[P2P-F] Fwd: Christo - SCAMazon -

Thu Nov 2 12:31:04 CET 2017

---------- Forwarded message ----------
From: Christopher M. Quigley <cmqesquire at gmail.com>
Date: Thu, Nov 2, 2017 at 1:47 AM
Subject: Fwd: Christo - SCAMazon -
To: Michel Bauwens <michel at p2pfoundation.net>

Michel,

For your attention.

Kind regards,

Christopher

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The Market Ticker ® <https://market-ticker.org/akcs-www?blog=Market-Ticker>
Commentary on The Capital Markets
2017-10-27 20:55 by Karl Denninger
<https://market-ticker.org/akcs-www?email-send=tickerguy>
in Corruption
<https://market-ticker.org/akcs-www?blog=Market-Ticker&cat=Corruption> *,
5011 references
<https://market-ticker.org/akcs-www?blog=Market-Ticker&page=2#>*
The United States of SCAmazon
<https://market-ticker.org/akcs-www?post=232508>
*[Comments enabled]*

 Amazon is now  turning nearly a *negative 20%* margin on goods sold *not*
including SG&A (that is, their sales and administrative expenses, such as
the buildings and their employees) but *only *counting the cost of goods
sold and their fulfillment (shipping and warehousing) expense.

I wish to note that *generally *cross-subsidizing is legal *provided* it's
not done for an unlawful purpose.

For example it is *legal *to sell something as a "loss leader" to get
people into your store in the hope that they will buy a profitable product
or service (which makes enough profit to cover the cost of both), whether
that other sale takes place at the same time or somewhere down the road.
There's nothing illegal about using a "teaser" product to get people to
shop with you, in short.

*However, *if the *purpose* of said intentional selling at a loss *is to
destroy competitors in your market *and you have the market power to
do so *that's
against the law *under the Sherman Act.  In fact, *it's a felony.*
<https://www.law.cornell.edu/uscode/text/15/2>

*Every person who shall monopolize, or attempt to monopolize, or combine or
conspire with any other person or persons, to monopolize any part of the
trade or commerce among the several States, or with foreign nations, shall
be deemed guilty of a felony,* and, on conviction thereof, shall be
punished by fine not exceeding $100,000,000 if a corporation, or, if any
other person, $1,000,000, or by imprisonment not exceeding 10 years, or by
both said punishments, in the discretion of the court.

Note that you *not* need to do this between two or more companies -- it is
entirely illegal to do so *within the walls of one firm alone.*

Corporations exist for *one purpose alone -- *to make a profit.  This does
not mean that every firm *succeeds *in making a profit, of course.  In
point of fact 8 out of 10 new firms fail within five years as they are
unable to meet the essential test of "business" -- turning a profit.

But look at this, which is an extension of the table I created earlier --
it goes back more than *five years* and is taken from the SEC's filings
made by Amazon.
Date Sales COGS Sales/Cog % Fulfillment Net % Profit
2013/Q1 13271 11801 12.46% 1796 -326 -2.46%
2013/Q2 12752 11209 13.77% 1837 -294 -2.31%
2013/Q3 13808 12366 11.66% 2034 -592 -4.29%
2013/Q4 21072 18806 12.05% 2918 -652 -3.09%
2014/Q1 15705 14055 11.74% 2317 -667 -4.25%
2014/Q2 15251 13399 13.82% 2382 -530 -3.48%
2014/Q3 16022 14627 9.54% 2643 -1248 -7.79%
2014/Q4 23102 20671 11.76% 3424 -993 -4.30%
2015/Q1 17084 15395 10.97% 2759 -1070 -6.26%
2015/Q2 17104 15160 12.82% 2876 -932 -5.45%
2015/Q3 18463 16755 10.19% 3230 -1522 -8.24%
2015/Q4 26618 24341 9.35% 4546 -2269 -8.52%
2016/Q1 20581 18866 9.09% 3687 -1972 -9.58%
2016/Q2 21116 19180 10.09% 3878 -1942 -9.20%
2016/Q3 22339 21260 5.08% 4335 -3256 -14.58%
2016/Q4 30629 28958 5.77% 5719 -4048 -13.22%
2017/Q1 23734 22440 5.77% 4697 -3403 -14.34%
2017/Q2 24745 23451 5.52% 5158 -3864 -15.62%
2017/Q3 28768 27549 4.42% 6420 -5201 -18.08%

This is Amazon's sales of *goods* (*ed: Before attacking this table, read
the italicized portion at the bottom.*)

Their top-line margin (simply sales divided by cost-of-goods sold) has gone
from 12.46% to 4.42%, a collapse of approximately *65%*, over that period
of time.  At the same time their operating loss *not including general and
administrative costs, nor marketing -- *that is, *just* the cost of the
product and "fulfillment", has gone from -2.46% to *-**18.08%*, an
*explosion* of more than *730%*.

