First off, I’d like to thank everyone who bought a copy of Dead Companies Walking this year. I had a great time writing the book and it was fun hearing from folks who seemed to enjoy reading it, as well. I probably wasn’t able to respond to everyone who contacted me about it (though I tried), but I appreciate the kind words that many people sent my way. Thank you!
As for the markets, investors have had more than their fair share of emotional and actual volatility in 2015. After all the huffing, puffing, and cussing, the S&P and the Dow are more or less flat. That doesn’t surprise me very much (I expected modest gains for the indexes, at best). But a number of things have surprised me this year, some quite a bit. Here’s my list of the five biggest events of 2015, in order of earth-shattering importance:
1. The oil meltdown.
In the wake of 2014′s crash, most experts thought oil was near a bottom. After all, the cost to lift (not drill) a barrel where fracking is required is about $30-$40. But today the spot price of a barrel of West Texas Intermediate crude remains stubbornly below $40. A handful of exploration and energy service companies have already filed bankruptcy. This includes BPZ Resources, Quiksilver Resources, Magnum Hunter, Sabine Energy, and Hercules Offshore. If oil prices do not rally soon, more, maybe many more firms will file bankruptcy in 2016.
2. The wider commodities carnage.
Despite ongoing efforts by the US Federal Reserve and European Central Bank to ignite inflation, other commodity prices fell sharply last year, as well. Gold’s down 10 percent, copper 28 percent, and zinc 31 percent. Nickel fell a whopping 44 percent. Many attributed these declines to China, where economic growth has slowed to (for them) a subpar 5-7 percent annual rate. But much slower growth elsewhere has also contributed. Early predictions saw the US growing 3 percent this year after 2014’s so-so 2.4 percent advance. Stop me if you’ve heard this one before, but we didn’t make it over that rather low bar. The US economy grew a disappointing 2 percent in 2015. In other words, our anemic “recovery” from the 2008 financial crisis continues to underwhelm.
3. The FANG feast.
It seems unbelievable in retrospect, but Facebook, Amazon, Netflix, and Google all started the year in some degree of limbo. In January, I went on CNBC to talk about my book and, to my shock, I was asked if Google could be a “dead company walking.” (My answer: no.) What a difference a year makes. Today the combined market capitalization of Facebook, Amazon, Netflix, and Google has ballooned to $1.2 trillion, or about seven percent of the S&P 500. Bottom line: if you didn’t own some FANG this year, it is highly likely you underperformed the index.
4. Hedge fund performance (or lack thereof).
When I started my fund in 1991, few, if any, folks on Wall Street and nobody on Main Street talked about the “hedge fund industry.” Now, with over $2 trillion managed by US hedge funds, the industry is all over the news—and, this year, the news has largely been bad. Many of the largest funds have produced awful returns, reminiscent of the industry’s dreadful declines in 2008. Possibly the greatest shock has been NYC manager Bill Ackman, whose $20 billion plus fund is reportedly down 20 percent or more. Equally surprising is the notoriety the industry is enjoying these days. Almost every business publication and many general interest magazines have written stories about the hedge fund industry in recent months. And on December 23, the movie “The Big Short” debuted. If it does well, maybe I’ll ask my publisher to look into adapting Dead Companies Walking. I won’t be holding my breath for production to start anytime soon, though.
5. Retail’s swansong?
At beginning of the year, I cautioned investors to resist the temptation to buy into retail turnarounds after a decent holiday sales season. I could post that same article today and it would be just as timely. It seems like people are finally waking up to the reality that the entire sector has undergone a massive disruption. Disappointing revenue and profit growth caused investors to dump many high profile brick and mortar retail stocks last year. Big names like Macys, WalMart, and Nordstrom are all down significantly. Wet Seal, Quiksilver, American Apparel, and RadioShack all chaptered out, and once iconic merchants like Sears, Penney’s, and Kohls are facing a difficult future, as well. The main reason: the A in FANG, Amazon. The Seattle behemoth has now topped $100 billion in annual revenues, and it continues to expand into every imaginable category. I don’t like to make predictions, but it’s hard to see this shift reversing.