• The difficulty lies not so much in developing new ideas as in escaping from old ones.

    John Maynard Keynes

Iron Capital Insights

Our insights, reflections and musings on the most timely topics relevant to managing your investments.


  • Iron Capital Insights
  • June 22, 2018
  • Chuck Osborne

Ugly Negotiations

This market is becoming more and more fixated on trade and it is getting ahead of itself. The market, after all, does not reflect the present; it reflects the consensus of what the future will look like. When the trade talk started it reflected winners and losers; now in the past few days it has seemingly shifted to predicting that everyone will lose.


  • Iron Capital Insights
  • May 25, 2018
  • Chuck Osborne

All About Trade

Thus far the trade reality is much less dire than the trade banter coming from the White House. However, that banter can have a very negative impact. Economics in the real world is not the cold social science many academics make it out to be. Psychology plays a very big role.


  • Iron Capital Insights
  • May 1, 2018
  • Chuck Osborne

Nothing Lasts Forever

“If something cannot go on forever, it will stop.”  – Herbert Stein’s Law

Herbert Stein was an American economist and a senior fellow at the American Enterprise Institute. There are not a lot of economists who get laws named after them, but Stein did. It may seem obvious when one simply reads it, but the idea that something which cannot go on forever will stop is not that obvious when one lives it.


  • Iron Capital Insights
  • March 29, 2018
  • Chuck Osborne

How Not to Win Friends and Influence People

Just when we thought all was safe in the markets, the White House brought out Wilbur Ross. Wilbur is the current commerce secretary and the man behind the threats of a trade war. It’s no surprise that Wilbur’s calming words on CNBC this week about “not a depression” and “not the end of the world” did not calm the markets.


  • Iron Capital Insights
  • March 9, 2018
  • Chuck Osborne

Real Steel

Protectionism was one of the main causes of the Great Depression and helped to create an international environment that eventually led to World War II. The lesson we supposedly learned from this is that trade promotes both prosperity and peace. So, what are these tariffs really going to accomplish and how will they impact our investments?

  • Negotiating is almost always ugly. In my family we learned to negotiate as soon as my oldest sister could drive. My sister’s new license meant that Dad didn’t have to go with us to pick out our Christmas tree. He gave us about half the amount of money we actually needed and told us to go get a tree. Somehow, we always did. I remember my brother showing the tree salesperson all the needles falling off the tree. The man asked, “What do you expect this close to Christmas?” To which my brother responded, “I expect a bargain.” Those were the days.

    This skill came in handy when my college girlfriend needed help buying a car. At the last second, the dealer added one of those not-previously disclosed fees. If I recall correctly it totaled about $1,000. I stood up, helped my friend up, said thank you anyway and started walking for the door. By the time we got to the door, the fee had disappeared. We turned around and completed the purchase. This is why car dealerships are now “no-haggle.” Now everyone just pays more, but we’re happy about it.

    Well, this administration haggles and so do the Chinese. The markets, let’s face it, are dominated by young professionals (or the computers those youngsters program) who never had to bargain for anything. I learned this the hard way a few years ago when my wife and I sold our old house. A young couple made an offer, we countered, and they disappeared. They are probably still crying in a real estate agent’s office somewhere.  They don’t like negotiating, and they sure don’t like doing it the way this administration does it.

    This market is becoming more and more fixated on trade and it is getting ahead of itself. The market, after all, does not reflect the present; it reflects the consensus of what the future will look like. When the trade talk started it reflected winners and losers; now in the past few days it has seemingly shifted to predicting that everyone will lose. The market is telling us that the trade disputes with China will offset the economic benefits of tax and regulatory reform and plunge us back to the new normal. This means people are selling everything except the high-growth FANG stocks. It is 2016 all over again. For a week anyway.

    The market is not always right, and at the very least it would seem that it is early. The real economy doesn’t change that quickly. It is also possible that Trump could win this. The market isn’t giving him much of a chance, and I readily admit that I have my doubts.

