Would You Buy/Keep This Stock?

Investors are urged to periodically ask themselves, “If I did not already own this stock, would I buy it now?” If the answer is no, perhaps it’s time to sell. In the past, I’ve asked that same question of things I own or do besides stocks. It occurs to me to ask the same question of the new administration in Washington, DC.

Donald Trump is certainly the public face of the new administration. He said before the election that he would leave the hard work to the Vice President. Who’s minding the store? Trump reminds me of Oz, the Great and Powerful, in the Wizard of Oz movie: demanding, bombastic, flaming something or other, bigger than life . The question is: who is behind the curtain pulling the levers of power? Steve Bannon is on my shortlist. There are others in the administration and out of it, back in the shadows, behind the curtain. What is their agenda? What should we consider their forward guidance and mission statement, if they would make it public? The Cabinet members, advisors, etc. have pasts, much of it public. Trump has already issued many Executive Orders and some legislation has already been introduced.

Their agenda looks like rolling back the clock: repeal the Affordable Care Act (2010), parts of the Dodd-Frank Act (also 2010), the Clear Water (1972) and Clean Air (1963) Acts, the Civil Rights Act (1964), abolish the Department of Education (1980) and the Department of Energy (1977), overturn Roe v. Wade (1973) and Brown v. Board of Education (1954). So the forward guidance is backwards to the early 50s, the McCarthy era, though with some key differences (see below).

The United States, like most countries in the free world, is in a constant struggle between the champions of aristocracy and the champions of economic and social mobility for everyone. In the US, originally only white property owners could vote. Officially, the US had no aristocracy or nobility, but land owners looked and acted remarkably like the nobility, just without “titles”. We have moved towards universal suffrage, i.e., every mentally competent adult can vote. One quarter of the adult population voted for Trump, slightly more for Clinton, plus the various third parties. Who didn’t vote? A sizable portion of minority populations are in prison and cannot vote. Voter suppression measures also keep sizable portions of the population from voting. This administration seems inclined to increase those portions. There are now more African-American adult males in prison than were enslaved in 1860.

Up until the Civil War, the aristocracy in the South was more obvious, owners of the large plantations with slaves. The slave’s “free labor” kept poor whites in poverty, they couldn’t compete with free. Upward social or economic mobility was almost nil.

The North was largely small craftsmen, farmers, and manufacturers. There was more social and economic mobility in the North, though income and wealth inequality were present everywhere. It is ironic that to win the Civil War, Lincoln industrialized much of the North. That industrialization would lead to the huge increase in wealth inequality and urban poverty of the Gilded Age.

Starting in the 50s, opportunities open to the poor and middle class were expanding. Recent studies have found that this stalled in the 1970s. The aristocracy was halting earlier gains. It is probably the reversing of the mobility trend in the last decade or two that has lead to the vanishing middle class and increase in the poor and unemployed. Their jobs are vanishing to other countries (often temporarily) and more importantly to automation. Silicon Valley and Amazon may have taken more jobs away than China and the Third World.

Trump seems to jump this way and that, showing little consistency, except where the power and wealth of his family is concerned (e.g. repeal of the estate tax), deflecting criticism (usually as “fake news”) and blaming others for mistakes. However, glimpses behind the scenes suggest an agenda with years, perhaps decades, of planning behind it, most of it not Trump’s.

This attempted return to 1952 has a few key differences. In 1960, top executives rarely made more than 40 times the lowest paid employee. That figure is now often 400 times or more. It is unlikely this Washington will do anything to reduce that.

In 1960, the US had an enemy that could seriously seriously challenge it in conventional warfare. Now, there are none except possibly in defense of their own homeland, but there as elsewhere the real threat is guerrilla and unconventional warfare. No country has figured out how to win a counter-insurgency.

In 1960, the US had an effective system of checks and balances so no branch or person could dominate. That system is under serious attack.

Returning to the original question, would I “buy” stock in America or keep what I have, based on I what know and expect from the new administration? If not a buy, is my current holding a sell or a hold? To what extent should I divest, or become an activist investor, or even a short seller? What does that mean in practical terms, actions?

Past performance is no guarantee of future returns. All investments are subject to risk.

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Business Porn

A venture capitalist I heard several years ago spoke of a startup’s income or revenue projections as “business porn”, all fantasy with no reality constraints. Startups with actual income or even some profit weren’t as interesting.

Looking at Trump speech to Congress last night and the stock market’s reaction this morning (up 247 to 21,059 as I write), I see that he engaging again is catchy phrases and not much specifics. And as they say, “the crowd goes wild”. All the promised military and infrastructure spending, plus the promise of big tax cuts looks really good. He is already getting push back, including from the Republicans in Congress who have a say on any spending. He is promoting the “sizzle” and Wall Street is buying it. It’s not at all clear what parts of his promises he can deliver. This is more fan dance than striptease, there isn’t much detail visible.

