Anyway, today the markets rallied from being almost flat at mid day to the Dow closing up 162 points on optimism from Europe. They agreed on a broad plan to recapitalize Europe's banks, which would provide a buffer for banks to allow them to survive a default on debt they hold.
Here's a quick list of developments in Europe from the Wall Street Journal:
As of 1:45 Pacific Time 10/26
- European Union leaders arrived in Brussels for a EU Summit
- Germany’s parliament approves Chancellor Angela Merkel’s resolution to boost the firepower of the euro zone’s bailout fund
- EU leaders remain split on the size of a haircut on Greek bonds held by private investors, a sticking point that makes it uncertain that a full set of measures will be announced Wednesday
- Italy, under pressure from France and Germany, has sent a letter from the government laying out a clear reform package
- EU leaders are currently have completed a working session.
- France’s President Nicolas Sarkozy plans to call China’s President Hu Jintao on Thursday to discuss how Beijing might contribute to a euro-zone rescue fund.
- Euro zone leaders lean in favor of a double-barreled rescue fund: One part would be a leveraged EFSF and the other would collect investments from China and others to buy bonds.
Netflix, Amazon, and Ford have been beaten down after earnings. Netflix was murdered, Amazon got pummeled, and Ford took a decent sized haircut. The thing that irks me is that in some respect these companies are being sold off due to losses in short term profits as a result of investment in the company's growth for the future.
Netflix is expanding its presence in the U.K. and Ireland which will eat up its cash flow in the near future, but these expenditures are necessary to grow the business. Maybe this expansion is ill-timed, but assuming it will survive this tough period, Netflix should end up ahead in the end. (Assuming, once again, of course, all of the other issues it must deal with are also taken care of: price increases, cost of content, subscriber growth, etc.)
Amazon lost 12% today due to increased costs from its development of, most likely, the Kindle Fire, which is its attempt to compete with Apple in the tablet space. Some people might think Amazon has a great business model and it should stick to what it is good at which is selling goods and not developing them. The Kindle has been a great success, and likewise I expect the Kindle Fire to be as well. With the ability to take movie streaming subscribers from Netflix and music purchasers from iTunes, it appears they are approaching an exciting new opportunity for growth, all within its Amazon Prime membership. They must invest to grow, so if you want a steady company that doesn't take risks, invest in Proctor & Gamble.
And Ford. I really like Ford. It has come along way from 2008, when it almost went bankrupt. It did not receive any government aid in the form of a bailout, and is slowly paying back its debts. Alan Mulally, the CEO, is focusing on fuel efficiency which is without a doubt the way of the future. He has also changed the image of Ford as a typical American car to a cool, sporty car for the young and the old. They are down 4.5% for today, based mostly on a loss of $350 million in hedges against commodity costs. The catch-22 about this, however, is that if commodity prices go up they will regain their losses, and if they continue to stay low their business will benefit from the lower commodity prices. Besides that their quarter was mostly good, with earnings coming in 2 cents above expectations at .46 cents/share. Consensus estimates from analysts is outperform. Use the haircut as a buying opportunity?
This turned out to be longer than I had wanted. Have a great day everyone.
Cheers,
EZ
Erik I really like your thoughts on Ford. Good job.
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