TOO MANY HISTORIC LESSONS - Weekly Blog # 786

 

Mike Lipper’s Monday Morning Musings

TOO MANY HISTORIC LESSONS

 

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018

 

 

 

Are we looking in the wrong direction?

The most important task for any analyst is guessing the future direction his/her enterprise should take. The standard approach is to review history. The problem with that approach is most history is written by the surviving winners and told to us by scribes who feel the need to make history interesting, clear-cut, and supportive of the commerce of the payor of the scribe. I have played that role. My problem is that for myself and my accounts the picture is not clear, particularly now.

 

Current Picture

Today’s blog is being written on the Saturday of the weekend before the grand compromise of the US Debt Limit/Tax Expenditure Legislation. We should never have been put in this position! Our elected leaders have had full knowledge of the twin conflicts of debts and expenditures for many months. Hopefully a tactical compromise will be announced within days.

 

There is however a more depressing structural problem facing us. These two problems have been with us ever since our leaders first determined what amount to spend for the perceived benefit of the governed and where to get the money. I am sure there are written Middle and Far Eastern texts, but the first I know of came from the ancient Roman Republic.

 

Rome conquered the known civilized world through the strength of its Roman Legions and superior engineering. The money to accomplish this came from taxing citizens, effectively the free residents of the city of Rome. Citizens elected the Senate who then passed these taxes. These senators had political skills, which they used to get the votes for their leadership. They induced citizens to vote for them by providing “Bread and Circuses”, or in other words food from conquered lands and mass entertainment.  As long as the Senate provided these in sufficient quantity, they remained in power. Upon failing to do so they were replaced by emperors who felt the political need to continue some of the “bribes”.

 

To keep the food supply growing the Empire continued its military conquests, enabling them to award the legionaries the captured farmland which benefitted from the Roman roads and aqueducts. However, the fidelity of the farmers declined over time, as did the quality of their military skills. Consequently, the Empire was overrun by the barbarians.

 

The political lesson for today is that bribery works as long as it continues to increase.

 

There is another lesson, this time from The American Revolution. One of the rallying cries of the colonials was “no taxation without representation”. They got around that issue by placing tariffs (taxes) on imports, and later through the power of inflation reduced the future value of the dollar.

 

In an aging world all governments need to address the increasing requirements of the elderly. China is under pressure to raise the retirement age from 50 for women and 60 for men. We have seen the difficulty France is having in attempting to raise its retirement age by just by two years.

 

Two Different Views

In general, the evolving political views of many Americans parallels their investment views. One group wants the government to be funded by taxes on the “rich” to pay for their growing needs. The second group wants to be able to provide for their families and their needs with their own funds, sharing equitably with those less fortunate.  In most cases the first group believes it will benefit as the economy continues to grow. The second group believes it will be increasingly difficult to create sufficient economic growth to meet everyone’s needs.

 

The second group sees the following signals as anti-growth:

1. Labor productivity is growing less than inflation.
2. Well established investment bankers and law firms are selling out, partially due to the views of the dominant partners.
3. The following financial firms, after studying the issue, are meaningfully reducing the number of staff in tech and operations: Wellington, Capital Group, and JP Morgan.
4. Some Private Equity firms are selling positions at a discount.
5. Consumers have shifted their buying habits from Best Buy to Costco.
6. Shortage of landlords.

 

Search for Conclusions

Please let us know your opinion on whether this is a time to buy risk assets to be sold in one to five years.

 

We close this Memorial Day blog with a quote from Theodore Roosevelt “We must dare to be great; and we must realize that greatness is the fruit of trial and sacrifice and high courage.”

 

 

 

Did you miss my blog last week? Click here to read.

Mike Lipper's Blog: Statistics vs. Influences-Analysts vs. AI - Weekly Blog # 785

Mike Lipper's Blog: Insights From a Sleepy Week, Important? - Weekly Blog # 784

Mike Lipper's Blog: My Triple Crown - Weekly Blog # 783

 

 

 

Did someone forward you this blog?

To receive Mike Lipper’s Blog each Monday morning, please subscribe by emailing me directly at AML@Lipperadvising.com

 

Copyright © 2008 – 2023

Michael Lipper, CFA

 

All rights reserved.

 

Contact author for limited redistribution permission.