Weil on Finance, P.M.: Netflix's Wild Ride
Hello, View fans. Another day, another fun-filled round of annotated afternoon links to cool stories about finance. Enjoy.
Netflix Inc. hit a new high this morning at about $389 and then plunged to less than $323 by late afternoon. Reed Hastings, the video service's chief executive officer, yesterday used the word "euphoria" to describe the stock's recent surge, while Bank of America analysts called Netflix's valuation difficult to justify. (And if a couple of sell-side analysts can't justify it, that's saying something.) The stock trades for more than 180 times trailing earnings and is up almost five-fold in the past year. Noting Netflix's nosebleed valuation, Herb Greenberg of TheStreet writes: "This much is clear: When the CEO and CFO of a company say on one hand they do their best to ignore the volatility in their stock, but on the other acknowledge that their stock's performance is starting to feel somewhat like `momentum-investor-fueled euphoria,' we are at or near yet another golden age of momentum."
And chase the frothy bubbles while the world is full of troubles
There's an old joke about retailers that lose money on every sale but claim to make it up on volume. On that note, here's a good article about Amazon.com Inc. by David Streitfeld of the New York Times: "Amazon shares are up around 150 percent since mid-2010, which perhaps not coincidentally was the last time the company had sizable profits. In other words, investors really decided they loved the company only when net income began to slide." He quotes an economist and venture capitalist, William Janeway, who says this isn't supposed to happen: "It violates mainstream finance theory. Very few companies have been valued this way outside a systemic bubble." Amazon's stock-market value is about $151 billion, or almost 2.3 times revenue.
Wall Street and the great Puerto Rican debt binge
Bloomberg News had an excellent story today about how Wall Street underwriters fueled Puerto Rico's $120 billion in bond sales since 2000. Puerto Rico's general-obligation bonds, which are exempt from local, state and federal taxes, have lost 18 percent this year. The island's finances are in turmoil. Puerto Rico can't file for bankruptcy the way Detroit did, because it's neither a state nor a sovereign country. It must either pay its debts or default. Here's why it matters to everyone else: Puerto Rican bonds are held by 77 percent of muni-bond mutual funds.
Can't get enough about JPMorgan's $13 billion government settlement
John Cassidy of the New Yorker weighs in: "It is people, not corporate abstractions, that break the law, and it is the people at the very top of the corporations who set the rules and the tone for everybody else to follow. Until this reality is recognized, simply lumping companies with big fines years after the fact won't necessarily make much difference in how they behave. And if a company is too large for any individual to manage in a way that prevents widespread abuses, as seems to be the case with the big banks, then maybe the government should tackle that problem directly."
Aside from Larry Summers's predictably glowing review, I haven't seen many compliments written about former Federal Reserve Chairman Alan Greenspan's new book. Allie Jones in the Atlantic writes that "Alan Greenspan learned nothing from the financial crisis." Last week Daniel Akst in a review for Bloomberg News called it a "clueless trip through bubble land" and said "a guide to economic forecasting by Greenspan is about as credible as art history by Mr. Magoo." Brutal stuff.
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Jonathan Weil at email@example.com