Originally published by John Battelle on LinkedIn: Dow 36,000?
Why are markets ignoring political chaos and merrily pushing upward? Plus P&G fights raiders, and Birkenstock goes ballistic.
Back in the go-go days of the first dot-com bubble, a pair of economic analysts wrote what became that era’s most discredited book: Dow 36,000. With the markets already at historic heights (the Dow reached a peak of 11,700 or so in early 2000, before crashing back to earth later that year), the duo predicted a three-fold rise to 36,000 in just a few short years.
The authors doubled down on their bet by publicly wagering that the index would be closer to 36,000 than 10,000 by the year 2010. The Dow would have had to cross 23,000 for them to have won. Thanks to the great recession of 2009, they lost that bet, bigly.
But just yesterday, the Dow flirted with 22,000, setting another record high amongst a string of record highs and prompting a slew of chin stroking pieces on the state of our financial markets. The New York Times set the tone, pointing out that “the president’s promise to slash regulations and cut taxes — even if unfulfilled — has stoked long-dormant animal spirits among investors. That corporate earnings are excelling and the global economy is growing faster than many expected has only added to the bullish vibe.”
The Wall St. Journal also marked the 22,000 milestone, and credited our globalized economy, arguing that the Dow’s stalwarts — companies like Boeing and Apple — have more than 50 percent of their business overseas. Put another way, the Dow is no longer tied to the whims of the American economy (or its politics).
But will the rise continue? Ah, that’s the $36,000 question. Right now, the wisdom of the market is certain it will. And that’s just about the time most savvy investors start to pull in their horns.
As Goes P&G?
One of those global Dow stocks is P&G, an American consumer products giant that despite strong performance in an Amazon-challenged sector over the past five years, has lagged the market’s overall rise. That lag has drawn the attention of activist shareholders, in particular Nelson Peltz’ Train Partners, which has built a $3-plus billion position in the stock, and is now waging a proxy battle to put Peltz on the board, where presumably he’d do what hedge fund managers do best: Lobby for deep spending cuts and massive stock buybacks, both of which artificially inflate stock price. Once that happens, dump your position, make a fortune, and move on.
Proxy fights, in which an activist lobbies fellow shareholders to vote against the recommendations of the company’s own management, are nothing new, but this one bears watching for a number of reasons. Chief among them is how P&G itself has become proxy for the tectonic transformation of brand-driven retail markets around the world. But that’s not what strikes me as fascinating in this story. Instead, it’s the robustness of P&G’s response that caught my eye.