The Wealthy Are Seriously Misjudging the Situation

This memo from one of the most revered icons of the investment world, Howard Marks, is typical of the public clamoring from the wealthiest elites in the face of rising populism from the Left. Mr. Marks, who has freely given sage advice over the years, benefiting many a budding investor, decries proposals from the Left that would impinge upon owners’ rights to run their companies as they see fit. This is typical of the elites’ response to rising populism, the diminishing share of profits going to labor, and the resulting gross disparity in income and wealth–in short, to what many consider gross unfairness and injustice.

I actually agree with much if not most of what Mr. Marks writes and do believe the risks from proposed solutions that would prove to be counterproductive are significant if not outright dire. What I object to, however, are the tactics of the elite, and what I am most concerned about is their obliviousness.

The tactics are to criticize and warn while ignoring or dismissing the problem out of hand. There are exceptions of course, but they are rare. To this point, the elite routinely dismiss the warnings of their more prescient members such as Ray Dalio.

In former times, when things got bad enough, the wealthy, powerful elite had to worry about insurrection and revolution. But today no one takes the threat of guillotines seriously. Today, serfs in western democracies have other options, the power to vote to be precise. And history shows they can be pushed quite far before becoming immune to manipulation by propaganda and threats; indeed, modern humans can be cowed fairly easily. We are a passive bunch.

The last time American serfs threatened to overturn the established order was during the Great Depression. The country was fortunate enough then to have a leader as astute and wise as Franklin Roosevelt. He understood the threat and headed it off. Social Security was born. Jobs programs were enacted. The role of the federal government was fundamentally transformed.

Roosevelt understood that unfettered capitalism was unworkable over the long term. I suspect Mr. Marks understands that as well, but after reading his memo I can’t be sure. Even if he does, it seems doubtful many of his fellow billionaires and multimillionaires get it. They seem to have been lulled into thinking their positions were secure since the guillotines have been dismantled and are no longer a response available to the masses.

Of course, if things got bad enough, they might be surprised at how quickly things could be reassembled, but we’re probably a long ways from that. What’s more likely is a political response that could strike at the heart of the elite: their balance sheets.

Which could be problematic, for some of the so-called “solutions” being proposed by the politicos on the Left would end up hurting the people they are designed to help, of that I am sure. But of course that’s not the real objective in most cases anyway. The real objective is to win an election and claim power.

It would be nice if Mr. Marks and a substantial number of other elites would do something other than complain and warn; it would be nice if they proposed and implemented solutions. But that would mean giving something up, and as of yet that doesn’t seem to be in the cards. So the power of the Left swells. And the risks increase.

To  be fair, in a parenthetical near the end of this memo, Mr. Marks concedes there is room for increases in tax rates. He cites the fact that today’s top rate of 37 percent is one of the lowest in the 106-year history of the U.S. income tax (thanks, of course, to Mr. Trump and the Republicans in Congress). But it was a mere parenthetical. And there is no evidence Mr. Marks is exhibiting any leadership in addressing the issues. He’s apparently content with writing memos.

My fear is that the wealthy are seriously misjudging the situation and that a global backlash may be unleashed which does more harm than good, to just about everyone. Of course, there are never only losers; there are always some winners, no matter how much the sands shift.

It’s time, I suspect, to be particularly attentive to ensure that, even if you can’t be a winner after this has played out, your losses will not be crippling.

The End May Be Nearer Than We Realize

We are free today substantially but the day will come when our Republic will be an impossibility. It will be an impossibility because wealth will be concentrated in the hands of a few. – James Madison

Twenty-six of the world’s wealthiest people possess more wealth than the bottom 50 percent of the world’s population combined. That’s 26 individuals possessing more than 3.8 billion people.

Wealth and income inequality in the U.S. is at or near historic highs. Almost all the gains in wealth since the Great Financial Crisis have gone to the top 1 percent, and within that group, the top 0.1 percent has garnered the most.

Yet most Americans are living paycheck to paycheck. Many carry high debt burdens. Student debt has exploded past $1.5 trillion. Bankruptcies due to medical expenses aren’t uncommon. Social ills are rampant. Suicide and drug overdose rates have escalated. And we’re led by a highly divisive pathological liar.

