Growth At Any Cost

  • Wall Street is shocked — shocked! — by Amazon sacrificing profits to growth
  • But there’s a problem with Amazon’s profits… and the feds are on the case
  • How new cancer-fighting tech might improve McCain’s survival chances
  • Sign of the times: A $100 million cryptocurrency bet
  • Crony capitalism, 2017: A subsidized Trump photo op, a county blackmailed

Jeff Bezos’ reign as the world’s richest man lasted all of a few hours.

When we left you yesterday, Bezos had leapfrogged Bill Gates to the top of the Bloomberg Billionaires Index, based on a jump in Amazon’s share price. But AMZN reported earnings after the closing bell — and whiffed badly.

The Street was counting on profits of $1.42 a share. Instead, they were only 40 cents. As we write this morning, AMZN is down 3% and Bezos’ net worth has been knocked down to $89.3 billion.

The company is embarking on “a phase of heavy investment in areas such as building warehouses, producing films and setting up data centers,” says the Financial Times.

As if that’s some kind of shock? C’mon, this has been Amazon’s MO from the get-go.

It’s right there in Bezos’ annual letter to Amazon shareholders 20 years ago: “Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity and correspondingly stronger returns on invested capital.”

The key phrase there is “returns on invested capital.” As we said a few days ago, Bezos is forever plowing Amazon’s profits into research and development, looking for some new line of business he can dominate.

Our old friend Chris Mayer says if you backed R&D out of Amazon’s numbers, it would routinely generate profit margins of 10%. Instead the idea is to keep growing revenues — relentlessly.

That said, are Amazon’s revenues all they’re cracked up to be?

This is the Amazon story the mainstream is overlooking. We hinted at it on Monday. A group called Consumer Watchdog issued a comprehensive study that claims many of the discounts listed on Amazon’s website are bogus.

That’s not new: For years, Amazon was called out for posting bogus “list prices” that led you to believe you were getting a bargain when you weren’t. The company abandoned the “list price” terminology last year, only to adopt similar ruses like a “previously was” price. Consumer Watchdog called attention to these new practices in a report issued three weeks ago.

For instance, check out the “price” and the “sale” here:

Amazon camera sale price

Consumer Watchdog says in 97% of instances where this terminology appears, the reference “price” was higher than any price Amazon had charged in the previous three months.

In theory, the Federal Trade Commission does not look kindly on such practices. But Amazon has largely gotten a pass; only bad publicity has reined in the company, and as you just saw, the company can be very resourceful in finding alternative ways to achieve the same result. (It also says Consumer Watchdog’s research is “deeply flawed.”)

Key point: Consumer Watchdog submitted its report to the FTC. The agency will take it into account when reviewing Amazon’s proposed takeover of Whole Foods.

But the FTC isn’t the government agency Amazon most needs to worry about.

Instead, as we’ve been suggesting the last couple of weeks, it’s the antitrust division of the Justice Department.

Recall President Trump’s oft-tweeted hostility toward the Bezos-owned Washington Post… which has extended to what Trump called Amazon’s “no-tax monopoly” the other day.

Based on his extensive contacts inside both government and industry, Jim Rickards believes the Justice Department is about to mount an antitrust case against Amazon.

If Jeff Sessions wants to hang on to his job as attorney general, there’s nothing that would please his boss more than to take that step. If Sessions is toast and someone new takes his place, there’s nothing that would demonstrate loyalty more than to take that step.

And Jim says the market impact would extend far beyond Amazon. It would extend to the entire tech sector… and to the stock market as a whole. Remember, it’s Amazon and four other big tech stocks that are basically propping up the rest of the market now.

Jim has just issued a startling special report teasing out the implications. We urge you to check it out right away.

To the markets today… which are once again a weak dollar-strong gold story.

This morning the Commerce Department issued its first guess at second-quarter GDP. It rang in as expected at an annualized 2.6%. That means for the first half of the year, the U.S. economy grew at a 2% clip — on par with the rest of the “recovery” since the Panic of 2008.

Traders appear to be interpreting the number as another sign the Federal Reserve will have no choice but to loosen monetary policy for the rest of the year.

Thus, the dollar index has sunk to another 15-month low at 93.3. Gold, meanwhile, popped the instant the GDP number came out. At last check the bid is only a few cents shy of $1,270 — the best showing since early June.

The major U.S. stock indexes are all in the red, but not dramatically.

“The type of cancer Sen. John McCain has is particularly deadly,” says Ray Blanco on the science-and-wealth beat.

While the media are obsessed with McCain’s Obamacare vote last night, we’re more focused on his recent cancer diagnosis.

“Historically,” Ray tells us, “most glioblastoma patients don’t survive two years after discovering they have the disease, and only a small percentage get to see the fifth anniversary of that date.

But with recent developments in fighting cancer, McCain might beat those odds. Indeed, one company Ray is following in his FDA Trader service might end up playing a role with a cutting-edge medical device. “This device,” he explains, “generates an electrical field that stops cancer cells from dividing by disrupting their internal cell structures.

“It’s an ideal method for going after brain cancer. Glioblastoma cells divide aggressively, but ordinary brain cells do not. This therapy exploits that difference. So far, the company has shown that its device provides a huge survival boost in patients with brain cancer.”

