2021_11_15 — THEME: The Relationship Issue. Breakup or Unite? Adulting is Hard😵😲
November 15, 2021
Michael’s CIO (Check It Out) Report on the week just past — events, sarcasm, and global macro reflections
THEME: The relationship issue. Breakup or unite? Adulting is hard😵😲
It’s Me Not You: A lot of announced breakups this week! Old-school conglomerates will shed a bigger-is-better ethos for focus and flexibility, especially since the pandemic accelerated business, marketing, and image changes — also, most of these entities have underperformed for at least a decade, enough time to seek counseling and realize “All Too Well” to quote Taylor Swift, that things aren’t working out
CORPORATES — private credit and private equity investment funds should be able to take advantage of these splits
- GonE: GE, the old General Electric, will split into three groups by 2023 — good riddance! Over the last ten years GE has cumulatively returned a measly +17%, and over the last 2O years, a dismal -37%, versus up +355% and +540% over the last 10 and 20 years for IWV, the Russell 3000 ETF
- Cheerio: General Mills (Cheerios, Lucky Charms, Betty Crocker, Yoplait) considers $3B sale of its Progresso and Hamburger Helper brands to do other acquisitions — but they have so many non-aligned brands that unless they do something radical, not much will change
- No More Tears: J&J will spin off its consumer health division (that sells Neutrogena, Listerine, Tylenol, Band-Aids, and Baby Powder) to “focus” on the much larger pharmaceuticals (cancer treatments and vaccines) and medical devices (surgical mesh, hip & knee replacements) division — realistically it may also help to segment their litigation and bad press😏
- ThreeShiba: Not to be outdone, Toshiba may also split three-ways in an extreme makeover after years of accounting scandals, including $1.2B of inflated earnings, $400MM in fictitious sales, and $9.8B of nuclear power-plant cost overruns that bankrupted its Westinghouse division🤦🏻♂️ — this could be a case of spreading the bad rather than fixing the problem🙈
GOVERNMENTS — War is always one of the largest people and market risks
- Xi-na: China won’t break up with Xi Jinping, who is only 68 years old. Senior officials approved a historic resolution cementing Xi’s leadership status, placing him equal to founding father Mao Zedong and reformist leader Deng Xiaoping — if Xi (like great Chinese emperors of lore) now reunites the mainland with the self-governing islands of Taiwan, he could even overshadow them
- Warsaw standoff⛔️Belarus (with help from Russia and Turkey) transported thousands of Syrian, Iraqi, and Afghan migrants out of their countries, dumped them on Poland’s border, and is pushing them to cross en route to Germany to seek jobs and homes — Angela Merkel (still leading Germany till a new post-election government forms) called on Putin to intervene and end the inhumane use of migrants as a political tool
- Russia misses Ukraine, and may want to get back together — at least the U.S. thinks so as it sees a Russian military build up (mating ritual) on the border. Ukraine is the 2nd largest country in Europe with the 3rd largest army! But who will risk war with Putin to defend Ukraine (a non-NATO and non-EU country), especially as harsh winter weather approaches and the EU is distracted by Belarus? — This would be an unsettling question for investors
- reUnited: Visitors from 33 countries (including China, India, much of Europe, Mexico, and Canada) were allowed to enter the U.S. for the first time in over 19 months and reunite with friends and family across the country🥳🥂this should boost tourism and further aid economic re-opening
- Uncoupling: Chile’s lower house of parliament voted to impeach President Sebastian Piñera — irreconcilable differences
PEOPLE — income and productivity are on the rise
- Slow Fade: Expect more changes as year-end and holidays are a notorious time for companies to announce strategic shifts/opportunities🤷🏽
- See’ya: A record 4.4MM Americans quit their jobs in September, “the great resignation” — cue Johnny Paycheck — not surprisingly,🤖companies have onboarded a record number of robots this year
- Must Go: Elon separated from (sold) $7B of his Tesla stock to pay taxes — exceptional timing — and he has a toddler to help support👶🏼so there’s that
- FreeBritney: Spears won a break from her father’s 14-year conservatorship — ch-ch-changes
Best wishes for the week ahead😃,
Michael
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Michael Ashley Schulman, CFA
Partner / Chief Investment Officer
“We deliver bespoke investment solutions, innovations, and unique perspectives to you and your family.”
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