Tag Archives: AMZN

They Don’t Bother To Hide The Criminality In Silver And AMZN Trading

When they’re trading 1.5 billion oz. of silver each day in London, the ‘silver’ fix each day is a complete sham. Now the fix has been found to be openly manipulated, it will be interesting to see what happens with the London silver market. – David Jensen, “Silver: Is It The LBMA’s Greatest Rig?”

Strange things are happening in the global financial markets.  Most likely evidence of a massive systemic earthquake starting to shake.  As many of you know, the LBMA price fix “fixed” the a.m. priceUntitled of silver 84 cents below the front-month futures price right before the price was “fixed.”   This graph to the right shows how the criminal activity went down (click to enlarge).

I awoke this morning and had an email from Bill “Midas” Murphy asking me if the $13.98 low print shown on Kitco was correct.  I responded that it looked like there were some “low hanging” stop loss orders that were attacked in an attempt to get the price of silver down.  This was before I had learned of the crime committed on the LBMA.

I would love to have an explanation from the committee in charge of overseeing the LBMA fix.  The fact that paper silver bounced back almost immediately is evidence that the a.m. fix was a fraudulent act in its entirety.  But for what purpose?  The price fix is supposed to be the price that balances out the amount of physical silver bars being offered for sale and bid to purchase during morning trading.

The entities selling silver on Thursday morning didn’t just get their faces ripped off, they had their entire head decapitated.  These are the entities who should be pressing for investigation.  It’s money out of their pocket or their clients’ pockets.

This was my final comment to Bill on this matter:   The insider elite are laughing at everyone spending so many calories and so much energy reporting, discussing, analyzing and agonizing over the paper vs. physical issue.  Meanwhile the biggest theft in history is taking place right under our nose as they pluck every ounce of physical gold and silver out of the system from the idiots and the idiotic mining companies who are willing to sell it at the paper price levels.  The biggest wealth transfer mechanism is the Central and bullion banks.  The banking system has been ripping us off in every aspect of our lives for decades. Why on EARTH would anyone question or doubt that they’re ripping us off in the precious metals market? Seriously. Everyone in their heart of hearts knows that gold/silver are the ultimate root of any monetary system.  Why would the banks rip us off using paper currency schemes and not touch the metal?  For God sakes, the metal is what they’re ultimately after.  That’s why the first thing any military does when they take over a country is it takes the gold.  The most recent proof of this Ukraine.  That practice goes back to at least the Romans.

Someone sent me an excerpt from Ted Butler’s “news” letter in which he rationalized away the reason why the registered gold vault account at the Comex was so low now.  Bill, I seriously think he was on LSD when he dreamed that one up.

I guess what’s most troubling about the above incident is the blatancy with which the LBMA crooks implemented their crime.  They made no attempt whatsoever to cover up the crime scene.  It’s almost like they’re taunting us.

This brings me to the issue of AMZN’s trading today.  AMZN stock ran up $52, or 8.9% ahead of its quarterly earnings to be released right after the NYSE close on extraordinary volume of 14 million shares – 2.4x more than its 10-day average daily volume.   After the market closed, AMZN’s stock plunged as much at $95 from the close on a disappointing report.  It closed out the after-hours session down $85.

I bring this up because there is no question in my mind that the stock was likely run up by one of the hedge funds with a big position in the stock (or possibly two or three in collusion).  The purpose of this would be to generate a frenzy of buy activity into which the hedge fund could unload a chunk of stock.  This also implies that one (or more) of the big funds was given a “heads up” from inside AMZN about the nature of the report.

The reason I am convinced this is what happened is because I was part of a junk bond trading operation in which this occurred all the time.  Back then we had to be more careful because laws were actually somewhat enforced, sometimes with vigor.  But if I had a big position in say, Trump Casino bonds,  occasionally I would get a tap on the shoulder from one of the Trump bankers in corporate finance who would whisper, “uh, I don’t like your Trump position.”

In present times, the laws and regulations designed to prevent/discourage insider trading are rarely, if ever, enforced.  Insider information sharing is almost as blatant as the London silver price fix today.   Of course, I have zero sympathy for any of the idiots who chased the stock higher today.  Anyone who goes near that stock without doing extensive analytic work will get what they deserve.  Some of these big hedge funds who have massive AMZN positions are eventually going to get impaled on their holdings (or at least the pensions they manage money for will).  Here’s an example of one of the retail trading oriented dopes who was giddy about AMZN stock before it reported – Timothy Collins of TheStreet.com’s Real Money:  I’m Bullish On AMZN Ahead Of Earnings.   Nice trade, Tim.