    When my brother got us that Christmas tree bargain, the owner of that tree lot knew that once Christmas had come and gone those trees would be almost worthless. When I helped my friend get her car, that dealer had to make room on his lot. China, on the other hand, doesn’t have to do anything. Trump is guaranteed just two more years in office, and if he were to win re-election that would be six years. Since Trump, Peter Navarro, and Wilbur Ross are the only three people in the free world who don’t seem to understand that trade is good for America, it is doubtful – regardless of party affiliation – that the next President will be as aggressive with China. Long term to the Chinese is more than one generation. They have just given their leader a lifetime term. Six years is nothing. Time is on their side, and time matters when one is trying to perform the art of the deal.

    I could be wrong. The Chinese may cave to administration demands, and supposedly if that happens, then free trade here we come. I doubt it, and so does the market.

    The question for us now is, how much damage will really be done? Presidents of both parties have done economically stupid things since the beginning of our nation and we have survived. The economy is good now and has been getting better. I suspect the market is overreacting to how bad this will really be. Which, of course, is unknowable.

    That is why we don’t really try to guess the impact on the entire economy. We invest from the bottom-up. It is much clearer how this does or does not impact individual companies. We will be focused on what actually happens to sales and earnings at the companies we own. That is prudent investing.

    Negotiating is ugly. Sometimes it is better not to look.

    Warm regards,

    Chuck Osborne, CFA
    Managing Director

    ~Ugly Negotiations

  • The market is stuck in a big trading range. Volatility is strong but we seem stalled. There are lots of minor issues but the one recurring theme is trade. The administration announces tariffs on steel and aluminum, and the market crashes; the actual tariffs are much less than expected, and the market rallies.

    The administration declares a trade war against China, the market crashes; the China negotiations appear to be going much better than expected, and the market rallies. So, Trump says he isn’t happy with his negotiators, the market crashes; now they are talking about tariffs on cars, and you guessed it: the market crashes. There is certainly a pattern.

    Thus far the trade reality is much less dire than the trade banter coming from the White House. However, that banter can have a very negative impact. Economics in the real world is not the cold social science many academics make it out to be. Psychology plays a very big role.

    In the 1992 movie “Sneakers,” Robert Redford and Ben Kingsley play college friends now fighting each other over control of a device that can break any and all encryption. With it they can hack into any computer and potentially do anything. In one scene Kingsley’s character discusses the fragile nature of our system. The example he uses is a bank, a conservatively run, financially strong bank. Simply start a rumor that the bank is not financially strong and then people will begin to withdraw their money from the bank. Soon the bank actually is on the brink of failure. Trust keeps banks in business. No financial institution can survive a run on the bank, and runs on banks are almost always caused by emotion, not anything “real.”

    The truth is, all people make decisions based on emotion and then, to varying degrees, try to support their decisions based on facts. Business leaders are not immune. If Trump gets what he claims he wants in terms of tariffs, it will have a negative impact on economic growth. I have my doubts as to whether what Trump tweets and what he really wants are the same thing, but it may not matter.

    If business leaders in companies small and large are planning for the future and they believe tariffs are coming, then they will be less willing to invest in their businesses. If they are less willing to invest in their businesses, then business will slow. So much of what happens in economics is a constant cycle of self-fulfilling prophesy. If we believe the economy is good, then we will spend and invest and the economy will be good. If we believe it is bad, then we will delay spending and investment and the economy will be bad.

    Thus far all this trade talk has done is stall the market. Trump tweets and down we go; the facts come out and back up we go. The end result is a bumpy ride to nowhere. This will end, and when it does, the market will choose a direction. That direction will depend on what people believe about the future prospects of our economy. That fate is now resting on the outcome of trade negotiations, and what the president decides to tweet about them.

    Either way, we will be ready to act. Stay tuned.

    Warm Regards,

    Chuck Osborne, CFA
    Managing Director

    ~All About Trade

  • “If something cannot go on forever, it will stop.”  – Herbert Stein’s Law

    Herbert Stein was an American economist and a senior fellow at the American Enterprise Institute. There are not a lot of economists who get laws named after them, but Stein did. It may seem obvious when one simply reads it, but the idea that something which cannot go on forever will stop is not that obvious when one lives it.

