Thursday, February 28, 2019

Explain this market?

First, is it possible that a major U.S. based company with $51 billion of shareholders equity versus $31 billion of long term debt could see its share price drop by 30% in one day due to a $10 billion writedown of intangible assets, meaning accounting but not cash items?  That's a stock price drop from $48 to $34.  Two, is it also possible that the Oracle of Omaha owns 26% of this in Berkshire Hathaway?  Three, is it also possible that this company owns many revered American and, yes, global brands like Jello, Cheez Whiz, Kool Aid, Velveeta, A-1 Steak Sauce, Oscar Mayer wieners, Grey Poupon, Tang, Clausen Pickles, all of those delicacies and many more, plus Heinz Ketchup?  The company obviously is KHC, the food conglomerate Kraft Heinz.

Almost unbelievable for those first two questions, but maybe not on that last one.  One could wonder how much more it would have collapsed without the always necessary ketchup.  There must have been those in the market who knew enough about this company's issues, but real securities analysts are hard to find these days.  At least a few who had done some old style research, like check the stores?  Guess not, and certainly the company must be credited for knowing how to keep a secret, although that's a double edged sword.

It has been a remarkably complacent market recently, but this was quite a rumble under the surface.  Why does the phrase "canary in a coal mine" come to mind?

Also in the day's market news, Square's earnings announcement this morning was met with derision and head shaking by pundits and news readers on CNBC, and traders(not investors) jumped on board.  The stock fell from its Wednesday close of $79.30 to $74.50 in the first half hour today.  After smarter folks studied and digested the numbers, the price rose to $82.70, and closed by the end of the day at $81.42.  That's an almost 10% trading range for the day, a big range especially when it's not one directional.

Complacent market?  One could wonder.

Sunday, February 17, 2019

"The Incendiaries", A Novel by R.O. Kwon

This is not a linear novel.  It can move between time periods from paragraph to paragraph.  Conversation is described rather than following the time worn convention of punctuation.  The three main characters have stream of consciousness descriptions of events that overlap with each other helter skelter.  Events backtrack. The future is foretold. Her first novel is a wonderful ride.

When first considering this book, I wondered if it could be like Suki Kim's first novel in 2003, "The Interpreter".  It was and it wasn't.  Kim's exceptional tale rang so true that it seemed almost like a memoir, not only explicit places and events but personal relationships as well.  As time would show, she never wrote another novel and while some of the events in "The Interpreter" were definitely fiction, others were unlikely to have been. It almost felt like I had met her.  Kim did and does continue to write non-fiction, both essays and journalistic reporting.

Kwon's book feels like it is based on experienced events as well, personal, watched, or extrapolated.  Well, I guess that pretty much fits the term for fiction but there are parts that seem precisely real.  For some reason, it reminded me of reading Jerzy Kosinski's "Steps" in 1973, sitting on a the veranda of a cliffside stone house in Grand Cayman owned by a Kentucky Senator.  Kosinski's seemingly random assemblage of short strange tales were incomprehensible in a way, viewed as written by a writer with an Eastern European sense of humor to charm the unknowing literary establishment.  Still, it was entertaining, and reading on that deck was also incomprehensible.

The writing by Kwon is exceptionally entertaining, turns of phrase that are completely unexpected but perfect show up regularly.  Insights are not forced on the reader.  They just happen.  So that's what I think, and this short book will be read again soon to see what it's like when not read in one night.

Friday, February 15, 2019

Amazon says goodbye New York, New York...

"Give us the three billion and we'll invest it" said Representative Alexandria Ocasio-Cortez earlier.  She was referring to the incentives that New York state and city had agreed to give Amazon to build an East Coast headquarters and hire 25,000 people in Long Island City, Queens.  The young activist media magnet was talking trash.  There is no three billion sitting around.  Those were primarily tax abatements related to future earnings of Amazon.  They don't exist without the deal.

