A few years ago, I went to the doctor to see what could be done about a pain I was having in my upper back near my shoulder blade. He sent me to physical therapy; the therapist did message and even dry needling for the overly tight muscles. It helped, but within a year I was back in the same boat. This time I got another therapist, who began by working on my neck. I corrected him saying, “No, the pain is down here.” He said, “I know, but the cause is up here. I’m going to fix the cause.”

Sure enough, he was right. I have not had the pain since, and every time I start to feel something in my upper back, I do the neck stretches he showed me, and all is well. Aspirin can make a headache go away, but it won’t cure a sinus infection, let alone a brain tumor. 

Politicians are good at identifying symptoms that bother us – these are the building blocks of campaigns. Schools need improving and taxes are too high…symptoms are easy to identify. It is also easy to identify ways of masking those symptoms, and it is a lot easier to mask them than it is to truly fix a problem. 

The student loan crisis is a great example. Too many young people are starting out their adult lives buried in debt due to the high cost of education. The political solution is to forgive the debt. This is also known as masking a symptom – the problem is not the debt; the problem is the cost of education. I hate to say it, but the truth is the higher education and private secondary education industries have become criminal enterprises. 

The cost of education over the past 30 years has increased at a rate 2.5 times the rate of inflation. I have mentioned this before, but I was privileged to receive a wonderful education, which my father paid for in total. I went to one of the top boarding schools in the country, Culver Military Academy, and to the best (in my opinion) academic institution in the Southeastern U.S., Wake Forest University. It was not just difficult to get into Wake, lots of schools can say that; it was difficult to graduate. Years later I was told that high school students were warned that it is really “Work Forest.” 

Today the cost of attending those institutions is approximately seven times what it was when my father wrote those checks. They did for me exactly what my father had hoped: they provided me an education which, first and foremost, made me think bigger when it came to life goals. They gave me the tools to survive and thrive in a business where one must be smart to begin with and had better be willing to work hard and think his way through problems. Trust me, there were no courses in financial crisis investing, and there certainly was not a class in pandemic financial advice. Education isn’t job training, it is about learning to think, and if one can do that, then she can do anything. 

So, I was asked just the other day if Wake Forest is worth its current cost, and my answer was unfortunately, but honestly, “No.” The same could be said of almost every college and private school in the country. If any other industry had continually raised its cost over this long of a period, their CEOs would be paraded through Congress to answer to their price-gouging ways. 

I want to be clear: I am not suggesting that this was done purposely by criminally minded people. The issue is that it has happened without thought. Schools set their tuition based on cost and competition. So, if one school charges more, the next says we can charge more. Once they charge more, they must justify it. They build new buildings and start new programs, which raises costs, so tuition goes up. Tuition going up one place makes tuition go up at another as schools constantly compare themselves to one another. Then they need more new buildings and more new programs. It is a constant feedback loop that causes costs to spiral out of control. 

On the consumer side, people now borrow money to go to school which allows them to pay more. Schools figure out how to price their spots like airlines price seats, only better. The first thing one fills out for most colleges today is a financial disclosure. They call this financial aid, when really it is a way to maximize the tuition of every student based on what they could possibly pay. I have heard, from well-meaning people, that this is a justification for the outrageous cost. Really? 

What if your doctor charged that way? Would you consider it ethical for her to say, “You make more money, so you have to pay more for your office visit?” Would it be okay is Starbucks demanded a personal financial statement to price their coffee? “She pays $1 and you pay $4…oh no, wait, our records indicate you just got a raise, that will be $10 for your coffee.” Of course not. They would be accused of price gouging. 

In my opinion something does need to be done for the victims of today’s modern education system. However, simply forgiving loans is not the answer. There are too many unintentional problems – what happens to one’s credit? – but more importantly, it does not solve the problem. The proposal for two years of “free” community college gets closer, but it also has the problem of “free” simply meaning the government (aka taxpayers) pay the bill. A better solution would be to go back to tuition costs in 1990, then index those costs by inflation as measured by the Consumer Price Index (CPI). Then, for every college that has taken government money (which is just about all of them), refund every dime paid above inflation and cap future increases to CPI. 

