Daniel Indiviglio looks at the impressive plunge in Netflix’s stock price, both today and over the past three months or so, and wonders what on earth could have happened in the real world to justify such a plunge. Even if its stock was overvalued at its July peak, a 74% drop in a little over three months is enormous. Was it really that overvalued? The company may now be undervalued: investors may be overreacting. Indiviglio’s main point is well taken. The standard view of stock markets is that they’re some kind of objective collective judgment on the fundamental outlook of a company. The company does whatever it does, generating revenues and profits and cashflows and the like, and then the stock market places a present value on those fundamentals. Under that model, the price action in Netflix makes no sense. But that model doesn’t reflect the real world. In the real world, many companies — especially ones with high-flying stock prices — become self-fulfilling stock-price-appreciation machines, at least until the party stops. And what’s happening to Netflix’s stock price has everything to do with Netflix’s stock price, and very little to do with Netflix itself. Whitney Tilson, famously, was one of many people who went short Netflix at about $180 per share and busted out when it just kept on rising. Netflix, as the chart above quite clearly indicates, was for a very long time a steamroller which would just flatten anybody who tried to short it. And so the shorts went away, bruised, bloodied, and beaten. Without short interest, there was almost nothing keeping Netflix stock in the realm of sanity. If you wanted to buy it, you needed to find somebody willing to sell it. And with the stock going ever upwards, such people were very hard to find. The stock had its own dynamics, which became increasingly divorced from any corporate fundamentals. Or, more accurately, the stock dynamics became entrenched within Netflix’s corporate fundamentals. The deals I wrote about yesterday — like paying $30 million per movie for the right to stream DreamWorks’s animated films months after they’re available on DVD — were cheap when they were essentially being paid for with bubblicious Netflix equity. Indeed, insfoar as they caused the stock price to rise, they had negative cost to Netflix: the more deals like this that Netflix did, the more valuable Netflix became. But then the stock started falling, and all those dynamics were reversed. In a normal company with some kind of short interest, a falling stock price is met with shorts taking profits and supporting the price. In this case, the shorts were few and far between, and they too were enjoying the momentum trade. They weren’t covering. Indeed, short interest started going up, rather than down: all the momentum traders who were happy making money on the way up were equally happy to try to make even more money on the way down. And suddenly investors started looking at corporate fundamentals, and asking questions about whether streaming operations could ever be hugely profitable for Netflix — or even profitable at all. The dynamics of the rising share price were clear: every time that Netflix looked as though it was making lots of money, the price of the next streaming deal would only go up. Netflix has to buy streaming rights from big-media companies, and those companies are going to extract as much money as they can from Netflix, up to and possibly even beyond the point at which it declares bankruptcy. It’s the big-media companies which have the pricing power here, and now that Netflix has set eye-watering precedents for things like DreamWorks Animation and House of Cards, it’s going to find it difficult to pay more reasonable rates going forwards. So people with equity in Netflix are in a difficult place. Their company is locked into a model where it pays billions of dollars for streaming rights, while keeping the price to subscribers dirt-cheap. That’s a model which on its face looks much more attractive to the content creators than it does to Netflix. And it’s very hard to place a value on the permanent equity of Netflix in that kind of dynamic. When it was going up, it was going up. But now it’s crashed so dramatically, no one has a clue where Netflix stock should be trading, or even whether Netflix — having largely abandoned its DVDs-by-mail business model — even has a viable model at all.

