“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

“An unjust law is a code that a numerical or power majority group compels a minority group to obey but does not make binding on itself.” – Dr. Martin Luther King, Jr., “Letter from a Birmingham Jail” 

This past weekend I did something that I have never done before: I participated in a rally to get our kids back into the classroom. From New York to San Francisco parents came out to ask politicians and superintendents to listen to the CDC, the American Society of Pediatrics, and just about every other scientist and health expert in the world and get kids back into schools in person. Here is Atlanta we had more than 200 parents and students show up for the cause. 

I am not sure how many other protest rookies were out there, but I think it must have been quite a few. How did we get here? What started as a knee-jerk reaction to a global pandemic has turned into political football with the primary victims being children. At some point, all parents have to stand up to protect their kids from complete injustice. 

The excuse for why our schools are closed in Atlanta is the pandemic, but the pandemic affects the entire state of Georgia, as it affects the world, and the only school systems that are closed for in-person education are the Democratic hotbeds in Atlanta and Dekalb and Clayton Counties, two Metro Atlanta counties. The truth is, Donald Trump and Georgia’s Republican governor Brian Kemp have come out to support opening schools, so the people on the other side are going to keep the schools closed. 

Children are the ones getting hurt, but not all of the children. Private schools have been open for business, and in Atlanta both our mayor and the Board of Education chair have taken advantage of that to give their kids the option for face-to-face (F2F) learning. You can’t make this stuff up. As MLK, Jr. pointed out in his “Letter from a Birmingham Jail,” one can tell a law is unjust when those who pass it do not follow it themselves. 

Truth be told, my kids would be in one of those private schools had we not “won the lottery” and gotten them into a charter school, Atlanta Classical Academy (ACA), which, in my wife’s and my opinion, is the best school in the city academically. It has certainly been a good fit for our kids. As a charter school, ACA is supposed to have the autonomy to make its own decisions, but when it released its plan for F2F education this summer, Atlanta Public Schools vetoed it. The school has done very well under the circumstances, and our children have the blessing of two loving, well-educated parents who can provide them all the technology they require and help them in just about any subject. Still, we can see the suffering in our children – anxiety, depression, apathy. Being stuck on a screen for the entire school day to then have to do their homework on the same screens, never really seeing their friends or teachers, has taken a toll. 

The tragedy is that the toll our kids have had to bear is as good as it gets. I see what has happened to them and I can only imagine what is happening in homes that have much less, or in families with disabilities, or in households where one or both parents’ jobs do not afford the flexibility to work remotely, never mind all of the above. We know that in some cases the kids just are not in school period. We know that abuse is not getting reported. We know that children are getting left behind. Why? 

It is easy to blame our politicians, but we need to remember that our politicians are a reflection of the people who vote for them. We need to remember that every time we point our finger at someone else, we have three fingers pointing back at us. We are the reason our politics is no longer about issues, but about tribal warfare. 

How else does one explain the very same people who proudly march down a street holding a sign saying “Science is Real” in support of climate change turning a blind eye to the medical community who now overwhelmingly agree that children should be in school in person? Science can’t just be real when we want it to be. How can people who preach social justice and equity turn a blind eye to the biggest social injustice since Jim Crow? 

The answer is they are in the blue tribe, and it is the red tribe who wants schools open, so we must disagree, even if it goes against every principle we claim to possess. 

I don’t mean to be one-sided in this argument. The issue of the day just happens to run in that direction. The red tribe was against tax reform of all things when the blue tribe’s president suggested it. The red tribe had long stood for character mattering, until they won with someone whose character, well…let’s just say he is a character. They also stood for free trade, until that same character decided that tariffs were good. 

This goes both ways. The Wall Street Journal recently ran an article pointing out that in the 1980s, knowing how a person felt about one particular issue did not provide great insight into their overall political views. Today if you know where someone stands on one issue, then you know where they stand on all issues. The only way that could happen is if we have sacrificed our principles for tribe acceptance. 

Yesterday’s Wall Street Journal had an op-ed from John Barrasso, Republican senator from Wyoming. He points out that Senator Schumer tried to hold up every single cabinet nomination made by President Trump, even low-level positions with clearly qualified mainstream nominees. This was new ground politically. Democrats attempted to block 79 appointments from Trump. The previous six presidents had combined for only 18. The point of Barrasso’s op-ed? Revenge is going to be hell. 

When will it stop? Only when we all demand that it stops. Principle should guide our views, not the color of our uniform. If one’s political opponent happens to agree with her, then that is cause to celebrate, not to disagree for the sake of being disagreeable. If we truly want our politicians to act more nobly, then it starts with us. We have to look in the mirror and say, “I will to stand for what I believe is right, not for what is red or blue.” If we do that, then we may just be shocked how quickly our polarization will disappear. At least that is my perspective. 