That proposal would require enormous structural changes in most schools – too much to discuss today, but these changes are far overdue in my opinion. My cousin paid for his college by working a summer job. That needs to be where the cost of education is today. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA
Managing Director

~Don’t Mask the Symptom, Fix the Problem

I have lived in Georgia since 1992, and I had no idea how popular we are. I’m sure everyone is aware by now that we have some new voting laws in Georgia. This “conversation” is a great example of everything wrong with our political discourse today. Let me state up front, that I have no position on this bill either way. For me, the larger issue is our level of discourse. 

I Googled “what is in the GA election bill” and the first response that showed up was from a group called the Brennan Center for Justice. It referred to the bill as an election suppression bill and went on and on about how horrible the bill was, yet did not make one mention of anything in the bill. 

Next up: CNN, which referred to it as imposing “new voting restrictions,” claiming multiple times that this is all about the 2020 election and the fact that Joe Biden won in GA. They did at least quote some supporters of the bill, although they did so in such a way as to make them seem disingenuous. Big bonus if one actually read through the repetitious accusations of voter suppression – CNN did finally mention two elements of the actual bill in the last paragraph. 

This article was followed by several more from news outlets like The New York Times, whose headline is, “Georgia GOP Passes Major Law to Limit Voting.” I’ll admit to not even reading that article. All the while, CNBC is interviewing CEOs of big corporations who were all damning Georgia for its horrible new law – once again doing so without any specific discussion about provisions in the bill that make it so horrible. 

Three altered Google searches later, I finally found the actual bill. According to the bill itself, this is not just about the 2020 election in Georgia, but also the 2018 election. Some who are politically minded may be aware that Stacey Abrams, who ran for governor in 2018 and lost, has been touring the country ever since claiming that she is the rightful governor of Georgia and the 2018 election was fraudulently stolen. Does that claim sound familiar? 

The 2020 election was the second in a row in Georgia in which one side claimed the election was not fair. It seems reasonable that something should be done about that. The bill goes on to give the State more oversight authority over the localities that actually run elections. I can see where that could be a problem, but it does seem reasonable to me that one should have some higher authority for recourse if she believes local officials are corrupt. 

The bill goes on and on about treating every local jurisdiction equally in terms of funding and resources. That may or may not be wise, but it doesn’t seem evil. 

It requires people requesting absentee ballots to give their driver’s license (or state issued ID card) number. We have had to show identification in order to vote in Georgia as long as I have lived here, so I don’t understand this being a big deal, but evidently this is one of the “suppression” tactics. Of course, there is no explanation for why this is some kind of hardship. I frankly can’t think of anything of importance where an ID is not required. That is why we never leave home without it. 

The bill provides for absentee ballot drop-off boxes. This is one aspect that was completely misrepresented in every media story I read; there have never been drop-off boxes in Georgia until 2020. They came about in this past election because of pandemic emergency measures. Those measures expired after the election, therefore, under existing Georgia law there would be no drop-off boxes. I know nothing of the wisdom of drop-off boxes, but this is an expansion of access, not a limitation.

The last controversial element, as far as I can tell, is that there is now a requirement to request an absentee ballot at least 11 days before the next election. This comes from a recommendation by the United States Postal Service, which says to ensure ballot integrity and on-time delivery, such requests should be made 15 days in advance. It is unclear why Georgia shaved four days off of the actual USPS recommendation, but it is more unclear to me where the suppression resides in all of this? There has to be some deadline; if not, should all the Republican voters who did not show up in January (because Trump told them Georgia elections are rigged) get to vote now? 