    Take, for example, the incredible explosion in the cost of college education. I have used this example many times but it still warrants repeating:  My senior year at Wake Forest University, the cost of attendance was approximately $12,000. Upon graduation I purchased a Toyota Camry for $16,000. Today a similar Camry costs $24,000, while the cost of Wake Forest University is $72,000.

    During the last twenty years the overall inflation rate has been quite low, but the cost of college tuition and the cost of healthcare have gone through the roof. There are several reasons why. Specifically for college, we had a combination of the millennials being a very large generation, especially compared with Gen-X, which means more people going to college. This was magnified by the fact that a higher percentage of the population started going to college. On top of that, people started borrowing money to go to college. All of these trends came together to accelerate the rise in college tuition costs.

    If something cannot go on forever, it will stop. No product or service can have price increases which outpace the overall rate of inflation forever, so it must stop. According to The Wall Street Journal, that process is under way. Tuition discount rates at private colleges have increased to 49.9 percent for full-time freshman students. According to the National Association of College and University Business Officers (NACUBO), the per-student net tuition (the amount colleges actually get after all the discounts) fell 0.1 percent this year. That is not a huge drop, but it is an actual drop.

    For our young family clients who are concerned about saving enough for college education this is great news. It is not the news most expect. We are hard-wired to see what is happening today and project that into the future. We do it with everything. The NBA playoffs are going on and many believe it is a foregone conclusion that the Golden State Warriors will win it all once again. They might, but just like the Celtics, Lakers and Bulls of the past, the Warriors’ run will eventually stop…sooner than we probably think.

    For many of our clients, college education costs are a thing of the past. They are approaching retirement and concerned about the cost of healthcare. If something cannot go on forever, it will stop. Healthcare is no different. The rapid increase in cost is unsustainable and it will reverse itself. I know many doubt those words, even if they are comforting. People doubted that college costs would ever slow, but now they are doing exactly that.

    Take heart is Stein’s law. Your kids will be able to go to college. You will be able to afford healthcare. Their rise cannot go on forever, it will stop; and it may be stopping even now.

    Warm Regards,

    Chuck Osborne, CFA
    Managing Director

    ~Nothing Lasts Forever

  • Just when we thought all was safe in the markets, the White House brought out Wilbur Ross. Wilbur is the current commerce secretary and the man behind the threats of a trade war. After the President himself scared everyone with tariffs on steel and aluminum, an idea that originated with Wilbur, he started suggesting other trade-restricting moves and the market reacted negatively. So, Wilbur went on TV to calm the nerves.

    During his interview on CNBC he said things like, “This will not be the end of the world.” For context, here is a short list of things that were “not the end of the world:” the plague, the dark ages, colonialism, many wars between the French and the English, War World I, World War II…need I go on? He also said it will not drive us into an economic depression. Considering that the financial crisis and the 40 percent drop in the stock market that followed was also not a depression, I guess we are supposed to take this as good news.

    I must confess, I have less than zero respect for Wilbur. Wilbur is a former attorney who made one lucky private equity deal and then created a reputation for himself by claiming that his firm’s assets represented his actual net worth. Once Forbes magazine bought that deception (they have since apologized), he used his reputation as a “billionaire investor” to make several million dollars. How that fraud did not eliminate him from serving in an administration is beyond belief. But, I digress.

    It’s no surprise that Wilbur’s calming words about “not a depression” and “not the end of the world” did not calm the markets. He did say something that seems to have been missed:  he said there will be a negotiation. I will not admit to fully understanding our current President, but one thing I do believe about the real estate developer is that everything to him is a negotiation. Hence, the outlandish statements. I’m guessing that Donald Trump has had a lifetime of success at the negotiating table by always starting with an outrageous position. When the other side talked him off the cliff he ends up walking away with what he was really after and perhaps even more. The trade reality is likely to be less concerning than the trade banter.

    While this was going on, a British news channel has uncovered an astonishing fact: social media sites sell your data, and a lot of the stuff that is out there is fake. (Stop the presses!) My favorite part is when the executive from the “marketing” firm explained on hidden camera how they could get some Ukrainian models to pretend to be leaving a politician’s house. They would film it and post it to people who they have identified as having a poor view of the politician to begin with. The art of fake news.

