Tag Archives: short sell stocks

Amazon: The Devil Is In The Details

Jeff Bezos/Amazon is the poster-child for the degree to which this entire economic and political system is profoundly corrupt. – Investment Research Dynamics

Amazon stock made a big after-hours “shock and awe” move after it reported a huge headline “beat” of its Q3 earnings.  It’s a funny thing how the “beat the Street” game works.  Ninety days ago the consensus estimate for Q3 was $1.09, with one estimate as high as $1.59. The estimates were systematically “walked down” over the last 3 months to a mean estimate of 2 cents and a high-end estimate of 26 cents. This is how the game is played.

Make no mistake, the Company knowingly “guides” analysts down in order to engineer a “headline” surprise. This is how absurd this game has become. The “beat the numbers” game is one of the many frauds connected with corporate earnings reports. That said, AMZN’s EPS in Q3 2017 were the same as Q3 2016 – zero EPS growth. Bear in mind that GAAP acquisition accounting manipulation is heavily at play here.  Acquisition accounting enables a company to boost revenues and hide expenses.

Here’s just a cursory look at the “Devil in the details” (Short Seller Journal subscribers will get the in-depth, eye-opening analysis in the next issue released Sunday afternoon).

Amazon’s headline revenue “growth” cost AMZN a lot money in terms of operating earnings.  Despite the “marquee” 34% sales “growth” rate, AMZN’s operating income plunged nearly 40% year/year for Q3.  This drop in operating income has accelerated, as YTD for the first 9 months of 2017, AMZN’s operating income has dropped 32%.

This should have been the quarter that AMZN literally “printed” GAAP income because the quarter included its highly touted “Prime Day” record sales.  Furthermore, AMZN should have been able to reap the benefits of merger/acquisition accounting from its Whole Foods acquisition.  M&A GAAP standards enable companies literally to manufacturer GAAP accounting profits.   I would suggest that Bezos’ price-cut strategy at Whole Foods has driven WFM’s operating margin toward zero (from 4% pre-acquisition) – like the rest of Bezos’ consumer sales businesses.  But there’s more…

AMZN’s GAAP net income showed no growth – literally in Q3.  In 2016 AMZN reported $252 million in net income for Q3.  In 2017 it reported $256 million.  EPS were flat at 53 cents (basic).  Zero growth.  For this, AMZN’s market cap after hours increased by $37 billion.  But there’s more…

Without going into the monotony of GAAP tax rate accounting, suffice it to say that anyone who has taken a basic accounting course knows that the GAAP tax rate is highly arbitrary and a major source of EPS manipulation.  Again, the Devil is in the details…

In Q3 2016, AMZN used a 47% GAAP tax rate.  This latest quarter, AMZN capriciously applied an 18% GAAP tax rate.  Had AMZN maintained the same GAAP tax rate used last year, its net income in Q3 2017 would have declined to $200 million, or 41 cents/share. For this, the last buyer after hours ($1,047) was willing to pay 266x trailing twelve month earnings.

This is just the beginning of an in-depth look at the rotting condition of the numbers buried in AMZN’s financial statements.  The next issue of the Short Seller’s Journal will pull back the curtain on areas of AMZN’s SEC-filed numbers where no Wall Street analyst or financial media cheerleader would ever dare venture.  AMZN’s cash flow is declining – and its true free cash flow – not the Bezos non-GAAP “free cash flow” – is negative.  I can prove it.

The highly-touted acquisition of Whole Foods could turn out to be Jeff Bezos’ “Wings of Icarus.”  He may have flown too close to the sun on this one.

The information I present in the Short Seller’s Journal is actionable.  The last two times AMZN’s stock shot up I put a short recommendation on AMZN’s stock (including put option ideas) which led to profitable short-covering opportunities.  In the last issue I advised waiting until after Q3 earnings, stating that a big gap-up in after-hours would lead to another opportunity to short the stock.  You can find out more about the Short Seller’s Journal here:  Subscriber Information link.

The Air Is Releasing From The Hope Bubble

The post-election run-up in stocks was fueled purely by “hope and change” energy.  Now that Trump has assumed the mantle, reality will hit like an icy shower.  The non-“alternative facts” about the economy continue to show contraction in real economic activity.   The retail sales report for December was an utter disaster, especially if you strip out gasoline and autos.

The price of gasoline rose in December, which raised the nominal level of gasoline sales but inflation-adjusted is another matter.  With autos, as it turns out based on measurable dealer inventories, a large portion of the auto “sales” were deliveries to dealers financed by “floor financing programs” and not actual sales to end-users.

I found a curious chart and commentary in today’s “Daily Shot.”  I love this report because the author wears rose-colored glasses and puts a positive spin on any and all U.S. data.  Today he had this graph:

This was presented as a positive. But let’s review the facts. It took $4 trillion in money printing – over $2 trillion of which went directly into the mortgage market – a few trillion in Government subsidies to the housing market including the bail-out of Fannie Mae and Freddie Mac, the artificial imposition of record low interest rates and the re-stimulation of the subprime mortgage market in the form of Government-backed FHA and VHA mortgages in order to move the single-family home turnover rate back up to the “long run average.” Think about that for a moment:  it took several trillion dollars of direct housing market stimulus to move the needle on the home turnover rate up just a couple percentage points to its “long run average.”

But what happens now?  Now that interest rates are rising, the printed money has worked its way through the system and mortgage default, delinquency and foreclosure rates are beginning rise again, what will happen to the line on that graph?  Of course, it will head south – quickly and likely below the low it hit in 2010 –  unless the Fed re-ups its money printing and the Government throws even more subsidies behind housing.  But all that is going to do is put people into homes who otherwise can’t afford them.

The Philly Fed business outlook index hit a 2-year high, however, the prices paid sub-index drove a large part of this at it soared to its highest level since Feb 2012. In addition, the “expectations” for prices received dropped. This would imply that gross and profit margins are expected to drop. In addition, the average workweek sub-index dropped.

Now, there’s two big caveats with this reports, and of course the mainstream media and even ZH did not bother to peruse the entire report from the Philly Fed website but SSJ did bother. First, the survey used to construct the index measures primarily future expectations. There’s clearly a high degree of “hope” associated with the Trump stock market rally. I expect a big reversal of this sentiment over the next three months. Second, the Philly Fed incorporated “new seasonal adjustment factors” into the report. This was disclosed in the actual report for January. As with all seasonal adjustment calculations, the Philly Fed does not disclose its methodology for calculating the adjustments but they are likely designed to overestimate seasonal factors and therefore overestimate the index level calculations. – From the latest Short Seller’s Journal

In the latest Short Seller’s Journal, I take apart the latest economic hopium-infused economic reports and provide several short-sell ideas to take advantage of facts, which will eventually emerge and take stocks lower.  The “air” leaking out of the Trump bubble and it will translate into many profit-making trades in the stock market from shorting stocks or buying puts.  The SSJ is a weekly report dedicated to helping subscribers make money on the historically overvalued stock market.  You can subscribe using this link:  Short Seller’s Journal.  It’s monthly with no minimum time commitment.

Dave Kranzler provides excellent and indepth research in making his case to go long or short with options to play if you choose.  I look forward to getting his mining journal and short sellers journal in my inbox which include new ideas as well as updates on
previous ideas as market conditions change. I agree with his overall outlook on the market as my gut tells me something is wrong and since I’m not a market analyst I rely on Dave’s
experience to help me decipher what is really happening though his journals as well as his articles and interviews which are easily found on youtube. Thanks Dave for all you do and the personal attention and dedication to your subscribers.  – subscriber “Keith”