Friday Morning Reads

Friday Morning Reads







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Disney streaming success

Shares of Disney (DIS) rose 1.6% AH on Thursday after its fiscal first-quarter earnings easily topped profit expectations, on revenues that didn't decline as much as feared. The results are the first since a divisional reorganization, which makes clear that softer declines in media and entertainment helped mitigate a huge drop in its parks and products business. Disney's streaming service, Disney+, also continues to be a big hit. It now has 94.9M paid subscribers, topping an expected 90.7M, with 8M new viewers added in December alone.

Putting it in perspective: The figure means Disney has already crossed its original 90M subscriber goal for the platform, which is a number it originally expected to take four years to reach. The Mouse House has since revised that four-year plan with a new target of reaching between 230M-260M subscribers by 2024.

The news was still not enough to offset the hardship the company is experiencing due to the pandemic, with COVID-related costs shaving $2.6B from parks' operating income in the latest quarter. Walt Disney World in Florida and Shanghai Disney Resort were open for the entire period, though operations at Disneyland were suspended despite declining coronavirus cases in California. Disney traditionally makes a lot of money from its theme parks and movies, and that, in effect, is subsidizing its big bet on streaming.

Thought bubble: While analysts have said Disney trades at a massive 74x earnings - a valuation similar to cloud computing giants and EV makers - investors have bought into Disney's streaming push. Including ESPN+ and Hulu, the Mouse House has nearly 150M subscribers, and it's only been a little over a year since Disney+ launched in November 2019. That level of unprecedented growth has excited shareholders, even though the business is loss-making now and will likely be for years to come. (25 comments)

Record trading volumes

While stock index futures dipped slightly overnight, down 0.2% at the time of writing, the major averages are still on track to post a positive week at record levels. A strong rally has taken hold of the market since the beginning of February, before traders take off for Presidents' Day on Monday. The parabolic surge and rapid collapse of GameStop (GME) and other WSB/Reddit shares have also done little to dampen enthusiasm for equity exposure.

In fact, the frenzy is competing with the trading levels seen during the worst of the pandemic selloff last March. According to Bloomberg, an average 15.8B shares have traded each day on all U.S. exchanges over the last 20 days. That compares with the 16.1B average hit on March 25, which was the highest in at least over a decade. The number of bullish bets via call options has additionally hit a record.

Primary culprit in the overall increase in volumes? Retail. Average daily volumes of the largest e-brokers are way up, as well as options trading that have been prevalent among the retail crowd. Record volumes are also being reported on the Trade Reporting Facility, a "tape" which reports trades not done on the exchanges.

Outlook: Many are still asking when the activity will take a breather. "Everybody has said it's going to subside, but they have been saying that for six months," said Steve Sosnick, Chief Strategist at Interactive Brokers. (6 comments)

Embracing crypto

Bigger financial institutions are embracing Bitcoin (BTC-USD), paving the way for large-scale adoption. The crypto jumped as high as 8.1% to $48,663 on Thursday, notching a new record, after Mastercard (MA) and Bank of New York Mellon Corp. (BNY) moved to make it easier for customers to use cryptocurrencies. Galaxy Digital chief Mike Novogratz said this development is huge, but the flow of good news for Bitcoin has been so great of late that it's going nearly unnoticed.

Backdrop: On Tuesday, Tesla (TSLAinvested $1.5B in Bitcoin and announced it would begin accepting the crypto for payment "in the near future." There were also some earlier signals. Last week, Elon Musk said he thought Bitcoin "was on the verge of broad acceptance" and added the Bitcoin hashtag to his bio on Twitter. In January, Tesla further disclosed it might hold some of its cash reserves in "certain alternative reserve assets including digital assets, gold bullion [and] gold exchange-traded funds."

Twitter (TWTR) has additionally done some "upfront thinking" about how to deal Bitcoin, including if employees ask to be paid in the crypto and whether the firm needs to have the digital asset on its balance sheet. Twitter CEO Jack Dorsey, who is also the co-founder of Square (SQ), has been a long-time advocate of Bitcoin.

