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.

We Were Promised a Wall but Instead Got a Cave

Credit Josh Brown with the quip above. I thought it was the best of what I’ve seen this afternoon. It made me laugh.

In any case, we learned something from the president’s decision to shutdown the government, only to reopen it 35 days later, at great expense to the American taxpayers:

  • It was stupid, as I pointed out earlier.
  • If you give them enough time, bullies almost always cave. You just have to be patient.
  • The North Koreans and Chinese must be delighted. It confirms everything their intelligence communities must have already told them about the phony Art of the Deal guy.

When you put a con artist in high places, this is what you get.

Self-Inflicted Wounds

I don’t give a f**k. About the debate over the wall. It’s up to our elected officials to decide how to protect our borders. That’s their job. If they’re not smart enough to handle it, then we’ve elected the wrong people. I try to vote for people who are smart and wise enough to handle tough issues. I’ve probably made some mistakes along the way. That’s life. (At least I haven’t made as big a mistake as 63 million of my fellow Americans made in 2016.)

In any case, here we are. Self-inflicted wounds. Irreversible damage to the economy. Unnecessary economic pain and adverse impact on countless people and businesses. Just because our president thinks it’s OK to shut down our government. Unless he gets his way.

This is so incredibly stupid. Normally, I’m bothered by gross stupidity. But this time around I’m not bothered as much as I used to be. I’m not sure it’s a good thing. But as I said, this time around I really don’t give a f**k.

I’ve been working at it. To be less bothered by that which I can’t control, that is. Which is a good thing.

I’ve also been working at trying not to view things as either good or bad. But to simply accept them for what they are. Which is a good thing. I think.

To be fair, it’s easy not to be overly bothered by the current situation because I’m not directly affected by it.

If you are impacted by the shutdown (or extremely troubled by it) and feel the need to do something about it, then I’d suggest the following: Continue reading

The Reign of the King of Debt

“I’m the king of debt,” Donald Trump once said. Apparently, he wasn’t lying.

The U.S. Treasury Department reported today that the national debt has increased by $2 trillion ($2,000,000,000,000) since President Trump took office on January 20, 2017. To be fair, the president didn’t do it all by himself: He had the full cooperation of the Republicans who controlled Congress.

I celebrated by buying some U.S. Treasury notes.

But At Least the Trump Family Is Getting Rich

Surely the president must be spazzing out over this, given how fond he is of telling everyone how much better he is than any of our prior presidents.

P.S. Normally, I don’t think a president has much of an impact on the stock market, given that no president controls economic forces or cycles. But this one most surely has had an impact, including a contribution to the current decline.

Watching Bad People Hang Themselves with Their Own Words Is Oddly Satisfying

In case you haven’t been paying attention:

  • small cap stocks are now lower than they were when Trump got elected; and
  • the Dow Jones Industrial Average is where it was in September 2017 (and if you bought its stocks at the peak, you would have lost lots of $$$).

According to my calculations, Messrs. Mnuchin and Trump, your grade is a D at best.

Lesson in all of this, Vera: be careful what you say. As Mr. Mnuchin and his boss have proved (time and time again), even smart people say some pretty dumb things. You can do better.

Whom You Like and Defend Says a Lot About You

Have you noticed how fond our president is of autocrats, dictators,* grifters, crooks, and other criminals**? And how he either ignores their atrocities and criminal acts or covers up for them, often while casting aspersions at law enforcement? Of course you have (unless you’re out to lunch).

The latest example was today, when the president had this to say. 

Just a few hours later, the U.S. District Court judge had this to say about General Flynn.

This is a very serious offense. A high ranking senior official of the government making false statements to the Federal Bureau of Investigation while on the physical premises of the White House.

The judge added:

All along you were an unregistered agent of a foreign country while serving as the national security adviser of the president of the United States…Arguably that undermines everything that flag over here stands for. Arguably, you sold your country out.

There are various ways to assess a person’s character, Vera. By their own actions. And also by the company they keep. And defend.

I’m hoping you keep better company than the likes of Donald J. Trump.

*Including the ruthless dictator of North Korea, who has tortured and slaughtered countless of his own people. President Trump said he “fell in love” with North Korean dictator Kim Jong-un.

**Including Paul Manafort, Michael Flynn, and others.