Toppy Tuesday – NFLX Leads Us Back to the Promised Land

Actually, this is our third trip to the mountaintop since early 2000 and our last two trips did not end well and, as you can see from this chart by Paragon Capital, the DJ/CS 10-year Inflation Breakeven Index (which measures changes in inflation expectations) has completely gone off the rails and that has, in the past, been a VERY STRONG SELL SIGNAL.

This time is not different yet, just like when we have a cold day in the winter and all the Climate Deniers start saying "see, there's no Global Warming because it's cold," we can't assume that we can ignore what the bond market is telling us just because the market is spiking – again. 

Of course, we do need to consider that the Fed is artificially depressing bond prices and the government is artificially manipulating inflation data to depress those bond prices so, perhaps, we are getting a drastically false signal from the Breakeven Index.  NFLX popped 35% in 24 hours (so far) and this is not a penny stock, folks.  

Whether you agree with the move or not (we don't, we thought $200 tops), the fact of the matter is that plenty of people seem to think a widely held, closely followed, highly liquid stock like NFLX can be 35% underpriced and that the stock can gain $3Bn in market cap on a $7M earnings beat.  

That's a very nice 428:1 reward for the extra earnings scraps!   AAPL might beat by $1Bn ($11Bn vs $10Bn expected) – wouldn't it be funny if their stock jumped $428Bn this evening?  The funny thing is, even if it did double overnight, AAPL would be trading at $800Bn with $40Bn+ in earnings – a p/e of under 20 vs NFLX's p/e of about 160 now (assuming the rest of the year is as good as this Q, of course).    

The problem with NFLX earnings is, of course, that they are tiny.  NFLX made $15M this Q but revenues were not higher – they just spent less money.  Of course, as Croy Johnson points out, NFLX has a MINIMUM of $5.7Bn of future contracts committed to studios for content already and, at $1Bn per quarter in total revenues – I hope those are very long-term deals!  As noted by Dividend Pros: 

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