WASHINGTON. US stocks and stock market averages continued on their torrid downward trajectory Friday after attempting to steady on Wednesday and Thursday. Stock analysts, pundits and other assorted cable TV blow-dries issued their usual platitudes, dire warnings and position puffing, providing various reasons for the market decline. The chief excuse early Friday was the savage hammering of venerable consumer staples and drug company Johnson & Johnson (trading symbol: JNJ).
Unsurprisingly, investors clobbered JNJ yesterday when the media hyped yet another story about the company’s alleged cover-up of the alleged carcinogenic effects of Johnson’s Baby Powder.
Investors destroy JNJ shares in fierce Friday trading action
For background color, we offer CNBC’s rather balanced view of the nonsense surrounding the company and its beleaguered product. The story also provides details on how the outsized effect of JNJ sinking shares undermined the Dow Jones Industrial Average (DJI or DJIA) during the market’s ritual Friday bloodletting. (Italicized portions below via this writer.)
“The Dow Jones is down nearly 400 points, with consumer-staple giant Johnson & Johnson responsible for nearly a quarter of this plungefollowing a ‘powder keg’ Reuters report that from at least 1971 to the early 2000s, Johnson & Johnson knew that asbestos lurked in its Baby Powder, and that its talc product ‘sometimes tested positive for small amounts of asbestos,’ and that company executives, mine managers, scientists, doctors and lawyers were aware of the deadly threat, and ‘fretted over the problem and how to address it while failing to disclose it to regulators or the public.’
“Curiously,the last time shares of the drugmaker came under this much pressure was due to asbestos concerns back in February, after traders circulated a blog post focused on worries about what might be uncovered during litigation Bloomberg reports. The shares fell as much as 11% that day, even as Wells Fargo – who else – called the concerns overblown. Analyst Lawrence Biegelsen said at the time that approximately 5,500 talc cases nationwide could create a total liability to the drugmaker of just $1.5 billion.
“Fast forward to today when as noted above, the intraday move has wiped out $35 billion in market value, although as Susquehanna litigation analyst Tom Claps said ‘today’s Reuters story about JNJ’s talc litigation is not ‘new news.’” In July, a jury ordered the company to pay $4.69 billion to women who claimed asbestos in the products caused them to develop ovarian cancer.
Rewind the tape for JNJ’s past history of litigation
“‘JNJ has been facing talc/asbestos litigation for years,’ Claps wrote in response to questions. He said there have been a number of trials where plaintiffs showed evidence suggesting the company knew and concealed the risks. “Interestingly,” he said, “JNJ’s stock has taken a bigger hit today than it did after that $4.7B verdict.”
And while it is debatable if the company’s talc problems are ‘news,’ Bloomberg Intelligence litigation analysts Aude Gerspacher and Holly Froum estimate that the New Brunswick, NJ-based company could be on the hook for as much as $10 billion to $20 billion in settlements from an estimated 11,000 pending talc cases.
“For now the market is even more skeptical and is hitting the AAA/Aaa rated company (a rating higher than that of the US itself) to nearly double that potential payout and resulting in broad pain for the Dow Jones as well.”
JNJ’s House of Pain
Here’s what Friday’s JNJ shareholder pain looked like. Note massive one-day plunge at far right of the chart.
The DJI’s even bigger House of Pain
And here’s what befell the DJA. (Chart courtesy of StockCharts.com, a subscription service.)
Greedy lawyers, rent-seeking, legalized extortion = income redistribution by non-tax means.
The portions of this rather lengthy quote your columnist has italicized above pretty much pinpoint the real story. As is so often the case, it concerns a long-running, ambulance-chasing lawyer-generated individual/class action suit in which the lawyers aim, ethically or otherwise, to extract massive rent from a major and well-respected American company.
Should these lawyers at some point win a decisive victory, they’ll book stratospheric fees while most of the class they are defending will get checks for less than $10, and maybe even a coupon entitling them to a free package of Johnson’s Baby Powder.
