Robert A. Graf's  Instablog

Netflix (NFLX) has sent out notices to subscribers of price increases to those still wanting DVDs in the mail, OR price decreases to those who switch to streaming, which may require a new TV (or at least a box for many), and serve as a catalyst for TV sales this season and beyond.

As a subscriber to Netflix, I recently received in my e-mail inbox this notice from Netflix informing me that it was going to increase my plan $1 per month.  I have the plan that allows me to have one DVD at a time.  The surprising part is that they were offering me a discounted plan without DVDs for $7.99 per month, but I’d have to upgrade to a box or a digital TV to use my laptop to get instant access.  Although this move may not be brand new, the notice to all us subscribers was, and is timely to the holiday season.  It immediately got us thinking about replacing our quite fine SONY tube TV in the family room with another VIZIO like we have in the bedrooms.  (VIZIO is not listed and is an American brand headquartered in Irvine, California; top TV supplier to Walmart (WMT)).  Back to the thread, I suspect that television upgrade discussion is happening a lot out there.  Importantly, the postage that Netflix will save bypassing the United States Post Office is another important factor that I’m sure has been and will continue to be a factor propelling the price of the stock higher.  People who love to get mail and get their DVDs so fast can continue for a little more which covers the postage for Netflix, so no one here really ends-up leaving their subscribership and those in the know who like the advent of streaming video and increased access will be sure not to be too disappointed.  Overall, it is my view that Netflix will help companies like Corning (GLW), Walmart (WMT), Best Buy (BBY), Costco (COST), VIZIO (again, privately held), and other economically minded manufacturer/retailers who make LCD HDTVs or supply them.  I will recommend Netflix on a pullback using a bull put spread strategy.  Those who want the upside potential for a possible take-over bid may wish to hold Netflix (NFLX) shares, but be careful to enter properly.

Disclosure: No current positions

You may already know that the US exposure to the whole PIGS problem has been estimated to be $176B USD, and that the whole amount is spread over the 10 largest US Banks including Bank of America (BAC), Citibank (C), JP Morgan Chase (JPM), Wells Fargo (WFC), State Street (STT), Goldman Sachs (GS), Morgan Stanley (MS), Deutsche Bank (DB), and HSBC (HBC), according to Stacy-Marie Ishmael published in the Financial Times from data compiled by Barclay's Capital.  FFIEC data further breaks these amounts down to $9B for Portugal, $18B for Greece, $68B for Spain, and $82B for Ireland (all USD).  Compared to the tier 1 capital base for the aforementioned banks of $848B, major American banks have 21% exposure to the PIGS problem--not insignificant.  However, if we compare this to the exposure of the major economic countries in Europe, we have $510B of exposure to Spain alone by Germany ($220B) and France with $190 andthe U.K. with $100B according to data from the Bank of International Settlements.  That's already a lot compared to our significant number of $176B USD, but it gets even deeper.  For example, when we look at the combined exposure of European banks in Germany, France, and the U.K. to Ireland we get another big number: $465B USD, with Germany exposed to a whopping $180B, France at $80B, and the U.K. with a staggering $205B USD worth of exposure.  So with such consternation in the news over a period of weeks now from Germany regarding Greece, let's finally put that in perspective:  Germany is exposed at $40B, France at $80B, and Switzerland at $70B for a total of $190B USD, or a little more than the American Banks in the whole PIGS ordeal.  Although we can take minor comfort that the U.K. can print money and that the Greek part of the PIGS problem might be addressed, it still remains a daunting problem of mass proportions for the European banks that hold the remaining debt outside of Greece.  Even if a domino effect were stopped, just the independent balance sheet levels of debt for Germany and France especially are overwhelming, especially compared to the overall U.S. bank exposure.  This posting may help provide some perspective of why Wall Street is reacting so much to this dilemma, realizing that our American involvement in Europe is probably just around the corner.

Disclosure: none

It never fails that from time to time I get asked why the dollar matters.  Isn't it what the Fed does that matters?  Part of my answer is embedded in their question:  Usually the Fed has the funds rate at a value other than zero and can manipulate that up or down, but in our current climate the Fed has rebalanced its own spreadsheet.  In addition to taking these steps to provide liquidity, we all now know that the Fed has gone much further printing money and purchasing preferred shares of our companies, MBS, and other securities.  Let's not forget the government's direct involvement in restructuring companies even.  So back to the original question, when all of the usual mechanisms are spent, used up, where to we go from there?  Since deficits are how our government and others are stimulating the economy, it becomes all the more important how well structuring the financing projects are going as well as how much capital is expended with the idea that it needs to make growth and then be paid back.  One analogy that I like to use is looking at America, the country, like it was a stock and a company.  The legislation is more like the stock price and the implementation and outcome of the stimulus is more like the companies book value, or what the company would be worth if it was liquidated all at once.  Once we make this analogy then we can see it a bit like currency traders do, that the currency is the stock of the country so to speak.  So why the dollar matters is that it is the benchmark indicator against, in the case of the "Dixie", some of the more major currency players, including Canada, the Euro-zone, Sweden, England, Japan, and Australia.  As the benchmark indicator, when the $USD goes up, it would make sense that our stock market would go up too; however, it has been going down when the dollar improves.  That is not really such a mystery either because our stock market is global, not inclusive to just our country.  So when growth indicators kick in elsewhere; namely in China, the steel and copper that builds buildings comes from other countries and that momentum increases stock prices on our market.  To add another layer of complexity, the dollar also matters because all commodities are traded in US currency.  That is just historical development more than anything and shows the huge role the US has played (and continues to play) in developing a lot of the world.  So, when asked about the role of the dollar and why it matters, these are the reasons why it matters.  These reasons become even more important in a country where the Fed has taken the rates to zero and represent how we are doing in a global economy of multiple countries financing their recovery.

Disclosure: none