Thanks so much reading my Diary today and all week.

Enjoy the weekend

Be safe.

This is important and positive news for the cannabis stocks: 

I am told there is a DeMark buy signal on (MSOS) that flashed late this week.

Tesla's (TSLA) market capitalization exceeds that of Facebook FB by nearly $300 billion and is almost $600 billion larger than the market cap of Berkshire Hathaway (BRK.A) (BRK.B) .

Market breadth at 2 pm.

* As pundits float like a butterfly and sting like a bee

"I told you I was the greatest of all time. I told you I would beat Sonny Liston."

- Muhammed Ali

As the market has ramped over the last few weeks, I have noticed the lack of substantive arguments and the growing abundance of glittering generalities underlying stock recommendations by "talking heads" in the business media. 

Content seems to be inversely related to the price of the S&P Index - the further the Index rises, the less analytically based the purchase recommendations have become. 

Fin TV has become almost like watching a cocky heavyweight fighter who of hubris who doesn't even put up his guard against his competitor. 

But for now the boxer is still Muhammed Ali, The Greatest of All Time!

I am covering some more Netflix  (NFLX) (for a loss) at $651.65.

Gold finally catches a bid!

FibroGen (FGEN)  getting J-I-G-G-Y.

Investor sentiment is not a good timing tool - but here is the CNN Fear and Greed Index.

Private Clients: $3.3tn AUM...65.6% stocks (new all-time high), 17.3% bonds (new all-time low), 10.6% cash (lowest since Sep'18...note $4.6tn in MMFA now equates to just 3.8% of global equity market cap, lowest since Oct'18).

* In my view, the rising expenses associated with VIAC's streaming initiatives move the company one step closer to being acquired

ViacomCBS (VIAC) achieved in-line to stronger results relative to expectations across all its business lines in the third quarter.

Here is a summary of third-quarter results by CEO Robert Bakish made during Thursday's conference call:

"Let me start with the company's third-quarter results, where we achieved another quarter of strong performance as total company revenue grew 13% year-over-year, reflecting growth across all revenue streams. In affiliate, revenue grew as we continued to benefit from the expanded distribution of ViacomCBS' renowned brands. We also struck a series of distribution renewals, including with Charter, Cox and just last month, Altice. And despite a tough comparison against political advertising in the prior year quarter, we grew advertising revenue in Q3, benefiting from an improved marketplace. Turning to streaming. We had another fantastic quarter of growth.

The strength and momentum of both Paramount+ and Pluto TV are clearly evident, and demonstrate the power of the strategy we laid out at our investor event earlier this year. Overall, quarterly global streaming revenue surpassed one billion for the first time, driven by robust growth in both subscription and advertising, including the addition of 4.3 million global streaming subscribers. These strong streaming results reinforce our conviction that our strategy is working and that we're well positioned to capture the significant opportunity in the global streaming ecosystem. To that end, I want to remind you of three key enablers driving the ViacomCBS strategy, all of which we're seeing in action. First, an incredible breadth and depth of compelling content which is critical to attracting and retaining consumers globally; second, robust distribution and marketing, which ensures we can build the broadest reach and awareness; and third, a strong and flexible financial engine to enable streaming investment, drive ROI and maximize shareholder value."

The success in the streaming initiative was a feature for the three-month period: 

* Streaming subscriber growth net adds came in at 4.3 million (ahead of 4.0-4.1 forecasts). Streaming revenue grew +62% year over year and streaming advertising came in at $531 million. Based on a strong content lineup (a return to a full programming schedule (including the NFL and "the largest scripted lineup to date - including two South Park movies, Mayor of Kingstown and a Yellowstone spinoff"), management forecast that 4Q2021 net adds would be stronger than the just reported third quarter ads (+5.3 million estimated v. previous forecast of +4.0 million) - and that streaming revenues will be annualizing in excess of $5 billion in 42021.

* The rich content lineup (see above) and new partnership with T- mobile/Sprint and Comcast (see below) should contribute to streaming subs for 2021 of about 52 million (up 1.5 million from prior estimates) and for 76.5 million subs (up from 71.5 million projected) for 2022. (Next year about ten million subs should come from the partnerships between T-mobile and Comcast) A preliminary guess for 2023 would be approximately 88 million subs (up five million from prior estimate). In summary, net adds of 22 million, 24.5 million and 11.5 million for the years 2021-23. 

