Tag Archives: Ponzi schemes

World’s Most Speculative Mania?

The western media – especially any mainstream U.S. news source – has made it a habit to blame the world’s problems on Russia and China.   The U.S. economy is aces – when the U.S. stock market drops it’s China’s fault.

Bloomberg published a report yesterday which presented China’s commodities futures market as the world’s most speculative mania:

What started as a logical bet — that China’s economic stimulus and industrial reforms would lead to shortages of construction materials — quickly morphed into a full-blown commodities frenzy with little bearing on reality.  Bloomberg News

But let’s put China’s commodities trading frenzy in the context of the stock that I estimate is the biggest corporate Ponzi scheme in U.S. history:

Untitled

Untitled1

AMZN trades at a trailing GAAP p/e of 562x.  I use the term “GAAP” here quite loosely because there’s GAAP and then there’s Jeff Bezos GAAP.  It trades at 23x book value, 30x tangible book value and 40x EBITDA.    Bezos claims that AMZN threw off  a couple billion in “free cash flow” for Q1.  Yet, if this is a provable fact, how come AMZN’s cash balance declined $3.4 billion from the the end of Q4 2015 to the end of Q1 2016?   Someone is not telling the truth…

It did not hit me until this morning (this was well before the Zerohedge article reporting a similar concept later in the day) that the reason the SEC and Congress do not open an investigation into Amazon’s accounting is because Jeff Bezos owns the Washington Post. That’s a very powerful weapon to dangle in front of a Washington, DC politician or bureaucrat.

AMZN stock hit an all-time high today because some chode from a Wall Street bucket shop issued a “buy” with a price target of $1,000.  The analyst did not have any specific fundamental reasons for why the stock was worth $1,000/share.  But then again, I’ve never seen anyone besides this blog and a few others attempt to hold these Wall Street hand-puppets to any reasonable degree of accountability.

The Bloomberg article references the the Dutch Tulip bulb mania of the 1600’s and the internet bubble of the late 1990’s in the U.S. when referencing the frenzied activity in the Chinese futures markets.   How convenient for Bloomberg to overlook that the fact that the greatest investor fraud of all-time is domiciled right here in America.

Yes, I suppose just like Bloomberg’s assertion that Chinese commodities futures “started off as a logical bet,” at time in its infancy as an online book reseller Amazon’s stock was a logical bet.   But fueled by Fed money-printing, regulator-enabled fraudulent accounting and extreme investor greed, Amazon stock is the embodiment of a financial system that is completely corrupted to the core.

Kinder Morgan: More Downside Risk Than Upside Potential

By 2015, KMI had become a personal cash piggy bank for Richard Kinder. Kinder owns 234 million shares. Before the dividend was cut 75% in late 2015, he was raking in dividend payments at a rate of $468 million per year. Basically he was running the Company like a Ponzi scheme in order to fund his massive personal dividend payout. – Excerpt from IRD’s Kinder Morgan Report

I started working on this Kinder Morgan report in early January.  I have taken my time in assessing the Company’s financials and I wanted to make sure that my thesis about the Company was credible because it is very rare to find anyone who is willing to issue contrarian analysis on KMI

One of the first big red flags for me was raised after I had sent several emails to the Company over the first four weeks of the year in my effort to gather as much information as possible. I also left several voicemails for the investor relations representative. Neither my emails nor my voicemails were returned. There is simply no excuse for this and reflects poorly on the Company. In close to thirty years of involvement in the financial markets, my investor inquiries to a company were ignored only one other time.

I wrote this research report “piece-meal” over time. Interestingly, every time dug deeper into the financials and related available public information, I discovered more problematic aspects than I would have had I written this report in a couple of marathon sessions. Similar to Amazon.com, this Company is complex maze of accounting, propaganda and hype. Each time I peel away a layer of veneer, I find more cracks in the facade.

I’m not necessarily recommending shorting KMI, although I think there’s money to be made on the downside if the price of oil continues lower, which I believe it will. This report explains why you should not buy KMI if you are thinking about it and it explains why you should sell it you still own it. This stock could easily go a lot lower.  Click on image to access this report.  Short Seller Journal subscribers will receive a 66% discount – contact me about this.

Kinder Morgan Banner w Border

Global. Economic. Collapse. And The “Bernanke Moment”

The global economy, including and especially the United States, is collapsing.  It’s debatable whether or not the western hemisphere countries produced true inflation-adjusted real GDP growth from 2009 to present.   Yes, I know the numbers the U.S. Government’s BEA spits out purport to show “seasonally adjusted, annualized” economic growth.  But a book could be written detailing the ways in which the Government manipulates and outright fabricates the data.  John Williams of Shadowstats.com publishes a newsletter with highly compelling evidence.   Anyone who dismisses Williams’ work does so out of complete ignorance.

The Baltic Dry Index is one of the primary tell-tales of economic collapse.  It measures the BDIdemand for container cargo shipments of bulk raw materials used for all stages of manufacturing.  It’s been twisted into evidence that China is slowing.  But it tracks global shipments and the U.S. and Europe are China’s two biggest export markets.  If China is not shipping, it’s because there is no demand from it’s two biggest customers.  It’s really that simple.

Need another indicator of the collapsing U.S. economy?   The mass layoffs that occurred in 2008-2009 are starting to hit the system again.  We know the energy sector is shedding jobs quickly.  But the retail and financial sector are close on the heels of the energy sector with RPIjob cuts – LINK.    And all those bartender and waitress jobs that the Government alleges to have been created are to disappear again:   Service economy is tanking. But there’s always this graph to the left if you think I’m making this up.