In the meantime, for God’s sake get our kids back in school! 

Warm regards,

Chuck Osborne, CFA
Managing Director

~Education

On my way to work this morning, I was wondering what to write. I knew I had to write something – the market is dropping and the election is next week – but what? We have already told our clients that we believed the market would get volatile as we neared the election, and we have taken steps to mitigate that risk. I could talk about policy, as that is what I usually do in an election year, but this campaign has been policy-discussion-free; the Democrats wanted to make this election about Donald Trump, and as that is Donald Trump’s favorite subject, so he obliged.

That is a shame, because while no one was paying attention, the Democrats allowed the most radical among them to write the party platform. If they win, we will see if that was simply a political move to get that wing of the party to the polls, or if they meant it. If they meant it, we will have much to talk about as we try to navigate our investment decisions.

Then it occurred to me: The real reason we protected the portfolios was not that we are worried about either party winning, it is because we are concerned about the reaction to the election itself. It is probable that we will not know who the next President is come next Wednesday. If that is the case, it will be ugly. Politics is always ugly, but this is as ugly as I can remember in my lifetime.

The good news is that it has been uglier. In the early years of our country, politicians sometimes wrote completely made-up stories about their opponents and published them under pseudonyms. Political machines paid people to vote a certain way. This has all happened before, and we survived.

Then I had a thought: The biggest issue we have as a nation is that we constantly live in a state of exaggeration. In Matthew 5:37 Jesus said, “Simply let your yes be yes and your no, no; anything beyond this comes from the evil one.” One does not have to be a Christian to understand the wisdom of that statement. Stop the hyperbole.

This was going through my mind as I read today’s Wall Street Journal, and there on the op-ed page was an article by Lance Morrow, a senior fellow at the Ethics and Public Policy Center, entitled, “The Amazing, Horrifying Age of Exaggeration.”  I strongly recommend that all who have access should read this article. Mr. Morrow hits the nail on the head far more eloquently than I ever could.

Donald Trump has been accused, even by some of his supporters, of being a liar. It is far more accurate to say Donald Trump is an exaggerator. He lives an exaggerated life and always has. Long before he entered politics there were stories of how much he exaggerated his wealth. An exaggeration that is far more likely to explain his resistance to releasing tax returns than any Russian conspiracy. He probably paid so little in taxes one year because he actually lost money (you know that happens in the real estate business). We tell our clients this all the time: if not paying taxes is your goal, just lose money.

Mr. Morrow said it beautifully, “Exaggeration is a symptom of self-importance and insecurity.” We have a generation who were raised being told constantly how special they were while simultaneously being protected from actually having to accomplish anything on their own. The result:  lots of self-esteem combined with little self-confidence, or to use Mr. Morrow’s words, self-importance and insecurity.

Donald Trump did not divide this nation. If anything, he simply saw an opportunity in the division and exploited it. No, the #Resistance is the reason for our division – the exaggeration of democratic opposition to an underground military fighting back against tyranny. Hyperbole comes from the evil one.

Two exaggerations have been drilled into our younger generation’s heads. First: They can change the world, which is somehow twisted into the notion that they need to change the world. Secondly: The challenges they face are greater than any generation before. A year ago I read a statement to this extent from Prince Harry (or is it the former Prince Harry?). As he abdicated his royal responsibilities to live in the New World, he stated that he and his wife Meghan wanted to serve change because of the great challenges of his generation.

Harry’s great-grandfather led his country as they fought off the Nazis. London was under constant threat of bombing. His grandmother led her country through the Cold War, when the threat of nuclear annihilation was a daily reality. To say Harry’s generation faces larger challenges is a joke. Harry’s biggest challenge is getting enough followers on social media to replace his royal income.  

Very few people in history have ever changed the world. Those who did so in a positive manner usually were not trying to change the world, but to simply right some specific wrong. George Washington would be a good example, as he changed the world by being unwilling to become a king. He subdued his own ambition by simply doing what he believed to be right. On the other hand, those who purposely set out to change the world are known in history as tyrants – they go by names like Lenin, Stalin, Hitler and Mao.

The truth is that life today is easier than it has ever been. Perhaps that is part of our problem; we have too much time on our hands to fixate on our fears. Our ancestors were fixated on chores. They were focused more on what was right in front of them. They had to be or there would be nothing to eat that night. Today we no longer fear Nazis or Communists. Famine is no longer a concern as technology has made food plentiful.