Quote: "These are just the early innings of corporate adoption, as digital currencies are beginning to play a larger role in robust balance sheet management," said Nathan Cox, Chief Investment Officer at Two Prime, an investment firm specialized in digital asset and derivative strategy management. (115 comments)

Addressing the chip shortage

The global semiconductor shortage that has hit many U.S. industries, especially the auto sector, has got the attention of the Biden administration. An executive order will be signed in the coming weeks to authorize supply chain reviews for critical goods like silicon chips.

Quote: "The review will be focused on identifying potential chokepoints in the supply chain and actively working alongside key stakeholders in industry and with our trading partners to do more now," White House press secretary Jen Psaki said in a statement. It will also explore "immediate actions we can take, from improving the physical production of those items in the U.S. to working with allies to develop a coordinate response."

The chip industry has said the semiconductor crunch points to the need for more investment in U.S. manufacturing and research, and is hoping for government incentives to pump billions of dollars into that effort. On Thursday, a group including Intel (INTC), Qualcomm (QCOM) and Advanced Micro Devices (AMD) even sent a letter to President Biden. They urged him to provide "substantial funding for incentives for semiconductor manufacturing" as part of his economic recovery and infrastructure plans, citing the decline of the U.S. share of global chip-making in recent decades.

Go deeper: Earlier in the day, Biden urged Congress to move quickly on a large infrastructure improvement plan, declaring that China is poised to "eat our lunch" otherwise. "They're investing billions of dollars dealing with a whole range of issues that relate to transportation, the environment and a whole range of other things. We just have to step up." (138 comments)

Deficit and inflation fears?

The federal budget deficit is estimated to total $2.3T in the 2021 fiscal year, according to the Congressional Budget Office, marking a drop from the $3.1T shortfall seen in fiscal 2020, but significantly ahead of anything the U.S. had recorded prior to the coronavirus pandemic. That total also does not include the $1.9T in relief spending that President Biden has promised, since the ultimate size of the package has not been finalized.

The public share of the $27.9T national debt is currently to $21.8T, or 102% of GDP. The CBO anticipates that number will continue to escalate, hitting $35.3T, or 107%, of GDP by 2031, which would be the highest debt-to-GDP ratio in U.S. history. All this spending has triggered some inflation fears, though Philly Fed President Patrick Harker is the latest central bank official to say there is nothing to worry about.

Quote: "What I look at is not only the level of inflation but also is it accelerating or decelerating," he declared. "We're clearly committed as [a Federal Open Market Committee] to exceed 2% for a period of time, but it has to be sustainably above 2% for a period of time.

Outlook: The U.S. hasn't seen significant inflation in almost 40 years, and since the 2008 financial crisis, the economy has experienced very low inflation and even deflation. A moderate level of inflation occurs naturally in a growing economy, yielding higher prices that encourage businesses to invest, interest rates to go up and higher wages. The Fed has said will tolerate inflation levels higher than 2% to juice the economy and get back to full employment, but if the number rises at a faster rate, it could be harmful for investors and force the central bank to tighten policy sooner than expected.

What else is happening...

Dating app Bumble (NASDAQ:BMBL) climbs as much as 85% in market debut.

Marijuana stocks continue burnout following likely short squeeze.

GameStop (NYSE:GME) didn't cash in on squeeze because of regulatory fears.

White House set to meet virtually with airline CEOs.

Biden announces deal for another 200M doses of COVID-19 vaccines.

Today's Markets

In Asia, Japan -0.1%. Hong Kong closed. China closed. India flat.
In Europe, at midday, London flat. Paris flat. Frankfurt flat.
Futures at 6:20, Dow -0.2%. S&P -0.2%. Nasdaq -0.1%. Crude -0.8% to $57.75. Gold -0.5% at $1880.60. Bitcoin +3.2% to $47728.
Ten-year Treasury Yield flat at 1.16%

Today's Economic Calendar

10:00 Fed's Williams Speech
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
3:00 PM Fed's Daly Speech

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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