Speaking of AMZN’s numbers, I will hopefully get around to updating my AMAZON dot CON report with the latest information sometime in the next 5-7 days.  If you have already purchased the report, please email for the update.  If you have not yet purchased the report but have thought about it,  I am going to raise the price again (it takes a lot of time and energy to work on this Company’s numbers) once the full research report is published with the update.

Today’s after hours action was just the start of the AMZN bubble deflation process.  I don’t know what path it will take, but I know that AMZN’s stock will eventually fall from the $550 after hours close today toponzi_scheme below $100.   To be sure, there will be periods of time when the stock moves up sharply because Jeff Bezos is the king of highly misleading stock promotion and there’s plenty of idiots out there who lap up his drool with blind greed.  My stock report will help you understand why AMZN is one of the world’s greatest Ponzi schemes.

The Pre-Earnings Promote On AMZN Begins

It began last night with FB’s earnings release, which triggered a spike in both FB and AMZN stock after-hours:  LINK.  I have been very clear to the subscribers of my Short Seller’s Journal to avoid shorting AMZN ahead of its earnings release after the market today.  I also advised them to take profits on any short positions or put positions last week.   I have been on the record stating that I fully expect AMZN to report a blow-out quarter.  The trick is to understand how and where they are using GAAP/non-GAAP to inflate the net income and “free cash flow” numbers they will report.    AMZN continues to burn cash and will continue to burn cash.  That’s the bottom line.

Point in case is this puff-piece from Bloomberg News this a.m. which describes how AMZN generates revenues – yet it fails to describe how AMZN turns those sales in real net income and real cash flow.   FYI, AMZN states in the fine-print of its 10K/10Q filings that its reported “free cash flow” number is not a metric that conforms to Generally Accepted Accounting Principles – a fact that should not surprise anyone who does real research and analysis on AMZN.

FB/AMZN: Idiotic Retail Daytraders And Hedge Fund HFT Algos

Facebook reported it’s Q4 earnings today.  Its “NON-GAAP” earnings “beat” the consensus “NON-GAAP” estimates.   As it stands, “GAAP” accounting standards have become an outright joke.   The use of “NON-GAAP” reporting has transformed the entire accounting industry into an adult cartoon.  “Beavis an Butthead” for corporate earnings reports.

Why even report financials?  Why not just report NON-GAAP earnings per share?  Feed the ducks what they want to eat.  “NON-GAAP” translated into English means, “here’s our earnings if you exclude all the expenses we take every quarter that we consider to be non-recurring.”  It’s income not including recurring “non-recurring” expenses.  It’s an absolute unethical perversion of financial accounting – kiddie porn for Wall Street analysts and moronic institutional investors.

Based on today’s GAAP earnings and the after-market level of trading, FB trades at 78x trailing EPS, 16x revenues, and 36x cash flow (EBITDA).  This is an insane level of valuation for a company with sales derived primarily from mobile advertising.  I guess a fact that escapes most investors is that as the global economy sinks deeper into recession, the decline in consumer spending will accelerate and advertisers will cut way back on ad spending budgets.  I’ll let you figure out what that will mean for companies like FB that derive their revenues from corporate ad spending budgets.

Perhaps even more confounding is the fact that the stock of AMZN, which reports its Untitlednumbers tomorrow after the close, jumped $10 in after-hours when FB reported.  I’m not sure why online widget sales would be correlated with the growth rate of the number of people who log onto Facebook, but it exemplifies the degree which the U.S. stock market has become disconnected from economic reality. (click image to enlarge)

Having said that, making money by trading irrationalities in the stock market is a big part of what my Short Seller’s Journal is all about.  I deliver a weekly newsletter to your email with one long-term fundamental short-sell play and one or two “quick hit” trade ideas. The quick hit ideas are designed to take advantage of stocks which pop in price in absence of any true bona fide fundamental reasons.  The textbook example of this is Weight Watchers. Just today in fact, the idiots on financial news tv were reporting how a tweet by Oprah caused the stock to jump 23% to close at $13.75.

