NEW YORK ( TheStreet) -- The renowned and often controversial economist John Maynard Keynes said a mouthful when he pronounced: ""Markets can remain irrational longer than you can remain solvent."
With the mania in shares of Netflix (NFLX - Get Report) going full bore after its earnings report on Wednesday it's time to reconsider that oft-forgotten quote. Whether you agree with Keynesian economics or not, if you've been an investor or trader in the stock market you can hardly disagree with it.
Shares of NFLX are up 43% in two trading sessions after the reaction to its after-market earnings announcement. This appears to be a "short squeeze" situation, and I'm reminded of one of Jesse Livermore's favorite books "Extraordinary Delusions and the Madness of the Crowd" by Charles Mackay. Traders may be chasing the stock while those who were short NFLX are covering on heavy volume.
NFLX had a surprisingly positive quarter but not enough to justify such irrational exuberance.It's not that NFLX's earnings skyrocketed or that it is anywhere near reaching the levels of success that a company like Apple APPLE (AAPL - Get Report) has experienced for years. When one compares NFLX, with a market cap of less than $8 billion, with a gigantic cash generator like AAPL with a market cap of nearly $434 billion, a rational investor has to wonder why AAPL shares are down while NFLX is soaring. On a timely note, TheStreet's Jim Cramer said in an interview today that he still likes NFLX but he also sees that the price has gotten ahead of itself. When a company like Apple can report a relatively positive quarter as it did on the same day and in after-hours trading be taken out to the woodshed, something is seriously irrational. Today, AAPL shares traded down as low as $450.66, even though AAPL is trading at only 8 times forward (one-year) earnings. That's outrageously cheap, and at a price of even $460, its dividend yield is 2.3%. Apple's revenue for the quarter was $54.5 billion compared to $46 billion, an increase of $8.2 billion year-over-year. AAPL has no debt and tons of cash.