The Market Ticker
Commentary on The Capital Markets
2017-07-28 06:36 by Karl Denninger
in Corruption , 128 references
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It's often said that there is an economy of scale to larger operations, and this forms the basis on which people think that mergers often lead to efficiency improvements and thus benefit consumers and the economy in general.

But those who have run a business have seen a far less-pleasant side -- one that is never talked about on Tout TV, irrespective of the particular channel you might be on.

It's simply this: In a nation where the law is routinely ignored by executives and others size simply means you get to rip people off through illegal acts that a smaller competitor wouldn't dream of attempting.

When I ran MCSNet I saw this sort of crap on occasion with certain suppliers and others with whom I did business.  A few times I was able to stick my boot up someone's ass and neuter the impact that it was going to have on my firm but doing so required my inner ******* to be prominently displayed.  But there were other times that the entity doing it simply didn't give a damn; they had bought off the right people or were simply smug in their seats, knowing that nobody was going to go to jail in their outfit and thus the outcome was a middle finger in my face, laws and regulations be damned.

As consolidation and the Internet have grown this problem has gotten much worse.  Advertising has always been a snake-pit; it's expensive as hell no matter the media and it's also very hard to measure effectiveness.  When I ran MCSNet we had all sorts of media outlets that wanted us as customers, of course -- radio, TV, newspapers, billboards and more.  The only media that ever worked on a demonstrable basis was a certain set of radio timeslots and channels and, not-surprisingly, when a trade show came into town and we could get booth space at a reasonable price.  The in-person press-the-flesh and handing out of various premium items, whether they be pens or coffee mugs had a fantastic ROI -- everything else, not so much.

The Internet ad space has made it a lot worse in terms of measurement.  They all claim they can "prove" effectiveness, but that's not true.  The facts are that if you ran Internet ads years ago you got a lot of clicks -- and conversions.  Now you get damn near zero clicks, and while those you do get may convert what you can't measure is the number of people you provoke a revulsion response in instead of an interest.

That's a big problem; it only takes once where you produce that response in a potential customer and you've lost them forever.  As more and more ads hit someone's screen and more of them become intrusive the risk of this response goes up.

Of course nobody talks about that.  If they did Facebook wouldn't have an ad market worth much of anything.  How do you think these guys actually manage to get the sort of ARPU they claim?  Is the alleged value claimed actually possible, when one considers that for any ad campaign the profit generated from the additional sales resulting from the campaign must exceed the campaign's cost or you're literally setting bonfires in your back yard with $100 bills!

Think about this folks -- Facebook claims they made about $20 per user in the United States and Canada.  Remember, this is the same company that claims that more than 80% of all persons over the age of 16 in the US and Canada are on their system monthly. I don't believe that to be true for one second, but the "ad folks" all tell you (especially Facebook execs!) that they don't have a "click robot" problem.  Uh huh.  Look folks, I know they have plenty of people with two, three or more "profiles" -- that is, there really isn't 80+% penetration, but exactly how many so-called "active users" are cats, dogs, robots and simply people who maintain more than one account I don't know.

Note that Facebook's ARPU hasn't changed much in the last three quarters in the US but the ad load has gone ballistic.  In other words they're spamming you more and getting less per spam and someone is paying them for those ads in the US and Canada.  Is this a "good" or "growing" business when you're increasing ad load dramatically but can't convert it into more money?  No; you in fact have a degenerating business.

Now let's look at Spamazon.  I will forever call them that, by the way, because very early in their existence they actually earned an entry in MCSNet's system spamblock list.  We were the first ISP that I'm aware of to offer incoming spam email filtering to all of our customers along with a default list that we maintained that each user could use, decline, or customize as they wished.  Not long after Spamazon came on the scene I placed them in the system's blacklist, which drew an immediate response from them and protest that they "hadn't" spammed anyone.

There was a problem with their claim: It was a lie, and the reason I knew it was a lie was that in addition to spamming several of the customers on my ISP who reported it to me they actually spammed ME personally as well!  At the time I had never bought anything from the company, so they had no business relationship with me of any sort; as such it was as clean a definition of "spam" as one could find.  They shut up fast when they realized that I actually had them dead cold with the full emails in my possession, including the headers.  They stopped doing it shortly thereafter but the point here was that the company did this because they thought they could get away with it and they lied directly to me about it because they though they could get away with that too.