The argument could be, of course, that there are "other than COGS" in that
number.  Well, ok, but read on below and then keep trying to find a
scenario under which that claim fits for *material *components of that
figure.

You see, what's most-interesting in the table is that in approximately the
third quarter of 2016 the company basically *gave up *and surrendered,
essentially "throwing a switch", removing *500 basis points* of markup over
cost in a *step function *that has no rational explanation among any change
in the mix of products and services sold that occurred *at the same time*.
I have not seen *one word* out of the analyst community (or the company for
that matter) on this.  In fact all the analysts have been "cheering" on the
"acceleration" of the firm's prospects and results, *with the stock price
going from $700 then to $1105 today.* Yet it appears that Amazon went from
losing 10% on all the goods it sold *to 18% or nearly double the loss*
during that same time period*.  *The latest escalation in loss during the
most-recent quarter is associated with ramping fulfillment expense (up *35%*
in one quarter against a 16% sales increase) which the firm tried to "dull"
by taking *another* 110 basis points off its "cost" markup!

The company now, it appears, loses *approximately one dollar in five *whenever
someone buys a "thing" from Amazon.

*This is not some startup attempting to claw its way into relevance; it is
a mature firm that employs tens of thousands of people and yet over the
last five years it certainly appears it has been incapable of growing its
sales of physical product without losing more and more money on each and
every sale.  Instead of finding itself with a near-zero stock price both
analysts and the media trumpet how "successful" the firm is at being a
retailer!  Thanks in no small part to the fawning that the media and
analyst community has served up upon a credulous public and
their intentional burying of the truth the stock price has more than
quadrupled from roughly $250 in early 2013 to over $1,100 today.*

*It certainly appears that Amazon has "purchased" their increase in the
gross sales of goods by literally giving product away at an ever-increasing
loss -- a loss that has now reached nearly 20% across the entirety of
nearly thirty billion dollars in goods sold last quarter.*

Given the amount of data Amazon has and the utterly-stunning percentage of
loss they're taking in that regard I'm willing to bet that a nicely-aimed
subpoena would show that the company is *well aware *that the *only* way
they could continue to grow sales to any material degree *is to displace
existing retailers by intentionally selling at that ever-increasing loss* --
and that this is exactly what they're done.

More to the point there is nothing else Amazon sells to consumers that can
possibly make back the *$5.2 billion dollars* lost last quarter through
this practice, so any argument that this tactic amounts to a "loss leader",
given more than five years of history, is almost-certainly an easily-proved
lie.  Specifically,  subscription services (including Prime membership
fees, digital video and music, e-book, etc), many of which are sold to
consumers, account for only $2.4 billion in gross receipts last quarter.
Amazon does not break out the cost of those services and they have always
refused to itemize them but even allowing for a very large (e.g. 50% or
more) margin those services cannot possibly be profitably cross-subsidizing
the loss on product sales; there simply isn't enough money received from
them to do so.

Therefore the *purpose* of such an increasing, five+ year *ramping *change in
intentional operating losses in the company's product sales segment,
assuming it is as it appears to be, has to be called into question.

The *effect *of these actions, however, on other companies in the consumer
product space is *not* open to question -- witness the *myriad *and *daily*
mention of various retail channels and individual retailers being
"Amazoned" in the media and on conference calls.  In the latest point of
attack which I assume the company will also apply this "strategy" to Amazon
is apparently attempting to enter *wholesale prescription drug sales.*

*It is perfectly legal to out-compete other sellers by doing more with less
and thus having a lower cost structure in your business.  This in turn
allows you charge a lower price and gain market share.  That, in fact, is
exactly what innovation and competition (otherwise known as "productivity
improvement" in the economic field) is supposed to do.*

*It is not, however, legal to cross-subsidize the sales of your products
with another, disjoint services business within your company so as to allow
you to sell products at an intentional loss for the purpose of putting
others out of business in an attempt to monopolize sales.*

The financials disclose that the funding source for Amazon's practices in
general is AWS service sales, a *completely *disjoint service (from the
perspective of the consumer who has no reason to buy or use such a service)
that happens to be quite profitable on a free cash-flow basis.

Not one person within a state or the federal government has come after
Amazon for this pattern of conduct in inquiry of *why* they are engaged in
behavior that I can find *no *rational explanation for *within the
boundaries of lawful and fair competition* as disclosed to both the public
and regulators by their published financials and operating results.

In fact, the pattern strongly suggests that Jeff Bezos and Amazon are using
AWS as a vehicle to *intentionally *drive competitors out of the market in
the sale of goods *not by out-competing them in cloud computing services*
but instead by *destroying* competing retailers of goods through
*rapidly-accelerating* cross-subsidization *and intentionally selling goods
at a loss which they know their competitors cannot do.*

I remind you again that *attempting *to monopolize trade is a *felony*.

