I hope everyone is recovering satisfactorily from a raucous Saturday: one that featured not only the Kentucky Derby, and Cinco de Mayo, but also the annual Ridgefield (CT) Gone Country Festival (replete with its BBQed Rib Contest and the 70s rock stylings of the local high school band).
But as for me, I’m still trying to gather myself from the shock we all received earlier in the week.
Specifically, on Tuesday, and in violation of virtually everything I consider holy in this world, Nashville-based Gibson Guitar Corporation, which has been pumping out its one-of-a-kind axes for approximately 5 generations, filed for protection under Chapter 11 of the United States Bankruptcy Code.
Though the blow was staggering, I hasten to remind my minions that all hope is not lost. Gibson did NOT opt for the full-smash Chapter 7 shutdown; it instead chose the Chapter 11 reorganization alternative. Statements from the Company suggests it took this action in order to protect its signature guitar line, by raising some capital and scrapping a few offshoot businesses in which they never should have been involved in the first place.
I’m praying for the kids down in Nash Vegas, because life on the planet will be unilaterally diminished if that shred machine factory ever goes dark.
No one should be surprised that the guitar business ain’t what it once was. Anecdotal evidence suggests that each year, fewer hormonal, acne-battling teenage males squirrel their lawn mowing money away to plunk down on a 6-string razor and appropriately distorted amp. And who can blame them? It’s not like that sort of thing gets you laid like it did in the old days (on the other hand – and trust me here – it never did). And this is to say nothing of the blow the Company received when Pete Townsend discontinued the practice of ending each show by smashing his instrument (almost always a Gibson) into smithereens.
But the Company’s real troubles began in 2011, when gun-wielding thugs from the Environmental Protection Administration (EPA) rudely busted in on their production facilities – as part of an enforcement action – and you can’t make this up – against violations not of United States environmental laws, but of those of the great nation of Madagascar.
So the trend has hardly been Gibson’s friend these past few years, and though I haven’t done much to support the enterprise lately, you should be made aware that my first legit guitar purchase was a Gibson SG, acquired from my much more talented high school mate (one John Zucker) in 1976. In elegant, bookend fashion, my most recent such acquisition took place in 2008 – about a month before Lehman went down – when, at long last, I managed to get my hands on the Companies signature product: the Les Paul.
I must point out though that I bought both of these axes used, so it’s not like I’ve done all that much to support the company myself. I am, however, dedicating this weekly to them and that’s something, right? In addition, I actually tweeted my outrage on the same topic earlier this week, which brings us to another topic: would it kill you guys to follow me and maybe tweet back once in a while? Didn’t think so.
Perhaps the only Gibson item remaining on my musical bucket list is the Flying V, a model that derives its name from its shape, a sample of which I offer below. I have thus far resisted the temptation to pick one of these up, because – let’s face it – If you’re going to rock a V, you’d better be ready to bring it all with you, and even after 45 years, I’m not sure I have it all to bring.
Again, for now, the Company will continue to pump out these bad boys, but it may need some help – both from its creditors and perhaps even from other enlightened souls on Wall Street. And I certainly encourage all of the fat cats within my range of influence to take a look here.
Surely the money is there. I mean, take, for example, the recent Spotify IPO, in which musically inclined investors shelled out sufficiently to manifest a $26.5B market cap. Due in part to a disappointing earnings release, it had a bad week, but is still holding a valuation of $1B above its IPO price.
And I ask: what are the users of Spotify listening to? Well, a goodly number of them, including yours truly, are cranking out Zep, Cream and other similar recordings positively driven by Gibson products and the Gibson sound. It would therefore make logical sense for Spotify’s underwriters to protect their investments by ensuring that the musicians that produce the sounds that stream across the program are adequately supplied with appropriate instrumentation.