I am no expert in election laws, and perhaps this is the worst piece of state legislation ever passed in the 245 year history of our nation. However, if this is the case, why is there zero substance in the rebuttals? Why resort to name-calling and accusations? Why do some mention no actual provisions of the bill at all and others hide them in the last paragraph of articles? Maybe the Devil has come to Georgia looking for a soul to steal and this election reform is his work, I don’t know. I wasted my whole morning researching it and I still don’t know, and that is the problem. 

What I do know is that a democracy cannot function for long with this level of discourse. There is no substance. If there is a problem with a bill, then point it out. Reference the actual bill specifically and explain why it is wrong. If we cannot have substantive conversations, then we will not survive. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA
Managing Director

~The Devil Went Down to Georgia

“One of the great mistakes is to judge policies and programs by their intentions rather than their results.” – Milton Friedman

This is possibly the most important sentence ever spoken by an economist. If one actually cares about people, then she must care about results. So, what would the result of a nationwide $15 minimum wage actually be? 

I believe that 99 percent of the people who support the national $15 minimum wage do so out of true concern for people in minimum wage jobs, but in truth have given very little thought to what that means. The mantra is that everyone deserves a “living wage.”  The problem with that comment is that it is not factual; every single worker does not need to be paid a living wage. 

My 13-year-old son has an entrepreneurial streak (the apple does not fall far after all). This summer he took responsibility for our yard care and he also mowed lawns for some neighbors. My 13-year-old son is a worker who does not need to make any money at all. His parents provide for every “need” he has. Some of our friends’ sons have started a business taking garbage cans to and from the curb on garbage day. These workers do not need a living wage. 

Minimum wage is meant for workers such as these. Young people, with no employable skill or experience, in need of a first job. My first official job for an established company (I had a similar entrepreneurial streak and cleaned pools as a kid) was making sandwiches at Subway for minimum wage. After a few months I took my food service experience down the street to Bennigan’s and started waiting tables. It represented a big raise. I did that until I turned 21 and then got promoted to bar tender. I made more in one night tending bar than I made in a week making sandwiches, but would have never gotten that chance if I didn’t have that minimum-wage job. 

The result of a national $15 minimum wage is that these early life opportunities will be gone. That is not an opinion, it is economic reality, and it happens everywhere in the world when higher minimums have been set. So that is one result of the $15 minimum wage: fewer jobs for younger and inexperienced workers. 

Having said that, there are grown adults in our country who actually are trying to make a living and are stuck in minimum-wage jobs. There is disagreement among economists as to the percentage of minimum-wage earners who are in this category, which is unfortunately typical of our national dialog – we no longer even agree on facts. For me it does not matter the percentage; if a single grown adult in the United States of America is stuck in a minimum-wage job, it is a moral outrage. That simply shouldn’t happen, and unfortunately it does. 

This is where academic economists completely miss the point, in my opinion. They are so preoccupied with the mathematical models, they forget we are talking about human beings. When one sees articles stating that economists disagree on the impact of a $15 minimum wage, what that means is that they argue over the nuance of one mathematical model versus another. They argue about the number of jobs lost and one model says X while another says Y. That entire argument is a side show. 

Grown adults stuck in minimum wage jobs need better jobs. I apologize if I offend, but the truth is that suggesting a slight raise as a solution to that problem is the moral equivalent of saying the solution to slavery was better rations. Wrong! The only moral solution to slavery was to abolish it, and the only moral solution to grown adults working for minimum wage is to create an economy with better opportunities – to do everything in our power to abolish that reality. Unfortunately, that takes more thought than can be written in the 280 characters Twitter allows. 

Of course, there is another issue here, and this is of growing concern. Many people seem to forget that we are a country made up of 50 independent states. Many of the most avid supporters of the national $15 minimum wage live in places like New York, Chicago, and San Francisco. In their world, $15 is nothing. One could easily argue that in those locations the minimum should be much higher and that might not even have a negative impact on those young workers. However, Biloxi, Mississippi is a very different place than San Francisco. The national minimum, if we even have one, must be based on the lowest common denominator and that is Mississippi, because they have the lowest cost of living in the United States. 