Just like the medical scams that are rampant in our country and have
resulted in *ridiculous *ramps in health insurer and drug company stocks
over the last few years, all of which are based on collusive behavior that
I argue amount to extortion Amazon has been rewarded for the latest display
of this behavior with more than $120 being added to the firm's stock price
on Friday alone, a roughly 12% increase, and has been rewarded
*enormously *over
the last five years for same with a more than *400%* increase in the price
of their stock.  This has inured *personally *to the executives of the
firm, including *most-specifically *their CEO, Jeff Bezos who has seen
*his *personal wealth swell by *tens of billions of dollars* while his
company *appears to have intentionally sold products at ever-increasing
rates of loss *and destroyed the jobs of *tens if not hundreds of thousands
of people *along with severely damaging or destroying myriad competing
companies in the retail space.

I argue the rampjob in the market in general through the mid 2000s
happened *because
of rank lawlessness, *just as *I know for a fact* it did in 1999 as I was
running a firm in that space during the 1990s and saw both many competitors
and suppliers present projections and claims that were fanciful fictions
peddled not only by the firms themselves but by so-called "analysts" and
the "media."  Not long after *billions *of investor dollars were vaporized
in the 2000 crash as those works of fiction were exposed.

*Eight years later the market crashed in 2008 again **because it appeared
the people who were scamming would go bankrupt and some might go to prison
-- which, from the available evidence, it certainly appeared should happen.*

The market *bottomed* and turned sharply upward *almost to the day *that
*Congress* declared the blatantly illegal practice of *calling an asset
valued at whatever you wanted it to be instead of what someone would pay
for it *a lawful practice.  In other words, *nobody was going to go broke *and
nobody was going to jail either despite the fact that by then we had proof
of those firm's practice of selling to customers things described as "good
securities" *which their own employees were calling "vomit" *in "private"
conversations among themselves.  The price of vomit, of course, is actually
negative (since you normally would have to pay someone to clean it up!)

We have witnessed an unprecedented ramp in the market over the last few
years and of those firms that have risen the most I can point to companies
just like this one that have *no* rational legitimate explanation that I
can logically put together for their business decisions and behavior.  All
explanations that I can analyze which are plausible in light of the public
facts *devolve into screwing someone, *smug in the knowledge that *they
won't be investigated and punished for doing so*, just as they weren't in
2009 and 2000.

What's worse, every bit of this is happening with the *explicit *complicity
and even *active promotion* of the media, so-called "analysts" who
*intentionally* ignore *imploding* margins and treat them like they're
"good news" along with our own Government, *including the President of the
United States.*

I hope you like getting screwed without being kissed first.

*Editorial note: There have been raised questions about the "Cost of Sales"
line and what part of services are in there. Here's the issue with that
claim: When it comes to pure services there is no good bought first (in
other words, cost of goods is zero because there are no goods.)  Second,
AWS is said to be 11% of sales (net-net.)  Third, AWS has its operating
expense broken out which are claimed to be $3.4 billion, all-in last
quarter.  Fourth, for "other services" note that their cost is in fact
broken out (tech & content) and that's a high-margin business, as is AWS.
Note that tech&content + G&A + other + marketing = $9.4 billion. Anyone who
doesn't believe nearly all (if not all) of AWS's operating expense is
absorbed in that $9.4 billion, along with the rest of the cost of other
services that are sold (for which there are no goods purchased), has rocks
in their head, given what AWS is (a pure service that consumes a shad-ton
of electricity and tech expertise which is quite expensive to hire and
feed, .vs. $10/hour warehouse peeps that are not.)  Finally, as  the son of
a former CPA (now deceased) who was none-too-shy about his experience in
this regard with me, never mind my observations with regard to WaMu's
"accounting" in early 2007 in which they were paying dividends out of
capitalized interest (an accounting entity that doesn't exist in actual
cash, I note) let me simply observe that the art of accounting is that
exactly how you silo various expense items is, shall we say, subject to
quite a bit of "discretion" provided the amounts all total up at the bottom
of the page -- and that such discretion is generally-speaking legal.  In
addition and perhaps of* *greatest* importance* I note that nobody ever
hides good news, which means that if that cost item wasn't nearly all COGS
it would be broken out in specific detail so that the "good news" would be
apparent and on paper, but if it was broken out in such a fashion and later
proved to be a lie there would be criminal sanction associated with doing
so.  Thus my commentary about a "well-placed" subpoena up above -- not that
I believe we'll ever see one.*

*Christopher Quigley*
----------------------------------------------------------------------------
Christopher M. Quigley
B.Sc. (Maj. Accounting), M.I.I. (Grad.), M.A., QFA.
Qualified Financial Adviser.
M: + 353-(0)-86-8118-600

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