‘The Age of Easy Money Is Nearly Over,’ reads a headline at Bloomberg.
We suspect that it has hardly begun…stay tuned.
In the meantime, we are exploring the past to get hints of the future.
The future casts its shadow backward. If you think, for example, electric carmaker Tesla will be a $1,000 stock someday, you will probably want to buy it now; its price will rise in anticipation.
But so does the dark pall of the past loom over today and tomorrow.
Last week, we saw what happened to the last great visionary in the automobile space, John DeLorean.
Is Tesla’s ‘visionary’ CEO, Elon Musk, so different?
So far, he is destroying capital, not creating it.
And today, we look at another capital destroyer, Amazon.com chief Jeff Bezos.
Nearly 20 years ago, we described Amazon as the ‘River of No Returns’.
Since then, the stock has made investors rich, and we looked like a fool for two decades.
But the markets make fools of us all, sooner or later. The hardest decision you face is when to get egg on your face — at the beginning or the end of a trend.
Amazon is now one of the most richly-valued stocks in the whole world…and Mr Bezos, visionary extraordinaire, is the world’s richest person. His personal wealth, based on Amazon’s current share price, is more than $90 billion.
Capitalism is a win-win world. You get, more or less, what you give.
Which makes us wonder: What new thing has Mr Bezos given the world that should make him its richest biped?
A cure for cancer? World peace? The funniest movie ever made…the most sublime music…a technological breakthrough equivalent to the Post-it note?
None of those things, of course. Instead, he has given us large-scale, online retailing.
Is this worth a market value in excess of half a trillion dollars? Is it equivalent to open-hearth steelmaking…container shipping…or acorn-fed ham?
We don’t know. Shopping is always disagreeable — online or off.
Occasionally, when trying to find something, Amazon makes it less disagreeable.
We credit Mr Bezos with a modest improvement in our lives. Not as important as Leslie Nielsen’s deadpan comedy in the Naked Gun movies…or Joe Dobbs’ inspired fiddle…or Mike Reynolds’ innovations in domestic architecture.
We could name dozens — hundreds — of things from which we’ve gotten more pleasure than shopping on Amazon…
…and none of the people responsible for them made a fraction of the money Mr Bezos made.
He has given us something new. But here at Diary, we admit it: We’re an old fuddy-duddy.
The food and drink from 1985 were good enough for us. The trains, planes, and automobiles from 1995 seemed perfectly satisfactory.
Here in France, we have only wood fires and an electric blanket (invented in 1912!) to keep us warm…but they do the job just fine.
Déjà vu all over again
Being an old fuddy-duddy is a great disadvantage in almost everything — sports, pop culture, politics.
But there is one thing where it gives us an edge…
We’ve been following markets — or at least the economics behind them — longer than most living humans.
We’ve seen more booms…more bubbles…and more crashes than most, too. We’ve met more bright-eyed, bushy-tailed investment geniuses…and watched them run themselves into a ditch.
We’ve heard hundreds of predictions that turned out to be false…read thousands of analyses that proved to be moronic…and listened to thousands more ‘experts’ who, as it turned out, didn’t know what they were talking about.
Surely all that experience from the past must have some value today?
What have we learned that we can apply? What old friends can we find in today’s markets that can help us out? What gives us, as Yogi Berra put it, ‘déjà vu all over again,’ warning us — as though by some sixth sense — of trouble?
Today, let us look more carefully at Mr Bezos and the ‘River of No Returns’.
Although Amazon has grown in value…has its founder and chief finally managed to float some real profits downriver?
Has he given the world something worth a market cap of more than half a trillion dollars?
The short answer: It’s still the ‘River of No Returns’.
Amazon is no tech start-up. As far as we know, it has no proprietary, cutting-edge technology. It simply cuts prices, gives free delivery and good customer service, crosses markets effectively…and loses money on every sale.
Two friends and colleagues (both former Wall Street insiders), Rob Marstrand and David Stockman, examined Amazon carefully and independently. They came to the same conclusion: The company loses money in its core retail business.
It disguises the losses with low taxes, capital leases, and accounting tricks — but the losses are real…and unavoidable.
And since that business model requires super-low prices, there is no way for the company to fatten its margins. It can’t make up on volume what it loses on each sale.
In other words, the business model is a failure.
That is no sin…and perhaps no surprise; lots of businesses never make money.
But there is something about the Amazon phenomenon that is truly remarkable — like a plant that needs no light…or a mammal that needs no air.
Amazon is one of the strangest creatures ever to lurk in the capitalist ecosystem.
More to come…
For Markets & Money