    So now Facebook primarily and others secondarily are in trouble for what is essentially their entire business plan. There are many analysts who have wondered when people would wake up to what these companies actually do to make money. It appears that has happened, at least temporarily. The longer-term damage of social media is likely the second part of that story:  how individuals self-select the feedback loop they wish to be involved in so that only their beliefs are ever confirmed, and we become ever more polarized. For now, we seem more upset that all those tailored stories and advertisements that we clicked on were put there by people who purchased our “data.”

    This brings on another issue altogether and that is our increasing habit of arguing in huge generalities. What “data” specifically? Do they know I’m bald, or do they know my social security number and bank account information? All “data” is not equal. This is a rabbit hole for another conversation.

    Meanwhile, the real economy is clicking along. GDP growth just got revised up to 2.9 percent. These are the things that actually matter to investors. This volatility will pass and the bull market ride will continue. Nothing goes up in a straight line. In the meantime, let’s agree to choose more carefully what we put out in the public domain, and for Pete’s sake keep that microphone away from Wilbur.

    Warm Regards,

    Chuck Osborne, CFA
    Managing Director

    ~How Not to Win Friends and Influence People

  • “We are bigger than U.S. Steel,” said Hyman Roth to Michael Corleone in the classic film, “The Godfather Part II.” That scene was placed in a Cuban hotel shortly before the conclusion of the Cuban Revolution in 1959. The irony being that both the mob and U.S. Steel had begun to decline in importance by the time the movie came out in 1974. Those trends have continued to this day.

    Who knows, in 1959 steel production might very well have been an issue of national security, but I’m not sure how important domestic steel is in a world where our greatest threats come from terrorists and cyber-attacks while all that foreign steel comes from our arch nemesis…Canada. This I do know. Protectionism was one of the main causes of the Great Depression and helped to create an international environment that eventually led to World War II. The lesson we supposedly learned from this is that trade promotes both prosperity and peace. After all, we should want to “keep our friends close and our enemies closer,” as advised by Michael Corleone also in “The Godfather Part II.”

    So, what are these tariffs really going to accomplish and how will they impact our investments? Now that they have been announced, not much. With Canada and Mexico being exempt this really becomes more political theatre than anything else. It does, however, bring to mind something that goes with the mindset of the tariff supporters. Those who back such policies tend to see commerce as a zero-sum game. In other words, they see day-to-day transactions as having one winner and one loser. This is how most sports work, after all, and we tend to use lots of sporting analogies. Next week we will begin March Madness, one of the best times of the year for college sports lovers. At the end of each game, one team will go home and one team will move forward.

    That, however, is not how commerce works. When I go buy a new suit, it is not a zero-sum game. The store where I go wins when they sell me a suit, and I win when I have a new suit to wear and enjoy. Commerce is by nature win-win. Good business people understand that they only win over the long term if their customers win. Good customers also understand that if they want to have good service and enjoy quality products, then the companies they choose to do business with must want to have their business. It is relational, not transactional.

    This is one of the many reasons tariffs are so disastrous. It just sends the wrong message, and eventually it does not work as companies find alternatives and workarounds. When I was in college many years ago we learned about the foolishness of sugar tariffs and how Americans paid far more for sugar than most people around the world. Those tariffs protected sugar beet farmers but hurt food companies. Now Americans enjoy high fructose corn syrup.

    If tariffs raise the cost of steel for large manufacturers like Ford, or Boeing, they will simply ship the steel to a plant somewhere outside the U.S. and then make whatever they were going to make there. One would think an administration which just reformed the corporate tax system would understand this.

    This is not the first time economic realities which have been proven over time have been ignored by politicians. George W. Bush slapped a tariff on steel, before removing it. The Obama administration used price-fixing in their healthcare law, another proven economic loser. We don’t seem to learn, do we?

    This folly is yet another reminder of how important it is to invest from the bottom-up. Know what you own and why you own it. These exemption-filled tariffs should not be a factor.

    Warm Regards,

    Chuck Osborne, CFA

    Managing Director

    ~Real Steel