As seen above, ViacomCBS's third quarter importantly demonstrated strengthening trends in its streaming operations. That business line will be driven by a new distribution initiative announced Thursday a partnership with T-Mobile (TMUS) . Combined with the previously announced partnership with Comcast (CMCSA) /Sky in Europe, streaming revenues are expected to grow more rapidly than expected, at a rate in excess of 40%, producing an annualized run-rate in excess of $5 billion. As noted by Goldman Sachs, this anticipated run rate will be comparable to the domestic HBO revenue that was generated by AT&T (T) last year.

VIAC shares initially traded higher but closed down 4% Thursday after the company disclosed in its conference call that streaming expenses would rise sequentially by about $350 million from the third quarter to the fourth quarter of this year:

"We also expect Q4 Pluto TV MAU additions to be greater than Q3, which, in combination with Paramount+ growth, will result in continued strong total streaming revenue growth rates in Q4. In fact, we expect streaming revenue to surpass a $5 billion annual run rate in the quarter. This places us ahead of the trajectory implied by the long-term streaming subscriber and revenue goals we provided earlier this year. We're encouraged by this momentum and are continuing to execute against our previously described growth and investment plans. As we've said before, this translates to streaming content expense more than doubling for the full year 2021 versus 2020. And given the cadence of content hitting Paramount+ Q4 streaming expense, including content and marketing to support the new programming, is expected to increase on the order of $350 million relative to streaming costs incurred in the third quarter of 2021."

- Naveen Chopra, ViacomCBS CFO 

As other companies that have streaming initiatives have learned, there is a higher cost in the delivery of programs and in production (content costs) in order to be competitive and to produce and sustain sales/subscription momentum.

ViacomCBS's anticipated higher content expenses associated with streaming investments explain the 4% drop in the stock price yesterday. This will result in a reduction ($245 million on a base of full-year $4.8 billion, or about -5%) in OIBDA (operating income before depreciation and amortization) and cash flows for the fourth quarter. The rising cost of content will likely persist over the next few years. Accordingly, I expect forecasts for the company's OIBDA to be reduced by a bit less than 10% per year (or about $500 million on bases of approximately $5 billion/year) for both 2022 and 2023, most of which will flow through to a like amount of lower cash flows.

With the benefit of hindsight, all the industry streaming players' share prices have continued under pressure owing to the costs of launching and maintaining a competitive streaming position; that includes Disney (DIS) , DIscovery (DISCK) and AT&T (Warner). Though shares of Netflix  (NFLX)  have done well both absolutely and relative to its streaming competitors, it, too, has had and will continue to have the burden of massive costs associated with delivering its product.

To me, this highlights the need for a company such as ViacomCBS to be attached with a partner with the financial resources to achieve a superior and competitive position in the streaming business.

ViacomCBS has all the content it needs; its entertainment franchise is extremely valuable to any company that is seeking critical streaming mass.

It is my strong belief that ViacomCBS Chairman Shari Redstone fully recognizes the need to spend more on streaming in order for the company to be a leading competitor. The benefits associated with partnering with a larger company should now be crystal clear to her and the ViacomCBS board of directors... and to me, the odds of a takeover of ViacomCBS have now increased.

Here is a chart showing Goldman Sachs' new revenue forecasts for the company and a summary of its view of the shares (the brokerage is maintaining a buy and has reduced its price target from $75 to $65):

5 November 2021 ' 1:46AM EDT

Our positive investment thesis on VIAC continues to reflect our view that its market cap implies immaterial value for its streaming business, despite its scale and improved momentum. We therefore reiterate our Buy rating, but lower our 12-month price target from $75 to $65 (81% upside potential), primarily to reflect lower near-term EBITDA and FCF owing to higher near-term investments in streaming.

Here is a deeper dive into the estimate changes being made by Goldman Sachs:

Goldman's price target of $65 a share is based on a sum-of-the-parts calculation. The legacy businesses (Linear Networks, Filmed Entertainment, Publishing and Other) are valued at only 5.5x EBITDA. The streaming and digital businesses uses a DCF (8.4% WACC) based on estimated un-levered cash flow through 2026 and a terminal value based on $300 per Paramount+ and Showtime OTT subs and 4x 2026 estimate revenue of Pluto TV and other streaming revenue. (Note: The $300/sub terminal figure has been lowered from $375/sub to reflect an expectation that a higher mix of subs may be acquired through lower ARPU wholesale relationship (such as T-Mobile) over the longer term.