“The moment has arrived for cryptocurrencies,” says Louis Basenese.

“In the last month alone, four cryptocurrency projects raised a staggering $660 million.

“Then a marquee venture capitalist left his post at Union Square to invest solely in crypto assets. He’s reportedly secured $100 million worth of investor funds to launch his initiative.

“This is only the beginning, though. Based on our early research, at least 15 more crypto hedge funds will launch before the end of the year.”

In addition, former Morgan Stanley CEO John Mack now belongs to a firm acting as a middleman for traditional asset managers who want to get into cryptocurrencies. “We’re seeing the very first signs of institutional adoption of crypto markets.”

While Bitcoin grabs the headlines, there are 831 cryptocurrencies out there. Some of them will generate staggering long-term gains the way Bitcoin has the last seven years. Some will never go anywhere. And some will burn brightly for a few days or weeks only to flame out.

Louis has screened all 831 of them and settled on a shortlist of five you should own right now. And we mean as soon as possible — as in, first thing Monday morning — for reasons Louis explains right here.

Crony Capitalism 2017-Style, Part 1: Wisconsin taxpayers will pay through the nose for the president’s much-ballyhooed announcement about a new Foxconn factory.

Foxconn — the Taiwanese electronics giant — plans to build a factory making TV and computer screens in House Speaker Paul Ryan’s district, employing up to 13,000 people making an average $53,900 a year plus benefits.

Here’s what didn’t get so much publicity — $3 billion in state subsidies. That’s roughly $230,000 per job.

Who knew making America great again would be so costly?

Crony Capitalism 2017-Style, Part 2: A private prison operator is essentially blackmailing the 16,000 people of Torrance County, New Mexico — find us 300 more inmates or we’re shutting down your prison.

CoreCivic — the company formerly known as Corrections Corp. of America — has notified the county that unless it scares up 300 more inmates in the next 60 days, it will shut down the Torrance County Detention Facility.

“Unfortunately, a declining detainee population in general has forced us to make difficult decisions in order to maximize utilization of our resources,” a CoreCivic flack tells the Santa Fe New Mexican.

Not only does the prison employ over 200 people, but the county has no jail of its own. Most of the inmates are federal; CoreCivic says Immigration and Customs Enforcement is bringing in fewer people these days. (What? In a border state? Under Trump? None of this adds up.)

Back to Bitcoin as we dip into the mailbag: “Dave,” writes one of our regulars, “cryptocurrencies like Bitcoin are abstract forms of currency that mimic a key property of precious metals: scarcity.

“Unlike fiat currencies, they can’t be printed. But they have benefits as well as drawbacks.

“The pros:

  • Like gold and silver, they are nonsovereign, and once produced, they are durable
  • So far, they are anonymous in electronic transactions
  • They sidestep the debasement of government-issued paper currencies.

“The cons:

  • They are not real assets that you can stand on (like real estate) or hold in your hand, and unlike gold or silver, they can’t be measured (i.e., by weight)
  • They are digital, so they could potentially be hacked or locked down
  • Their volatilities and downside risks make them difficult to adopt widely.

“The bottom line: Precious metals are timeless, universal forms of money. Their liquidity and volatility is comparable to that of many fiat currencies. They are an intrinsically valuable, global form of money that can be transacted without time delay or counterparty risk.

“When it hits the fan, I know which way I’m leaning: toward real money! Got bullion?

“Thanks, as always, for the great work you and your team do.”

The 5: Good analysis. But we’d suggest it’s not an either-or proposition.

Heck, we’d encourage anyone to put a small amount of money into cryptocurrencies now in the expectation it will turn into a larger amount of money later — money you can then use to keep stacking bullion for that rainy day!

“I can’t believe how stupid The 5 is,” reads a, well, less-measured email. “All this investment nonsense about Bitcoin.

“If you really want to make some sure money, then buy my Martian condos. The Earth view ones are sold out, but there are still some good deals on some Venus views.

“And I know how to drive fast if there’s a run on my local bank. But I hate asking you loonies where I drive if there is a run on my Bitcoin.”

The 5: People say this about any nascent asset class. It’s an understandable impulse — especially when the asset exists in a purely digital realm.

But does it make any sense to tar all 831 cryptocurrencies with the same broad brush?

How risky is a microcap biotech stock with no revenue stream and no tangible assets other than a lab and some chemicals? But if it can turn those few assets into a blockbuster drug, the profits are beyond immense.

“Imagine,” says Louis Basenese, “owning a tiny pharmaceutical ahead of FDA drug approval. Or a little software company before a major takeover. On such news, overnight gains can far exceed a simple price double.”

That’s the promise of cryptocurrencies. And unlike Martian condos, it doesn’t require a lot of money to take a flier on something new and different.

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. Today marks a milestone in the development of cryptocurrencies.

Louis Basenese says as of now, roughly 260,000 new retailers from around the world will begin accepting cryptocurrencies for everyday transactions.

Now is your best chance to reel in the riches from all the hype. All you need to do is follow the “Secret Bitcoin Blueprint.”

You don’t need to know anything about blockchains or mining or wallets. And you need only $20 to get started.

But now’s the time to get started. Here’s how.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More