I have a confession to make. I’m a big fan of old-fashioned drama on Wall Street. Give me a proxy fight or a bidding war any day.
These used to be a lot more common back in the day. Sadly, we don’t see it so much anymore.
One of my favorites came in the 1920s with the battle of George Saunders, the man who started Piggly Wiggly. His stock was soaring with the great bull market until a group of bankers started massively shorting his stock. Saunders was furious. He struck back by trying to buy every single share of Piggly Wiggly to scare the bears off.
The share price tripled in a few months. What happened next is truly outrageous. The NYSE said Saunders was trying to corner the market, so the exchange altered the rules to give the shorts more time to deliver the shares Saunders had bought.
Effectively, the exchanged changed rules to help the banks and hurt Saunders, and that’s exactly what happened.
Saunders was ruined. He bounced back and started a new grocery store called—are you ready for this—Sole Owner of My Name Stores, Inc.
I’m not making that up. That’s exactly what he called it. I guess he learned his lesson about trusting bankers.
I was reminded of George Saunders this week when we had some drama in Wall Street. On February 4th, the Wall Street Journal reported that Intercontinental Exchange (ICE) the owner of the New York Stock Exchange, had made an offer to buy eBay (EBAY).
This led the entire investing community to say, “They did what??”
Wall Street was completely baffled. Why would a stock-exchange firm look to buy an online auction house? This didn’t make any sense. Truthfully, eBay isn’t doing that well. The company’s earnings are falling, and it gave a tepid outlook for this year.
The Executives Wanted to Buy eBay; The Shareholders Said “No.”
The news broke on Tuesday afternoon. According to the Wall Street Journal, ICE made an offer of $30 billion for eBay. Immediately after the story broke, shares of eBay soared, and shares of ICE tanked. (Traders don’t waste time!)
All told, ICE lost more than $5 billion in market value. What happened is that their shareholders revolted. They were furious at the deal, and I can hardly blame them. Companies sometimes forget that the shareholders are the ultimate boss.
Of course, shareholders get to vote at the shareholder’s meetings, but there’s another effective way to make your voice heard. That is, you can vote against management by selling.
ICE realized they made a mistake. Two days later, ICE released a statement saying there were no longer interested in buying eBay.
I couldn’t help but think of George Saunders and his battle to save his own company against the players at the New York Stock Exchange.
Thanks to the selloff, shares of ICE are a decent bargain here. The company is trying to placate shareholders. Management just announced a 9% dividend hike. ICE also reported solid Q4 earnings of 95 cents per share. I think ICE is a solid buy here up to $100 per share.
The American Jobs Machine Rolls On
On Friday, the U.S. government released another strong jobs report. For the month of January, the U.S. economy created 225,000 new jobs.
Side note: Technically, that’s 225,000 net new jobs. The economy creates and eliminates many more jobs each month. That’s actually a good thing. It underscores the dynamism of the modern economy. After all, you probably haven’t come across many makers of buggy whips recently.
Economists said the warm weather last month helped spur the hiring. In fact, the jobs number easily topped Wall Street’s forecast of 158,000 net new jobs. (Wall Street economists are here to make astrologers look good.)
The unemployment rate ticked up to 3.6%, but it’s still near a 50-year low. Also, the labor force participation rate rose to 63.4%. That’s the highest in nearly seven years. The U-6 rate, which is a broader measure of unemployment, rose to 6.9%, which is still very low.
The soft spot continues to be wages. To be fair, there has been some growth here, but I’d like to see more. In the last year, average hourly earnings are up by 3.1%. That’s more than inflation, but not much more.
Since the coronavirus started spreading, the odds for a Fed rate cut have bumped up. In fact, the futures market saw one coming as early as June. I think traders were really getting ahead of themselves. Of course, that’s what traders live to do.
Thanks to these January jobs numbers, there’s been some rethinking. That’s probably why the market pulled back on Friday. In other words, good news is bad news because the Fed may not step in and rescue the market. The S&P 500 closed at another new all-time high on Monday.
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