The One Earnings Report to Watch and Why

For many decades, General Electric (GE) was seen by traders and investors as a proxy for the stock market. With the combination of a broad industrial portfolio and a huge finance arm, GE in many ways seemed to represent the broader market.

But times have changed. Through overleverage, mismanagement, and just plain failing to keep up with the times, GE is now a shadow of its former self.

But a new behemoth is emerging as a proxy for the “new” economy.

  • It’s a world where our shopping is not done in stores and malls of various sizes, but on screens both large and small.
  • It’s an economy where data doesn’t live in a file cabinet or even on a hard drive on your desk, but rather in the cloud.
  • It’s a world where the big advertising spends are not done in magazines, on billboards or even on your TV, but rather in your browser search engine and your social media app.
  • It’s a world where don’t ask your spouse to turn off the lights, lock the door or what the weather will be tomorrow – you ask your smart speaker by saying, “Alexa” or “Hey Google”.

And there’s one company that encompasses every aspect of this new reality and so much more: Amazon (AMZN).

So when this multifaceted behemoth announces earnings Thursday after the market’s close, the results will be a market mover. Because in many ways, AMZN is proxy for the new economy.

Here’s what I’m watching as AMZN gets ready to report. In the order of importance:

How Economics Support Marijuana Legalization

In 2016, more Americans were arrested for marijuana possession than all violent crimes combined. What makes this more surprising is the fact that a number of states, and many other jurisdictions, are either legalizing or decriminalizing marijuana. Nevertheless, possession arrests are increasing (659,700 in 2017, compared to 653,249 in 2016), and these arrests don’t have anything to do with growing marijuana or selling it.

In all, 44% of drug possession arrests in the U.S. are marijuana related and when you add in the arrest for growing and selling pot, fully 49.5% of drug-related arrests trace back to weed.

In an issue that we’ll cover more in a future article, there is also a major social justice issue to consider. When it comes to usage rates, a vast majority of studies show similar rates of use in the black population and the white population. However, black people are almost four times more likely to be arrested for marijuana possession, according to the ACLU. I’ll dig deeper into this serious problem in a future article.

What is the human and societal cost of these arrests?

As the move toward legalization seems to be gaining steam (62 percent of Americans are now in favor), it’s critical to consider the economic costs of criminalization and the benefits to legalization.

What Does Criminalization Cost Us?

As you might suspect, the costs are high. States spend about $3.6 billion enforcing marijuana laws annually, according to a 2013 study by the American Civil Liberties Union. If marijuana was removed from the schedule of controlled substances, there would be fewer court cases and reduced incarceration. A 2005 study by a visiting economics professor at Harvard University revealed that marijuana legalization could save $7.7 billion in enforcement costs each year.

Another way to look at the cost of criminalization is to consider the reality of the black market money flowing to drug cartels, and the associated costs to public safety. Here’s what Stephen Downing, the former Deputy Chief of Police of Los Angeles, says, “When we ended the prohibition of alcohol, Al Capone was out of work the next day. Our drug policy is really anti-public safety and pro-cartel, pro-street gang, because it keeps them in business.”

Another cost to consider is the effect that having a criminal record has on individuals, even if it’s “just” for possession. Any criminal record can be easily found by a landlord or potential employer, and make it significantly more difficult to secure housing or a job. A possession conviction also suspends a student’s federal financial aid. A survey conducted in 2017 by Yahoo News and Marist Poll shows that the majority (52%) of Americans over the age of 18 have smoked weed in their lifetime, meaning the majority of Americans have broken federal law.

Clearly, the costs of criminalization are steep. By legalizing recreational marijuana and removing it from the schedule of controlled substances, substantial savings could be achieved across the criminal justice system.

What about Tax Revenue?

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