Sunday Fun Day

Actually, it's not. I'm bogged down with midterms still and tons of reading. In the spirit of brevity I'm just going to post this one image today. I've realized I've talked a lot about Credit Default Swaps (CDS), but haven't really explained what they are. Here is a great image that describes it well.

Enjoy some football today! How about that Stanford vs. USC game last night? Incredible.

Cheers,
EZ

Occupy Wall Street

In case you've been living in a box for the last month or so, there is a protest going on called Occupy Wall Street, and it is gaining ground and spreading beyond New York into cities across the world. The major premise of the protests are social and economic inequality fueled by corporate greed. The protesters, claiming the "99%", are upset with the enormous income gap between them and the "1%" of financiers, executives, etc.

It is my understanding that "Occupy Wall Street" has many complaints, but is offering few solutions. If OWS wants to have influence going forward, it will be important for them to act cohesively and begin to offer solutions. It will be interesting to see how it plays out.

Read this funny/interesting piece that was dropped on protestors in Chicago:

Happy Saturday. Beat Cal!

Cheers,
EZ

Feeling Wild Today

In the spirit of making big money on a 340 point up day, I have a wild chart to share with everyone.



As you can see, this is a mega penny stock, selling for a quarter of a penny on the pink sheets. It is a title insurance and internet technology holding company out of Florida with a 2.5 million dollar market cap. The MACD is pretty bearish, representing a negative follow through which may forecast a short term decline in the share price. What is more important to me, however, is the imminent 50 day MA/200 day MA bullish crossover. If we see a solid crossover with fairly sharp upward trajectory, this penny stock could easily double, triple, etc. in value. I don't advise investing in this company whatsoever, but it will be interesting to see what happens, especially if we get a solid 50/200 day MA crossover. Look for strong volume to really propel this stock.

For the Macro: Markets were up big today on a plan out of Europe last night. There are worries that it will be difficult to implement the plan. Some people also think the plan is not sufficient to address Europe's woes. Other people are more optimistic and think the plan will give Europe enough time to avoid a Lehman-like collapse, even if Greece defaults, by putting in crucial firewall and buffers into the system.

For now, it's Halloween at UCLA and I need to get my costume on. Have a good one everyone!

Cheers,
EZ

Quick Thought

Happy hump day! So I must make this quick, as I am insanely busy studying for midterms and juggling homework assignments in between studying. As well as, of course, planning Halloween weekend activities. This weekend UCLA plays CAL at the RoseBowl. A lot of the Bruins are out this weekend due to suspensions from the fight at the University of Arizona game. Wish us luck, we will need it. Go Bruins!

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. 

 Quick Comment on a few earnings:

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
 

An Interesting Thought on Netflix

Contrary to what I posted earlier, here is a video of a gentleman describing why Netflix doesn't have a 'sustainable' business model.

http://www.bloomberg.com/video/77204910/


This man raises some important issues that I didn't see. No barriers to entry, content costs can only go one way: up, and a few other issues. You should take 5 minutes and watch it.

Cheerio,
EZ

Should have shorted Netflix! (I thought about it)

Netflix lost 800,000 subscribers this quarter, the first decrease in subscriber base EVER. We all knew this would happen, of course, given the announcement to break Netflix up into two entities. There were plans to have a streaming business, Netflix, and a DVD by mail business, Qwikster. This, along with the price increase from $8/month for both services to $8/ month for each individual service, had members dropping like flies.

The shares are down 28% after hours to around $86.

Besides the drop in subscribers, the earnings were good. Netflix reported net income of $62.5 million, or $1.16, a share, compared with $38 million, or 70 cents a share, in the year-earlier quarter. Revenue rose 49 percent to $822 million. Both revenue and income topped analysts’ expectations. 

Netflix still has 23.8 million subscribers. Amazon, who is trying to compete in the streaming video business through 'Prime', has 5 million members.

Is this a buying opportunity, or is Netflix forever condemned to the no-buy list? I think there is a definite chance that Netflix can save itself. Its revenues grew 49% since last year, and yet after the major haircut it's going to get tomorrow morning when the market opens, it will be trading at a P/E of less than 20. I don't believe that CEO Reed Hastings has lost the vision that got him and his company where they are today. He did, after all, recognize when he made a poor decision and change it. I am faithful. You shouldn't invest on faith, but perhaps this isn't a situation of faith, but rather of value. A high growth stock whose prospects appear, on the surface, to be bleak, is trading at below 20 x earnings.

Call me nuts, but I think Netflix has a large subscriber base who are happy with the service and a business model that will continue to bring in new customers. Imagine, for a second, that Netflix lands a content deal significantly upgrading their database from old flicks to more recent ones. This is Netflix's main problem and if fixed would certainly make ME a subscriber. Ruminate and please comment with thoughts. I'm curious to see what others have to say.



What an ugly chart that is. It's going to look even worse tomorrow!

Cheers,
EZ