Trafalgar Partners LLC

So the first of our companies, Netflix reported Q2 numbers this afternoon. As you would expect due to the pandemic and everyone staying home, the numbers were off the charts. In particular, free cash flow went from ($544) million in Q2 2019 to $1.041 billion. Revenue growth was 24.9% and the operating margin was 22%. Year to date Netflix is one of our strongest performers, up 66% so far. ... Steady as she goes.

Over the past 20 years, since the dotcom bubble implosion in 2000, income disparity has grown dramatically, with the Top 1% of the country holding a greater share of the wealth. Much has been talked about to try and sort the matter out. Since the Financial Crisis with its initial spike in unemployment, employment opportunities had improved and for people of color we saw as of February the lowest unemployment ever for Blacks, Hispanics and Latinos. The effect of the Greatest P...olicy Error Ever, the forced shut down of the country, has reversed those gains in their entirety. Unemployment, defined as not only those who have lost their job and are seeking employment, but those who have lost their job and have stopped looking (and there is a statistical difference in measurement and reporting) is close to 21.6%. The country is in a Depression, caused by and now attempting to be mitigated by the government. Particular parts of the equity market, those firms that are benefiting by the virus are skyrocketing in value which is great if you run a hedge fund. But the disaster for those at the bottom of the economic pyramid is just getting started. The class warfare has just begun and those that supported the Shutdown, this lays at your feet.

From an investment perspective, and to an even greater extent the general business community, that a bifurcation, or split, is rapidly growing between businesses that will thrive as a result of the current virus, and those that will fail. The top technology companies including the usual suspects of Apple, et al, and mid tier firms like Adobe and Nvidia, continue to take market share as demands for their products and services sky rocket. Since the March low, we are up almost 7...0%. Sadly though, the general market for stocks continue to languish as the market sorts out the remaining companies. To a fair degree retailers are getting annihilated as are restaurant stocks. Cruise lines, airlines, and hotel/travel businesses continue to see volumes 60-80% lower then the February peak. The question now is how long can they survive and can they continue to tap the equity and bond markets. As of a month ago that was still possible, but even with government intervention rates for noninvestment grade credit are rising. This morning's weekly jobless claims show a slight improvement but we are still seeing weekly claims of about 20 million. Dark times remain. The Federal Reserve and US Treasury are all in and that is supporting liquidity though we are reaching $8 trillion in government borrowing. Be careful out there.

Markets climb a wall of worry and there is no shortage of that right now. We expect new highs in the Nasdaq 100 in the near term, freaking out the market pundits.

If the virus in Wuhan has run its course and the country is back to normal in China, why do the markets there continue to sell off. And we should be half way home to this being resolved if we followed a similar path, heck even add a month. Markets discount news 9-12 months out normally. So what are our markets telling us?