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Update: OWS, Income Disparity, Europe, NFLX & More

30 October 2011 6 Comments

It’s been a while since I’ve updated 20smoney.com – September – November is a very busy few months so my time is limited. I hope to be back to a regular update schedule soon. Thanks for all of you who have emailed asking about updates…

I’m going to run through the major topics going on right now and provide some commentary. Look forward to your comments..

Occupy Wall Street

There are a few facts which OWS is pissed about:

  1. There is a disproportionate amount of wealth accumulated in the top 1% of society
  2. Wall Street gets special favors from Washington DC – usually takes the form of bailouts, monetary policy, regulations, etc. (Yes, regulations are a favor from Washington, not the other way around – more on that later).

I agree with these statements.┬áThat’s about as I and OWS agree with and I’ll explain why.

The reality is the OWS protestors are drawing attention to some legitimate problems, but other than that, they are almost entirely uneducated and often do nothing more than regurgitate leftist talking points when asked to articulate anything of substance. For example, ask them the problem and they say to let the “bush tax cuts expire.” This is so dumb on so many levels it’s hardly worth discussing, but I will anyways. First, you know a phrase is politically charged when a president’s name is attached to it. Bush tax cuts. Obamacare. You get the idea. Second, this is such a surface level issue. I almost wish they would let them expire just to show these clowns that nothing will change as a result. The problems are structural and way bigger than a 3% tax increase on the wealth.

The reality is that Wall Street doesn’t need to be regulated by Washington. Washington needs to allow the free market to regulate it.

If Washington DC stepped away and allowed the market to regulate Wall Street, hundreds of the so-called 1% would either be broke or in jail as a result of bad investments or flat out fraud. That’s all the regulation you need.

Instead, Wall Street “buys” favor through campaign donations and influence and receives bailouts and a constant Federal Reserve backed monetary/inflationary policy which benefits the wealthy and powerful. They also control regulations. Politicians will tell constituents that they are regulating Wall Street through the implementation of bills like Dodd-Frank, but they let the corporations essentially write the regulations. The regulations favor big business and put hurdles in place that prevent small business from competing – regulations slant the playing field to keep big corporations in dominant roles. Again, the free market as the regulator prevents this.

The Occupy Wall Street crowds unfortunately don’t understand any of this. Most politicians don’t either. Although, Ron Paul does and continues to hammer the point – unfortunately, few are listening.

Income Disparity

Extreme income disparity where there is a growing gap between the super rich and the poor is not the problem. It is a symptom of the problem which I just outlined. Focus on the root problems, and the income disparity issue becomes less of an issue.

Focusing on the true problems however requires backing away from the politically charged rhetoric and requires understand of economics, monetary policy and the current environment of American politics (more than just the Democrat vs Republican nonsense which is nothing more than a distraction.)

Europe

Europe is even messier than American politics. You have something like 17 countries trying to make political decisions in unison despite having 17 different sovereign nations. If you think certain states in American don’t like the idea of their tax dollars bailing out a state like California, imagine Germans bailing out Greeks. It’s absurd and the German public is against it.

The bottom line is there is just too much debt in the developed nations and western Europe is a major part of that. There will have to be debt cuts – we’re already seeing this come into picture clearer with talks of 50% debt hair cuts of Greek debt. Greece is only the start. Once they have debt forgiveness, other nations will line up for similar deals – in fact, Portugal is starting to already talk like this.

There will be debt re-structurings and yes this will hammer the European banks which will also hurt American banks. There will be more volatility as a result of this. Any word out of Europe is for the most part from politicians. You have to look at these statements of so-called solutions (there is one every two weeks) as nothing more than PR. PR to satisfy the markets. It works until… it doesn’t. When it doesn’t you have the market hammer sovereign debt and skyrocket borrowing rates (i.e. Greece). At some point the same thing happens in other countries like Italy.

Defaults are much more politically acceptable once another country has defaulted. Once a country like Greece defaults, other countries will be able to do so as well. Therefore, you’re likely to see defaults in bunches. It’ll definitely rattle the markets.

For a simple investment thesis, hang on to cash until Europe hits a climax. This will hammer multinational stocks like Philip Morris Int’l (PM). When this happens, buy that stock. Of course there are other factors, but like I said, it’s a simple investment thesis.

If you want a better idea on what is going on in Europe and how they got to the current state, check out Michael Lewis’ new book, Boomerang.

Netflix

Netflix (NFLX) has been a shining example of a high-flying “mo-mo” stock (momentum stock) which has now died. The company’s model is effectively broke especially considering their core competitive advantage was against brick-and-mortar stores like Blockbuster. Now they’re competing against technology companies like Amazon, Google, Apple, etc. as well as the content companies and studios that they contract with to stream content to consumers.

I shorted Netflix in the $140 range, then covered the day the stock cratered 35% to roughly $75 a share. It’s now up a few percentage points. If it goes above $100 again, I’ll re-short. The stock is going lower and could hit some insanely low levels. Eventually maybe another company buys it, but even with that they have billions in contracts that would have to be assumed by the acquiring company. Netflix is in trouble.

More updates soon…

6 Comments »

  • xfiltrate said:

    Thanks Kevin you are spot on as usual. I wonder if anyone has published the truth regarding who is holding the Greek debt. I have read, from several sources, that a large percentage of the Greek debt is held by German investors. If this is so,wouldn't a German bail out of Greece be protecting the Germans who hold Greek bonds? A default would hurt Germans who hold Greek bonds. It would be very interesting to discover who actually holds the Greek debt and compare that data with the willingness or unwillingness of banks and countries to help bail out Greece.

    My opinion is that the multinational banks have packaged and sold the Geek debt much like they packaged and sold the toxic sub prime mortgages. Thoughts?

    The E U economic policies are not working because the economies of the EU countries are very different. The E U might be better served if individual E U countries created their own economic policies. Thoughts?

    We are in for a rough ride in Europe and unlike the North American occupiers those protesting in Spain are very well educated and are focused on CORRUPTION in government, banking and in large corporations….. This has the politicians etc. very worried and many low level party officials are now being thrown to the wolves in an effort to placate the aroused public. An interesting statistic might be to document the number of Spanish politicians currently being investigated for corruption as opposed to the number investigated before the protests.

    xfiltrate

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