Despite the corrosive effects of the gross inequity overhanging our populace, and the populist propaganda being vomited near daily by the White House and the pathetic con man who occupies the Oval Office, a year ago our Congress and president gave the wealthy a humongous tax cut. The consequence was predictable and, indeed, predicted: inequity has gotten worse and the national debt has ballooned (the Boomers “gift” to their children and grandchildren).

I guarantee you their eventual response to this will be to cut social programs: Social Security, Medicare, Pell grants (education), food stamps, Medicaid, etc. Their solution is to take it out of the hide of labor. It always is.

Madison predicted that our Republic will become an impossibility, that eventually our system of government will fail us.

He may be proved right. And sooner than any of us anticipated.

This President’s Fit Cannot Be Allowed to Succeed, Whatever the Costs

Forget about the wall for a second. Let’s take stock of what’s really going on here.

Under the U.S. Constitution, power to enact laws and appropriate expenditures rests with Congress, not the president. Executive power rests with the president.

We now have a president who is trying to wrestle legislative power from Congress. In effect, he’s saying, “Appropriate monies for what I want, borrow funds to finance what I want, or I will shut down the government.”

In effect, he’s refusing to fulfill his executive responsibilities unless Congress caves to his wishes. In other words, he’s refusing to fulfill his constitutional duties.

If the Democrats acquiesce to this extortion, then there will be no checks on this president. For that reason and that reason alone, they cannot allow the extortion to succeed.

If the president were willing to sit down with Congress and negotiate an immigration and border-control bill, that would be another thing altogether. But he’s not.

Instead, he’s like a petulant child. Give him what he wants or he’ll throw a fit. Indeed, he’s thrown a fit.

If Congress gives in, it’s all over. No one knows what fit will come next. And what danger he’ll put the country in.

We elected a spoiled child to the nation’s highest office. But that doesn’t mean the child should have the run of the nation.

P.S. Not that it matters. Because the wall isn’t the issue. The issue is keeping the man with autocratic tendencies in check. And not giving in to the extortion attempts of a man who refuses to fulfill his constitutional duties. Nonetheless, here is a photo of the nonexistent wall — the wall that apparently doesn’t exist — taken by me in the desert of Arizona last week. It’s hard to see that there are actually two fences here. But I guess we need a third. Again, though, the fence, wall, or barrier (as the pres is now calling it) is besides the point at this point. Open the government and negotiate with Congress. It’s not that hard a concept to understand. For an adult. Oh, I momentarily forgot.

Misogyny Turns Out to be a Turn Off for Certain Women

When you choose a misogynist bully to lead your party, as have the Republicans, it turns out certain people will be repelled by your values. Especially, certain women.

I remain perplexed by women who continue to support the misogynist-in-chief. But it is what it is. At least there will be fewer of them in Congress next year. And more women who find his crude, demeaning, predatory conduct to be repulsive and thoroughly unacceptable.

Digging, Deeper and Deeper

In case you missed the news earlier today, the federal government’s deficit jumped to $779 billion in the fiscal year just ended. That’s a 17 percent increase over the previous fiscal period.

An escalating deficit late in an expansionary economic cycle is unprecedented. But under the self-proclaimed King of Debt, it’s hardly surprising. All he needed was a Republican-controlled Congress that doesn’t give a damn about deficits. And that’s exactly what he got.

The obvious question is, how will the federal government be able to respond to the next recession? No one knows. We’re in unchartered waters. Close to shore. Where rocks can bash your ship into smithereens if you’re not careful. And extremely lucky.

In the meantime, keep an eye on that Medicare and Social Security. They’ll be coming for that next.

Luck, Extra Days and Unnecessary Roadblocks

I haven’t been feeling too altruistic lately. Which isn’t a good thing. There is no substitute for giving. I suspect you know what I mean.

We can give in different ways. Our money. Time. Effort. Lives. The list is endless. I’ve previously discussed my problem with the money route. Simply put, most charities and other nonprofits are poor stewards of their money and other resources. I’m tired of the waste and, in many cases, the subterfuge. At this point in my life, I’m more interested in effective altruism than simply throwing more money at nonprofits.

