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.