This morning Credit Suisse offered a more sober assessment of ViacomCBS:

"Investors remain focused on Viacom's streaming strategy (how will they balance driving third party licensing revenue vs. going all in on streaming), their likelihood of streaming success (especially internationally), and the cost of this pivot (how much of streaming content spending is funded by linear pullback vs. incremental total company spend). Generally, we find investors skeptical given the number of competitors in the space and the Company's relative investment level, but it is notable that expectations are certainly low at this point. Key will be international streaming proof points from direct-to-consumer marketing efforts (vs. one-time distribution deals), seeing a healthy hit rate as movie and TV releases ramp post-pandemic, and linear trends remaining reasonable in the meantime."

Here is the ViacomCBS press release and conference call transcript.

Bottom Line

I was attracted to ViacomCBS because of its premier entertainment content/franchise and low valuation. This has not changed. 

What has changed is that the increased current and future costs of streaming content and delivery are higher than some expected.

This places pressures on those that are going it alone against the industry leaders, Netflix and Disney.

I felt the optionality of a takeover was always a consideration.

Given the above rising financial requirements for content and its delivery and the operating challenges facing every company engaged in creating a streaming presence, to this observer a sale of ViacomCBS appears more likely today than it did yesterday.

I expect Boeing (BA) to get a bump off the news from Pfizer (PFE) of a successful COVID-19 antiviral pill. I've been adding almost daily to Boeing. 

Also, I'm adding to Citigroup (C) in premarket trading. 

And I have added to my small Tesla (TSLA) short.

I have covered my Disney (DIS) short and the tagends of my airlines shorts.

After the UK gilt market put the ball on the tee for the BoE to swing at it and they chose not to, the 2 yr gilt yield is down another 6 bps today after plunging by 21 bps yesterday. BoE Governor Andrew Bailey said he's waiting on more jobs data with the September end of the furlough program but somehow thinking a .10% bank rate is still appropriate with expected inflation to 4%+ in coming months. This said they are most likely hiking rates in December. The British pound is testing the lowest level since December 2020 also in response and that is helping the FTSE 100. In contrast, UK inflation breakevens are rising again with the 10 yr at 4.02% as the BoE is not serious about price stability.

ECB Vice President Luis de Guindos said today "Inflation next year will undoubtedly slow down, but the intensity of the fall is perhaps not what we expected a few months ago." The ECB still is conducting its emergency purchase program and the euro is just above the lowest level since July 2020 vs the US dollar. As the ECB is not serious about price stability either, the German 10 yr inflation breakeven is rebounding for a 2nd day. "Undoubtedly" will be the new "contained" if he's wrong which I think he will be.

As the Biden administration is trying to get everyone else to pump more oil except us, AAA said that the average price of gasoline is at a fresh 7 year high.

AAA Avg Gallon of Gasoline

Germany and France reported September industrial production that was weaker than expected but we know the challenges with procuring parts and materials are the main reasons. The German Economy Ministry said "Supply bottlenecks for raw materials and intermediate products that have been going on for a long time are being reflected on a broader front."

We also saw an in line retail sales figure for the Eurozone when the upward revision to August is included but this was pretty much included in the GDP figure we saw for Q3 last week.

3Q earnings period results have been better than expect but uncertainty remains high with very few revisions higher for 4Q21 and FY22 estimates:

Source: Goldman Sachs

Here you go! 

From Danielle DiMartino Booth:

• Unit Labor Costs saw a spike to 8.3% in the third quarter, beating out the 7.4% consensus and soaring above Q2's 1.1% rate; while labor costs grew at their fastest pace since 2014's first quarter, productivity moved in the other direction with a 5% drop, its worst since 1981
• The white LFPR has recovered to 65.7% from February 2020's 68% vs. the black LFPR falling from 63.1% to 61.3% and the Hispanic LFPR from 63.2% to 61.5%; 2.8 million Black and Hispanic workers still remain out of work due to COVID and rising childcare costs
• The White unemployment rate is 1.1% above its February 2020 levels vs. 2.0% and 1.9% higher for Blacks and Hispanics, respectively; with minority groups seeing higher permanent job losses as well, recovery is far from the inclusiveness Powell aspires to achieve