“We are continually faced by great opportunities disguised as insoluble problems.”
-Lee Iacocca
On this day in 1978, Ford Motor Company chairman Henry Ford II fired Lee Iacocca as president. As history later revealed, that’s not where Iacocca’s story ended.
In 1946, at the ripe old age of 22, Ford hired Iacocca as an engineer. He soon switched to a role in sales, which was an area he excelled. By the time he was 36, Iaccoca had been named Vice President and General Manager of the Ford Division, the company’s largest marketing arm. His biggest success in that tenure was championing the American icon ... the Mustang.
Iaccoca was eventually named president of Ford. His brash, unconventional style eventually brought him into conflict with company chairman Henry Ford II. In what became an increasingly public struggle between the two men, Iacocca finally reached out to the board of directors for support.
This was the straw that broke the camel’s back and was the excuse Ford needed to finally fire Iacocca and eventually turn the company over to his son. According to Iacocca’s autobiography, Ford called him into his office on the afternoon of July 13, 1978 and told him simply, “Sometimes you just don’t like somebody.”
(Ain’t that the truth!)
Iaccoca got the last laugh.
He was hired as President of Chrysler Corporation, which at the time, was facing bankruptcy and organized a Congressional bail out to the tune of $1.5 billion. Iacocca streamlined the business and focused on more efficient cars. By 1981, Chrysler had turned a small profit. By 1984, it posted record profits of $2.4 billion. Iacocca eventually retired from Chrysler in 1992 as a national celebrity.
Back to the Global Macro Grind...
As stock market operators, we have the potential of finding great opportunities every day, despite any insoluble problem from yesterday. On that front, our Energy team led by Alec Richards may have come up with a doozy of an opportunity yesterday with their call on the Antero family of companies.
Specifically, their view is that AR, the EP, is a long with 20 – 40% upside and AMGP, the GP, has 20 – 50% downside.
The group of companies also includes an MLP, AM, which is effectively the E&P’s gathering assets. In a nutshell, they believe that the complex should be collapsed as the E&P, and its shareholders, are in an economically disadvantaged situation versus the GP and MLP. This situation is ripe for an activist. (If you are an institutional subscriber and would like more information on the call, please ping ).
As activists go, we are in the year of activism. According to Lazard, in the year-to-date, activists have invested over $40 billion targeting 136 companies. That’s the most since the investment bank started following the date and up meaningfully from the 94 companies that were the targeted at this point in 2017. Moreover, activists have won 119 directorships, a 75% increase from 2017. That doesn’t mean you should blindly follow the activist ideas. In fact, last year the activist hedge fund index only returned 5.5% versus the SP500 at +22%
We hosted a call yesterday titled, “Jump Conditions in Wage Inflation Are Just Around the Corner”. The call featured a 80-page deck filled with great nuggets, including deep dives on specific sectors. But this morning, we wanted to highlight one important slide, today's "Chart of the Day" that shows we are at a point where dissipating labor market tightness has historically led to a “Jump” in wages.
One caveat from the analysis is that there is not always a direct tie in to CPI and wages. In fact, based on our current “now-casting” framework CPI may actually peak in July of 2018. On the other hand, wage growth may well be an indicator that corporate profits, especially in employment heavy industries, is also close to peaking.
Supporting the case for peaking inflation readings is oil. Depending on how the week shakes out, oil is headed for a weekly decline of around 5% with WTI trading at $70 and Brent at $73.61. Boosting this decline in oil is Russia’s statement this morning that they may look to increase oil output by more than 1MM bpd than previously agreed to with OPEC. This statement, not too surprisingly, comes just ahead of the upcoming Putin and Trump summit.
Meanwhile, investors bearish on China due to the country's debt problems received more good news this morning. China new June loans came in at a staggering CNY 1.84T versus the consensus of CNY 1.54T and CNY 1.15 in May. Total social financing is also up sequentially. It seems the powers that be in China have decided that taking the pedal off debt is maybe not the best move heading into slowing economic growth (oh and this little thing called a "Trade War").
As we head into the weekend, we’ll leave you with a trivia question . . . no googling allowed . . . What is the top selling Ford vehicle, in terms of units sold world-wide, of all-time?
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.80-2.89% (bearish)
SPX 2 (bullish)
NASDAQ 7 (bullish)
REITS (VNQ) 80.41-83.47 (bullish)
Industrials (XLI) 70.49-73.86 (bearish)
DAX 12181-12671 (bearish)
VIX 11.30-18.01 (neutral)
USD 93.45-95.29 (bullish)
Gold 1 (bearish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
