I have no idea if Real Money's typography can handle emojis, but the folks on my WhatsApp group have seen me use the clown emoji more times than I would care to this week. ��
I'm talking about the clowns who populate the financial media and proclaim things like technology stocks are back. Netflix (NFLX) added more subscribers than expected in fourth quarter 2023. The stock is jumping Friday morning. I had no position in NFLX, and I know how the game is played. Fair play -- it is what it is.
But Netflix did not "blow away" revenue expectations -- NFLX reported revenue for the fourth quarter of 2023 that was exactly in line with Wall Street's expectations: $7.85 billion. Obviously the company is adding those subscribers at lower price points than Wall Street had expected. This is especially possible since in the fourth quarter of 2022, Netflix launched an ad-supported tier with lower monthly pricing.
But if someone tells you that one data point from a video streaming company is more important than Alphabet's (GOOGL) shocking announcement that it's cutting 12,000 jobs, then you should ignore that person. Chief Executive Officer of Google, Sundar Pichai, would not be making the cuts if he didn't have a sense that advertising spend is disappearing rapidly.
Above all, Google is an advertising company. Never forget that. Companies are spending less on advertising, because they are seeing less revenue come into their coffers. That's also why they are cutting people, hence the unending tide of Big Tech layoffs.
This giant wheel in the sky will keep on turning until the Fed starts cutting rates -- not stops raising, as the Fed will surely do again on Feb. 1. I don't believe we will see rate cuts until 2024.
But that won't stop the clowns from clowning. I'm talking, of course, about the con artists who are just going to keep conning you into believing that buying stocks that provide an annual yield of 0.77% (the current yield on Invesco fund (QQQ) ) is a viable alternative to locking in a guaranteed 4.68% annualized yield by buying a 12-month U.S. Treasury note.
In that strategy, you start with a nearly 400-basis point headwind vs. risk-free United States Treasuries, so, to win, you had better hope that everyone else keeps doing that, too. That's what we market old-heads call the "Greater Fool Theory." It is not foolish at all to buy and hold a stock in a company like Apple (AAPL) that produces boatloads of free cash and uses that cash flow to pay and repurchase stock. Exxon (XOM) does that, too.
But the clowns continue to clown. I read this morning a quote from Cathie Wood bemoaning the continuing strong performance in energy stocks. Huh? My HOAX portfolio has risen 62.05% since inception on Dec. 22, 2021 while producing bountiful dividends, which I dutifully reinvest, while Cathie's sinking ARKK has fallen 64.25% in that time period. There is nothing wrong with making profits by holding shares of dividend-paying, cost of capital-earning companies. What is "wrong" is losing investors' money. ARKK did with its colossal 67% meltdown for the year 2022.
So cash flow wins. If you want to follow tragic clowns, download a copy of Leoncavallo's epic opera, Pagliacci. If you want to grow your nest egg, just keep investing in income-paying securities.