Some Past Errors Create Future Problems - Weekly Blog # 798

 

Mike Lipper’s Monday Morning Musings

Some Past Errors Create Future Problems

 

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

 

 

 

Employers can't find suitable candidates to hire due to both faulty education and attitudes toward work. This is one of the reasons the US is losing the productivity of labor battle. In at least 16 states a large percentage of students are failing third grade reading tests e.g., 60% failed in Tennessee. (In our machine era, if you can't read instructions, you can't operate various machines.) I suspect that teachers are taught to teach to the test, test scores are used for hiring, and schools are retaining teachers in union jobs.

 

Teachers should be teaching students how to use information to gain knowledge. This is not what is happening today. (A classic example is a problem I had with my late daughter. She drove me crazy with her disability, which caused her to have problems adding a simple column of numbers correctly. So, I changed focus and concentrated instead on how she kept track of spending money. She always had money in the bank and her bills were always paid. In explaining it to me, she said that was easy. She said she was conserving the money by keeping it intact at the bank, while we paid her credit card bill. Thus, she was the best money manager in the family. The key was that she figured out what none of her teachers or aids did. The teachers need to learn to teach life lessons.)

 

The biggest problem with what is being taught is the integrity of our history, which pivots on one word: Tariffs. People don't like paying taxes. Politicians throughout history have given popular reasons why people should make these payments, without focusing on the real reasons. Three examples in US history still hurt us today.

 

The “Boston Tea Party”, staged by American Colonists dressed as Indians, threw the first shipment of taxed British tea into Boston Harbor. The Colonists were protesting the payment of a tax without being represented in the British government. The truth of the matter was that Lord North, an unpopular British Prime Minister, needed to pay for a six-year war with the French to protect the American colonies during “The French-American War”. Lord North and many in England thought that America was costing too much. It was being totally financed by revenues derived from goods purchased from “The Mother Country”. The Tea Party thus became one of the initial political events leading to the American Revolution.

 

The second misappropriation embedded in our history is the Civil War. In this weekend’s Wall Street Journal there is an opinion piece by Jim Webb, a US Marine Officer who served in Vietnam and a Secretary of the Navy. He was also an independent director of a respected Mutual Fund. In the article he commented that there were very few confederates who owned slaves. He also noted that more slave owners fought for the North than the South. Yet it remains a popular belief today that the war was about slavery. In truth, the war was about tariffs. The North wanted high tariffs to protect its manufacturing, while the South wanted low tariffs to aid the British who were major buyers of their’ cotton and were suppliers of cash to the Confederacy.

 

Post Civil War through the Wilson administration, Americans were fed a political diet about slavery. For about the fifty years this was happening, the German General Staff made many trips to study American war battles, particularly battles in the Shenandoah Valley with Stonewall Jackson. The study of these battles played a critical role in both WWI and WWII, particularly in their attacks of the ”low countries”.

 

I also believe the German underground political movements in the US led to delays in the US entering both world wars, despite British efforts. (The US recognized the importance of the war and placed its War College in Pennsylvania, hoping to understand both battles and the infrastructure challenges.)

 

The third misappropriation is still taking place today, with the last two administrations selectively using tariffs for domestic political purposes. These tariffs caused inflation that was importantly paid by low-income people. The current administration is attempting to hurt Republicans by damaging corporate earnings through the restriction of sales, while at the same time trying to raise labor union wages and their contributions.

 

With All This Good News-How to Invest?

Like Ronald Regan, “I won't exploit my opponent’s youth and inexperience”.  Neither party is serving up a long-term leader or a set of policies. Most people can see through their own accounts that there is no great future for them. Around the world young people have lost confidence in the "system".

 

With most equities around the world declining in real terms, one should consider a careful plan to dollar cost average into the markets. The more China suffers, the more attractive long-term investment in China becomes. Foreign car companies will benefit compared to ‘the big 3”, as the UAW forces prices higher.

 

Recognizing my COVID Brain does any of this makes sense.

