JPMorgan analyst Stephen Tusa warned about the conglomerate’s problems before they were public and ‘broke the mold in analyst optimism’
General Electric Co. insiders were convinced: There must be a mole. How else did Stephen Tusa know?
With the conglomerate in crisis, the JPMorgan Chase & Co. research analyst had an uncanny knack, time and again, for uncovering deep problems before they were public. For years, his research had zeroed in on issues both broad, like management credibility, and detailed, like a flawed fan blade inside GE’s turbines, that kept proving prescient.
His reports, often lengthy and skeptical, warned JPMorgan clients to dump the stock, and seemed to be gaining more influence with each new volume.
Inside GE and its boardroom, as a succession of management teams tried to wrap their arms around problems that kept spooking investors, Mr. Tusa’s calls became a source of speculation.
The board and advisers would scrutinize Mr. Tusa’s reports. GE even launched a hunt for leakers, a board member questioned JPMorgan about the research and the bank conducted an internal review, people familiar with the matter said.
As General Electric ’s profits and stock price shriveled, erasing some $200 billion of market value in 2017 and 2018, Mr. Tusa’s dour attitude won more influence among investors. One former senior GE executive said Mr. Tusa’s reports were painful to read, but were thorough and largely correct. “I tip my hat,” this executive said. “At the end of the day, our problem is not Steve Tusa.”
It seems that every decade Wall Street anoints another star analyst. There was Mary Meeker and her coverage of internet stocks during the 1990s dot-com bubble. More recently, Meredith Whitney gained fame for her warnings on Citigroup and other banks during the 2008 financial crisis. Today, few analysts can claim the name recognition and influence that 44-year-old Mr. Tusa has built around GE.
Wall Street research has long come under fire over perceptions of cozy relationships with companies, especially when it comes to big investment-banking clients like GE. Mr. Tusa has been an outlier—which he’s quick to point out—and moved the stock in the process.
Over the past two years, Mr. Tusa has cut his price target on GE 10 times, to $5 from $27. Each time he’s done so, the stock has underperformed the S&P 500 that day, by an average of more than 3 percentage points. When he upgraded the stock last December to a lukewarm “neutral,” the stock rallied 7%, as people hoped he was calling the bottom.
That hope was short-lived. Before U.S. markets opened April 8, JPMorgan issued an alert that Mr. Tusa was downgrading GE again. The report—over 100 pages—highlighted GE’s challenges and risks but the thrust was that the stock price had gotten ahead of reality. GE’s stock slid 5% as the broader market rose.
With the stock beaten up and Mr. Tusa remaining negative, his opinion remains at odds with new GE leaders who are promising a long turnaround. Some people who credit the analyst for correctly seeing the decline of the company are beginning to question if he’s too committed to his negative view.
The bearish turn on GE was a decade in the making.
As an analyst, Mr. Tusa has followed GE since 2001. A formative event was when another conglomerate, Tyco International Ltd. , collapsed under the weight of an accounting fraud in 2002. The scheme was missed by analysts, and it taught Mr. Tusa to have a healthy skepticism around the companies he covered, according to a person close to the analyst.
In those years, GE struggled to find the regular growth delivered in the decade before. It spent billions of dollars on acquisitions and share repurchases, and continued its reliance on the financial-services business that would almost destroy the entire company in the financial crisis.
In 2008, Mr. Tusa’s downgrade to “neutral” eerily described the internal problems that would contribute to GE’s collapse a decade later. “It would appear as though accountability for hitting targets is the top priority, and some managers might be chasing earnings,” he wrote. “We also think the high bar for success in such a competitive environment could create a scenario in which bad news is not tolerated, making necessary communication with senior level managers a challenge until it’s too late to fix.”
Studies have found analysts to be more positive when they are issuing opinions on larger companies, when they cover many companies, and when the companies generate high-investment banking fees. Mr. Tusa has managed to buck all those trends, said Mark A. Chen, a finance professor at Georgia State University who has studied the investment-research industry.
Mr. Tusa covers 21 industrial companies and JPMorgan has collected an estimated $370 million in banking fees from GE since 2010, according to Dealogic, the most the conglomerate has paid to any investment bank over that period.
Prof. Chen found those biases are so prevalent that investors have baked them into their reactions: A negative call, like Mr. Tusa’s, by an analyst under those circumstances tends to move the stock more. “Clearly this analyst broke the mold in analyst optimism,” Prof. Chen said.
A prime example: In 2015, as JPMorgan’s bankers advised the conglomerate on selling much of its financial-services business, Mr. Tusa had to halt publishing but he continued to do research. Upon returning in May 2016, he surprised investors with an “underweight” rating, JPMorgan’s version of a “sell” rating.
At the time, GE’s problems hadn’t yet emerged and the stock was trading close to $30. In the two years that followed, GE slashed its dividend twice, changed its CEO twice and decided to break itself apart, selling off major units. Shares trade around $10 today.
Despite the success of his “underweight” call, Mr. Tusa was constantly questioning the rating in the first year when the stock stayed near $30, said people close to the analyst.
“He had a lot of nervousness around that,” said Paul DeGaetano, CEO of a cosmetics company, who has known Mr. Tusa since they played ice hockey three decades ago. Friends and acquaintances in the finance industry criticized his aggressive stance in that first year. “It doesn’t surprise me that he would be the ringleader of this sort of thing,” he said.
Charles Stephen Tusa Jr. grew up in Greenwich, Conn., one of the country’s wealthiest towns, home to hedge-fund managers and private-equity partners. As a child, he used to ride bikes with Ian and Shep Murray, who went on to found preppy clothier Vineyard Vines. He attended the elite Brunswick School, following the footsteps of his father Charlie, a founding partner of a prominent law firm in town.