Has that sort of behavior changed?  No.

Remember, Amazon as a retailer makes less profit than a grocery store on a margin basis.  In other words, all-in they make nothing.  They never have.  Wall Street has given Jeff Bezos a pass on this for more than two decades because they have always maintained "we can make a profit any time we want to; we'd just rather grow sales instead."

Really?

Where's the evidence for that?

I'll tell you where it's not -- it's not in their pricing policies and with AWS turning into a commodity soon the ability for it to subsidize the rest of their money losing operation will disappear.  Then what?

When it comes to pricing Amazon has been caught repeatedly misleading customers on the pricing history of things they sell in an attempt to make you think you're getting a "deal" when in fact you're not.  They've been sued a few times over it too, and when they settled or paid fines they have of course vowed to "sin no more", while never really admitting fault -- that is, they never admit to having sinned in the first place.  That's the corporate way, you see -- when you're big enough.

The truth appears to be something else entirely.  Here are two pieces (here and here), both by Consumerwatchdog, on Amazon's pricing.  Notice something interesting -- of the so-called "Sale" prices, that is, items Amazon claims are "on sale" (marked down) in all but one case the "Sale" price is not actually a reduced price.  That is the claim of a "Sale" is a lie, it's a lie intended to induce you to purchase and if the report is true that's ILLEGAL specifically under FTC regulations and state consumer protection laws.

Never mind their other "marked" types of prices -- "List" or "Previously" or whatever, which also appear to be fictitious.  In fact there is only one set of "strike through" prices on Amazon that actually reflect a previously charged price -- those with no labels at all.

People often claim that some business has been "Amazoned".  In fact that's the rallying cry that has been responsible for the huge run-up in the company's stock.

Well, yes, perhaps they have been "Amazoned."  But is that because Amazon is a better retailer?  On the evidence when it comes to beating competitors on price, in other words benefiting consumers, the answer appears to be no.  On the evidence when it comes to profit margins in the retail business the answer is also demonstrably no by their own quarterly reports and in fact from my own going through their quarterly and annual reports Amazon has never made a decent margin on product sales, other than in media (books.)  And finally when it comes to AWS their margins are collapsing as well, which means there the answer is also "No."

But what being "Amazoned" does appear to mean is that like all large companies the middle finger goes up a lot when it comes to Amazon actually obeying the law and there they really do enjoy an advantage.

Folks, if you or I set up shop somewhere and started posting fictitious "Sale" prices our asses would be in a sling in weeks if not days.  Yet Jeff Beezlebub has been doing this for years, has been caught multiple times, fined multiple times and yet the practice continues with the company "testing" various ways to mislead people into thinking they're getting a deal when in fact they're not.

Why?

Because Jeff Beelzebub is confident there will never be an effective corrective action taken by federal or state authorities, that's why.  It's the same reason he thinks it's all cool to squeeze suppliers by pitting them against each other to the point that none of them can make any profit at all, especially when the Chinese counterfeits start showing up.  Oh, need I remind you that a small firm that imports counterfeit goods and sells them risks having their door padlocked by the government for blatantly trafficking in counterfeit trademarked goods yet Beelzebub has exactly zero fear of that happening to him.

Not even a market crash will bother Beelzebub much at this point. In the last few months alone he's sold nearly a billion worth of stock to the suckers (that would be you) who now are going to get stuck with it.  Thank people like Cramer and all the so-called "analysts" in the so-called "investment houses" for pumping up the bubble and issuing "buys" on stocks with P/Es beyond the limits of the solar system so the favored few can take your money -- again.

This same sort of corporate horse**** is also why your local hospital thinks they can charge one person 10x as much as another, buy up all the local clinics and then raise their prices, collude to keep people from setting up a competing MRI center and more.  It's why the entire medical system thinks it can get away with extorting you into buying worthless "health insurance" with a $6,000 deductible and then hammering you for the entire $6,000 when you need five stitches in the ER, with the procedure requiring all of 15 minutes of time and a dollar's worth of supplies.  It's why drug makers think they can get away with charging $80,000 for a drug in the United States and $2,000 in another country, and they back that belief up with actually getting laws passed to block you from going over to the other nation with an extra suitcase!