What they didn’t tell you is that she pulled the same stunt right after Christmas – only stock after that closed at $23.05.   I put this stock in my Short Seller’s Journal released on January 3 at $22.95/share.  Subscribers who took advantage of this idea and held until Friday that week made 34% on their short position.  The ones who played the puts I SubscriptonGraphicsuggested made 600%.

SSJ is a monthly subscription with four reports each week.  I include some fundamentals-based research, ideas for using puts and calls to replicate shorting a stock and capital management suggestions.

I am one of your new subscribers. I am a novice in Option trading field. I am just writing to let you know that I enjoy SSJournal and especially examples of how trading strategies could be executed, with actual described cases – to me that is the best way of learning. I think that is most valuable for me. Shorting companies symbols are, of course, very important to get one going in the right direction as well. – subscriber from Sparta, NJ

Is AMZN’s Genie Finally Out Of The Bottle?

A curious news report hit the tape yesterday which described a “major shift in [Amazon’s] thinking” – AMZN Buys Rights To “Wiener-Dog.”  I find it curious because,  a) the author of the report clearly has not read my Amazon dot Con stock research report and b) there has not been a “major shift” in AMZN’s “thinking.”  (click to enlarge image)

UntitledThis move by AMZN has been endemic to the way Jeff Bezos operates since he transitioned the Company from a simple-model online book-store into a gigantic Ponzi scheme which has fomented one of the most overvalued high profile stocks in history.  Oh by the way, he’s fleeced shareholders for 10’s of billions of dollars over the last 20 years.

This news report embodies the myth of Amazon.  Every time Bezos rolls out a new add-on to his business model, the AMZN stock bulls herald his genius and the stock goes nuts.  We’ve seen this countless times over the years including recently:  drone delivery, restaurant menu delivery, same-day delivery, cloud computing, content delivery…And yet, curiously, Bezos has never been able to deliver bona fide net income to his shareholders from his add-on Ponzi business ventures.

His true business model is selling dreams to AMZN perma-bull shareholders as a technique to trigger a stampede into the stock.  Heck AMZN stock jumped when Bezos announced hisponzi_scheme personal venture to develop a space travel company.

But perhaps the market is finally catching on.  AMZN stock is down 2.5% today as I write this. I suspect the market may see the through the  transparency of  his latest “major shift in thinking.” He spent a few million dollars of shareholder money on a movie called “Weiner Dog” that was thoroughly panned by critics.   One might think a few million spent is a meaningless amount to a company with at $285 billion market cap.  The problem is that the “money spent” in recent years is being funded with junk bonds.

This is how Bezos has been operating over the last 20 years.  Spending money thrown at him by the stock market into business ventures that lose money and burn cash.  My Amazon dot Con report lays this out in detail.  The truth is that, over the last 20 years, Bezos has become one of the richest men in the world and AMZN stock recently hit a market valuation of $325 billion.  And yet Bezos has only been able to delivery $1.9 billion in net income cumulatively to shareholders over the last 20 years.

Amazon.com: Has The Bubble Finally Popped?

It’s good to no longer be a lone voice in the wilderness.  This latest commentary on the insane overvaluation of Amazon stock comes from Bill Bonner of Agora Research by way of the Acting Man blog:

Every AMZN bear has been made to look like an idiot – but that may soon change. As David Stockman recently pointed out, those who actually take the time to properly analyze its slippery accounting and business model (not the dead fish employed by the sell-side, obviously) cannot help but conclude that it is a giant Ponzi scheme – and the danger that this realization will penetrate the “market mind” is increasing. It remains a “river of no returns” – although consumers have every reason to love it. Investors buying it today pay 830 times net earnings for the stock – and said net earnings actually look somewhat dubious upon closer inspection.

Interestingly, a lot of AMZN critics still insist on describing AMZN as company that generates “cash flow.”  But, as my AMAZON dot CON report details, the metric being describe as “cash flow” comes from Bezos’ own quarterly earnings presentations in which he references “free cash flow.”

For those of us who bother to scour the footnotes of AMZN’s SEC filings, we find that AMZN discloses that its “free cash flow” metric does not conform to GAAP accounting standards. But I take that disclosure in my report and show, with details from AMZN’s financials, why the term “free” in reference to “cash flow” is highly misleading.  In fact, over the last two years the cash used by AMZN to “invest” in its business model has come largely from debt issuance and from gift card and Prime membership deposits.