In the meantime, J&J’s product prices will get slight, upward adjustments and the beleaguered American consumer will get gouged again, while all the lawyers will buy second or third mansions in some inaccessible tropical paradise.
A personal note on Johnson & Johnson’s Baby Powder
Breaking the 4thwall for a moment, this particular case irks me on a personal level. In the late 1940s when I first showed up on this planet, my mom powdered my derrière with Johnson’s Baby Powder. Since then, for various reasons (like heat rash) I’ve used the stuff off and on ever since.
On the eve (true confession) of my 70thbirthday, I still have a well-used container of Johnson’s Baby Powder in my medicine cabinet. And guess what? Although my advancing age is slowly taking its toll in other ways, after some 70 years as a regular user of Johnson’s Baby Powder, I still have no signs of any kind of cancer.
So what the hell is going on with this ongoing baby powder litigation? Answer: This current ritual persecution, as usual, is searching for even the slightest hint of corporate malfeasance in the products and practices of an admirable American institution.
What this legal nonsense has accomplished once again is to penalize customers and stock holders for something that may or may not have happened and which is, at least with current technologies, not possible to prove decisively one way or the other.
Does someone have a big short position in Johnson and Johnson?
On the other hand, it’s also possible that some individual(s) or hedge fund(s) initiated a huge short position in JNJ. By arranging to re-float and inflate the long-running Baby Powder litigation story, these miscreants prompted another classic case of headline risk.
The result: individual and institutional investors bailed out of JNJ big time, given the already huge losses everyone has already suffered in the 2018 post-Labor Day bloodletting that I call a cyclical bear market no matter what anyone else says. The bad tone of the current market simply exacerbated the JNJ selling panic. This in turn spread to the rest of the Dow and elsewhere. Because, Friday.
The Wall Street Journal trumpeted another reason for the decline in its weekend edition, out today. That was the same story most in the financial media have been “warning” us about for the past year. Investors busily dumped international stocks all year. Meanwhile, US markets raced ahead, even as European and emerging markets alike sank like stones. So why should we be exempt from the misery? Why should America win bigly?
Of course, the media never mentions one simple truth. President Trump drastically reduced the regulatory burden on the American economy. He reversed Barack Obama’s most stultifying rules that killed both hiring and worker prosperity.
The resulting magic, and the winning, happened so quickly that nobody was prepared for it. Most of all the Deep State power elites.
The left’s ongoing temper tantrum is intentionally eroding confidence in the economy and the government
At any rate, over the past two years, America and Americans consistently find themselves prosperous again. The rest of the world remains mired in misery. Which seriously messes with the Democrats’ pre-prepared, anti-American media narrative.
There’s an economic lesson here, of course. But the “boorish” and “uncouth” Republican president, not the sainted Hillary, currently teaches that lesson. Unacceptible. The Deep State elites never approved of this Republican interloper. They and their international pals wish to stifle the robust American economy. Then they can throw America’s middle and lower classes back out of work again. These Deplorables require punishment and retribution for not crowning the Smartest Woman in the World as Obama’s successor in 2016.
What better way to prepare for another socialist Democrat to win the Presidency in 2020? (Assuming Congress succeeds in impeaching and convicting Trump on bogus charges). This visionary extension of “hope and change” could resume the “fundamental transformation” of America into Venezuela. After the current, Trumpian “pause,” of course.
Oddly, that’s what traders and investors are actually worried about, and not the Fake Scandal of the Day. They’re all afraid that the genuine, all-hands economic recovery of the past two years will get slowed or entirely stymied. But the fault for this likely lies with these same traders and investors. They enjoyed feasting on two years of major market gains. Meanwhile, they worked 24/7 to undermine the President who made those gains possible. In so doing, they could end up reaping a negative market whirlwind.
Dumb. And dumber.
— Headline image: Johnson & Johnson (JNJ) HQ buildlng, New Brunswick, NJ.
(Public domain, via Wikipedia entry on JNJ.)