None of this is economy of scale folks.

It's eCONomy of SCAM.

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2017-07-27 13:46 by Karl Denninger
in Market Musings , 234 references
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Is it starting?

I dunno, but....... mayyyyybeeeeeee!

A quickie little dump you should buy right here and now or is it....

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2017-07-27 07:00 by Karl Denninger
in Education , 276 references
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.....then, once you've got a campus full of people who can't function at the level expected of someone with a college education

The chancellor of the California Community Colleges system says intermediate algebra should no longer be required to earn an associate degree — unless students are in the fields of science, technology, engineering or math.

Thank you very much for telling me that nobody who earns an alleged Degree has anything at all of value.

The solution to high failure rates is to tighten up admission requirements.

The reason you have the problem in the first place is that you let a bunch of people in who couldn't function at that level.  Now you wish to "legitimate" it.

May I remind you that were the American people able to understand simple exponents and their application to the economy and government, including spending and taxation, that we'd have had a literal shooting revolution a couple of decades ago?

We haven't because the people of this country in the general sense are willing to accept the mathematically impossible in claims from politicians without telling them to cut it out or they will swing after being indicted, tried and convicted of mass fraud and theft on a multi-trillion dollar scale.

Is it any surprise that a government-run alleged college wants to further decrease the percentage of people who understand simple, first-year algebra principles such as exponents -- say much less anything more complex?

Not at all.

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2017-07-26 16:53 by Karl Denninger
in Earnings , 309 references
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Not difficult to figure out folks, but I think you should buy the stock because lying firms are great investments.

In other words Zuckerpig (and Sandberg) claim that 83% of all persons over the age of 15 between the US and Canada (Canada has about 30 million adults) are active monthly on Facebook.

Remember, these are claimed to be actual people.  Not fake accounts held by your cat or some robotic spam scammer putting up fake clicks on ads to enrich Zuckerpig which, I also remind you, various parties have claimed is a "non-problem" on Facebook and its related properties such as Instragram.

Remember too that these claims of monthly users are then passed to firms who they solicit to advertise, and form the predicate of the claim of value in said advertising.

Now tell me what you believe the probability is that 83% of every possible person over the age of 15, which I remind you includes a lot of people who have no high-speed Internet connectivity at all, a fair number of people who are effectively incapacitated due to age and more -- in other words everyone over the age of 15 that is not in prison -- is on Facebook monthly.

That, friends (all persons over the age of 15 who are not in prison) is the definition of the "Civilian noninstitutional population" and it is normed annually to measured figures by the Census and then further corrected every 10 years.

That number from the labor report is quite accurate, in other words.

And finally, remember that nobody goes to prison these days for lying to you.

Ed: corrected to include Canadian adults.

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2017-07-26 14:38 by Karl Denninger
in Editorial , 665 references
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Time to walk off for a while.

There are articles in the queue, and they'll be allowed to run off.

Some more here and there will probably be posted.

But not very many, until the people of this country act.  I have too many other things to do that are more-productive -- like masturbate, as just one example.

The latest piece of idiocy is the company "iRobot", which makes the Roomba.  They intend to use the mapping data of your house that their robotic "cleaners" collect and sell it to anyone who wishes to buy it.

You would think this becoming public would cause their stock to crash.  Instead it's up more than 22% today.

Amazon has gotten caught disadvantaging you on price, in some cases by more than half.  Their stock price hasn't been touched.

The DNC's top people employed a Pakistani who then apparently put his entire ****ing family on the payroll within days, had full access to the entire IT infrastructure of the Democrats in the House, and, it appears, may have been stealing at least physical hardware and maybe everything on those systems.  He was finally arrested yesterday trying to flee the country.  The cover-up of this story spans months by they media including, I remind you, the same media property Jeff Bezos owns.

The total response from people and the markets?  Zero, even when there might be actual treason involved.

Then again I shouldn't be surprised.  More than $3 trillion stolen from you every year by the medical monopolies doesn't matter either, right?

There's simply no point in attempting to report what's going on when nobody gives a ****.

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