One of the consistencies of Wall Street is it's remarkable contradiction in emotional status. Everything is an extreme. The world's state is incredible, unbelievable, miraculously wonderful with blue skies always ahead. The alternative is equally outrageous. Disaster and treachery are everywhere, always lurking, and nothing will ever get better, ever. No way, cannot happen. Don't even think about it. These contrasts provide opportunities in any market, especially if one is clear headed and analytical. Emphasis on calm and cool, with no emotional baggage. I know, not a whole lot of people qualify.
It is with this knowledge we turn to quite a week in the markets and the world. The continuing themes of the trough of the commodity cycle and when the Fed will start lift off depressed investors. Friday was the jobs report where we found out 215k jobs were created in July, just missing the estimate of 220k. With average hourly wages just up and labor force participation rates woefully low, deflation remains a big worry. In sum, the recent data gives Mrs. Yellen plenty of flexibility to choose the policy direction she feels is appropriate. Still, the nitty gritty is what happened in two specific sectors of the equity market, oil and media.
The oil rout continues as there has been no let up on any portion of the complex- integrated, drillers, frackers, and especially mlp's. Down, down, down, down. Every day. Will it continue? Maybe, but at some point here, the reduction in drilled wells is going to reduce domestic oil production. At that point, things probably change. $40 oil ain't going to work long term, not no way, not no how. Enough said, now let's turn to the carnage in the media world.
The crucial earnings report this week was at the House of Mouse, the juggernaut known as Disney (NYSE:DIS). Like always, they earned a jillion (actually about $2.5 billion), but the key issue in another wise fine quarter was the loss of cable subscribers. There is one particular analyst on Wall Street who has loudly proclaimed Netflix (NASDAQ:NFLX) is killing the cable business and media companies with over the top offerings. Cord cutting is the result. Media companies have long relied on a dual revenue stream of payments by distributors and advertising. ESPN, owned by Disney, commands the highest monthly price from distributors, almost 7 bucks a month. The next highest rate is less than two bucks. ESPN makes up nearly half of Disney's operating profits. So, when Disney announced they were losing customers, well, investors decided these large media companies are now doomed. Disney was down 10% that day. Viacom (NASDAQ:VIA) fell 20% after its report. Discovery (NASDAQ:DISCA) and Scripps Interactive (NYSE:SNI) got shelled as well.
Looking into the future, yes, the large media companies will have to make adjustments to their business models as the bundle starts to fray. Still, these are large cash generating entities who can buy back massive amounts of stock if investors continue to punish their equities. Also, given the rock bottom financing environment, in both the oil and media sectors, the scent of consolidation is becoming stronger. Certainly, it is not hard to imagine the large integrated oil companies looking to acquire well positioned companies, especially in attractive fracking areas. In media, if you are a long time reader, you can probably guess who will lead the charge to add the best assets to an already large empire- hint, hint, the initials are J.M.
Next week brings more earnings reports, and pity the company which misses their earning estimate. Green Mountain Coffee Roasters (NASDAQ:GMCR) did and got crushed by nearly 30% in one day. Tesla (NASDAQ:TSLA) also guided down and got thrashed, down 10%. The harsh reaction from investors in nearly every sector makes this a very interesting time to invest. If you pick your spots by targeting companies you want to own, you may find them a whole lot cheaper now. Might be worth a look.
Turning to the debates, the large audiences which tuned in, nearly 24 million for the prime time event, show us cable ain't dead yet. The summer is always a time for courtship, and such is the case for Republican voters. A well balanced and strong field of candidates represented the grand old party well. There are always winners and losers in any competitive arena, and nothing is more fierce than politics. These events require passion, and Jeb and Mr. Walker certainly displayed very little of it, preferring to not make mistakes. Not so for Rand, Ted, and Chris Christy, who all have some fire in their bellies, although you could wonder if Rand has any brains in his head. Of the three, Mr. Christy probably will attract more attention. The biggest winners were John Kasich and Marco Rubio. Both were sharp and will attract greater attention and, even more important, capital.
However, if you are a republican voter, especially if you are male, the object of your affection is now a female, who was the biggest winner of the night. Carly Fiorina, the ex-CEO of HP (NYSE:HPQ), turned in the strongest performance in both debates, and followed it up by dismantling MSNBC host Chris Matthews in her interview there. Carly is Hillary Clinton's worst nightmare, and is the complete opposite of the other elephant in the room, you know who. She is razor sharp, tough, knowledgeable on the issues, and knows how to sell in a friendly way. She will have to do a better job of raising money and supporters. Look for her to be attacked by Democrats about her leadership at HP. Good luck with that. Regardless, she can be President, and it will be fun to watch her go for it. As for the other clown in the circus, Donald Trump, let's just say he took a, well, you know what.