 

 

 

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

Mike Lipper's Blog: Inputs to Implications - Weekly Blog # 797

Mike Lipper's Blog: Markets Are Time Frame Exchanges - Weekly Blog # 796

Mike Lipper's Blog: Possible Investment Lessons - Weekly Blog # 795

 

 

 

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Beyond Near Term Investing: How Much For Brains?

Luckily for me and I hope for you, thoughts once launched continue under development as people react and additional information becomes available. I am very blessed as I am regularly in receipt of many stimulating investment papers and articles of importance.

Last week’s blog post focused on the relative value of my personal accounts' 40%+ investment allocation outside the US and the expenditures to support education for various members of my family.

This week I was privileged to read three articles and a personal email that contributed considerably more depth to these thoughts.

Top Test Scores From Shanghai Surprise Educators

The above was the headline in an attachment to the always interesting, thought provoking and occasionally correct “Ten Surprises” by Byron Wien of Blackstone. (Disclosure: I have known Byron for the more than 50 years and have served on boards with him.) One of the reasons Byron was pessimistic long term as to the future of the US was the poor test scores earned by 15 year-olds in the US relative to others around the world in 2009. The tests were given in Science, Reading and Math. In each case, the United States was far from a leader, above average in Science and Reading but below average in Math. There were thirteen countries that did better than the US students in all three tests. In order of their Math rank they were: China, Singapore, Hong Kong, Korea, Finland, Switzerland, Japan, Canada, Netherlands, New Zealand, Belgium, Australia, and Estonia. (I will be happy to supply my work sheet on these results if you contact me.)

Why Chinese Mothers Are Superior

Amy Chua, a professor at the Yale Law School wrote the above titled article for the Wall Street Journal. The article stressed the very rigorous discipline Ms. Chua applies to her two daughters, not allowing any outside activities and focusing all of their attention on repeated or rote work. For the daughters and their Mother the long focused practice sessions seem to have worked.

Rereading the list of superior test-taking countries, I can not avoid the recognition that the first four locations had strong Asian mothers present. One can add the seventh place Japan to this list of enforcers of scholastic discipline. There were a number of western countries that also did well, at least three of these have long winters which are good for long study hours. I must admit as a “civilian Marine,” (the newly coined term for those who no longer wear the uniform), the use of rigorous discipline and working during dark hours rings true to me.

Over the years I have had successful investment experiences in practically every one of the thirteen high test-scoring countries. Byron Wien was concerned that in the long run, test scores could undermine the intellectual leadership of the US. Three of our family’s college students, attending good universities, report that often the leaders in their various classes come from Asian homes. I hope many of them stay here and produce for this society. As a Trustee of Caltech, I am conscious of the number of brilliant students who come here on student visas and are forced by our immigration policies to return home with the extensive knowledge that they learned here.

I wonder whether we need to put a higher value on those companies that can attract the brightest on a global basis. The ability to get young brains may be of more value than the companies’ current cost of capital and resources.

The Next Decade : Where We’ve Been…And Where We’re Going

George Friedman has recently published his latest book with the above title. I have been privileged to see his author’s note. I can not wait to read the whole book. However, he is focusing on the tensions within the US between our global, if you will, empire roles versus the roles as a republic. In the drive to produce higher test scores and the creation of a “brainy” society, the simplest way to do it is by enforced discipline that eliminates alternative actions. The risk, according to Friedman, is that we unconsciously replicate ancient Rome or other rigid societies at the expense of the sound alternatives which are the basis of our own Republic.

Perhaps our portfolios should be balanced between the most efficient producers and those who practice creative destruction or alternatives to the present order. These are some of the critical issues that long term endowments and family fortunes need to examine and balance.

Maybe education does work

My youngest son sent me an email which stated, “On January 8th 1835, the national debt was $0.00 (the only time this has happened). Makes you think what would have happened if we kept that balance.” This is from a child of the inflationary 1960s. Maybe either education or age is finally kicking into focus the challenges that will face him and his children’s lives.

In conclusion

There is a lot more to think about in setting investment policy than near term interest rates and forthcoming earnings per share.

What do you think?

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