If it entertains, buy it. The rest? Sorry, I am not that interested.
That's pretty much the story of today's market. Perhaps because of the historic $65 billion bid by Comcast (CMCSA) to get the same Fox (FOXA) assets that Disney (DIS) covets, perhaps because a federal judge the other day pretty much blessed everyone buying everyone when he greenlighted AT&T (T) buying Time Warner (TWX) with absolutely no restrictions, or perhaps we just have a wholesale revaluation upward of anything that's entertaining. No matter, it's literally one of the most breathtaking virtual riots of buying that I've ever seen.
Now, before I go into the nitty gritty of this unprecedented move, let me just say that there are most certainly two markets at work right now. There is the market that's about entertainment and anything that delivers entertainment to you. And then there is everything else. The everything else is not so hot.
There are the banks and they are lethargic at best, because they can't make as much money as we thought because they are lending at just slightly higher than they are borrowing from you because there is what's known as a flat yield curve. There's health care which is being left behind because we have too strong an economy. There's retail which has moved up too much and is taking a pause. There's the industrials and they can't get any traction because we know that the Trump administration is not going to let up with the Chinese, and the tariffs are coming even if they helped bring North Korea to the peace table.
Yep, that's a lot of stuff that's not working. We sure don't want a situation like 1999 where the only thing that was working in the S&P was tech. And you can bet that's what the bears will say the next time the S&P takes a hit and tech goes higher.
But then there's something else afoot. Those other groups have all had a shot at the brass ring. The one sector that has been held back -- the entertainment stocks, notably Disney and Comcast, the two big dogs, but also CBS (CBS) and anything cable -- finally has a two part catalyst, a federal judge who wants old media to have the firepower to play with new media, and Comcast which has come up with a high bid for Fox that says everything else, literally everything, may just be too cheap.
Let's spend a second on this progression so we're all together. Earlier this week a federal judge unequivocally ruled that AT&T can and must be allowed to buy Time Warner, despite the objections of the Justice Department. If it can't, then Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) and Alphabet (GOOGL) will be triumphant and perhaps even wipe out the old line competition. It was a stunning 170-page ruling that said the Justice Department is hopelessly out of step with the times and that FANG will inherit the earth unless the older media companies can merge to save themselves.
I am not a believer that things are that dire. But I get it.
So did Comcast. With the ink barely dry on the ruling it comes up with an all-cash bid for the Fox assets that Disney wants. Now until the judicial ruling everything seemed so murky. Who knew if all the bidding would be chimerical and the Justice department could shut everything down on the basis of too much market concentration, which is a shorthand version of what the antitrust division seemed to be saying in its case against the ATT-Time Warner merger.
But with such a clear ruling, one that could make Justice look foolish if it tries to stop any company from buying Fox, a Comcast bid is the same as a Disney bid -- they are equivalent. So all that matters is price and Comcast's price seemed to be just high enough to make it so Disney will have a hard time competing against it, but not so high that it crushed Comcast's stock.
Now, how do I know that? I am a huge believer in listening to what the stock market is saying. And with the stocks of Comcast and Disney up dramatically on the heels of the Comcast bid you have to surmise that the biggest money in the world is now betting that Disney may try to come back with something more enticing but it can't beat Comcast on the merits, the merits strictly now being how much money they can and will pay to get the Fox assets.
What has to be heartening to Disney is that in the theoretical absence of buying the Fox businesses its stock is worth more than even Disney's management might believe. Why not? All that has happened since the Fox bid is that Disney's entertainment reach has gotten better and better, its movies, save Solo, more lucrative -- Avengers Infinity War just became only the fourth movie ever to make $2 billion -- and its ESPN over the top offering a potential hit.
Perhaps what we are seeing today is the new Disney's true colors.
At the same time. Comcast's stock has been punished and punished and punished to the point that when we saw the amount of debt that Comcast is taking down to beat Disney and we listened to a conference call that told you not only how great these fast-growing Fox international businesses would dovetail with the steady cash flow of the largely domestic cable and programming enterprises, but how well Comcast is doing even without Fox, you had to say buy buy buy.
Disney and Comcast are substantially undervalued and way behind the market no matter who wins. Hey, who knows, maybe there's an insurgent buying up Disney's stock as part of the equation. Maybe Disney doesn't have the votes to win given how much of the Fox stock that would vote is owned by index funds who will, per se, sell to the highest bidder, which for now is most certainly Comcast.
Which brings me back to the rest of the entertainment sector. I know that we never want to be caught thinking that Facebook, Amazon, Netflix and Google, now Alphabet are cheap. But remember what I said yesterday: if the economy is going to slow down from the Fed or a trade war you want to own FANG because these stocks do not need the economy to do well to have their numbers go higher.
At the same time what do Comcast and Disney need to compete? How about all the technology companies that make entertainment and live programming look terrific on any device. Plus, let's not be too parochial. Comcast's brief in favor of its Fox bid has some incredible language about this moment in time. As Steve Burke, chief executive officer of NBC Universal, said in his statement on last night's call "First, we're in a golden age of content with more video consumed than ever before. That will continue as demand for great content keeps increasing."
Comcast and Disney want to be the providers of that entertainment in scale all over the globe. It should not be lost on anyone that just as Walmart WMT and Amazon want to own India, which will be the biggest nation in the world in 2025, Comcast and Disney want that market, too, and that's what you get with some of these Fox assets.
All you need is the technology to enable it to happen and that's what got everything that's part of the internet of things flying today.
It's not just movies and television programming and other assets like Discover or CBS, that are being revalued upward. All the video game companies have stocks that are simply screaming higher as they, too, are part of the golden age of content now that e-sports has taken center stage.
Spotify (SPOT) , my favorite subscription music company's a banshee to the upside, again, part of the revaluation. In fact anything subscription is going up, including another one of my faves, Dropbox (DBX) .
Yes I wish that the rally were broader. But when you get this kind of revaluation of a sector, including a stock like Disney which should be going down if it is going to increase the amount of stock it is offering for the Fox businesses by a dramatic amount as so many say it has to, rather that radically higher, which is what it has done yesterday and today, it's worth cheering, not dissing. That's what I am choosing to do today. Let's see what happens tomorrow.