* Sales start Australia, first of seven countriesSYDNEY, Oct 14 (Reuters) - Apple Inc’s iPhone 4S finally hit stores around the globe on Friday, with fans expected to snap up the final gadget unveiled during Steve Jobs’ lifetime, many buying the phone as a tribute to the former Apple boss.”I think a lot of people are going to buy the iPhone 4S because it was the last iPhone Steve worked on,” said Wil Batterham, 15, camped outside the Sydney Apple store. “People are saying it was named after him, like iPhone 4S, for Steve.”Apple’s 13 Australian stores will be the first to open their doors at 8.00 a.m. local time (2100 GMT, Thursday) to sell the iPhone 4S.CEO Tim Cook and his executive team hope the first device launched without Apple’s former visionary leader at the helm, will safeguard their global market share lead.The iPhone 4S — introduced to the world just a day before Jobs died — was dubbed a disappointment because it fell short of being a revolution in design, but glowing reviews centered around its “Siri” voice-activated software have since helped it set a record pace in initial, online sales orders.Apple fans showed no disappointment in Sydney on Friday as they queued to purchase a new phone, ahead of sales in Japan, Germany, France, Britain and North America.Apple said it did not release sales figures on launch day, so gauging the initial sales may be difficult. Apple said it had taken more than 1 million online orders in the first 24 hours after its release, exceeding the 600,000 for the iPhone 4, though that model was sold in fewer countries.Some analysts expect fourth-quarter iPhone shipments of as much as 30 million or more, almost double from a year ago.Apple’s fifth-generation iPhone uses chips from Qualcomm Inc , Toshiba and a host of smaller semiconductor companies, according to repair firm iFixit, which cracked the device open on Thursday.First-day sales of Apple gadgets are typically a jubilant celebration around the world, but Apple has conspicuously avoided any mention or showcase of Jobs for the iPhone 4S global sales, preferring a more “business as usual” approach.However Apple fans in Sydney made sure Jobs was part of the launch, with a small flower, candle and photo shrine outside the glass-fronted store.”We decided to do it because of Steve,” said Tom Mosca, 15, sitting on a sleeping mat beside the front door, where he has camped for three nights. “It was the last phone that he had an effect on and designed so we just thought it would be nice.”SPEECH RECOGNITION A WINNERAnalysts say Cook needs to move out from under his former mentor’s enormous shadow soon, and avoid clinging to the Jobs’ mystique to preserve its brand.More immediately, with Google Inc Android phones gaining momentum, Apple needs the iPhone 4S to be a blockbuster.The iPhone — seen as the market’s gold standard — is its highest-margin product and accounts for 40 percent of its annual revenue. It is the world’s biggest selling smartphone, maintaining a slim market-share lead over Samsung’s Galaxy, at 18.4 versus 17.8 percent worldwide.In a sign of how tough the competition is, two doors along from the Sydney Apple store, Samsung has been selling its new Galaxy SII for only A$2 to its first 10 customers each day, prompting Samsung fans to also camp out on the footpath.But analysts point to several factors in Apple’s favor: a $199 price that matches up well with rival devices such as Amazon.com Inc’s “Fire” tablet; availability promised on more than 100 carriers by the end of 2011, far more than its predecessors; and glowing reviews.Apple’s iconic smartphone comes with a faster processor and a better and more light-sensitive camera, but little else to separate it from its predecessor. But tech experts say the real gems lie beneath the phone’s familiar sleek casing.Influential reviewers Walt Mossberg and David Pogue raved about “Siri” — a voice-command activated assistant that responds to spoken commands and questions in context, such as queries about the weather or a friend’s phone number.But Mossberg added that “despite Siri, the iPhone 4S isn’t a dramatic game-changer”.

