Month: October 2022

#60 – NFLX & TSLA Earnings – w/ live interview out-takes

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Markets

US Stock market is down 22% and the Nasdaq 100 (NDX or QQQ) is down 32% year-to-date. Many large tech companies in Silicon Valley are part of NDX (Apple, Microsoft, Amazon, Tesla, Alphabet, Nvidia…). 

Inflation and Interest

The Fed is on a mission to break inflation, which came in at 8.2% year-over-year for September. The speed at which the Fed is raising interest rates is mind-blowing and we hope it doesn’t cause unforeseen shocks in the system, such as those seen in UK Pensions. (Even more shocking to me is that pensions in the UK can deploy leverage through derivatives!) 

More of my thoughts on the Fed Failure here. 

Markets expect the Fed to raise again 0.75% in November and then 0.50% in January for a total Fed Funds rate of 4.5%. Could go higher if inflation persists.

The 30 year mortgage rate is up almost 4% year over year, which along with inflation of housing costs has the effect of increasing the monthly payment on the median priced home by almost $1,000 per month. The housing market will continue to cool off as a result. 

Earning Updates:

Netflix

After 2 quarters of negative subscriber growth Netflix adds 2.4 million subscribers in Q3 and expects 4.5m in Q4. Here are some key takeaways. 

  • Revenue grew 6% YoY or 13% excluding FX. This is a big deal because it shows they continue to scale topline at double digit growth. 
  • Advertising tier launching in November ($6.99 in US). 5 minutes of advertising per hour. As linear TV continues to die, advertising $’s will move to streaming. Netflix is charging top tier rates to advertisers. 
  • Netflix estimates all streaming competitors are losing money and combined losses are north of $10 billion. Why important? Because Netflix has reached critical mass and is generating $5-6 billion in annual operating profit. Very difficult to replicate! 
  • Free cash-flow over $1 billion in 2022 and materially larger in 2023. 
  • Netflix stock was 75% off its high. Now it is trading around $270 or 61% off high.

Tesla

Tesla is the most exciting company in the world; leading the EV revolution and transition to sustainable energy.

  • Q3 Revenue: $23 billion. Up 56% Year-over-year. 
  • Q3 EBITDA: $5 billion. Up 55%. 
  • Q3 Storage Deployed (residential and commercial batteries). Up 62% 
  • Full Self Driving (FSD) Beta will roll out to everyone in Q4.
  • Reiterated 50% topline growth for the foreseeable future. 
  • Semi deliveries begin this December and Cyber next year. 
  • Next gen car will be half the cost of 3/Y platform and smaller. Will exceed production output of all other vehicles combined.
  • Elon see’s a pathway for Tesla to exceed the value of Apple and Saudi Aramco combined ($4.4 trillion), excluding accounting for Optimus (the robot). I do too.
  • Tesla stock down 5% 🤔🤣Reminds me of Taylor Swift lyrics: “And the haters gonna hate, hate, hate, hate, hate…”  I’m just gonna wait, wait, wait, wait, wait.  
  • Did you see Tesla AI day? Here’s a short video to give you a taste of Optimus.

Recommendations: 

Reacher! On Amazon. 

#59 – Mkts, Layoffs, Inflation, Fed, NFLX, TSLA

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Markets

A key to calming markets is settling war in Ukraine. Pipeline blown up. Donbas annexed. Zelensky pushing for Nato. 

Hurricane Ian. Biden says get vaccinated. Actually, let’s keep it real. As I was Googling this video to queue up, it appears it was cherry picked from something in 2022. $30-$50b.  

Layoffs and Freezes and Downgrades and Upgrades

  • Lyft has frozen hiring. 
  • Meta froze hiring. 
  • Docusign cutting 9% of workforce. 

Apple downgrade: The iPhone maker dropped 4.9% after Bank of America cut its rating to neutral from buy, warning of weaker consumer demand for its popular devices. The selloff erased roughly $120 billion from Apple’s market capitalization.

Nike down 10%. Inventory up 44% QoQ.  Nike’s inventories in North America grew by 65% compared with the prior year, management said, and by 44% on a global scale. The company will be forced to heavily discount its products to get rid of the excess off-seasonal goods, management said, which will have a negative impact on margins.

Netflix

Netflix upgrade:

Netflix up 35% in quarter from $175 to $240. 

