This line is related to the overall theme of humans being disposable, which relates to Anne Frank and the Holocaust (see “it’s so sad to see the world agree that they’d rather see their faces filled with flies,” or “I know they buried her body with others, / her sister and mother and 500 families.”) This imagery describes fetus floating in the womb of a pregnant Holocaust victim who was thrown into a mass grave like a piece of garbage. The fetus is swimming through the waves and undertow in utero, and can only float because they haven’t been born and can’t swim yet. In the final line, the baby reveals that he will float until he “finds himself again,” i.e., is reborn in the next life.

It is also important to consider this line and the rest of Part 3 outside the context of Anne Frank and the Holocaust, given it was written, at the earliest, in 1991, five years before On Avery Island. In an interview, Jeff stated that the second verse is about a dark time when he lived with his mother.

This could be a reference to Part 1 of this song, where Jeff says:

And mom would stick a fork right into daddy’s shoulder / And dad would throw the garbage all across the floor"

In that light, the line could mean that the mother is a receptacle for a lot of verbal, emotional, or even physical abuse from the father. He lays all his negativity, aggression, and disappointment (his garbage) in her.

Jack Frost is the personification of frost and cold weather, a variant of Old Man Winter held responsible for frosty weather, for nipping the nose and toes in such weather, coloring the foliage in autumn, and leaving fernlike patterns on cold windows in winter.

• 19th-century cartoon depicting Jack Frost as a United States major-general during the American Civil War.

The phrase “Happy Christmas” may sound odd to US-based listeners, but it is more common than “Merry Christmas” in the UK.

Kyoko Chan Cox is Yoko’s daughter with Anthony Cox.
And Julian Lennon is John’s son with Cynthia Lennon.

Kyoko and Julian are both children that John and Yoko had with other people. Yet, John and Yoko wish both a happy Christmas. This message may signify affection and love beyond borders, in spite of hardship and differences.

In December 1969, two years before this song came out, John and Yoko had put this same message on billboards and posters around the world in protest of the ongoing Vietnam War.

As explained here:

According to John and Yoko, the choice to go to war or live in peace is personal. People have the power to decide that they do not want to bear with the aftermath of war simply by choosing to stay away.

The US would finally get around to leaving Vietnam in 1973, and the war ended for everyone in 1975 with North Vietnamese victory.

Recognising the accessibility and popular appeal that made his 1971 single “Imagine” a commercial success compared to the other songs he had released up to that point, Lennon concluded, “Now I understand what you have to do: Put your political message across with a little honey.” He conceived “Happy Xmas (War Is Over)” as a means of elaborating upon the themes of social unity and peaceful change enacted through personal accountability and empowerment that served as the basis of the earlier billboard campaign, trying to convey optimism whilst avoiding the sentimentality that he felt often characterised music of the holiday season.