* Reviewers rave about Siri, but otherwise no revolution* Sales begin Oct. 14By Edwin Chan and Supantha MukherjeeOct 12 (Reuters) - Apple Inc (AAPL.O) debuts its fifth generation iPhone this week minus its visionary leader for the first time. But CEO Tim Cook may already be thinking ahead to his greatest challenge: repositioning the company’s fabled marketing apparatus to safeguard the brand.With Google Inc (GOOG.O) Android phones gaining momentum, Cook is likely sticking to established battle plans at this critical juncture. But longer term, he may be better off moving the company out from under Jobs’ gargantuan shadow. The Apple co-founder bequeathed a mystique and cachet to the brand that will be near-impossible to replace, cultivating a community of fans hooked on ease of use and rich content.It’s those perceptions Cook — who in two months on the job has already shown Wall Street and Silicon Valley glimpses of what an Apple without Steve Jobs might look like —- must focus on preserving rather than the inimitable aura of the co-founder who died last week at the age of 56.”There’s no question Apple is going to go through a time of transformation. There’s a lot of risk around the brand,” said Tim Calkins, a marketing professor at Northwestern University’s Kellogg School of Management who has advised clients like Eli Lilly & Co (LLY.N). “A lot of pressure will fall on Tim Cook to step up. The hard part is, he’s not Steve Jobs, nor can he try to be.”Cook has the luxury of time to ponder his next step. Advanced sales of the iPhone 4S — despite disappointing fanboys and pundits hoping for more than an enhanced iPhone 4 — surpassed one million in its first 24 hours globally, smashing the 600,000 for the iPhone 4, though that model was sold in fewer countries.Sales in stores begin Oct. 14 in Japan, Australia, France, UK, Germany, Canada and the United States.Some analysts expect fourth-quarter iPhone shipments of as much as 30 million or more, almost double from a year ago.The fifth iteration of the iconic smartphone comes with a faster processor and a better and more light-sensitive camera, but little else to separate it from its predecessor. But tech experts say the real gems lie beneath the phone’s familiar sleek casing.Influential reviewers Walt Mossberg and David Pogue raved about “Siri” — a voice-command activated assistant that understands and responds to spoken commands and questions in context, such as queries about the weather or a friend’s phone number. Pogue called it “crazy good, transformative, category-redefining speech recognition.”“Despite Siri, the iPhone 4S isn’t a dramatic game-changer. Some new features are catch-ups to competitors,” Mossberg wrote in the Wall Street Journal. “It isn’t perfect, and is labeled a beta, but it has great potential and worked pretty well for me, despite some glitches.”Both reviewers marveled at Siri’s ability to hold conversations, from basic “give me directions to …” to quirkier discourses.”When I asked it, ‘What’s the best phone,’ it said, ‘Wait … there are other phones?’” Mossberg wrote. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^iPhone’s early sales smash record [ID:nN1E799080]Apple investors seek dividend once more [ID:nN1E79B0Z5]Apple’s history and milestones [ID:nN1E794246]Obituary [ID:nN1E79424F]Graphic: product launches link.reuters.com/fet38r^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>BLAST FROM THE PASTCook now faces the monumental task of not only preserving, but also advancing Apple’s lofty status in the industry and among fickle gadget consumers. Moreover, he must do that while honoring his former boss and mentor, a master showman who time and again displayed an uncanny instinct for driving consumer tastes.”Things for the next two years are pretty much set in stone in terms of what they want to achieve, and the new kind of product focus they are putting out. After three years, the new management is going to make its mark,” said Jack Salzman, principal and founding member of Kings Point Capital Management. “If there is any pressure on the new Apple management, its probably going to be self-imposed, because of the void that was left by Steve Jobs.”The product pipeline is where Cook needs to stamp his own authority on the company. He can stick to script only so long before he risks stagnation and damaging the brand. Apple needs to find a formula divorced from Jobs’ persona, observers say.Indeed, during the iPhone 4S’ media launch last week, Cook stepped back and allowed the supporting cast — such as marketing chief Phil Schiller, software head Scott Forstall and design guru Jonathan Ive — to tout the device, something Jobs would have sought to control from start to finish.”They’ve got to find a new voice in the market. Steve Jobs was so much the face of Apple,” Calkins said. “Protect the core elements of the brand, but at the same time, move forward.”“You can’t turn Apple into a memorial for Steve Jobs,” he added. Cook shouldn’t “be afraid to make changes in the way the company communicates and reaches out to consumers.”Branding and marketing aside, ultimately Apple’s products — not their hype — need to be judged on their own merits.Apple’s meticulously scripted marketing blasts are the stuff of Silicon Valley legend. After rumor and speculation builds across the Internet, the company sends out a cryptic email invitation to tease the product. That, in turn, is typically followed by a splashy extravaganza that culminates in a global first-day sales event across the globe that often has people lining up around the block days in advance.”Past this launch, there isn’t really a killer new launch. I am sure they have got a number of products in development,” said Pat Becker, a portfolio manager at Becker Capital Management. “But once the phone is out, you will have all the price points covered, you have got the different carriers covered. To me, that’s’ a start toward reaching saturation in the phone market.”