  • Advertising $’s. $65/1000 views. 
  • Advertisers may allocate from Meta to Netflix. 

Federal Reserve

The Fed led by Jerome Powell raised the Fed Funds rate 75 bps to 3.0 – 3.25%. Expectation is now 4.0 – 4.5% by year end. Powell is determined to sink the economy to drive inflation to 2%. Why 2 and not 3%. We have a strong economy, strong underlying demand, low unemployment and the Fed is determined to destroy that. Data suggests inflation is retreating. 

CathieDWood (@Cathie Wood) Tweeted: The Fed is basing monetary policy decisions on lagging indicators: employment and core inflation. Leading inflation indicators like gold and copper are flagging the risk of deflation. Even the oil price has dropped more than 35% from its peak, erasing most of the gain this year. 

Commodities

Commodities are down. 

  • Lumber: $410 down from $1300 in February 2022. 
  • Copper at $334 from high of $494 in March. 
  • Iron Ore $150 to $109.  
  • Oil? Not so much

Housing

Housing: 30 year mortgage rate is up from 3% to 7%. This has the effect of doubling the payment on the median house over the last year. 2 years ago: 30-yr mortgage rate was 2.88% & average new home price in the US was $405k. Today: 30-yr mortgage rate is 6.7% & average new home price is $522k.Result: $23k increase in down payment (assuming 20% down) and 100% increase in monthly payment (from $1,345 to $2,694).

Home Sellers are Scarce: Homeowners with low mortgage rates are balking at the prospect of selling their homes to borrow at much higher rates for their next homes, a development that could limit the supply of houses for sale for years to come.The number of newly listed homes in the four weeks ended Sept. 18 fell 20% year-over-year, according to real-estate brokerage Redfin Corp.

Tesla

Tesla Recall. NHTSA FUD. Tesla is recalling more than a million cars because of defects in their automatic windows that could injure passengers, the nation’s auto safety regulator said. 

  • Great example of why its important to seek the truth and understanding. Stock is down for no logical reason; save market fears. 

FSD Beta. Rolling out to all owners with driving score >80. 

Margin domination: 50% CAGR Revenue and earnings. 

– direct distribution w/o 3rd party dealers

– vertical integration through owning their supply chain

– manufacturing & materials innovations

– higher ASPs

– industry leading output rates

– FSD & software rev

Tesla AI Day. https://twitter.com/elonmusk/status/1575499184764899328?s=51&t=_58cbojJsDAvJdNOoPt_-g

  • Note, this event is meant for recruiting AI & robotics engineers, so will be highly technical
  • As well as advanced chip & supercomputer engineers for next-gen training & inference

What are Jim and Mary thinking? 

Tesla Twitter: https://twitter.com/techemails/status/1575598387335901190?s=51&t=zkcLpxX1jtdlxESfptGgiw

Recommendations: 

  • Dahmer?? 
  • Elvis? Maybe. 
  • House of Dragon. Last episode jumped 10 years. 

Quote: Children are happy because: 

  • They’re not self conscious. 
  • They lack a sense of time pressure
  • They’ve no goals. 

#58 Housing, Biden, Ukraine, CA Energy, TSLA, NFLX#58

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Markets. 

  • The Text Message I just got.  Crypto and delaying laundry?! 
  • Down 17%. Tech down 25%. 
  • Housing.
  • Homes in August sat on the market an average five days longer than they did a year ago.
  • The median listing price in August dropped to $435,000 from $449,000 in July
  • The average home sold for less than its list price for the first time in more than 17 months during the four-week period ended Aug. 28, according to Redfin
  • Nord Stream Pipeline closed again. Russia booking record profits. 
    • Long cold winter for Germany.   

Biden Speach: 

  • Red lights. Looks like Nazi Germany. Portnoy Rant.  
  • Who are Maga Republicans? 5%, 10% far right? 49%? Far “left” just as dangerous. He just speak to the extremes if he wants to “unite” the country. 

White house seeking $12b for Ukraine. In addition to $40b already approved. 

Nvidia: 

  • On July 27 Pelosi sells Nvidia stock.
  • Aug 26 Government says can’t sell advanced chips to China. 

Energy (in California)

August 24 CA bans the sale of gasoline cars by 2035. 

August 30: Stop charging electric vehicles. May have rolling blackouts.  