Fortunately, there are at least symbolic indications that investors may be inclined to come to the rescue of the beleaguered brand. Here, I refer to the impressive V bottom registered by the Gallant 500 over the last couple of trading days. After a pretty lousy Thursday session, and factoring in some time for the markets to digest what on the whole was an encouraging April Jobs Report, the SPX three-day chart looks something like this:
Sharp-eyed observes – particularly rockers – are likely to notice not one, but two Flying V formations, in the chart. And I ask you, what can this possibly be but a financial tip to the hat to the Gibson Guitar Corporation of Nashville, TN?
It perhaps also is important to bear in mind that Thursday’s lows and subsequent recovery represent, by my count, the 4th time in the rolling quarter that the SPX touched the depths of its 200 day Moving Average, only to bounce enthusiastically in the immediate aftermath. All of which reinforces the notion that stocks want to remain in a narrow range. Intraday volatility is on the high end of what we’re used to, but at the end of the day, we’re ending up pretty much where we started. It does strike me that this stasis is likely to continue for most of the rest of the quarter. Earnings continue to wind down, and the numbers keep getting better and better. Forward-looking P/E Ratios have drifted back to their five-year averages, and, while projections call for some deceleration across the rest of the year, the prognostications remain highly encouraging. But the best that the market appears to be able to muster is a bounce-back from a nasty puke.
In addition to a Jobs number that fits tightly with the narrative (stable but short of Bonzo job creation, coupled with a similar dynamic on Hourly Earnings – all supporting the notion that the economy is doing pretty well, but is in no particular need of rude rate increases to cool it down), investors swooned over a marginally strong earnings report from Apple. Presumably this is due in part due to the Company’s buyback announcements and even more so that the Omaha Buffet now features an even larger supply of the biblical orb on the tray tables.
Yet naysayers persist on the stock, and to them I pose the following question. Best estimates call for 5G telecommunications protocols to roll out, in round numbers, within about a year. If this new network configuration follows the trajectory of its predecessors, then everyone will want 5G, and this will compel everyone to buy a new smart phone to avail themselves of its wondrous benefits. Does this not portend marvelous things for the world’s leading smart phone provider?
But while Apple, as has been the case across its long history, is given the benefit of the doubt by the markets, the same cannot be said about the broader array of large cap companies. As a record earnings growth season winds to a close, investors are reacting with what can be described only through generous interpretation as a collective yawn:
This, my friends, looks to me to be the financial expression of tough love. There seems to be little appetite to push broad-based valuations higher, but at the same time, the picture is encouraging enough to suggest that selloffs are socializing some bargains.
So equities as a risk factor aren’t doing much, and probably won’t for the next few weeks. Why? Well, there’s some continued concern that higher rates will crowd out equity returns, but these higher rates are nowhere to be found – at least as expressed in longer dated government securities.
Pretty much all developed jurisdictions are enjoying bids on their paper, and, while the short bond crowd may ultimately win the war, it appears to me that it will only be by attrition. They have many bloody skirmishes ahead of them on their righteous road to rate normalization. What my eyes see is continued evidence of an improbable shortage of government debentures, but I’ll leave that often-covered topic aside for the present.
I will continue to reiterate my belief that no much action is likely to transpire at the factor level – for the rest of the month – and perhaps bleeding into June. The Washingtonian Circus could change this with one snap of the high-wire, but otherwise, I’m kind of thinking we’re stuck in neutral.
All of this gives rise to the old adage “Sell in May and go away”. But I’m not sure that there’s much benefit to be had in doing this, or for that matter, in taking the opposite tack. I think instead I’ll stay right here, and maybe spark up that Gibson SG I’ve owned for more than 4 decades. It sounds sweeter than ever, perhaps because it’s just possible that my chops have improved; more likely because those Gibson guitars are just so well-made that once you own one, you can enjoy it for a lifetime.
I take my leave with the fondest wish that the Nashville Cats are successful in their reorganization efforts, and, to my minions: if you can’t float a few shekels in the form of capital, the least you could do is head down to your local guitar store and pick up a Flying V. Failing that, you can perhaps, at minimum, follow me, and therefore the saga @KenGrantGRA. Unless I’ve missed something, it’ll do you no harm.