Trump’s grandfather started the family fortune with brothels and opium. The current Trump empire has a substantial casino presence, again an industry with more fantasy than reality. The various Trump Towers are prompted as a fantasy lifestyle. This speech is more of the same.

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Populist Leaders

Thoughtful piece in MarketWatch entitled Populist leaders aren’t likely to make your income great again. I think he hits the correct points and his projected outcome predictions have a good chance of becoming reality. The one quibbling point is that he is part of the elite that those voting for populist leaders are revolting against. I do think it’s worth reading and thinking about what he says.

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Capitalism 4.1

The more capitalism makes the news, the less appealing it looks. If I look at other systems, I see similar problems. It’s not the structure per se, it’s the degree to which greed is tolerated and/or celebrated. Greed is destroying the US economy. The Crisis of Market Fundamentalism makes a similar argument and lays out reforms that are needed to avert the crisis. He notes, however, the current trend is in the opposite direction.  I’m tempted to read his book,  Capitalism 4.0 – The Birth of a New Economy in the Aftermath of Crisis.

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Building in public forces true competitive advantage

Jason Cohen is a local (Austin, TX) entrepreneur. He’s on his second successful startup, though it’s a late to be calling it a startup. It’s over 100 employees and several million in annual revenue. I’ve heard him speak several times and it’s always enlightening. He knows how to push the box in meaningful ways. His recent blog post, Building in public forces true competitive advantage walks its talk on the meta-level, he’s showing his approach to business and business models in public. This is a kind of capitalism I can support, not the Greed is Good kind.

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Right to Organize

Public corporations are capital organizing for increased impact and negotiating power. Unions are labor organizing or banding together for increased negotiating power. The former looks like it is enshrined in our culture and law. The latter is under attack, often successfully (e.g. the anti-union politics of Scott Walker, Wisconsin governor).

However, I’m not sure capital’s power is not being undermined also. C-level management (CEO, CFO, etc.) is taking power and money away from both capital (shareholders) and labor. The millions and sometimes billions paid to the C-level means less for labor and shareholders, directly (dividends) and indirectly (capital gains).

The Board of Directors is theoretically in charge of compensation, but C-level has quietly banded together also. Boards are sometimes appointed by the CEO or President. Boards are often interlocking, the CEO at one company is on the boards of other companies, and vice versa. There are efforts to break up this overly cozy arrangements, but they are piecemeal.

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Funding UBI

One argument against any Unconditional Basic Income (UBI) is how will it be funded? As The Universal Right to Capital Income argues, “If a universal basic income is to be legitimate, it cannot be financed by taxing Jill to pay Jack.” The author proposes funding it with returns on capital. All corporations use public infrastructure, public courts, and the social order. Corporations are dependent on a stable society.

So how should society be compensated? Taxation is the wrong answer. Corporations pay taxes in exchange for services the state provides them, not for capital injections that must yield dividends. There is thus a strong case that the commons have a right to a share of the capital stock, and associated dividends, reflecting society’s investment in corporations’ capital. And, because it is impossible to calculate the size of state and social capital crystalized in any firm, we can decide how much of its capital stock the public should own only by means of a political mechanism.

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How to Increase US Economic Mobility

The United States has ceased to be “Horatio Alger’s America – a country defined by the promise that whoever you are, you have the same chance as anyone else to rise, with pluck, industry, and talent.” Restoring America’s Economic Mobility lays out reasons and results. This is guaranteed to upset almost everyone, for a variety of reasons, mostly dogma or justice.

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Productivity Growth Omega Point

Productivity has been growing for years. Which means fewer and fewer people are needed to produce the amount of stuff that people have been buying. So there are layoffs. Unemployed people don’t spend as much, so demand drops. Some jobs have gone overseas to later return to heavily automated factories. In much of the developed world, there are not going to be enough manufacturing jobs to keep people employed. Europe seems to be catching on to this earlier than the United States. Robert Reich, a former US Secretary of Labor, explains Why We’ll Need a Universal Basic Income.

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Is Financial Security a Right?

The title of Financial Security Should be the Next Human Right puts me off. I’m tired of people who feel entitled to a free ride. What the post is talking about is more in line with a floor or safety net, what is often called Unconditional Basic Income (UBI). As the post points out, Alaska, a solidly Republican state, is already doing a partial UBI with their crude oil revenues.

Most articles on UBI come from democratic socialist countries. This post is from the New America think tank. They put a capitalist spin on it—UBI is seed capital for beginning entrepreneurs. Various UBI pilot programs have found that people frequently use the money to support themselves and their family while they pursue more education. More entrepreneurs and more educated workers is definitely something needed in this world. Depending on a high school education and a manufacturing job doesn’t work in the developed world anymore.

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