My children have been particularly keen on poems recently. Especially my older son, Connor. I think they enjoy the tenor and rhythm of the poems, much like their favorite songs. It’s exciting to revisit old books from my childhood like Shel Silverstein’s classic Where the Sidewalk Ends. For those that don’t remember, the book is a collection for light-hearted poems. My kids have really taken to how silly some of the poems are, many with no purpose, just to be silly. But some poems are deeper. The deeper meanings are lost on a nine and seven-year-old.
The sidewalk looks to have ended for DirecTV. Rumors are circulating that AT&T (T) is entertaining offers for the satellite company it bought a few years ago. While the service is quite nice (I am a subscriber) it’s hard to justify the $50 billion price tag, especially as many Americans continue to cut the cord. If the rumors are true that offers are coming in around the $15 billion mark, it could be the mother of all tax-loss harvests. Cutting the cord on DirecTV might not necessarily be a bad thing for Ma Bell. Without the DirecTV distraction, the company could focus their attention on their cash cow wireless business and the surprisingly promising HBO Max.
HBO Max is the culmination of the awkward HBO Go and HBO Now. A little confusing at first, I now appreciate the collection of content they have assembled under one umbrella. AT&T is clearly making a pivot to content (versus broad distribution with DirecTV) like Disney has done. They recently announced a bold move that threw Hollywood into turmoil. The company will now release their upcoming movies on HBO Max the same time they are in the theater. Sandboxing their best content on their service is an enticing offer. Disney’s streaming service, Disney+, has done the same thing and seen huge success. Despite the complete closure of some of their parks, the company’s shares have soared to highs when they made the pivot to streaming. Investors love the recurring revenues from the Disney+ service. Thanks to the strength of that division, shares are now above their pre-COVID levels. AT&T’s all-in wager on HBO Max could be disruptive enough to work.
The sidewalk definitely hasn’t ended for many technology stocks this year. They continue to ride the market’s momentum higher. Apple, Amazon, Tesla, Google, and Facebook. They have all seen great gains for years. It would be easy to dismiss their gains. Many market pundits have forecasted big tech’s demise. Is technology in a bubble? Maybe. But who knows how long it’ll continue for and what’ll make it pop. We all know the market isn’t always rational and their gains can continue. For how long? No one knows.
Unfortunately, we all know the sidewalk will eventually end for some of these more speculative names. Companies like Nikola (NKLA) with tons of promise, but zero revenues. Valuations can’t expand forever and will eventually come back to reality. At some point these companies need to see a huge spike in their numbers (earnings, EBITDA, cash flows, whatever) or their shares prices will likely come down to reality. The odds are not in your favor when entering a great company at high valuations. Stock prices might not necessarily follow the same pattern as the business cycle – but it is a cycle.
The sidewalk also looks to have ended not on Wall Street but on First Street. The U.S. Supreme Court’s decision not to hear Texas’ challenge to the Presidential election is likely the end to Trump’s legal fight to overturn the election. Given the likelihood of a Biden presidency and a split Congress, we are in for a big political tug-o-war in Washington. As the politicians continue to play tug-o-war in Congress, I want to remind everyone once again that we are all on the same team. The fight we have is not against one another; we are fighting for a better future for our children and grandchildren. The infighting reminds me of one of my favorite poems from “Where the Sidewalk Ends”.
I will not play at tug o’ war.
I’d rather play at hug o’ war,
Where everyone hugs
Instead of tugs,
Where everyone giggles
And rolls on the rug
Where everyone kisses,
And everyone grins,
And everyone cuddles,
And everyone wins.
The irony is that as I write this Sunday night, my kids won’t go to bed and are fighting with each other.