MorningWord 7/16/15: #JustSaying

by Dan July 16, 2015 9:43 am • Commentary

All is right in the world again, the Troika won, China Stabilized its stock market and thus saved its economy, and Netflix registered blow-out subscribers (full disclosure I attempted a defined risk short trade into last night’s NFLX print, read here.)  I’ll be quick and snarky here this morning, for two reasons, first I have a massive sinus cold and my head feels like its going to explode, and second, the buoyancy of U.S. stocks for the reasons listed above seem just so silly, given just how fragile each situation is.

Let’s break it down… 

Common sense has lost in Europe.  The Greek people have no voice, and their government is forced to accept another bailout based on reforms they can not deliver, austerity that will make the economy worse and increasing a debt they already can’t pay back.  This whole situation has been a mockery as what we are witnessing on the surface is just a several years long negotiation over a debt that can’t be paid. Yet it’s been portrayed as some morality story between lenders and debtors with some identifying with the Germans and some with the Greeks. But none of this at all has addressed the actual problem, which is the Euro was flawed from the beginning in that it was a great idea for good times but lacked any tools to deal with cross border issues during bad times. A country like Greece has no way to devalue its own currency to deal with cross border account imbalances. Sure Greece was special in that it seemed to love to spend money without being good at actually collecting money. But what happens the next time when it’s not so easy to blame the issue on government ineptitude? Where the issue is simply a regionally specific recession that can’t be addressed like a normal country with its own fiscal and monetary policy could normally?  None of this has been solved. What’s the over under on us faithful CNBC viewers seeing Michelle Caruso-Cabrera stuck on a ledge for a month again in Athens in the next year or so?

Stabilization in Chinese stock market.  That feels like a mirage, especially when you consider the extraordinary measures the government took to do so and the fact that the Shanghai Comp feels like it is holding on for dear life.  There is a fairly active debate among a lot of very smart people as to the participation of regular Chinese folks who are or are not affected by the swings in the market, and thus the potential damage or benefit from the wealth effect there.  But the situation on the economic front, and in their capital markets feels to me to offer risks to the downside at the moment. And the wealth effect is not to be dismissed.

Oh and the little matter of Netflix.  The stock is the best performer in the S&P500 in 2015, now up about 110%. They are acquiring millions of subscribers a quarter (now about 65 million worldwide), but doing so by creating and acquiring content at exponential costs in an increasingly competitive landscape, with a stated promise of profits on this growth in 2017. Obviously there is a chance they could start to demonstrate profitability sooner, which in mind is the only reason that could justify owning the stock here.  But why in the world would they when they’ve seen a very similar stock in AMZN kick the profitability can down the road for 20 years? And successfully as AMZN now sports a $215 billion market cap and is able to get away with having a universally panned glorified garage sale yesterday that has no negative effect on the stock??

So if you are looking at the “deal” in Greece, the bounce in Chinese stocks and subscriber gains in Netflix (causing more than $4 billion of increased market cap in the stock this morning) to justify committing new cash to stocks here then you are participating in some pretty irrational shit. That’s fine as long as you know that. This party ends and it feels increasingly close. Just make sure you’re not the last one left to turn off the lights. #JustSaying

me right now