Diablo Canyon Closure and then re-open.LA Times: 

How much does that plant produce? From PG&E directly:

18,000 gigawatt hours. ~10% of California’s energy needs. 

For years, Diablo Canyon has continued to safely produce clean and reliable energy without greenhouse gases (GHG), avoiding 6 to 7 million tons per year of GHGs that would be emitted by conventional generation resources. Built to withstand extreme natural disasters, including earthquakes, Diablo Canyon’s design features state-of-the-art seismic supports

Russia throttling gas to Germany. 

We need energy independence, which means mining too.   

Tesla

Netflix: 

  • Advertising live Nov 1!? 
  • $7-9 pricing. 
  • Sources confirmed the new Nov. 1 launch date, which was previously reported by the Wall Street Journal. Netflix and its exclusive ad partner, Microsoft, have requested ad buyers submit initial bids next week, with a “soft $65 CPM” — the cost per thousand views — meaning that the company is open to negotiating the ad rates. That’s well above industry CPMs of sub-$20.

Recommendations: 

Joe Rogan: Tim Dillon and Zuckerberg

Pam and Tommy. So dumb! But can’t stop watching. Sex and Rock n Roll.  

The Fed Failed Us

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The Fed’s job is to promote economic stability via:

  • Low and stable inflation, and 
  • Maximum employment. 

This is done primarily by adjusting interest rates and through open market operations (purchasing securities) also known as Quantitative Easing (QE).

Not a lot of tools, but VERY powerful ones: small movements reverberate through global markets. The most significant of late is the UK pension system, which was on the verge of collapse as a result of dramatic increase of interest rates and employing derivatives for leverage?!

The Fed is our driver: no hard braking, no jack-rabbit acceleration and definitely no drunk driving.

So why did the Fed run rates up on us 3.0% in 6 months; the fastest rate in 40 years? It’s worse than that! They were still buying securities in the open market (QE) in March 2022, the same month they first raised interest rates! One hand saying STOP the other saying GO. This is ludicrous and irresponsible.

From Josh Brown referring to Jerome Powell: “If you’re buying mortgage and treasury bonds to stimulate the economy in the month of March and then deliberately trying to crash the markets and create a recession in September, you’re probably not the right person to have in charge of the money supply. You may not be the “price stability guy.” 

Our Treasury Secretary Janet Yellen was still calling inflation transitory in October 2021. That’s when stocks were peaking, bitcoin was at $56,000 and NFT’s were still selling for millions of dollars. 20/20 hindsight, but with inflation at 6% it’s hard to understand why there wasn’t a small rate hike or pull-back on QE in 2021. Obviously, nobody wanted the music to stop; a party of epic proportions. 

Also consider that the Fed basically NEVER raised rates from 2009 thru 2016. 7 years of free-money. 

The Fed had to act, but they could have acted sooner and more responsibly. And now they are proclaiming that they will defeat inflation at any cost. At the cost of your 401k, your job and who knows what else they’ll break along the way. Again, not saying a market pull-back and correction was not warranted, but the Fed could have and still can act more prudently.  

The Fed has handled the last 12 months poorly. If Jerome Powell and Janet Yellen were public company CEO’s they’d be fired. Ironically, Ben Bernanke, who led the Fed from 2006 – 2014 was just awarded the Nobel Prize. He and team were responsible for near zero interest rates from 2009 – 2016.

Keep in mind, the Fed does not have the tools to fix “supply” side inflation. Raising interest rates and controlling the money supply does not fix supply chains and OPEC controlled oil prices. 

In Conclusion 

Cathie Wood of ARKK laid out some good arguments for the Fed to slow down a little and look to some leading indicators. Inventories are rising and many commodity prices are falling. Unfortunately, oil and energy prices are not falling, but does crushing demand and driving up unemployment help? 

I’ll add that it’s ridiculous in this day and age of technology that the Fed is looking at lagging economic indicators – including surveys – and applying so much judgment to determine interest rates. Arguably they should be plugged into real-time banking, FinTech and other feeds and have an algorithm guiding the approach. 

And Finally, each member of the FOMC needs to stop soapboxing their opinions. Remember the days when the Fed gave a speech once per month and that was it.  

If the Fed has to reverse course by more than a 1% in 2023, that’s probably a decent sign of failure in policy.