The hugely ambitious State Senator Michael Gianaris, another major opponent of the deal said, "Even by their own words, Amazon admits they will grow their presence in New York without their promised subsidies."  Yes, they will, maybe as many as five thousand jobs in the coming years in Manhattan, Brooklyn, and Staten Island.  They are already in the Tribeca part of Manhattan and have a huge sorting facility on Staten Island.

Mayor Bill de Blasio, a well meaning and accomplished nitwit, said, to paraphrase, we gave Amazon the opportunity to work with the community and they threw it away.  What he actually said made less sense.

On January 31st, a post here on ENS, "Confused... equities, buildings, and jobs", briefly discussed the Amazon HQ opportunity and among other things said "Five minutes further out on the 7 Train there are tons of workers who would welcome these jobs."  That is unequivocally true. Many parts of Queens are not uniformly prosperous, as you survey a mosaic of Chinese, Dominican, Indian, Greek, Albanian, and many other Mets loving communities.

Governor Andrew Cuomo could not help himself, so disappointed that he told the truth, saying, "A small group of politicians and activists put their own narrow political interests above their community...", debatable opinion but a correct one.

When a major part of the outcry came down to a simple sound bite about one incentive being either the City agreeing to allow the rights for Amazon to build helipads on their buildings(NYT) or the City paying for the helipads(television commentators), small potatoes in the scheme of it all, the agreement became more troubled.  The thought here is that those politicos who opposed the deal and inflamed indignation saw it as a political win win.  Oppose, get recognition, claim responsibility for expected Amazon concessions, get national attention for standing up for the working people, and enhance their personal political futures.

Unfortunately it was not a game.  This is a huge lost opportunity.  That cannot be understated.  Young people growing up in the classic tenements in many parts of Queens and studying in the run down school systems have had a dream snatched away.  You can bet that their are more computer and tech savvy young workers in that area than anywhere near Arlington, Va. or Nashville, without question.

The enhancements were not unusual or grotesque.  They are an imperfect part of the process.  It could have worked.  Amazon decided that the harassment would not stop.  Game over.

Thursday, February 07, 2019

Bank merger classic, BBT and STI

In this placid environment for most banks, meaning one of reasonable earnings and limited credit risk, the merger of Atlanta based SunTrust and Winston Salem based BB&T is a confederate combination, not of dunces but of bankers.  The rationale is the classic expense reduction through reducing overlaps in personnel, locations, and functions. If there are locations of each bank near each other, now one can be a Kentucky Fried Chicken, a win win for customers, original or crispy.

BBT is acquiring STI, and both are benefitting in today's market, BBT up almost 4% as the acquirer and STI up around 10% as the acquired.  Both being up underscores market approval.  Both banks already pay a dividend above 3%.  The largest discretionary institutional holders of STI are multiple funds of L.A. based Capital Group, JPM Mid-Cap Value Fund, and Vanguard/Windsor II.  For BBT, the comparable large holders are San Francisco based Dodge and Cox, First Eagle Mgmt., and Delaware Group Value, as if they did anything else.

They chose a new headquarters location, in Charlotte, HQ home of BofA and a large part of Wells Fargo.  A new headquarters location is a bit unusual, but Charlotte has the critical mass of bank type employees, to draw from and fire into.  That will certainly be no solace to Winston Salem, whose tobacco imperialism has long been diminished.  Home prices are already dropping there, just a guess.

Another classic aspect of this merger is that one bank's CEO, that of BBT, will stay for two years and then be replaced by the STI CEO.  One major difference though.  The acquirer's CEO leaves after two years?  It's usually the other way around.  That may be age related but experience suggests that once the deal is closed, nothing about this is guaranteed, it's not legally required.  Experience suggests that this is cosmetic to alleviate the challenges of integration.  SunTrust folks, don't bet the ranch on your guy being in charge one day.