If one cares about people, one has to care about results. The result of a nationwide $15 minimum wage are fewer opportunities for young people trying to get a foot in the employment door, and some number of lost jobs – the exact measure of which economists debate, but there will be some who lose their job. The remaining adults stuck in minimum-wage jobs get a few more dollars and remain stuck in minimum-wage jobs. Those are not the results that caring people should want. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA 
Managing Director

~What Should Be the Minimum?

“The customer is always right.” That is a cliché that has been a mantra in customer service for years. Unfortunately, it isn’t true. At Iron Capital our staff has probably heard me say a million times, “The client (we have clients not customers) is not always right. If he were, we wouldn’t have a job.” This, in my opinion, is one of the attributes that is a major difference between Iron Capital and the other guys. 

We always do what we believe is right, and it has cost us clients. We had one client who insisted that his portfolio should be 50 percent in bonds. I told him, and illustrated, that he could not achieve the required return if he did that and in essence he would be committing financial suicide. He left and sure enough about five years later we were asked to take another look at the portfolio, but by that time it was too late. There simply was not enough left to maintain the current lifestyle. That message was not well-received either. 

We have disagreements with our institutional clients as well, usually because they want us to fire a manager much faster than we are willing to do. That has never cost us a client, but it has made for some stressful meetings. So why do we do it? Why don’t we just go along with whatever the client wants? It sure would be easier. 

I believe Milton Friedman put it best when he said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” We don’t believe in doing whatever the client wants because while the intention may be to keep the client happy, the result is often to hurt the client’s long-term financial wellbeing. We have a fiduciary relationship with all of our clients and therefore cannot just sit by and watch them hurt themselves. 

Friedman was talking about public policy, and what he said 40 some years ago is as true today as it was then, perhaps even more so. This has always been at the heart of the divide in American politics: one side has always cared more about what they viewed as good intentions, and the other side has been more concerned with actual results. Government housing, rent controls, and price-fixing are just samples of past policies that were all put in place with great intentions, but that had horrible actual results. 

The difference when I was younger was not that these disagreements did not exist, but that there always seemed to be a benefit of the doubt for the other side. We assumed everyone had good intentions, we just disagreed on the best approach. We were also anchored by empirical evidence, so by the time we got to the 1980’s there was no denying that government housing was a disaster, or that price controls caused shortages. We knew this, which is why it was Bill Clinton and not Ronald Reagan who pronounced the days of big government to be over. 

Today that is no longer the case. Today, if one believes the Affordable Care Act (ACA) is a disaster and should be repealed, then as far as ACA supporters are concerned, he doesn’t want people to have healthcare. That, of course, is absurd, but it doesn’t seem to matter. It also does not seem to matter that the cost of health insurance (which is not the same thing as healthcare, by the way) has sky-rocketed since the passage of the ACA, and even the higher cost now comes with higher deductibles and copays, nor that getting to see an actual doctor (which is healthcare, by the way) is far more difficult. 

Unfortunately, these are conversations that cannot take place, because as soon as one brings up the subject, she will be accused of not caring and wanting to take away people’s healthcare. If you don’t believe me, then you obviously do not live in Georgia, because we just went through the most expensive Senate race in history; if one were to believe the advertisements, then two candidates wanted no one to have healthcare, and the other two wanted everyone to have healthcare. This is our discourse today. 

To some degree politicians have always tried to villainize their opponents and make it look like our choice is more black and white than it actually is, but today we seem to be going along with it. This comes in a large part because we no longer talk to one another. The other side is just a generic “they,” and the only choices are to do exactly as our side says or to be evil. 