Amazon Prime?  Bezos admitted about a year ago that Prime loses a couple billion, a fact confirmed by one analyst in July but ignored by everyone:  LINK.  The idea behind Bezos’ strategy is to do whatever it takes to generate sales growth.  The stock price soars when it looks like AMZN is growing rapidly.   However, as my report details with direct evidence from the financials, revenue growth is required in order for AMZN to pay its expenses.  In other words, the only way AMZN stays afloat is if “cash in” exceeds “cash out.”  That’s the definition of a Ponzi scheme.  AND, as a matter of fact, as I show in my report, AMZN has stretched out its accounts payables over the last few years.  This is a trick companies use in order to slow down the rate at which they pay their bills.  If revenues begin to decline, AMZN will hit the wall – quickly.

As I state in the introduction sent to new subscribers of my Short Seller’s Journal, it is impossible to time the top in AMZN.  But once it rolls over, it will drop quickly.   You might miss the move from $600 to $400, you can ride it from $400 to $100 or lower.  AMZN ran from $300 to almost $700 in less than a year.  It can easily complete that roundtrip in even less time.

There’s probably a core level of operations that can be a profitable business. But it is nowhere near the level that generates the current $100 billion of revenue.  AMZN spends at least $1 to generate every $1 of revenue.  That core level of potential profitability would likely imply a fundamental value per share well below $50.

I would not necessarily rush out and short AMZN right now.  It will probably start to move higher into its earnings report on January 28 (after the market close).  I have a feeling that Bezos will pull out all the stops to manufacture an earnings report that beats consensus estimates and the stock will gap up again as all the hedge funds that piled in short this week scramble to cover.  THAT is when you want to start pulling the trigger on shorting the stock.  My AMAZON dot CON report will help you prepare for that.

More On The Amazon Spin-Machine

Jeff Bezos’ greatest business trick is his ability to spin the illusion that AMZN is a money-making machine.  In fact, AMZN is remarkable  sales-generating machine,but it costs the Company more than a dollar to generate a dollar of sales.Bezos1

All of a sudden in 2015 AMZN had become a cloud computing services phenomenon.  The last two earnings report showed a rate of growth in its AWS business and the stock rocketed higher.  Of course no one seemed to care that outright the AWS business represents less than 10% of AMZN’s total revenues.  And of course nothing is ever mentioned about the quality of AMZN’s AWS-derived sales.

The truth is, and Bezos never discusses this, that the majority of AMZN’s AWS contract revenue comes from Silicon Valley unicorns.  Most, and maybe all, of them will not be around in a few years.  Here’s an accounting of this from someone besides me:

I would like to introduce a meme before the sell side or buy side catches on.  As you know AMZN was up 100% this year as Bezos revealed the AWS business to the world.  The meme is this: AWS growth is unsustainable.  Not only is it unsustainable I predict that the sell side forward revenue growth rate for AWS will  go to zero or negative by Christmas next year.   It has come to my attention that 50% of AWS growth comes from start ups and my guess is that the majority of those dollars are Unicorns.  AMZN has been an indirect beneficiary of QE largess.  The Fed’s easy money created a bubble in VC funded start ups.  That funding peaked this year and is now in decline as the Unicorn bubble is bursting.  I expect this bubble to unravel fast as we are in the part of the cycle where the capital markets shut down for companies burning cash.  –  AMZN:  The Ghost Of XMAS Yet To Come

My AMAZON dot CON report goes into further detail about the problems with Amazon’s AWS business modelAMZNnew and why, at some point, the market value being assigned to the part of AMZN’s business model will likely largely evaporate this year.

AMAZON dot CON

Any question about the role Amazon stock plays in helping the Fed/US Government prop up the S&P 500?Untitled2

The more time I spend researching and observing AMZN, the more I”m convinced that it’s the biggest Ponzi scheme in the history of the stock market.

Throughout its 25-year history as a public stock, AMZN has delivered a cumulative total of $1.9 billion in net income to shareholders. Jeff Bezos made $16 billion on AMZN stock in 2014. Here’s the details:  Bezos’ Ponzi Scheme

Here’s what’s behind Bezos’ drive to transfer as much money from the stock market to his bank account: Bezos Has Amassed A $59 Billion Fortune – And Wants More. If you read through that article you’ll get a sense of what drives Bezos and how he operates.