Then there's the issue of a new name.  SunTrust seems as if it could be a possibility for a southern bank, but being the acquired one means that cannot work.  Branch Bank and Trust lacks something of a cachet, everything in fact.  So what works?  SunBranch, of course not.  Bojangles, already taken.  Atlas Banking Corporation, there's one for Cato Institute fans who populate BBT.  Who knows?  Is that the most interesting thing about this merger?

Of course not, for shareholders of these two firms today's share price gains are extremely interesting.  Not one here.

Monday, February 04, 2019

Dueling op-eds in the NYT

On the surface, it may seem as if two op-ed's in the New York Times today, one by David Leonhardt and the other by Charles Schumer and Bernie Sanders, are both on the same track of creating a more fair economic system.  However, there are differences.  For starters, one is intelligently written and one is not.

Leonhardt discusses the tax system in his piece "It's Radical Not to Tax The Rich More."  A few of his arguments are questionable, but most are fact based.  He focuses on variables like education, healthcare, technological change, property tax, and the issue of minimally taxed generational wealth.  He addresses the societal implications of disparities that have become increasingly apparent.

Meanwhile, Schumer and Sanders begin their comment, "Workers Before Buybacks" by promoting the fantasy of the beneficence of the mid-20th century when enlightened CEO's and better regulation created a prosperous America for working people.  That is a preposterously broad based statement that ignores many facts about that time period. Starting the discussion of buybacks in that way undercuts what might have been a better discussion.  Stock buybacks can be beneficial but they can also be destructive.  Buybacks in the place of overpriced acquisitions are a great check on management hubris while buybacks instead of needed investment to grow a company can be harmful.

Companies that squander capital to aid a CEO's manifest destiny to be bigger and bigger often end up in the hands of hostile acquirers, who then come in and lay off workers, cut paychecks, reduce benefits, and streamline operations in a way that disrupts communities.  Just ask Wilbur Ross how to do that.  Buybacks would have been better in those situations so the Wilburs' don't attack.

The point is that the Schumer and Sanders piece is a massive oversimplification that panders to the public rather than informs.  Schumer is a career politician and Sanders admits his preference for a socialist approach that is not affordable without major disruption.  The facts that they point out about income and wealth disparities are correct, but their argument is not credible.

So step aside guys, you've done enough.  Let others have more exposure, and put your feet up.  It's cold outside, time for a toddy.

Saturday, February 02, 2019

"Danny Says", a music film worth watching

This film from 2016 had a limited release, suggesting that it was not a success.  Found on Netflix, it was worth a try.  It was not an especially well put together film, started without much of an introduction and ended abruptly.  There were references to sex acts and preferences, and frequent episodes of drug use, not blatantly explicit but there.  Those aspects may have contributed to its cool reception at theaters.  It's a terrific film, great footage of performances(a Martha and the Vandellas clip rocked) and low key humor throughout.

Danny Fields was an impresario of various offbeat 60's rock bands and 70's punk bands, the more startling the better.  He was part of the downtown Andy Warhol crowd and became a promoter and manager, as well as an almost partner in crime of many musicians.  Music was not his talent but he could recognize it in others, and push it further to the edge and have insight into how best to get attention.  There were Jim Morrison, Iggy Pop, The Stooges, Lou Reed, Nico, Patti Smith, MC5, Alice Cooper, The Ramones, The New York Dolls, and others, but he worked with some that were more mainstream like Judy Collins.  He was a close friend of era's favorite femme fatale Edie Sedgewick and was a longtime friend of Linda McCartney, having worked with her photography when she was Linda Eastman.

Fields is interviewed in a way that makes him the narrator of the film and, while never overtly cracking a joke, his descriptions of what was going on are entertaining, with a lower east side Jewish sense of humor that is hard to describe, is it the acceptance of the inexplicable.  Laughing when no one else is around can seem strange but this did it.

At first, it was not clear that this film was going to work, but patience was rewarded.  Fields is still out there, promoting an East London punk band at last report.  He would now be 79.