Tuesday, October 25, 2011

Netflix's Bigger Problem

I closed my Netflix (NFLX) position today. Way too late. The only good thing is that I bought it when it wasn't on anybody "buy" list, well below $50. Sure, I should've sold it long time ago. Well, rear sight is always 20/20.

Yes, last quarter report was the trigger. Actually, one little thing in the report: it seems to me that Reed Hastings, CEO of Netflix, wants Netflix to be like HBO. Well, HBO is a part of Time Warner (TWC), and if you look at long term chart, it's not a good investment, to put it mildly. If Netflix wants to be HBO, I don't want to invest in it.

There are a lot of comments. People are rightly questioning latest moves, cost of streaming content, attempts of content providers to charge more and/or strangle Netflix as a competition to cable TV. Everybody is missing one thing: there is almost no content. I cancelled my Netflix DVD subscription not because of price increase, but because couldn't find anything on DVD I wanted to watch. I went through US and foreign classics, some new movies in 2009 and 2010. There are probably 3 movies released in 2011 I want to watch. I watched one in the theater. For 2 remaining I can use pay-per-view on Dish Network, much cheaper than keep Netflix subscription. I don't care about multiple remakes and remakes of remakes. I hate most of the comics based movies. Vampires and zombies are not even funny anymore. There is nothing else out there. I have the impression that content providers are reducing costs by dumbing down their production. Well, they are losing me as a customer.

Somebody might say that my taste is not mainstream, that only fringe watches, for example, Woody Allen movies, that most people want to see transformers and vampires and zombies. Maybe. But I know for sure that there are a lot of people with diverse tastes which are (were) Netflix customers. And many of them have the same problem: there is nothing to watch.

Full disclosure: I don't have any positions in NFLX or TWC.

Saturday, October 22, 2011

This is a Breakout. Why am I not Happy?

As children say, the answer is "because".

First of all, breakout (S&P over resistance at 1220) is not confirmed. Let's wait until Monday. Second problem, bigger one: Nasdaq composite did not break out over its resistance level of 2670. Not even close. If you look at charts, during this depression Nazz was the leading index.

I will be happy if market is going up. I will be extremely happy. After all, my long positions exceed my cash and fixed income positions. But I have serious reasons to be careful. Current action doesn't look like bull market action.

Exhibit one: earnings reports and reaction. Google (GOOG) beats by a mile, stock jumps the next day, no follow up. Intuitive Surgical (ISRG) beats, stock jumps the next day, no follow up. Same picture with Intel (INTC), VmWare (VMW).

Exhibit two: market still pretend to depend on Europe. Well, it's a good excuse for market to not go up on great earnings. What would be a next excuse? And next after that?

Actually, Europe deserves extra deliberation. First of all, it's not going anywhere. Second, for better or for worse, but EU economy is bigger than US economy. Now, cutting through BS they feed us from all sides. EU is there to stay. There is no way to dissolve such union, not right now, not in the nearest future. Eurozone, i.e. currency union inside of EU, is there to stay as well. As much as Germans grumble, saving Eurozone is much (orders of magnitude) cheaper than dissolving it. Granted, currency unions of independent countries never survived long before. But Eurozone countries are not politically independent. They are part of EU.
Currently they are coming to a kind of soft bankruptcy for Greece. They will need to recapitalize banks, to create some kind of loan mechanism which can't be killed by speculators. In a year or two we will see something like QE from European Central Bank (ECB). They are moving slow, but they are moving. They will not fall apart, the price is way too high.

So, there is no end of the world coming from Europe. Why, or why am I not happy? Why don't I predict a huge bull market? Because we are in a Great Depression 2.0. Everything is moving faster now, so in 2008-2009 we quickly went through analogy of 1929-1932. Rally of 2009-2010 was quite like rally of 1932-1936. Now we are in analogy of 1937. Everybody tells about austerity, savings, cost cutting. Nobody (that is, except for Fed) is talking about stimulus. That's a huge mistake. We need stimulus. We need inflation. We need more debt, public and private. And everybody is talking austerity, cost cutting, deleveraging.

Unfortunately, analogy ends right here. In 1942, Great Depression was ended by stimulus package also known as World War II. World War now is so scary, it's almost impossible. Even if it happens, it will be the end of the world, not a stimulus package.  And the only modern depression known to us after WWII is going on for 22 years already without any sign of ending any time soon. I mean Japanese Great Depression (1989 - ?).

That's why I am not happy. That's why I don't believe in any big rally. We might get to S&P 1400 by the year end, sure. I will be a seller then. Because austerity is coming, and bear market is coming with it.