing so?   Amazon’s founder started with no wealth.  Where did that wealth come from if his venture isn’t profitable?   Well, first of all, as noted on here continuously, money is not wealth.  But this is simply a reflection of class-based, renter capitalism and the corporate capitalist shams of  Wall Street and the stock market.  In a class-based system, such as corporate capitalism, those of class enrich themselves regardless of what, if any, value or wealth they create for society.   I think we call them moochers and parasites.   Bezos’ wealth comes from his ownership of Amazon stock.  Blowing endless renter capitalist bubbles in Amazon stock with endless amounts of free Federal Reserve money is not wealth.  But, given the way our system works, Bezos has become wildly rich with meaningless money used to blow financial bubbles.  

Frankly, without the force of the state that has denied millions of Americans their own determinism, but has rewarded Amazon’s founder, Jeff Bezos, with endless funding to create a too-big-to-fail-money & profit vacuum-suction-machine that hasn’t actually shown any capability of funding itself, he would likely be slinging hash down at the Waffle House.   That may yet happen.

Now, with Amazon’s most recent announcement, they are forecasting a loss as large as half a billion dollars next quarter.   If this economic system unwinds to the degree that is possible, the outcomes will surprise everyone.   If that happens, I suspect the stock market could disappear and so could Amazon.   And that means there will be no one left to pick up the pieces of any potential bankruptcy or reorganization of unprofitable firms.  Regardless, it’s hard to determine what a company like Amazon will be worth in any future given how much leverage is in this global corporate capitalist system.  Well, and in Amazon itself.   Its future tangible value would erode drastically in any such outcome.  Especially if the world finally realizes it is does not have a sustainable business model.  But, to take a stab,  it’s not unreasonable that the company could eventually be worth as little as $5-10 a share.   Amazon’s stock is down $100 a share since I wrote my last excoriation of its valuation.   But, it’s still trading at $300 a share.  And that means it could still drop 98% from here.  Or worse, if sales start to weaken as they have in the rest of the economy, Amazon could burn through its cash in a matter of a few years.  And that means the downside could be zero.   Wanna make a bet that Jeff Bezos won’t own the Washington Post by the time 2022 rolls around?   Just sayin   since betting and gambling or making money from money is what we really know how to do in renter capitalist Amerika.

This is typical of a system that rewards incompetence.  Some would say that incompetence is a relatively recent phenomena.  But, in actuality, it is endemic to corporate capitalism.   In a system of class that subverts merit and economic freedom, as corporate capitalism does, the system itself is inherently incompetent.   Do you think 500 people in this nation, the S&P 500 CEOs, have the knowledge and ability to make the right decisions in a future of a system with trillions of moving parts and billions of people?  Ha!  They may be able to control the system just long enough, some decades or so, that it appears so.   But don’t kid yourself.  What is different now is that this system is at a precipice.  There is nothing in the world left for class to loot.  So, sustainable growth is becoming unachievable.  Be that for countries or companies.  Truth is just around the proverbial corner.  

By the way,  the last half of my remarks about capitalism, growth and float schemes is relevant to another company I have talked about in detail on here.  That is, IBM, and more broadly, the IT sector.   Some years ago I wrote that IBM was putting in a major top and maybe its last top.   Well, I have been writing of my disdain for technology and IT for many years before that.  I doubt anything I wrote resonated at the time of my prior posts, but I bet it does now.   IBM has seen revenue shrink 8 consecutive quarters.  And their systems business is in the early stages of collapse.  Literally.  Their systems business is reporting numbers that are free-fall sales declines.  And it has been reported that the company has hired Goldman Sachs to find a buyer for its semiconductor business.   IBM has been hollowed out by bureaucratic incompetence.  So, rather than being a capital-creating organization, it is transforming into a capital-consuming or services organization.  You know, the post-capitalist service economy or knowledge economy bullshit meme.    Knowledge of what?  Doing each other’s laundry?  Additionally, the vast majority of IBM’s business is tied to the financialization of our economy and massive, dinosaur corporations.  (So too for all other IT firms.)  The current business model for major IT firms is a rent extraction scheme that offers little to no real benefits for clients but rather is meant to keep IT firms alive via parasitic means.   Now, they wouldn’t tell you that.  But, what do you expect?  Does Jamie Dimon tell you his salary comes from debt slavery, cornering the market on commodities, housing foreclosures, printing money out of thin air and the predation, exploitation and victimization of the American people? 

In many regards Amazon is a poster child for corporate capitalism.  Because, to some substantial degree, this entire corporate slavery system is working off of a payables float scheme.    Even if specific companies give the appearance of profitability.   In other words, without endless growth, this entire corporate system will collapse.  Unbeknownst to corporate capitalism’s adherents, most of the companies that exist today will collapse, unwind through divestiture or end up bankrupt without future growth.  Their business models simply are not sustainable and they never have been.  But, overproduction and overconsumption aka growth has hidden the fact that sustainable profits aren’t there in most firms. 

That, by the way, is a major reason for the massive mergers and acquisitions boom started under Clinton and peaking as I type this.  ie, When companies can no longer compete and profit in a market, they must either die or find new mechanisms of growth.   One of those mechanisms is to buy up all of the competing companies that then allows them to extract rent with impunity through forced price increases.  This happened in the Great Depression and is again happening today.  That is a major driver of the consumer price increases we are seeing in this country.  It is the rent extraction scheme of price increases that then flows to the purses of the investor class.  (That is how the board game Monopoly got its name.  The game was created during the Great Depression.  You know, the good ole days of corporate capitalism.)  That the mergers and acquisitions keep getting larger is a sign of impending economic crisis.  That is, unless corporate capitalism can figure out another way to engineer another rent-extracting bailout from humanity.   

Remember, corporations can only exist in perpetuity by extracting rent.  Is that a sustainable business model?  King George thought so.  The American revolutionaries had a difference of opinion.  Of course, all of this has been written of many times on here about what is yet to come. 

posted by TimingLogic at 10:15 PM