Most professional bond investors had spent the better part of the year distancing themselves from Harrisburg holdings, so they aren’t held by big popular vehicles like Vanguard’s tax-free bond funds.”These bonds have been in the muni doghouse for a while,” said Daniel Berger, senior market strategist at Municipal Market Data. “(The bankruptcy filing) is not news to most investors.” Furthermore, much of the Harrisburg debt was insured.Should investors worry about future defaults or buy more bonds? Here are some considerations:— Harrisburg bondholders will see money. “Virtually all of it has some kind of insurance on it,” says Alan Schankel, a bond market analyst with Janney Montgomery Scott in Philadelphia. The incinerator-linked bonds were covered by Assured Guaranty, a Hamilton, Bermuda-based insurer, which has already made some payments that the city had skipped earlier, he said. Typically, insurers covering bonds pay out interest and principal on schedule as it becomes due.— Harrisburg may be unique. The city’s whole budget is less than $60 million and it went more than $300 million in debt over a failed incinerator project. “This was an outsized obligation on their part that they shouldn’t have done, but we haven’t seen anything like this from other communities in Pennsylvania,” says Schankel. “This is an isolated situation.”— In fact, it could be a buying opportunity. Muni prices have been driven down (and yields driven up) for a variety of reasons. In trading on Wednesday, prices of tax-free bonds finished mostly lower, with yields on AAA-rated 10-year munis up 3 basis points to close at 2.53 percent on Municipal Market Data’s benchmark triple-A scale. In contrast, yields on 10-year Treasury notes closed at 2.23 percent.It’s unusual that munis yield more than Treasuries. “They have gotten as cheap as they are going to get in this cycle, and they are going to get more expensive,” says Schankel.David Hultstrom, a fee-only financial adviser and analyst with Financial Architects in Woodstock, Georgia, suggested that munis and Treasuries are relatively mispriced. “In theory, you could short Treasuries and buy munis and wait for them to correct. I’ll bet there are hedge fund managers out there doing that right now.”— Fund investors needn’t worry. “There should be no impact on muni bond fund investors,” says Hugh McGuirk, who heads the municipal bond team at T. Rowe Price. “Harrisburg is not a significant issuer and their troubles have been well known for years. This was well anticipated by the market.”Fund investors at big companies like Vanguard and Fidelity can go online and see all of the holdings in their funds.— It may help to think in terms of dollars instead of yields. On paper, munis look good, because they are attractively priced relative to Treasuries, says Hultstrom. “But in actual dollars, all the yields are so low, so who cares?” For people looking to invest small sums, “the dollar amounts may not justify the added risks of investing in munis” says Hultstrom.For the same reason, bond investors should focus on buying high-quality issues instead of squeezing out the biggest returns, says Joe Deane, executive vice president at Pimco. “Don’t try to go for the highest yield out there.”— Diversification continues to rule. Bond buyers should never over commit to any single issuer; that’s bedrock bond advice. Even investors in high-tax states who like the triple tax-free nature of their local muni bonds should keep that to 50 percent of their own portfolio, suggests Schankel. “Any more than 50 percent of a portfolio in a single state shows a lack of diversification.”Drilling down to individual municipalities, investors are advised to keep their holdings of any one issuer to under 10 percent of their portfolio. Less than 5 percent is optimal, but investors with larger sums may find it hard to stay within that 5 percent limit, given the scant offerings of the market.