A political science major at Dickinson College in Pennsylvania, Mr. Tusa has said he learned finance on the job after joining JPMorgan in 1998. It wasn’t his first career choice. His dream was to play center for the New York Rangers and Wall Street hasn’t tamed his devotion to ice hockey. In 2014, as the Rangers were making a run in the playoffs, Mr. Tusa grew a mullet. He still laces up his skates regularly with multiple leagues, getting in more than 20 games over the winter. On days when GE is dropping major news, he has worked from the bench.
At GE, there has long been a suspicion that Mr. Tusa had a network of contacts inside the company that fed him information, according to former executives and people familiar with the board. The detailed knowledge of the company in his research notes was seen by some as being suspiciously accurate.
GE conducted a search for leaks and Ed Garden, a GE director and co-founder of activist investor Trian Fund Management, discussed the issue with JPMorgan, according to people familiar with the matter. JPMorgan executives reviewed Mr. Tusa’s work and found nothing the bank was concerned about, the people said.
In looking for leaks, no one was above suspicion, even board members were commanded to keep their mouths shut, the people said, and GE took extra steps to keep any developments under wraps.
Krauthammer’s Take on Life
Isaiah asked why he should even bother, then? “Ah,” the Lord said, “you do not get the point. There is a Remnant there that you know nothing about. They are obscure, unorganized, inarticulate, each one rubbing along as best he can. They need to be encouraged and braced up because when everything has gone completely to the dogs, they are the ones who will come back and build up a new society; and meanwhile, your preaching will reassure them and keep them hanging on. Your job is to take care of the Remnant, so be off now and set about it.” For Nock, the Remnant was his audience. At times, the idea of the Remnant is unapologetically elitist, but in a thoroughly Jeffersonian way. The Remnant were not the “best and brightest,” the most successful, the richest. Rather, they were those occupying the “substratum of right thinking and well doing” (in Matthew Arnold’s words).
.. arguing for the right principles is right in itself... Young conservatives are disproportionately members of the Remnant, for reasons Ben Shapiro lays out here... It’s great and good that people are praising Charles. But it would be nice if more people on the right thought for a moment about why his insights and contributions were so valued. Charles came to play. He brought facts with him and he never went beyond them. He never caved on principle, either. In short, he didn’t pander to his audience. He told them what he thought they needed to hear, not what they wanted to hear. Moreover, Charles was never mean or conspiratorial or demagogic. There was not an ounce of cruelty in Charles Krauthammer, yet we live in a moment when too many people think cruelty is a form of strength... My point on Fox was that Charles Krauthammer modeled behavior that I think is sorely lacking today, including among many of the people heaping praise upon him. These responses proved my point... we live in a time when too many are unlearning and regressing into bullies, brutes, and champions of mob-thinking — and boasting about it on TV... Charles said, “You’re betraying your whole life if you don’t say what you think, and you don’t say it honestly and bluntly.”
Trump’s Offer to Democrats
Mr. Trump’s immigration message was a mix of rhetorical edginess with policy compromise. He spent far too much time flogging immigration as an issue of crime rather than highlighting the many contributions that newcomers make. He also included a gratuitous gibe that “Americans are Dreamers too,” which will insult more people than it persuades.
.. His unpopularity beyond his base is due in large part to his divisive persona and 90-proof narcissism. Even admirers who like his bluntness want him to behave more like a normal President.
George W. Bush comes out of retirement to deliver a veiled rebuke of Trump
Bush offered a blunt assessment of a political system corrupted by “conspiracy theories and outright fabrication” in which nationalism has been “distorted into nativism.”
.. “Bullying and prejudice in our public life sets a national tone and provides permission for cruelty and bigotry. The only way to pass along civic values is to first live up to them.”
.. Just hours after Bush completed his speech, Obama also made a veiled critique of the Trump era, calling on Democrats at a New Jersey campaign event to “send a message to the world that we are rejecting a politics of division, we are rejecting a politics of fear.”
.. That Trump’s two most recent predecessors felt liberated, or perhaps compelled, to reenter the political arena in a manner that offered an implicit criticism of him is virtually unprecedented in modern politics, historians said.
.. George W. Bush was taking aim at Trump’s “roiling of the traditional institutions of the country and, in particular, demeaning the office of the president by a kind of crude or vulgar bashing of opponents,”
.. “I think this is Bush throwing down the gauntlet and feeling that this is a man who has gone too far,” Dallek said. The discretion former presidents traditionally afforded their successors “is now sort of fading to the past because of the belligerence of Trump.”
.. McCain’s critique prompted Trump to warn him to “be careful” because he is prepared to “fight back.”
.. The common thread among Bush’s and McCain’s words was a defense of the post-World War II liberal order
- which supported strong security alliances,
- a defense of human rights and an
- open economic system of free trade
.. “The hallmark of McCain’s and Bush’s speeches was to try to re-center us on what have been, since 1945, these traditional ends,”
.. He cautioned at the time, however, that he would speak out if he saw “core values” at risk.
.. the unifying themes between Obama and Bush are “humanity and empathy towards the American public.”
.. Bush opened his remarks by speaking in both English and Spanish and noting that refugees from Afghanistan, China, North Korea and Venezuela were seated in the audience.
.. Bush also warned that “bigotry seems emboldened” in a passage that evoked the aftermath of the white supremacist rally in Charlottesville
.. “Bigotry or white supremacy in any form is blasphemy against the American creed,” Bush said in a line that drew the most applause.
.. “Politics are now about discrediting people by ad hominem attacks, not by argumentation,” Cohen said. Those who opposed Bush’s wars have a fair point of view, he said, but their constant “demonization does help make it easier for Trump.”