We’re Gonna Need a Bigger Boat

18+

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


Artprice100(C): The Art Market’s Blue-chip Artists Yield Nearly as Much as the Top Performing Companies in the American Economy  [Morningstar]

Gender Face Swap Filter Is a Windfall for Snapchat  [US News & World Report]

As rivals combine, US Foods can’t make a deal  [Crain’s Chicago Business]

Back in April I wrote “This Is Water” about how financialization – by which I mean profit margin growth without labor productivity growth – has become the water in which we fish swim. We don’t just take it for granted … it has become completely unnoticeable even as it has transformed our capital markets into a wealth inequality machine.

Today, when I was looking through the most-connected financial media articles to write a Daily Zeitgeist note, I found three unrelated articles, each of which touches an element of financialization.


The first two articles touch on the ephemera, the frothy excess of a world where an essentially unlimited quantity of essentially costless money is available to pursue … whatever.

In this world of foam, only an idiot would actually invest in productive real-world assets. Why? Because in a financialized world the risk-reward-time dynamic of playing a new casino game dwarfs the risk-reward-time dynamic possible anywhere else.

Witness, for example, the ArtPrice 100 (c) index – a securitization of a tracking index for fine art auction sales. To be clear, you’re not actually buying or selling art here. You’re not even buying or selling shares in an ETF that is actually buying or selling art. No, you are making a bet on the “score” of the next fine art auction. It’s not just the functional equivalent of betting the over/under of a sports score with a legal bookie, it IS a bet on the over/under of a sports score with a legal bookie.

And worry not … “Artprice is preparing its blockchain for the Art Market.”

Next, we have the revenue “windfall” that a gender-swapping photo app is providing for Snapchat, now up … [checks notes] …. 190% through six months of 2019 and sporting a $22 billion market cap.

SNAP is a company that will never see a penny in GAAP earnings, of course, but that’s not what will make this stock go up or down. No, this stock will go up or down depending on the “score” of the next earnings announcement, where the game is how many Daily Average Users (DAUs) the company reports and projects for next quarter. Think they’ll top 197 million DAUs this quarter (last quarter was 190 million)? Then BUY! Think they’ll just hit their lowball DAU projections? Then SELL!


The third article has nothing to do with the ephemera and foam of financialized markets. It has everything to do with the barriers to further financialization, which are purely political.

US Foods is the third largest food distribution company in the United States, just behind PFG in annual revenues and less than half the size of the clear market leader, Sysco.

How do these companies drive profit margin and earnings growth? Through investment in more efficient supply chains and transportation networks?

LOL.

No, silly boy, they drive earnings growth through consolidation and the resulting ability to squeeze their suppliers more effectively. Consolidation which has ZERO financial barriers when your cost of capital is near zero and debt markets are tripping over themselves for the chance to throw money at companies like these.

The problem for further consolidation is purely political – will the FTC allow the mergers and acquisitions that the strategic planning groups at these three companies come up with?

The point of this article is that if PFG’s proposed acquisition of Reinhart Foods is given the green light, then a) US Foods drops to third place in the mega-size sweepstakes, and b) there really aren’t any more regional acquisition targets of any size (like Reinhart) for US Foods to go after.

The obvious solution? Cue a potential merger with Sysco to create the behemoth of all behemoths in the food distribution space. The only problem there is that this merger was proposed back in 2013, and it was nixed by the FTC.

Can US Foods get a merger with Sysco through the FTC six years later? I don’t know. But I’d bet a lot of money that they’re going to try.

And in a They’re. Not. Even. Pretending. Anymore. world, especially now that you’ve got Republicans as three out of the five commissioners, reversing the 2013 Obama ratio … I think they’ll get it.

Financialization is not a mean-reverting phenomenon. It’s too good of a gravy train for Wall Street, corporate management and the White House to stop now. So they won’t. Like any self-respecting Great White shark, the Nudging State and the Nudging Oligarchy never stop swimming. They never stop eating.

Want to survive these financialized waters if you’re potential shark food? You’re gonna need a bigger boat.


18+

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You'll get two or three of these emails every week, and your email will not be shared with anyone. Ever. It's our effort to spread the word about what we're doing, and allow you to read more Epsilon Theory!

Leave a Reply

Please Login to comment
  Subscribe  
Notify of

The Daily Zeitgeist

Frauds and Traitors

By Ben Hunt | August 16, 2019 | 2 Comments

Throwing words like “Fraud!” and “Traitor!” around so casually … it doesn’t reveal the true frauds and the true traitors.

It makes it easier for them to hide.

Read more

When Potato Salad Goes Bad

By Ben Hunt | August 15, 2019 | 4 Comments

On Tuesday, the Macy’s narrative was “I think they can make their comps.”

On Wednesday, the Macy’s narrative was “I think they can cover their dividend.”

This is what it means for a narrative to go bad. This is what it means for a story to break.

And when a story breaks, so does the stock. Not just for a little while, but for a loooong time.

Just ask GE.

Read more

A Cartoon in Three Parts

By Rusty Guinn | August 8, 2019 | 2 Comments

Cartoons are not evil. And yet they are the engine behind the Long Now, and very much at the center of our financial Zeitgeist. What is a clear eyed, full-hearted investor and citizen to do?

Read more

The Last Chance

By Rusty Guinn | August 7, 2019 | 6 Comments

You want scarcity? Access to the upper echelons of high society? Well, say no more. It’s your very last chance to buy this most special, most fantastical, most legendary, most unattainable of whiskies.

Read more

Are You Sweet Talking Me?

By Ben Hunt | August 6, 2019 | 4 Comments

It’s my favorite part of any Batman movie … that scene where the henchman pays a visit to the crazed supervillain – the Joker is the gold standard here – and you just know that the meeting is about to go terribly, terribly awry for the thug.

It’s a funny scene in a movie.

It’s a crappy way to run a country.

Read more

The Donkey of Guizhou

By Ben Hunt | August 5, 2019 | 7 Comments

My point in relating the fable of the Donkey of Guizhou is not that I believe China is the tiger and the United States is the donkey in our current trade-war-going-to-currency-war.

My point in relating the fable of the Donkey of Guizhou is not that I believe the current United States president is a braying donkey in his “easy to win” trade-war-going-to-currency-war.

I mean … I do, but that’s not my point.

My point is that Chinese political leadership believes that they are the tiger and the current United States president is a braying donkey.

Read more

DISCLOSURES

This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.

Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.