"Hey, there's a bubble"
Thoughts on both the TRUMP TRADE melt-up and our bast fran Lina at the FTC
Some quotes on bubbles…
Sent to me from our inimitable sometime-analyst, Lachlan (paraphrasing Buffett in 1999)…
There were only three ways the stock market could keep rising at ten percent or more a year. One was if interest rates fell and remained below historic levels. The second was if the share of the economy that went to investors, as opposed to employees and government and other things, rose above its already historically high level. Or he said, the economy could start growing faster than normal. He called it ''wishful thinking'' to use optimistic assumption like these''
And from Arnold van der Berg…
You never get a bubble until the public, the brokerage community, the financial institutions, the pension funds, and even the universities are all involved
Now, if major institutions are offering bitcoin ETFs, major funds (including the Norwegian sovereign wealth fund) are allocating to bitcoin, and university endowments are allocating towards bitcoin…
And if Dogecoin, a made up joke of a cryptocurrency, has a market cap of $56bn. Sorry - I’ll write that out in full, so you get the full scale of it:
Fifty Six Billion Dollars
Other things you can buy for around roughly the same amount:
Monster Beverage Corp
AutoZone
Phillips 66
Charles Schwab Corporation
JD.com
To stress the point even more, Monster Beverage makes about $1.6bn USD of net profit per year. That is — if you were to buy all of Monster for the same market cap as Dogecoin, you’d be the happy recipient of $1.6bn of cold hard USD after tax. As far as I can tell the net profit and dividends paid from Dogecoin is $0.00.
This kind of lunacy isn’t contained only in the realms of crypto bros and their new money Lambos1 , Rocket Labs’ earnings call today did not mention the word “profit” once. The co missed on estimates. But stock go up!
At this point I’d like to remind you of when Peter Beck put a giant disco ball in the sky:
Good set of numbers from Mainfreight — slightly ahead of what they estimated at their recent investor day. Obviously the market is tough — but Don and co continue deliver and allocate capital prudently…
WasteCo is now down 60.00% since listing…no comment, other than you could buy Republic Services or something similar in the States and probably do better.
ASB’s Chair Dame Therese Walsh argues, hilariously, that lowering bank profits would be bad for consumers. I do wonder how stupid the bank bosses in NZ think the public (and our government) are — clearly the banks here have a supreme arrogance that is only matched by their total lack of innovation. Remember that ANZ CEO Antonia Watson quite recently claimed that New Zealand “can’t afford to own banks”. I thought that was a disingenuous statement in itself, but it appears the Aussie banks are determined to convince us that we are some small colony barely capable of governing itself.
Speaking of banks — good piece from Paul here re: non-bank lenders. Link.
Trump Trade (or: the end of Lina?)
A while ago we talked about Capri, the fashion company that was going to merge with Tapestry to create a kind of unholy monster of upper-tier mall consumables. Then Lina Khan blocked it! Damn you, Lina Khan!
I wrote -
Here’s a very speculative play (don’t take my advice use your own brain I am just a monkey at a keyboard!): if Trump is elected then there’s a possibility the ruling is overturned. There’s also another factor at play — the fact the judgement relies so heavily on some dubious data and surveys.
The question you really want to be asking is does a merger between Capri and Tapestry affect the the price of the goods sold by Capri and Tapestry. And the answer is more like — well, maybe, if you exclude every other accessible luxury brand out there. Which feels, again, a little out of touch with reality — there’s more accessible luxury brands (and bags) than you can shake a stick at: nobody, except perhaps Lina Khan and the FTC, believes that this merger is particularly anti-competitive.
So again — the trade might be — buy some Capri and wait for the election. Not advice! Monkey at a keyboard1!! Remember??
Anyway — now Trump is elected! And, per Bloomberg:
In recent months, numerous high-profile acquisitions have either struggled to close or failed, including a plan to unite Tapestry and Capri Holdings, the companies behind Coach and Michael Kors. The pileup has ripped through the hedge-fund world, leading to unexpected losses and several top traders losing their jobs.
Now however, the new president’s pro-business, lighter-regulation agenda “means a pro-merger environment that will embolden companies to get bigger through acquisitions; it is as simple as that,” said Orkun Kilic, a London-based arbitrager. “I am very excited for the next four years.”
A hostile deal environment has largely kept Kilic on the sidelines since December, he said, and he now expects to become more active with Trump’s election.
So I mean — the Capri trade — and more than that, mergers in general — are more likely than not to go ahead, because we’ve now got a very pro-business regime in ‘Murica. That’s kind of fun — we love a good merger — the arbitrage is a fun way to make money (old heads will remember my obsession with Microsoft’s acquisition of Activision-Blizzard and also the botched Manchester United deal).
On the other hand, the arbitrage profits someone might make from a merger are potentially less, because the certainty of said deal going through is comparatively more so the “arbitrage gap” is less. So on one hand, perhaps you make less money, but on the other, you’re more likely to make said money.
I mean — if you’re an M&A guy, you might be saying — we are so back. If you’re a company that relies on China a lot though — then, you know, tariffs. You’re still in a pickle — to say the least.
Sidenote — who will potentially replace Lina? Makan Delrahim and Gail Slater have been floated as names — Slater is a J.D Vance advisor, whereas it’d be round 2 for Delrahim. Then again, if Elon and Trump have their way, the entire FTC may be mothballed and that jurisdiction would come under the DOJ. Interesting times.
Come on, if you’re not buying a vintage Bentley what are you doing with your life? If you’re not drinking some First Growth, in a tasteful but very cold English mansion that your family has had for 10 generations, have you even made it??