Amazon is a Ponzi scheme in the sense that its business model requires sales growth every quarter in order to generate enough cash flowing in to the Company to enable it to pay the cash expenses flowing out of the Company.  This is one of the reasons AMZN is constantly running Prime membership 1st-year fee deals.  It needs the cash it receives upfront in order to help it fund cash payment Untitledexpense obligations.   The graph to the right shows one of AMZN’s basic problems.  AMZN offers free two-day shipping to Prime members.   Its cost of shipping eats up an increasing percentage of its sales revenues.   AMZN hides a lot of its expenses by making liberal use of the increasingly “grey” areas of GAAP accounting rules.  But you would never know this unless you dig deeply into the murky abyss of the footnotes to its financials.

The genius of Bezos is his ability bamboozle big investors and retail chimps into piling into his stock every time he announces another “big” idea.  The current massive bubble embedded in the valuation of AMZN’s stock is the $150 billion of AMZN’s $297 billion attributed to AMZN’s cloud  computing services business, “AWS.”   This is a business that represents about 7% of AMZN’s revenues.    That $150 billion is  21-times AWS’ trailing twelve month revenues and about 150-times  AWS’ trailing twelve month operating income.  Insane valuation multiples.

David Stockman published a piece last week which discusses the degree to which AMZN is an epic stock bubble.  However, even he is bamboozled by AMZN’s numbers. He gives AMZN credit for spending $11.6 billion on R&D.   This is what Bezos wants the market to believe.  Tech companies get a lot of stock market “cred” for showing high R&D “investment.”   But the $11.6 billion AMZN spends is not R&D.   Market professionals like Stockman are getting this “R&D” number from an expense line item in AMZN’s income statement called “Technology and Content.”  They automatically assume that number is R&D’s expense.  But it’s not. I like to dig into the bowels of 10Q and 10K filings and kill the market with truth.   This is from the footnotes to AMZN’s SEC-filed financials:

Costs to operate our AWS segment are primarily classified as “Technology and content.” Technology infrastructure costs consist of servers, networking equipment, and data center related depreciation, rent, utilities, and payroll expenses. These costs are allocated to segments based on usage. During Q3 2015, we expanded our technology infrastructure principally by increasing our capacity for AWS service offerings globally.

What analysts like Stockman assume to be R&D spending are, in truth, mostly the expense of operating AMZN’s website and its AWS business operations.  I detail this in my AMAZON dot CON report. In other words, AMZN is getting $10’s of billions of stock market love based on the idea that it is pouring billions into R&D – R&D that is in reality nothing more than standard operating expenses.

David Stockman and everyone else also use in their analysis the number that AMZN reports as “free cash flow.”  But I show in detail, based on using information that is found by digging through the footnotes in AMZN’s SEC-filed financials and by applying a deep understanding of GAAP accounting, that AMZN’s true cash flow is not even remotely close to the number used and reported by analysts and critics in their reports.  Again, my report is available here:  AMAZON dot CON.

As for the quality of revenues and operating income at AMZN’s cloud business, most of AMZN’s contracts are with Silicon Valley start-ups, most of which will not be around very long.  Moreover, the pricing for cloud computing services has undergone extreme price compression from competitive pressures. Here’s an anecdote from a contact of mine who runs a technology-based healthcare company:

Here’s a funny fact on AWS [Amazon Web Services] that again everyone seems to ignore or miss. I have a company and our AWS bill is coming up for renewal and the prices have dropped 90%+ in 3 years. And yet, a hyper deflationary commodity, that is being sold in mass quantity to profit-less start-ups, is worth perhaps $150B or more of AMZN’s market cap.  Epic.

Cloud computing services is the contemporary version of fiber-optics.  Remember that business, which drove a large portion of the late 1990’s tech bubble?   Level-Three Communications (Warren Buffet), Qwest (Phil Anschutz), Global Crossing (A JP Morgan sponsored Ponzi business).   The cost of accessing fiber optic networks dropped like a rock as fiber-optic overcapacity and technological advances invaded the business model.  The same dynamic has invaded cloud computing.

