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Amazon (NASDAQ: AMZN), by its very nature, is a position that will give us fits throughout its existence. As a consumer and businessman, I love Amazon and the innovation that Jeff Bezos has introduced to the marketplace. As an investor, however, I hate $190 Amazon stock that trades at 140 times earnings. At these levels, I feel that Amazon is yet another outpost of cheap money fluff that is being propped up by accommodative Federal Reserve policy. Going forward, I must argue that Amazon's business model is fundamentally flawed, as the corporation continues to sabotage its long-term profitability in favor of immediate top-line revenue.

The Federal Reserve Board

In 1913, The Federal Reserve Act was passed to set up a central bank that would help facilitate order within U.S. financial markets and the overall economy. The Federal Reserve functions with multiple tools at its disposal to satisfy its contradictory dual mandate of full employment and stable price levels. Fed governors are primarily concerned with prevailing interest rates, which can be influenced through open market transactions, reserve requirements for member banks, and discount window lending.

Amid recession, the Federal Reserve Board will increase the money supply, which effectively drives down the costs of money as interest rates. The Fed is hopeful that lower interest rates will encourage people to take out loans, purchase big-ticket items, and put money to work within financial markets. As market conditions improve, Fed officials usually drive rates higher to cool the economy and contain inflation.

The federal funds rate has remained effectively zero since Q4 2008 amid the depths of the credit crisis. Financial markets have been flooded with cash for years, and speculative bubbles have formed within a suite of technology shares, such as Amazon. It is only a matter of time before reality strikes and the Web 2.0 NASDAQ complex degenerates into collapse.

Amazon Share Price

Between 2009 and 2011, Amazon shares took a ride courtesy of Helicopter Ben from $50 to a high of $246. Beginning in Q4 2011, shares began to slide towards their April 2012 price of $190. Again, Amazon shares trade at 140 times earnings, which makes no logical sense. Amazon registered a very pedestrian 14-percent average annual net income growth rate between 2008 and 2011. For the sake of comparison, Apple (NASDAQ: AAPL) featured 65-percent annual earnings growth during that period and now trades for 16 times earnings.

Certainly, supporters of the stock will inform us that earnings really do not matter. In cases such as these, accelerated top-line revenue and cash flow from operations growth are the usual suspects in justifying any investment into a seemingly overvalued stock. Speculators often argue that future cost cuts can always fatten profits, while these people also highlight depreciation and amortization as actual non-events that still adversely affect the bottom line. Adjusting for these concerns, we find that Amazon revenue and cash flow operations grew at a 35 and 33-percent clip, respectively. Although these numbers are impressive in their own right, they do not justify paying 140 times earnings for stock.

Perhaps Amazon shareholders are rationalizing that the world's largest Internet retailer will simply run stodgy brick and mortar firms out of business, before jacking up prices and taking over the world.

Destructive Business Model

Amazon is one-part website, one-part Wal-Mart (WMT, and one-part 1980's Japan.

Because of e-commerce technologies, efficient inventory logistics, and lax municipal sales tax regulation, Amazon can effectively dump goods on to the market and grow its customer base. In fact, Amazon is more than happy to eat a loss on its Kindle Fire, so that it can hawk even more digital content at cut rates. Inevitably, Amazon growth will eliminate many sales agent middlemen for books, music, clothes, and digital gadgets. Every day, new reports surface related to the death of retail stores, suburban commercial real estate, publishing, and music at the hands of Amazon.

According to the National Retail Federation, online sales will increase from $210 billion in 2012 to $250 billion through 2014. As we break down these figures further, however, we will discover that half of all users spent a mere $30 online during Q2 2010. Obviously, most consumers prefer to walk into a physical store for professional salesmanship and consultation on big-ticket / high margin products. Amazon will always find the goings rough against Best Buy (NYSE: BBY) and the Apple Store - with every game changing product launch within the consumer electronics product cycle.

Compared to brick and mortar retail heavyweights, Amazon financial ratios will appear pathetic, as gross profits are ravaged by the relatively high selling, general, and administrative expenses that come from peddling dollar-store merchandise. At the low end, higher prices on commoditized goods would obviously doom Amazon to failure. If Amazon dares to jack up prices for food, books, music, and applications, established brick and mortar e-players and niche site webmasters would immediately enter the fray, offer discounts, and steal share. Ironically, Bezos has literally built the jail cell for Amazon's own incarceration.

Amazon maintains no pricing power, which is great for consumers, but a looming debacle for long-term shareholders.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Amazon Stock Analysis: Strong Sell