Friday, October 24, 2014

Reality Starts To Reveal Itself: Amazon Craters On Massive Loss

"The Company believes it will incur substantial losses for the foreseeable future... the rate at which such losses will be incurred will increase significantly."

Not to say I told you so, but I told you so.  Amazon’s impending doom has graced this blog many times including detailed remarks about its curious business model.  If you want to actually call it that.  It’s business model is clearly unsustainable at best and a Ponzi Scheme at worst.   Additionally, when Amazon was actually profitable, it was discounting earnings of 1,500 years.  Or, if discounted in arrears, back to the age of Elmer Fuddstone and saber-toothed bunny rabbits.   Since it has been reporting large losses, it isn’t discounting anything.  It’s business model is arguably broken and always has been.  It’s also arguable that the company isn’t worth more than its receivables, inventory, its distribution system and a few other tangible assets.  By the way, I wouldn’t bet their vaunted distribution system is worth much of anything.  We have a massive bubble in the square footage of distribution facilities in this nation.  Pretty soon the rising value of a Big Mac will cross the falling value of these facilities.  Maybe if Amazon fails, the homeless whom they employ for nonliving wages can turn the facilities into condos with rent-seeking financing from private equity.  Then the homeless can become slum lords like Goldman Sachs and the Blackstone Group.  Well, and of course, Amazon.

I am dubious Amazon will survive the next ten years.  Hey, Amazon’s business is a great deal for consumers.  (Not so much for citizens or democracy.)  No taxes in many states, free shipping with a minimum purchase and you get to buy products that Amazon will sell you at a loss.  But, they make it up in volume.   What isn’t there to love?  Anytime someone wants to give me something for nothing, I would be more than happy to accept it.   Isn’t that now the American way since moochers and parasites run our nation?   Why actually toil at making anything if all you need to do is fire up the Federal Reserve’s printer?  I will gladly pay you Tuesday for a hamburger today.

This is a company that is intrinsically worth almost nothing.  Yet just recently it traded for $400 a share and a staggering market capitalization greater than most nations’ GDP.  Just before the Fed turned on the spigot in 2008 it was trading at less than $30.   Last night and this morning Amazon stock fell by nearly as much as it was worth just a few years ago.   It’s still trading near $300 even though it has been and still is bleeding massive red ink.  At least when it was at $30 a share it was making a small profit.   Interestingly,  today a CNBC toadie wrote that everyone is wrong about Amazon and what a great buy it is.   Of course, with the rationalization that profit isn’t Amazon’s focus.  Umm, let’s see.  How many 5 cent cups of coffee can you buy without profit?  That would be zero.   This is part of the new age Wall Street crowd of Ivy League-educated MBAs (MBA are also a bubble as noted on here over the years) that eschew reality and instead embraces ignorance and rationalizations that are so typical of systemic incompetence.  Hierarchical.  Institutionalized.  Self-granted, class-based incompetence.  

The stock market reflects absolutely no reality other than it is a manifestation of the largest financial bubble the world has ever seen.  Fair value for the Dow could be as low as 1000 if this Humpty Dumpty completely unwinds.   Wall Street has simply been riding a wave of useless money for decades.  It is institutionalized, clueless and wildly incompetent.  


Chart of Amazon.  What exactly changed from 2006 when it was making money, the economy had an illusory view of strength and Amazon stock was under $30.  Today, the company is and has been bleeding red ink and the value of the company was $400 not too long ago.  The difference is the wall of useless dirty money driving financially-traded assets.  That’s it.    If I use Amazon’s stock price as a mechanism of the value of money, the value of the U.S. dollar dropped by more than 95% between 2006 and early 2014.  

It’s good to be the king.  Not much longer though.  Karma is a bitch.

posted by TimingLogic at 11:50 AM