I warned you off of Boeing a while back, noting how this criminally mismanaged company was at risk for further declines before it is broken up and sold off for parts.
Well, now the firm is not just criminally mismanaged, it is a convicted criminal, after pleading guilty to fraud from violating a DOJ deal.
Chart 1: Boeing Price
I see Harvard Business School case studies coming in the future about how this world-beating company became first a joke, and then a criminal. Let me save you the cost of a subscription to the HBR: when you focus on financial engineering instead of putting out an A1 product, doors start flying off, mid-flight.
This is the exact same thing that happened to GE. Jack Welch was able to hit the estimate every quarter because he figured out very early that by having a financial arm, he could dial earnings up or down with great precision. Wall Street ate it up.
Welch received a severance payment of $417 million when he retired in 2001, but the firm did not do so well. The recessions during the Tech Wreck, Global Financial Crisis, and COVID, were body blows that the previously resilient company could not recover from.
Chart 2: GE Price and U.S. Recessions
It turns out that financial engineering is fragile.
Note in Chart 2, above, that the recent recovery in the “GE” stock price is just a stub piece after the company was split into three parts. It is a fraction of the market cap it once was.
Ukraine
A year or so ago I recommended Ukrainian government bonds as a speculative buy on the basis that when emerging market bonds go below 20, they are almost always a good bet.
Today the Ukranian government announced a restructuring of its debt that reduced the face value of the original paper outstanding by 37 percent. Existing bondholders will receive two bonds, one worth 40 percent of the original face amount that will being making interest payments immediately, rising from 1.75 percent to 4.5 percent in 2026; and a second bond worth 23 percent of the original face amount that will not pay interest for three years, but could see the face value increase to 35 percent of the original if Ukraine’s nominal GDP exceeds IMF targets by three percent or more.1
Chart 3: Ukraine 7.253% of 2035 Price
This is great news for Ukraine and will help quite a bit with the war effort. Killing genocidal orcs is expensive, and you need international financing to keep it going.
Despite what you may have read, the Ukrainian military is inflicting mind-boggling casualties on the Russians. Indeed, over 70,000 Russians have been killed or wounded in the last two months alone.2
To put this into perspective, there were 50,000 casualties at Gettysburg (total for both sides) and that’s when the state-of-the-art tactic was to march your men across hundreds of yards of open fields straight into the mouths of Napolean 12-pounder cannons filled with grapeshot.
But this is Russian tactics at its finest. They have lost over 3,000 tanks and are now using World War II era T-52 tanks, they have no concept of logistics, and they don’t train the convicts they have forced to fight. When the FSB is behind you, shooting anyone who doesn’t attack, you make most glorious attack.
And here’s where we ditch the free-riders and speak freely about our winners.