Global Crossing went bankrupt and reorganized into Level Three; Qwest renamed CenturyLink is a quasi-utility phone/communications company and survived the fallout from the fiber-optic bubble but its then-CEO, Joe Nacchio, was prosecuted for insider trading and financial fraud and spent six years in prison;  Level Three still operates but it’s stock, on a split-adjusted basis, dropped from a peak of $1,769 on Jan 31, 2000 to a current price of $53.

These examples show the type of hype, fraud and malfeasance which belie extreme financial bubbles.  I am highly confident that the same type of activities are occurring behind the “curtain” at Amazon.

Clearly, from the graph above, the Fed uses AMZN as one of its props to hold up the S&P 500 in order to maintain the illusion that the economy is fine.  But at some point, just like with every bubble stock in history, the gravitational pull of fundamentals will engulf AMZN’s stock price and send it plummeting.  Perhaps this has already begun:

AMZN11

If The Fed Has Lost Control, Will The Government Impose More Control?

I stand by my prediction that 2016 is going to be a horrible year for the world in general. I am a great fan of both David Stockman and Paul Craig Roberts and if you conflate their views the world is going to be a disaster economically, financially and geopolitically.  – John Embry (email conversation this past weekend)

I find it fascinating that, sometime between the close of trading on December 31st and the start of trading in 2016, the JP Morgan’s equity Einsteins all of a sudden decided that the stock market “might” be overvalued.  Per Zerohedge, JPM released a strategy report suggesting that the new robo-trading trading them in 2016 might be “selling any rallies.”

But what changed?   The stock market has been overvalued for several years.  It was still overvalued from a strict fundamental standpoint when the S&P 500 bottomed out at 666.79 in early 2009.   It has been insanely overvalued for the better part of the last three years.  No one could see that until Sunday night?  All of a sudden JP Morgan has decided that “equities are not attractively priced anymore?”

I suggested in my blog post this past weekend that Thursday’s Fed funds event might be indicative that the Fed is losing control over the markets – Is The Fed Losing Control?  I’m wondering if what happened on Thursday with Fed funds rate contained more predictive power than any of us imagined possible…

I opened up the latest issue of my Short Seller’s Journal with this comment:

The current stock bubble is now about 30% bigger than the previous two bubble tops – 2000, 2007. One difference between now and the last two bubble peaks is that the underlying fundamentals are significantly worse now. Just one example is the amount of Government debt outstanding. At the 2000/2007 peaks, Treasury debt as a percent of GDP was 55% and 57%, respectively. Currently, Treasury debt as a percent of GDP is 109%. Keep in mind that the Government also now guarantees FNM/FRE debt, which would add another $7 billion, roughly, to the $18.8 trillion in Treasury debt.

The point here is that the “gravitational pull” from the underlying fundamentals will eventually override the Fed/Government’s ability to keep the stock market propped up.

My feature stock of the week is down 4% today vs. 2% on the S&P 500.  My “Quick Hit” idea is down 6%.

Why all of a sudden JP Morgan (and others) have decided that the stock market is overvalued today but it wasn’t last Thursday is beyond me.  The excesses and insanity that culminated in the brief financial system collapse in 2008 are even bigger and more pervasive now.

Quietly AAPL stock is now down 23% from its all-time high in 2015.  Doesn’t this mean that AAPL is in a “bear market?”  If AAPL were continuing to hit new all-time highs the financial media would be in our face with the virtues of the iPhone and stoking anticipation for AAPL’s next product flop introduction.

I don’t know if today’s early morning action in the stock market will be another “false flag” gap down followed up by a massive rally in the last hour of trading.  We’ve seen this “movie” several times overUntitled the last year, as the S&P 500 forms what appears to be a massive rollover – click image to enlarge.

What I find horrifying – and what is getting lost in the shuffle of today’s market activity – is that fact that Obama is getting ready to flex the muscles of dictatorial control with his threat to issue an Executive Order mandating gun control.  Doesn’t anyone remember that Obama is the guy who based part of his 2008 platform on reversing all of the Unconstitutional Executive Orders executed by Bush and who promised to reduce or eliminate the use of EOs?   Anyone remember?  Anyone?   I remember vividly.

My point here is that as the Fed loses control of the financial markets, I fully expect that the Government will impose tighter Totalitarian control over the country.  I also expect that the populace will rollover and say “thank you, may I have another?”

