Vulture Capitalism and the Fed

Brit Ryle

Posted December 13, 2023

It’s rant time! Because on Monday, a couple of private equity companies announced their intention to take Macy’s (NYSE: M) private. You know, to help it. 

We all know the private equity playbook. Buy a struggling company, sell some assets, fire a bunch of people and call it synergy or productivity or whatever, create a fake cash flow analysis to justify selling a bunch of bonds, take that cash and pay the partners a fat special dividend and leave the actual company to rot on the vine..:

We have seen this play out sooo many times…

The patron saint of grandfatherly capitalism Warren Buffet did it to Heinz and then Kraft. Sadly, he threw the Berkshire model of “buy great companies and let good management work its magic” right out the window when he bought out Heinz in 2013… 

Somehow cajoled into a deal with Brazil’s 3G Capital, he brought his economic might to bear onto the shareholders, bought out Heinz, fired roughly 3,500 people and paid himself and 3G the sum of their salaries for the next 30 years, something like $3 billion…

And because he signed a two-album deal with 3G, they did it again. To Kraft Foods. 

Another 2,500 people fired, another couple billion in Buffetts pocket…

At the time that Heinz announced its intention to buy Kraft in 2015, the Heinz CEO said via press release: 

“Over the past two years, we have transformed Heinz into one of the most efficient and profitable food companies in the world while reinvesting behind our key brands and continuing our relentless commitment to quality and innovation.”

Funny what firing 7,000 people can do for the bottom line…

Seems to me there’s a point where “productivity gains” and “efficiency” are meaningless. Like with mayonnaise and ketchup. 

What’s so bad about a bunch of arguably overpaid humans that show up on time, mix the damn tomatoes and get a couple weeks of paid vacation every year? Is that really something that needs to be fixed? 

And if it’s so broken, if the ketchup industry is so bloated, where are all the snowflake disruptors turning the sector on its head? 

There aren’t any, cuz there’s no percentage, cuz nobody gives a crap — it’s ketchup. Well, maybe you’ll buy a better artisan ketchup at your farmers market…but I bet you don’t buy it more than twice, cuz again, it’s ketchup. Who gives a crap? You gotta have it in your fridge, you don’t really care about the quality cuz only kids really like it and the basic plan is to throw a squeeze bottle in your cart every 10 months and call it a day…. 

Buffett and 3G Capital forced the merger of Kraft and Heinz in July 2015. The Kraft Heinz Company debuted under the ticker “KHC” at $71 a share. Ya know where it is now? $37. The highest it’s been since 2019 is $43…

So much for that “…most efficient and profitable food companies in the world…” bullshit. 

Buffett and 3G shafted the shareholders and 7,000 hard-working Americans. And now, Arkhouse Management and Brigade Capital Management want to do the same thing to Macy’s (NYSE: M)…

Now I’m not going to tell you that Macy’s is some great American company. It’s been pretty much a dog since mid-2015.

But it pays rent, pays taxes and pays salaries for 94,000 employees…

Sure, shareholders will do OK, they’ve been offered a 32% premium over Friday’s closing price to hand the company over to private equity vultures. The company itself will be gutted. Anything of value will be sold. At least 10% of the employees will be fired. And Arkhouse Management and Brigade Capital Management will be high-fiving each other when that multi-billion special dividend check clears…

It boggles my mind that this type of vulture capital is still legal…

Ok, rant over. Let’s move on to the Fed…

All I want for Christmas…

Well, well – Fed Chair Jerome Powell is giving investors exactly what they want for Christmas – a promise of rate cuts in 2024. 

Now, I expect we’ve all read commentary questioning the need to cut rates anytime soon. After all, on a historical basis, rates aren’t terribly high, unemployment is low and the U.S. economy is chugging along pretty good. 

But as I’ve said, if inflation is under control, what’s the point of keeping rates high, so that mortgage rates, credit card rates, car loans and most importantly, the interest payments on the national debt really bite? 

Seems like just wasting money…

I guess Powell agrees, because he’s talking rate cuts for next year. 

On Friday, I wrote:

Now, the all-time high for the S&P 500 was set on January 3, 2022, at 4,796. For context, January 2022 was the month when the CPI spiked to 7.5% and it became clear that the Fed’s “transitory” inflation was baloney and interest rates needed to go significantly higher…

Two years later, here we are – a couple hundred points from all-time highs on the S&P 500.

Yes, there remains downside risk into next week. But the next significant move for the S&P 500 is likely to be a run at those all-time highs.

Well, buckle up kids. All-time highs are dead ahead.

That’s it for me today, take care and I’ll talk to you on Friday. 

Briton Ryle
Chief Investment Strategist
Pro Trader Today
brit.ryle@protradertoday.com
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