May 1, 2020

Taking a Dip

The planet isn’t going anywhere. We are!
- George Carlin

Literal or Serious
I wrote in March about the phenomenon I refer to as the Equality of Helplessness. I felt the longer lockdowns would last the more helpless we will all feel. And while I still believe the existing human hierarchies will prevail the circumstances, the outcome of the lockdowns and the pandemic as a whole remains an uncertainty that for now binds everyone. I bring this up because so much in media is focused on keeping chaos the number one objective and at the same time the global capital markets are sending a more hopeful message. But where is that hope coming from and how do we invest in it?

In 1970 the Noble Economist Milton Friedman stated that business has only one social responsibility to “engage in activities designed to increase profits. Two of my favorite capitalists, Mark Cuban (Dallas Mavericks) and Marc Benioff of Salesforce (CRM) have often referred to the term compassionate capitalism, namely, to form a scenario whereby companies, are more aligned with employees and the communities they serve, than the shareholders through dividends and share buybacks. I mostly agree except with those who see it as putting purpose before profit. I see companies that are taking health related measures to protect workers and keeping compensation at survivable measures. Having been a practice for a number of high profile technology companies for a long time such as Amazon (AMZN), Google (GOOGL) and Apple (AAPL), but extends to other sectors such as finance that includes Visa (V) and the executives and directors of Goldman Sachs (GS) who’s first response was to reduce executive pay, a move that more companies need to consider in solidarity to shared objectives. New normal or not, the end of the pandemic should likely see a continuation in the stock performance of the aforementioned companies, in that way, everyone profits. 

That’s not to say workers will have no complaints. Will exceptions continue to brew anger, serving activists and politics, yes but it amounts to a distraction that ignores what, in my opinion, is a more important dilemma facing the American worker, the demise and diminishment of the industries they’ve historically served. I’m referring to the Oil industry, the small retail industry and every industry that faces results of the pandemic now and AI and now digital and autonomous innovations in the future. One area that I think has potential to benefit such workers is through infrastructure. Infrastructure is a wide-ranging term that includes industries such as transportation systems, internet and communication networks, water, electric and other utilities, all in need of large-scale repair and renovation. Companies that have been moving away from traditional models such Jacobs Engineering (J) and General Electric (GE) whose engineering and manufacturing activities are being redirected, through capital and acquisition, to bolster their respective presence in the transportation, water, nuclear and environmental services end markets. This week saw steep drop in the ISM Manufacturing Index to 41.5 (less than 50 signals economic contraction) the lowest level in 11 yrs. Although not unexpected the contraction in factoring activity should present some opportunities. As the markets begin May in the red, Infrastructure is one place I’m looking. 

Internet Commerce
Little needs to be said with regard to the challenges that face the retail, financial and other consumer sectors. Retail obviously reeling from the multi decade challenge from Amazon (AMZN) as well as other internet retailers. While this is a contentious political issue, it nonetheless is what most will agree the future will look like and where conglomerates have the best opportunity. Conglomerates were best known from the industrial age as enormous corporations made up of companies involved in many, and frequently unrelated, industries. However, flash forward to today and a retail conglomerate might own businesses away from their core into everything from brick and mortar food markets to entertainment companies, the latter including AT&T (T) and their purchase of Time Warner.  This is an area that the current consolidation of prices as the markets work off their overbought condition to present opportunities to new ideas and add to current holdings.

A lot going on, a lot of uncertainty that only a strategy can prevail. 

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