Is Amazon ‘the new tech crash’? David Stockman thinks so

Amazon is the biggest company in the United States, and its stock reflects that, topping $1,000 recently. But with the Federal Reserve beginning to raise interest rates and moderate its money supply growth, is the tech behemoth on the cusp of cratering?

David Stockman, former Reagan budget director and bestselling author of “The Great Deformation,” published an op-ed in The Daily Reckoning entitled “Amazon is the New Tech Crash,” in which he posits that Amazon shares are about to crash back down to earth.

Here are some important excerpts from the article:

Needless to say, the drastic market narrowing of the last 30 months has been accompanied by soaring price/earnings (PE) multiples among the handful of big winners. In the case of the so-called FAANGs + M (Facebook, Apple, Amazon, Netflix, Google and Microsoft), the group’s weighted average PE multiple has increased by some 50%.

The degree to which the casino’s speculative mania has been concentrated in the FAANGs + M can also be seen by contrasting them with the other 494 stocks in the S&P 500. The market cap of the index as a whole rose from $17.7 trillion in January 2015 to some $21.2 trillion at present, meaning that the FAANGs + M account for about 40% of the entire gain.

Stated differently, the market cap of the other 494 stocks rose from $16.0 trillion to $18.1 trillion during that 30-month period. That is, 13% versus the 82% gain of the six super-momentum stocks.

Amazon’s stock has now erupted to $1,000per share, meaning that its market cap is lodged in the financial thermosphere (highest earth atmosphere layer). Its implied PE multiple of 190X can only be described as blatantly absurd.

After all, Amazon is 24 years-old, not a start-up. It hasn’t invented anything explosively new like the iPhone or personal computer. Instead, 91% of its sales involve sourcing, moving, storing and delivering goods. That’s a sector of the economy that has grown by just 2.2% annually in nominal dollars for the last decade, and for which there is no macroeconomic basis for an acceleration.

Yes, AMZN is taking share by leaps and bounds. But that’s inherently a one-time gain that can’t be capitalized in perpetuity at 190X. And it’s a source of “growth” that is generating its own pushback as the stronger elements of the brick and mortar world belatedly pile on the e-commerce bandwagon.

The Amazon business model is fatally flawed. It’s only a matter of the precise catalyst that will trigger the realization in the casino that this is another case of the proverbial naked emperor.

Needless to say, I do not think AMZN is a freakish outlier. It’s actually the lens through which the entire stock market should be viewed because the whole enchilada is now in the grips of a pure mania.

Stated differently, the stock market is no longer a discounting mechanism nor even a weighing machine. It’s become a pure gambling hall.

Amazon is a wonderful company, and it is innovating like no other business right now. Unfortunately, it hasn’t turned over a profit and the money printing of the last decade has benefited the stock market like never before.

If you’re interested in making a lot of money then perhaps some shorting is in store.

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