So, lately, I’ve been thinking about what I can do besides writing a check. I tried volunteering at a local hospital but found myself doing things that really didn’t need to be done. Or that could (and should) be done by employees. I don’t want to be taking a paying job from anyone. Or doing makeshift work.

One good thing that came out of my hospital volunteer work, however, was an awareness of a particular dire need. I came into contact with families of patients who were receiving organ transplants. Sometimes from deceased donors. Sometimes from living donors. (A kidney from a living donor is far better. It’s more likely to work and last a lot longer.) Continue reading

What Will We Have When Mr. Trump Is Done Breaking Eggs?

Larry Kudlow, President Trump’s new Director of the National Economic Council and long-time confident of Mr. Trump, was quoted last week as saying the president “loves to break eggs.” And, indeed, for better or for worse, Mr. Trump has been breaking a lot of eggs recently.

I’m sure people have different opinions on the matter. Some are terrified by some of Mr. Trump’s actions; others are heartened. My opinion on the matter isn’t very important (to anyone but me, of course). Of course, the media think opinions matter. They’re constantly polling the American people.

I’m not one who is fond of the media’s incessant polling. Whether the polls suggest support for or opposition to the egg breaking is of no consequence to me. The only poll that counts is the one taken on election day.

I remain troubled by the poll taken in November 2016, when the American people decided to hand over the keys to the Oval Office (and our nuclear arsenal) to a megalomaniac. But it was their decision. It is what it is.

Given that election, I’m not particularly bothered by Mr. Trump’s egg breaking, mainly because none of it is coming as a surprise. Mr. Trump was upfront about his intentions during the campaign. Everyone knew (or should have known) he was going to break the eggs he’s been breaking. Obviously, that’s what a lot of people wanted or they wouldn’t have voted for him.

Naturally, the question on some people’s minds these days is, what will the country look like once all the eggs have been cracked? Will it be a better place? Or a worse place? How will our future be impacted? Will our kids and grandchildren’s lives be better or worse?

Many people have their predictions, but no one can know for sure. I suppose we’ll just have to wait and see. And be prepared to reap the benefits or suffer the consequences, whatever they might be. Perhaps the results of all of this egg breaking will be better than some people fear. But, of course, the ramifications could be worse than anyone can imagine. Only time will tell.

In the meantime, people aren’t left to be mere spectators. They have other people whom they’ve elected to represent them — people to whom they can reach out to express either support or disgust for the president’s egg breaking. And they can prepare for the next election, too — to ensure the election of a Congress that either supports or rejects the egg breaking.

The decision the country made in November 2016 has consequences, like all decisions do. And the decisions we make today have consequences, too — whether we decide to do nothing, voice support, or voice opposition. Perhaps even more importantly, the decisions we make in November 2018 will have consequences.

It will be interesting to see what those decisions will be.

Don’t Blame Your Stupidity on Someone Else

Yesterday, Republican congressional candidate Rick Saccone claimed that his political opponents hate the president, the U.S., and even God. Of course, the implicit message here is, “They think you’re stupid. I respect you. So vote for me.” It’s the kind of shameful political tactic that pulls other people down, yet appears to work.

The assertion is ludicrous on its face, so the obvious question is, why does such political gimmickry work?

I suppose it works because we’re inclined to think stupid things, especially when it appeals to our sense of outrage, victimization, or resentment. Making the other guy out to be evil makes people feel good, despite the banality of the emotional response.

If you’re ever tempted to fall for this kind of manipulation, Vera, stop and think. What the person is really trying to get you to do is be stupid. Being stupid might make you feel good. It might make you feel superior. Or more patriotic. Or whatever. But stupid is stupid. Try to do better. Be better.

You Get To Keep Your Stupid Red Hat Though

Josh Brown recently tweeted:

If they get this through, in its current form, will mark the complete and final takeover of America by corporations. You get to keep your stupid red hat though.

They’re getting it through. Not in its original form, but pretty close. Close enough to represent “the complete and final takeover by America by corporations.” But at least everyone gets to keep their stupid red hats.

The new tax law will result in a massive transfer of wealth to corporations and their shareholders from ordinary citizens and their progeny. If you’re fortunate enough to own financial assets, you may be one of the winners (provided you don’t live in a Blue State and you’re wealthy enough not to have earned income). If you don’t own a substantial amount of financial assets, then you and your kids are screwed. Especially your kids. And their kids. Any temporary benefits working and middle class people will realize from these cuts are likely to be offset by higher interest rates, a weaker dollar, future cuts to the Social Security and Medicare programs, and escalating health care and education expenses.

