Building an Economy on Hope, Hype, and Fantasy (Audio)

In his latest podcast, Peter Schiff takes a look at the most recent earnings reports from Wall Street. Why are McDonald’s, Coca-Cola, and Amazon’s earnings so far off from expectations? If the economy is getting better, surely these companies – companies that are dependent on the prosperity of everyday Americans – would also be experiencing decent profits. Right? Think again. Peter Schiff explains what corporate America can tell us about the real condition of the United States economy.

Here are some transcribed highlights from the podcast:

“Now I’ve been saying that the economy is a lot weaker than everybody believes. Later this week we’re going to be getting the first look at the third quarter GDP. But all of the anecdotal evidence suggests that the number is going to be a lot weaker than people think. Certainly a lot weaker than the 4.6% we got in the second quarter. People are looking for 3 to 3.5% for the third quarter. But remember, the GDP – at leaf the way they measure it – is driven [by about] 70% consumer spending. That’s not what drives the economy, but it certainly drives the GDP, which is not the same as the economy.

If you look at the evidence coming out of corporate America in the past week, you can see that America is, in fact, struggling. Look at some of the big companies that reported earnings in the past week. Those that deal with average Americans are showing a big drop in their earnings. Look what happened with McDonald’s. McDonald’s came out and missed their numbers and their earnings are under pressure and they’re actually blaming it on price increases. For those people that claim that price increases are good, it certainly not working out that way for McDonald’s… McDonald’s is reporting that their customers are reacting to these higher prices by not buying as much… Same thing with Coca-Cola…

We just got the news from Amazon, the biggest online retailer. Their numbers missed significantly. In fact, Amazon lost 95 cents a share for the quarter, which is a lot of money. And a much bigger loss than the 74 cents, which was the top end of what analysts were estimating. Not only did they lose more money, their top-line revenues were much lower than the forecast. But the saddest thing for Amazon was that their margins collapsed. The margin is what you make per unit of sale… Not only was this one of the biggest losses ever for Amazon on a quarterly basis, but I think it was the lowest margins they’ve ever had in the history of the company. They’ve never been less profitable per unit of sales…

When I talk negatively about Amazon, it’s from the perspective of a shareholder, not as a customer. Because from a customer’s perspective, Amazon is great. In fact, they’re barely making any money… Overall, the company is losing money. They’re basically providing a service at a cost… The stock price of Amazon is going up because people are hopeful that one day Amazon is going to figure out how to make money. That it is going to monetize its success. Well, it’s success is based on its lack of making money. That is the secret! … How much longer will investors buy into this myth [that Amazon will one day be profitable]? There’s going to be a wake-up call.

Amazon, this whole story, is a microcosm for the whole US phony recovery. It’s all, “if we build it, it will come.” It’s all based on faith and hype and optimism of something that will happen in the future. Proof that QE has worked is how well we think the US economy is going to do in the future.”

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