China turned off its markets after its stock market dropped over 7% last night.  Everyone with whom I’ve discussed this today has expressed disdain.   But the U.S. Government has imposed the ability to implement the same shut down in a limit-down move.  Why has this not shocked everyone?   The duplicity of Americans, even highly educated ones, is incorrigible – if not completely tragic.

All of the highest beta, highest p/e and most overvalued stocks relative to their true underlying fundamentals are getting shellacked today.  AMZN is down nearly 6% and NFLX is down nearly 7%.  The homebuilders are down 2.5-4% across the board.  It’s going to be a profitable year for those who take the leap into the world of shorting stocks.  My Short Seller’s Journal is, up to now at least, a unique publication that focuses on ideas for shorting the market. I also offer risk management advice and include some ideas for using options.  It’s a monthly subscription with weekly reports delivered to your email.  You can access this subscription here:  Short Seller’s Journal.

Amazon (AMZN): Sheer Insanity

Amazon (AMZN) stock is breaking out to a new all-time high today.  The “catalyst” ostensibly was news reports out yesterday that AMZN added 3 million Prime members during the 3rd week of Decemeber (of course, reported by CNBC) – LINK.   The report suggests that AMZN has lifted “veil” on Prime.

But what is not reported in this article,  of course, is the fact that AMZN was offering a free one-month trial of Prime.  Hmmm,  a week before Christmas and I can get free two-day shipping on anything I order?  I’m surprised AMZN didn’t sign up 10 million Prime “members.”  I wonder if CNBC will do a follow-up report next month which discusses the “churn” rate on the 3 million new “members.”  “Churn rate” would be the number of free-trials which cancel after the free month.

CNBC also reported that AMZN had a “record breaking holiday” based on the fact that 200 million more items received free shipping this year, reaching a record number of shipments.  This may be a record in terms of shipments but “free” shipping costs someone money.  I don’t think UPS, Fed Ex and the USPS are shipping AMZN’s products at a loss.  Someone bears this expense.  In my AMZN dot CON report I show in detail how AMZN bears the cost of fulfillment and also does spectacular job of hiding this cost.

The Robo traders grabbed these headlines and started having a big party pushing the stock higher, which is up 32 points, or 4.8%, in less that two trading sessions.

Lost in all this excitement is notion that AMZN is the poster-child representing the fact that the U.S. financial markets are irrevocably broken.  The entire financial system, especially the stock market, has become one big fraud.  It’s reported that Apple’s shipments of the new iPhone from Taiwan manufacturers were cut 5-10%.  This is not happening because demand is strong.   The market doesn’t care, as AAPL is up over 2% today.

At $694/share, Amazon is trading at 988 times its trailing twelve month earnings per share of  70 cents.  This EPS is calculated using AMZN’s version of GAAP accounting.   Think about it this way:   How many of you would buy a business in which you pay $988 for every dollar that business earns?

The Fed likes to refer to a process in which it seeks to “normalize interest rates” – whatever that means.  Let’s assume we “normalize” AMZN’s p/e ratio based on the theory that AMZN can grow into a market p/e of 21 (roughly).   On a trailing twelve month basis, AMZN’s net income was $328 million.  AMZN’s net income margin over the last several years has been 1% or less.  Let’s assume AMZN’s net income margin can “normalize” to Walmart’s 5%.  In order to justify today’s price of $694/share, AMZN’s sales would have grow from $100 billion to well over $300 billion.   How realistic are these assumptions?

If AMZN were to price its products and services based on standard cost accounting methods, it would have to eliminate free shipping and raise the prices on the products it sells.  Many retailers are now matching any price on AMZN.  In this regard, AMZN’s “competitive” advantage is being eroded.  My stock research report shows in detail that AMZN’s reported “free cash flow” is highly misleading.  AMZN burns cash.

Oh but what about AMZN’s now-famously promoted cloud business?  Here’s an email I received from a reader who’s company uses AMZN’s AWS services:

Here’s a funny fact on AWS that again everyone seems to ignore or miss. I have a technology company and our AWS bill is coming up for renewal and the prices have dropped 90%+ in 3 years. And yet, a hyper deflationary commodity, that is being sold in mass quantity to profit-less start-ups, is worth perhaps $150B or more of AMZN’s market cap. Epic.