The national deficit will balloon as the result of this new law, which means your descendants will be inheriting an even larger debt burden, further eroding their standard of living. I guess people think we can simply add this to our tab and never have to pay it off. Or perhaps they’re just not thinking.

America’s tab of public and consumer debt already tops $40 trillion, including:

  • $20.5 trillion of federal government debt;
  • $14.6 trillion of residential mortgage debt;
  • $1.5 trillion of student debt;
  • $1.2 trillion of state government debt;
  • $1.1 trillion of auto loan debt;
  • $1.0 trillion of credit card debt; and
  • a staggering amount of unquantified debt represented by unfunded public pensions and entitlement programs (the present value of unfunded entitlements has been estimated to be $49 trillion).

The outgoing Fed chair, Janet Yellen recently said, “I would simply say that I am very worried about the sustainability of the U.S. debt trajectory. It’s the type of thing that should keep people awake at night.”

Up at night?! No one in this White House and none of the Republicans in Congress seems to be losing any sleep. To the contrary, they’re not troubled in the least; in fact, they’re content to make the situation worse, just so they can give more money to their wealthy donors (and themselves and their own families).

This decision to give huge tax cuts to corporations that are already highly profitable, awash in cash and valued at high multiples by the market, and to massively cut wealthy people’s taxes, convinces me more than ever that few people care about the future. Apparently, today is all that matters. Our children and grandchildren are the forgotten ones in all of this. Such parental narcissism is, quite frankly, disgusting. So much for being concerned about the seventh generation.

Former Reagan budget director David Stockman hit the nail on the head:

At the end of the day, the GOP tax bill boils down to borrowing more than $1 trillion from the American public in order to pay higher dividends to wealthy private stockholders.

Another stalwart Republican, Steve Schmidt, who managed the 2008 presidential campaign for his party, wrote:

This tax bill demonstrates, once again, the total collapse of all and any rigor around the policy making process in the GOP congress. It is built on a foundation of lies. It adds more than a trillion to the debt. No real conservative should vote for this.

A foundation of lies indeed. Pennsylvania Avenue and the streets around the Republican controlled Congress are rivers of lies these days. So much for draining the swamp. It’s worse than ever. The only thing that still surprises me is the number of people who are willing to believe the lies, including those who will be most hurt by the lies. Gullibility seem to know no bounds.

Back to Josh Brown, a Wall Street type (financial adviser and CNBC regular) whom I quoted at the outset. Brown wrote the following the morning after the Senate passed the tax cut bill. As usual, Josh gets it right.

There’s a possibility that last night’s preliminary step toward final legislation will take the number one issue facing America and balloon it into Rubenesque proportions. Economic inequality, which largely drove voters to lose their minds and cotton to candidates like Bernie Sanders and Trump, could explode over the next few years as a result of fiscal stimulus targeted almost precisely at the part of the economy that doesn’t need it. The fact that the people who do need the most help could end up paying for that is perhaps the sickest, most cruelly ironic joke that’s ever been told.

Unless you believe in magic, which I don’t. And remember, I’m speaking here against my own immediate self-interest. I’m not stupid and this isn’t virtue signaling – I genuinely believe the economy is better when participation is broader and not as concentrated as it’s been. Obama attempted to solve this but he failed. Trump is not even trying. He’d sign anything brought to his desk at this point, just to say he did it.

Indeed, this bill will exacerbate wealth inequity, further hurting the very people who have placed their hopes in Mr. Trump. It is, as Josh writes, “perhaps the sickest, most cruelly ironic joke that’s ever been told.”

And now watch: I guarantee you the Republicans will be coming for your Social Security and Medicare.

The events surrounding this new bill further convince me of the power of propaganda (as if I didn’t know). And of the dangers of slick charlatans and demagogues and people’s willingness to embrace them if conditions are right. And of the dangers of willful ignorance.

But it is what it is. At least I get to keep my Pittsburgh Pirates cap. And I don’t have to wear one of those stupid red hats.