The point here is that the entire global economic system is in a state of collapse.  I find it curious that the financial media and analysts in the United States want to blame the problem on the rest of the world, specifically pointing at the distressed debt market in China.

It’s not debt that weighs on economic growth. If debt issuance is required to generate economic growth, then the “growth” was not sustainable unless the growth could generate enough wealth to support the additional debt. Continuous systemic debt issuance is unsustainable and defies all natural natural laws of economics.  At its base level it’s nothing more than a simple Ponzi scheme. A simple Ponzi scheme is probably what best describes the modern application – or misapplication – of Keynesian economics. I guess it’s poetic justice that Keynes’ economic thoughts were adopted by U.S. policy-makers originally at the onset of the first Great Depression and have been reinvented and re-mis-applied at the onset of the 2nd and bigger Great Depression.

I find it fascinating that the U.S.-based financial propaganda incessantly obsesses on this idea that China is the cause of the world’s ills. This is nothing more than narcissistic jingoism in its “best” light.  But I prefer to see it as a form of yellow journalism seeded in pathetic ignorance. This article from the NY Times’ “Deal Journal,” for instance, references $5 trillion of troubled debt in China, calling it the world’s biggest problem. Hmmm…

Let’s shine just brief light on the United States. Currently the U.S. credit markets, enabled and partially backed by the Government, have now created over $1 trillion in student loan debt, at least 30% – 40% of which is in some form of technical default; over $1 trillion in auto debt, of which at least 30% can be considered of the toxic subprime variety and which I suspect will begin to collapse sometime during 2016; close to $2 trillion in junk bonds have been issued since 2009, with close to 25% of that in the energy sector, which is collapsing as I write this; since 2013, roughly $500 billion of new mortgage debt has been issue, a large portion of which is of the subprime variety masquerading as 3.5% down payment “conventional mortgage” debt. That’s $4.5 trillion of already or potentially toxic debt and that number does not include generic bank and revolving credit loans extended to consumers, small businesses and large corporations. We know already that the banking system is choking badly on a couple hundred billion of toxic energy loans.

The point here is that global economy activity – including the United States – is collapsing independent of the amount of debt sitting on top of the financial system. If the wealth created by economic activity was adequate to support the debt issued against the “hope” of economic growth, then servicing the debt would not be an issue.  But economic cycles never have been and never will be growth in perpetuity.   Unfortunately, the amount of debt issued since the advent of modern QE has taken a parabolic growth path.

We are about to be confronted with an economic catastrophe that will likely shock and awe just about everyone.  The amount of fatal debt piled on top of the global economy will have the effect of throwing thermate into a napalm fire.

The Fed knows this and it’s why a couple of the Fed officials, including the highly influential NY Fed President, have been floating the concept of negative interest rates in this country.  Think about that for a moment.  The policy makers are considering the idea of paying you to borrow money.  If that’s not an admission of defeat on the use of money printing to spur economic growth, I don’t know what is.   Not only are we at the Bernanke Moment of dropping money from helicopters (apologies to Milton Friedman, who’s notion was hypothecated and abused by Bernanke), but they want to pay you to catch the money falling from tree tops in order to spend it.   Man, this is going to get weird – I hope you are bracing for impact.

Untitled

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

Putin: More Members To Join BRICS Bank

BRICS are coordinating their policies on key international issues ever more closely, and are playing an active part in shaping a multi-polar world order and developing modern models for the world’s financial and trading systems.  –  Putin, The BRICS Post

Vladimir Putin assumed the annual Presidency of the BRICS last Wednesday and Shanghai will be the host city for the BRICS headquarters.  The BRICS bank will formally be named the New Development Bank and it is anticipated that the other countries will be joining the BRICS bloc in the near future.

It has been my view that the BRICS bank has been been established as an alternative source of financing to the IMF, which is heavily controlled by the United States.  I also think the BRICS banks will serve as a “flushing mechanism” through which China and Russia will redistribute a portion of their U.S. Treasury holdings.   This would be a less conspicuous avenue for selling U.S. Ponzi paper than outright selling through traditional bond market mechanisms.

We are watching history in the making right now.  The global balance of economic and political power is shifting from west to east.   I believe this process is starting to accelerate. Unfortunately, I also believe it makes the U.S. a more dangerous as military threat to the entire world.   History has shown us repetitively how this cycle ends.   The biggest difference between history and now is that the U.S. alone possesses enough fire power to incinerate the surface of the earth.

Unfortunately, unless something can be done to stop the insane neocons who have captured control of the key areas deep inside the U.S. Government, this world is headed for “The Road.”

Amazon.Con

I have closely followed Amazon.com since the late 1990’s.   Many of you can probably remember that Henry Blodget made his name as a stock analyst with his bold predictions about the upward direction of AMZN’s stock.  Granted, this stock defies all laws of fundamental stock analysis and gravity.  I’ve come to the conclusion that Jeff Bezos has got to be the greatest snake-oil salesman in history.  He’s known for saying “entrepreneurs must be willing to be misunderstood for long periods of time.”

When the annals of history are written on AMZN, it will be known as “the company never made money but it’s stock remained insanely overvalued for long periods of time.”

I have written a very detailed analysis of AMZN’s financial statements.  I show why AMZN’s business model generates impressive revenue growth but fails to produce any meaningful amount of cash flow or net income.  I show how AMZN is really nothing but a Ponzi scheme dressed in drag.

You can access this report here:   AMAZON DOT CON.

Shorting any stock right now is a difficult proposition because the $4 trillion printed by the Fed is propping up the stock market.  But once the stock market rolls over, stocks like AMZN that are insanely overvalued relative to their ability to generate profits are going to crash hard.   In my report I have section that discusses using options to help you set up for the time when AMZN takes its next cliff-dive.