The point here is that – despite the heavy application of mascara on the wart-hog’s face – the bulk of AMZN’s cloud business is derived from the small tech start-ups being glorified by private equity firms but that will not be around in a few years.  The pricing of cloud computing services has been plummeting.   Sound familiar?  Anyone remember the “fiber optic” bubble that precipitated the internet/tech bubble?  Anyone remember a company called Global Crossing? GBLX filed bankruptcy in 2002.  i’m not suggesting AMZN will go BK, what I am suggesting is that AMZN’s cloud computing business is all hype and hope.  That $150 billion in market cap ascribed to AMZN’s cloud business will evaporate quickly at some point in time.

But here’s the coup de gras:  A friend/colleague who is a Prime member who brags about the fact that AMZN loses money on him forwarded an email to me he received from AMZN. He titled it “AMZN sinks to a new low.”   It turns out he received a “promotional credit” entitling him to a free digital HD copy of “Kung Fu Panda” on Amazon Video.  He has to use this credit by January 15, 2016.  The question is, who the hell wants to watch “Kung Fu Panda” even if it’s free?   Obviously this is a loss-leader marketing ploy designed to get him on to the website where he might pay for something.

The right to distribute this movie was not free for AMZN.  At some point someone along the food chain will have to pay for it.  AMZN pays for it up upfront and then washes the cost of this by capitalizing the expense on its balance sheet.  Eventually this game will come to an end, causing the stock to plummet.  Don’t ask me on the timing of this event.  No one knows.  Bezos doesn’t care because he unloads 100’s of thousands of shares every quarter.

Ultimately the shareholders will pay for this:  the funds who chased the stock price up to the stratosphere and the people who are invested in those funds.  It will not end well…

 

Profit From The Greed And Stupidity Of Others

History is about to repeat itself.  The tide of liquidity is slowly drifting out and this cycles frauds and scams will reveal themselves soon.  Look to companies that rely on the capital markets to fund their growth as Wall Street is a willing accomplice in looking the other way due to the fees collected.  – Enron Memories:  A Cautionary Tale

I would again urge everyone to go see “The Big Short.”  I plan on going to see it again.  The on-screen rendition is that powerful and well-acted.   It explains in “layman” terms what happened.  For those who put their thinking cap on, the movie explains why what happened is happening again – in a re-packaged form.

While everyone is focused on Amazon’s news report that it added 3 million subscribers in the 3rd of December and had record package shipments this holiday season, causing the stock to pop up despite the sell-off in the S&P 500, I am focused on the truth.  Of course AMZN had 3 million Prime subscribers right before Christmas.  Why?  AMZN was offering a one-month free trial to Prime.  If you had not shopped yet for Christmas and had 2-day free shipping dangled in front of you – for free – of course you’re going to sign up.

Let’s see the “churn and burn” rate for the people who have subscribed to the free-trial promotion.  I can guarantee you that AMZN will not publish those numbers.

Record shipping?  Economic theory teaches us that when something has no cost, demand is infinite until saturated.  I know people in NYC who bought toilet paper and paper towels from AMZN because free delivery is cheaper than taking a cab to the grocery store.  And who wants to schlep big armloads for grocery supplies around the streets of NYC?

Markets become irrationally overvalued because, in general, people have a tendency to overprice “hope” and “optimism.” It’s human nature to deny the negative side of reality. As a result, the market tends to “under-price” the probability of a negative outcome. This dynamic presents opportunity for those willing to examine the truth.  – Short Seller’s Journal

What is missed on this is that AMZN loses money on its Prime membership business.  It has admitted this.  But the push up in the stock price greatly benefits Jeff Bezos, as he automatically unloads 100,000’s of shares every month.

I will have a lot more to say about AMZN and the retail sales report out from Mastercard later this week.  I have had added a new feature to my Short Seller’s Journal called “Quick Hits,” which presents a short term, short-scalp trading idea.  The idea presented in this week’s report is down $1 (1.3%) already.  The put option suggestion is up 40%.  I believe this idea has at least another $1 of downside before Thursday’s option expiration. Click on this link to to subscribe:   SHORT SELLER’S JOURNAL.

This week’s report also presents what I believe to one of the best ways to short the corporate and mortgage bond market, especially the high yield market.