Before you get the wrong idea about where my Civil War sympathies lie, and though he was a highly accomplished military officer, this column is not dedicated to Confederate Major General Edward Johnson. Bobby Lee thought enough of him to name him replacement to that pesky Stonewall Jackson, after the latter was dispatched, by friendly fire, to his eternal reward. He wisely avoided a Pickett-like charge up a Gettysburg hill. Got his-self captured in Spotsylvania. Was imprisoned, exchanged, and sent back to the front. The Yankees caught him again in Nashville. And locked him. Again.
Say what you will about him; he was one tough SOB.
But allow me to go on record as stating I have always stood with the Blues in that war, and not just because I share a last name (but alas no bloodlines) with the victorious Commander of the Union Armies. I do, however, carry our shared nomenclature as a badge of honor, so much so that at one stage of my career, the famous leader of an eponymous, high-profile hedge fund that had just hired me as CRO tagged me with the nickname of “General”.
I was at first flattered by this, but quickly decided that, given: a) this individual was a stone cold Tennessee stud; and b) his direct reports who were my bosses proud Virginians, the designation may not have been intended as an unmixed compliment.
But this week’s theme has nothing to do with any of the above. Instead, it derives from the rather surprising news that two of this country’s most ubiquitous multi-national corporations: General Electric and Johnson and Johnson, are voluntarily subdividing themselves.
The long-iconic but recently misanthropic G.E. will split into three parts: one focused on Energy, another on Health Care and a third on Aviation.
Light bulbs didn’t make the cut at all.
And, just as we were absorbing this shocking news came the announcement from Johnny John that it too is breaking itself up – in its case separating out its Consumer Products Division — purveyors of such staples as Band Aids, Baby Powder and Tylenol — from its higher-flying units that manufacture medical devices, difficult-to-find covid vaccines and other, related stuff.
To me, these trades cut against the grain, standing in stark rebuttal to a domestic capital market that goes gaga over mergers and acquisitions.
But who’s to say that that all this isn’t part of a larger strategy? Why not, in a second act, merge the medical device units of both companies, and call it General Johnson? I’ve no intelligence that such a deal is in the offing, but if it transpires, kindly remember where you heard of it first.
Of course, if does go down, it begs the question as to whether the remaining orphans: G.E Aviation G.E. Energy and J&J Consumer Products, couldn’t somehow be kludged together — to create a conglomerate known as Electric Johnson. But that, my friends, may be a bridge too far.
Still and all, on this tape, one never knows. The Equity Complex has recently pulled off wilder stunts than this and gotten away with them. Though there are deep gradients between the “haves” and the ‘have nots”, the former group, at any rate, can do whatever it wants, and take the Gallant 500 along for the ride.
One comparison between modern and ancient sentiment paradigms caught my eye recently. In two weeks, we will mark (celebrate?) the twenty-fifth anniversary of Fed Chairman Alan Greenspan warning of the potential consequences of what he coined as “irrational’ exuberance. Whereupon the markets, perhaps in respect/deference to Greenie (who was highly regarded at the time), promptly declined 5%. They recovered quickly and are more than a six-bagger over the ensuing generation. But at least they showed the decency to sell off.
A few days ago, Chair Pow uttered precisely the same sentiments, and the markets registered nary a downtick.
History has taken a dimmer view of Greenspan than the admiring headlines of ’96 prophesied. and history, certainly, will render its judgment on Powell. At the moment, though, I’ll give him some sympathy. The country are drowning in debt. He’s printed a cool $5T over the last eighteen months, with little to show for it other than rising wealth for fat cats and a corresponding increase in the National Debt. He sold some stock under rather fortuitous timing, was criticized for doing so, and, for this and other reasons, finds himself in the crosshairs of the dreaded Squad.
But these problems arguably pale in comparison to the news flow he must absorb from the Bureau of Labor Statistics – which showed him no mercy this past week. First came the inflation data – PPI 8.6%/CPI 6.2%, but even then, the BLS wasn’t done messing with him. Friday morning, they dropped a Job Openings and Labor Turnover Survey (JOLTs) report which, clocked in at 10.4 million unfilled gigs. To rub salt into the wound, the Survey also told of 4.4 million resignations in 2021 – high since they began tracking these metrics, the reality that he data only reflects what has happened through September notwithstanding.
Runaway indebtedness, accelerating inflation, labor shortages, supply shortages, a pink slip hanging over your own wizened head – what’s a Fed Chair to do?
Beats the hell out of me. All I can say is that he and his predecessors cooked this brew, and now have no choice other than to, somehow, choke it down. As do the rest of us.
But across investor-land, there are no f@cks given. Valuations are poised at or near new yawning records. What passes for a selloff doesn’t extend more than twelve hours.
And now we’re halfway through Q4, which means that as a matter of mathematical certainty, 2021 is 7/8ths complete. Anyone having fun yet? If so, please contact me, because I’d love to hear about it.
There’s thus only a skinny, stepped-on eight ball of a year now remaining to us, and one that will be disrupted by compulsory festivities such as Thanksgiving and Christmas. Somehow, this implies a mere twenty productive trading days that linger in this dwindling year, during which we must do what we are able to top off our widely anemic performance metrics.
Catalysts, unfortunately, will be in short supply. Q3 earnings are substantially in the books, as are most important economic data points. We’ll get the usual smattering of November macro metrics, a few revisions, some survey info; that’s about it.
We will, of course, be compelled to keep our fisheyes cast towards Washington, where they’re likely to ram through some form of additional annoyance, if for no other reason than to remind us that they are still around and ready to annoy us any way they can.
There may be a few surprise deals, ala Johnson Electric, that spring up, because, well ‘tis the season for surprise deals.
But if none of this puts much lead in your pencils, then I think you’re probably taking a rational view of the environment. As for me, my pencil can barely dot an “i”.
And consumers, God bless ‘em, seem, at last, to be cottoning on to it all. For one thing, they’re buying a good deal of cotton, the price of which has doubled since they sent us all home more than a year and a half ago:
I Wish I Was in the Land of Cotton:
General Johnson, while not commanding Confederate Armies, was a cotton farmer, and, when the war was over, it is to his cotton farm that he retired.
We can only infer that the caption above the graph on the left is the first line of one of his favorite tunes, being, as it was, the Confederate National Anthem. I personally prefer it to that Yankee dirge: “The Battle Hymn of the Republic”, which no one ever has tried to whistle. Plus, one must assume that General J would be pleased with his take if he loaded up his 2021 mules and headed to market.
But most of the rest of us are buyers, not sellers, of the fluffy commodity, and for us, the graph tells a darker tale. Perhaps this is part of the reason that Consumer Sentiment is so deeply on the down:
None of this calls for enthusiastic risk taking, and, again, I urge caution. But I also encourage everyone to take heart, to believe in America, the land of Band Aids, Baby Powder and incandescent light bulbs. Over the long haul, we nearly always come out ahead.
We even beat back General Johnson. And, from time to time, I was compelled to remind my former employers just who won that war. It became one of my more effective risk management tools.
Our current battles are less bloody but equally complex. Players often change sides. So, when they call for your indication of interest on that General Johnson IPO, my advice will be to load the boat.
TIMSHEL