That mindset means that where one stands on a $15 minimum wage means she either cares about workers or doesn’t. It means if one thinks stopping a pipeline is a huge mistake, then he doesn’t care about the climate and is in denial about climate change. This mindset is destroying us, and it has to stop. 

The truth is that the results of policies like $15 minimum wage or the Keystone pipeline are not black and white at all. We need to actually discuss such things and think them through. It would be easier to just go with it and proudly pronounce our goodness and caring for low-wage earners and the environment, but ultimately, what actually happens in the real-world matters. 

Where those discussions lead and whether anyone ever changes her mind is not nearly as important as simply having the conversation, and that is what we are going to encourage through our posts in the coming weeks. These conversations should begin with an agreement that if one cares about people and the environment, then she has to care about the results of policies. We also need to recognize that no one (not even you or I) is always right. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA
Managing Director

~The Client is Not Always Right

Wednesday was one of the saddest days in our history, yet the market sluffed it off. The lesson: actions have consequences. In the near term the election results have the consequence of more fiscal stimulus and that is Wall Street’s focus. The longer term will depend on what this administration and Congress actually accomplish. We shall see. 

In the real world, however, things have gotten out of control and it is past time for it to stop. We all need to take ownership of the world around us and understand that what is happening today is the consequence of what we did yesterday. 

Those who hate Donald Trump need to understand that his success as a politician was a direct result of at least eight years of his base being referred to as “bitter people clinging to their guns and religion” and then of course “deplorables.” To top that off, the leaders of the political party most of them associate with did nothing to defend them. Then Trump came along saying, “I am one of you.” They are going to call us deplorable no matter what, so we might as well act that way. 

Boy did he. He acted horribly. So horribly that my home state just elected a senator who is seething with hate. His “sermons” make Trump’s tweets look like love poems. The problem is, when one defends the hate of her side, she then loses all credibility when pointing out the hate on the other side. Actions have consequences. 

This summer, less than one fourth of a mile from my house, unspeakable violence took place. We were told that this is peaceful protesting. In my city an eight-year-old girl was shot and killed by “mostly peaceful protesters.” We were told that we should be with the protesters and that they are doing what Americans have always done. Their actions are justified by our sins. 

Is it any surprise, then, that when Trump supporters gathered in Washington to peacefully protest that their mostly peaceful protest looked a lot like what happened this summer? It shouldn’t be. 

I was watching Wednesday’s events unfold on CNBC, and Shepard Smith kept saying that these protesters were convinced that the election was rigged even though there is no evidence. Why can’t they be rational? For the better part of a quarter of a century our education industry has been spewing post-modernistic identity philosophy, which states that there is no such thing as evidence; truth is whatever one feels it is. Facts, reason, logic – that is all white privilege, Shep. 

The truth is when one side gets to say facts don’t matter, then it will not take long for the other side to embrace facts not mattering. Actions have consequences. 

All is not lost. Yesterday I got to spend some time on Zoom with a group of my college friends, one of whom served in the Navy after college. His response to yesterday’s events, “I have been a Republican all my life, I am a conservative, and what these people are doing is treason. They should be arrested and prosecuted.” Actions need to have consequences. 

Right is right and wrong is wrong and we all know it when we see it. We have to stop excusing hate and violence just because we are sympathetic to their side or because we believe the other side has done worse. Hate is never justified. “They did this,” is never an excuse to behave poorly. The rioters in DC should be going to jail, as should the rioters from this summer. Hate should be condemned universally, whether it is tweeted from the White House or spoken from a pulpit. 

If we want things to change, then it has to start with us. My New Year’s resolutions: to stand up to my friends when they go too far; to show empathy for those with whom I disagree; to remember I’m not nearly as smart as I think and they are not nearly as naive as they seem; to address the timber in my eye before concerning myself with the spec in my brother’s; and to remember that my actions have consequences. At least that is my perspective. 

Happy New Year!

Chuck Osborne, CFA
Managing Director

~Actions Have Consequences