by Chris Black
The economics of business is very simple. Does revenue exceed expenses in order to make a profit?
Wall Street and the financial media have created a myriad of models to obscure that simple equation to make corporations that answer no to that question, look like viable billion dollar businesses.
Amazon has never turned a real profit.
Decades of losses have amounted to a red ledger, where the slim profit of some quarters has never overcome the overall loss to move into the black.
That doesn’t matter to Wall Street.
Amazon shares are worth over $1 trillion and the company is a massive nightmare, all because of access to floating shares, bogus accounting, and endless debt financing.
Most of the S&P are in the same situation.
Well, if we don’t include taxes paid, shipping costs, interest payments, other non-recurring expenses, and other things, we made money!!!
EPS is positive. Even if it is negative, if the loss is better than what Wall Street thinks, the stock soars.
The economics of the consumer is also as simple as: does income exceed expenses to allow for discretionary consumption?
Access to credit has allowed the illusion that people have excess income to propagate.
This access to credit has become ever more expensive. In an era where banks can borrow money at near zero percent, a great credit card rate is 14%.
I remember not to long ago when 14% was the default rate after missing payments. I had credit cards with a 6.9% interest rate when the Fed funds rate was 5%.
The reality of our current economy is that very few companies are actually profitable, and even fewer people truly have disposable income.
That isn’t a recipe for success.