* New round of talks to be held in Washington on ThursdayBy Kevin GrayMIAMI, Oct 12 (Reuters) - Florida’s attorney general dismissed media reports that a final settlement is imminent in multi-state negotiations over alleged foreclosure abuses by U.S. banks.Florida Attorney General Pam Bondi also said states that have pulled out of the negotiations should return to bolster any deal. Federal, state and bank officials are expected to hold another round of negotiations in Washington on Thursday.”I read this morning that we’re settling this tomorrow. I doubt that’s going to happen,” Bondi said, speaking on Wednesday during an event in Miami.”We still have states that aren’t on board yet. We’re trying to bring in some people who left the table.”Negotiations toward a settlement have been going on for months, with penalties on the banks of up to $20 billion being discussed. A settlement would free up a backlog of foreclosures weighing on housing markets and dragging on economic growth.Banks, including Bank of America Corp , JPMorgan Chase & Co , Wells Fargo & Co and Citigroup Inc are seeking to maximize their legal immunity. Investor worries about banks’ financial liability have helped send bank shares falling this year.Last month, the state of California pulled out of the negotiations, with the state’s attorney general saying the talks had failed to provide enough relief for homeowners and released the banks from too many legal claims.New York abandoned the negotiations in August expressing similar concerns.”The main thing I want to focus on is bringing everybody back to the table,” Bondi said. “That right now is the most important thing.”Whether we agree or disagree, we all have to stay at the table or we’re never going to get anything done.”The banks are accused of dealing with a deluge of mortgage defaults that began in 2008 by cutting legal corners and unlawfully rushing through foreclosure paperwork.The claims include allegations of “robo-signing” in which lenders’ employees or outside contractors produced and signed reams of foreclosure documents without fully understanding their content.A settlement with all 50 states and federal authorities could help the banks move beyond the legal fallout that has dogged them since the height of the financial crisis.The talks have been bogged down by disagreement over the banks’ legal exposure.Sources close to the negotiations have told Reuters a settlement is possible without all states signing on. Even if a state chooses not to sign on to a final deal, its homeowners could still benefit, the sources said.Details over the size of any penalties and how that money would be divvied up have not yet been worked out, people familiar with the talks said.”We’re doing our best to resolve this,” Bondi said.

The opposition demanded Berlusconi resign after the government lost by a single vote on a measure to formally approve last year’s balance sheet for state spending.”There is no reason to see this as a collapse. But I think that the government needs to be willing to be open to debate and see if there is a political consensus,” said Fabrizio Cicchitto, head of center-right deputies in the lower house.Defense Minister Ignazio La Russa said the government should call a confidence vote to prove that the coalition was still intact and that the loss of the vote was just a mishap because of some absences in the chamber.But Gianfranco Fini, the lower house speaker who broke with Berlusconi last year, said the loss of the vote was “unprecedented” in its seriousness.The government was defeated because several key center-right leaders, including Economy Minister Giulio Tremonti and Northern League leader Umberto Bossi, were not in the chamber for the vote.Still, the defeat was stinging because it comes at a time when Berlusconi is facing internal challenges from a number of center-right ministers who are unhappy with the way he is running the coalition and the damage his personal and judicial woes have done to Italy’s reputation.The opposition called on Berlusconi to face the fact that he no longer had a workable majority and step down.”This government has no program left, it has no coalition, it has no objectives except to guarantee itself power,” said Massimo Donadi, head of parliamentarians in the opposition Italy of Values party.The 75-year-old prime minister has come under mounting attack as the financial crisis and growing divisions in his center-right coalition fuel speculation that his government will collapse before the end of its term in 2013.Ratings agency Fitch last week cut Italy’s credit rating by one notch with a negative outlook, following a downgrade by Moody’s, underlining market concern over the stability of its public finances and its chronically weak growth.A 60-billion-euro austerity package to balance the budget by 2013 was passed last month only after weeks of hesitation and delay, while the timetable for a decree to pass economic reforms and approve the sale of state assets has slipped to October 20.So far, Berlusconi’s majority in parliament has held up in repeated confidence votes but there has been mounting press speculation of a possible revolt within his PDL party.