So, we exaggerate our challenges. Global warming is not an environmental concern we need to overcome through technology (as humans have successfully done before with every other environmental threat), it is the end of the world. As the Ghost Busters would say, “It is a disaster of Biblical proportions, Dogs and Cats living together, mass hysteria.” That is exaggeration. And, it is also exaggeration to say global warming does not exist or is not a problem; and that is just one of today’s issues.

Before next Tuesday I would like to ask each baby boomer parent reading this to call your children and tell them, “I’m sorry honey, but you can’t change the world, and the challenges you face today are tiny compared to the challenges faced by your ancestors. No matter who gets elected President, he will be every American’s President. We may like him, or we might not, but he isn’t evil and the world is not ending.”

I’d like to say the fate of the world is riding on that conversation, but that would be hyperbole. However, as your investment adviser, the value of your portfolio just could be. At least that is my perspective.

Warm regards,

Chuck Osborne, CFA
Managing Director

~Fate

Over the weekend we learned that President Trump has COVID-19, and fortunately it looks like is recovering. On Saturday a friend asked my opinion on what Trump’s illness would mean for our economy, especially if he did not get better. My answer surprised her. I said, “Not a thing.”

We are a nation of laws and our elected officials are public servants, not rulers. At least that is the way it is supposed to work. Politicians have often forgotten this over the years, but shockingly, the general public seems to have forgotten as well, or has never been taught. If Trump died of COVID-19, or any other cause, then Pence becomes President and we, as a nation, move on. If Trump and Pence die, then Pelosi becomes President. Our Founding Fathers thought of this.

They also thought about what would happen if we had a contested election. Congress would decide, those are the rules. There is no constitutional crisis; the Constitution is clear. There is, unfortunately, is a significant element in our society today that believes that if the outcome of our system is not to their liking, then they will just change the rules. This is not to be taken lightly, or quickly dismissed. Our system has given us the longest lasting democracy in history. We should not fall victim to hysterics, but neither should we dismiss the threat.

My 10-year-old daughter, who is in fourth grade, asked me the other night whether what happened to Rome was going to happen to us. I won’t lie, I was proud of her for asking the question. It shows that she knows more about the history of Western Civilization then the so-called college-educated rioters who wish to burn it all down. The answer is, of course, that it is possible; for most of our history, a common societal knowledge of what happen to Rome and that it could happen here has kept our system in check.

It seems that common knowledge was not passed along to this generation. This weekend, not long after being asked about the potential economic consequences should a President die in office, I saw a commercial supporting the abolishment of the Electoral College, the filibuster, and making the District of Columbia a state. This is truly frightening, and we need to wake up to it.

Why does the Electoral College exist? The answer is in understanding who the United States of America is. We were formed as a federation of 13 independent states, and we remain a federation of 50 states today. We are not a pure democracy; we are a republic. Each state holds an election for who they wish to be president, and the state’s electors vote on behalf of their state. Each state has the same number of electors as their representation in Congress. This was the Great Compromise of 1787 that made the making of a nation possible. Pure democracy would subjugate small states to large ones, while equal representation of each state would unfairly under-represent the large states and give small states undue power. The brilliant compromise was that each state would be equal in the Senate and represented by a number of congressmen based on population. Their vote towards who gets to be President would be based on the same calculation.

So why aren’t we a pure democracy? Because our founders knew the history of ancient Greece. Our founders, who had just freed themselves from the tyranny of a monarch, also realized the threat of the mob. So we became a republic, like Rome. We elect representatives to go to Congress to argue and vote on our behalf. The filibuster, which was first used in the U.S. Senate in 1837, is as old as representative government. As long as there have been politicians, there have been people skilled in the art of stalling. This tool, although annoying, is very useful as it requires the majority to account for the views of the minority. It benefits persuasion and compromise over the brute force of the mob. Like any tool, it can be used for causes later judged good or evil, but it is a sword that cuts both ways. Those in the majority who wish to dismiss it would be wise to think of a day when they become the minority, because it will happen.

The District of Columbia is the home of our federal government. It is a city with a population of 705,749 people as of 2019. The idea that it should be a state with the same voting power in the Senate as New York or California is quite frankly absurd. It already has the full attention of our federal government. If one were truly concerned about the 705,749 people not having representation, then a far more logical step would be to have Maryland and Virginia annex the District, although I suspect neither state wants it.

At the end of the advertisement, the young lady speaking said these things had to be done to protect our democracy. One does not protect our democracy by breaking its rules and traditions. The thing that has kept it working for almost two and a half centuries is that no one is above its rules. We live under the rule of law, not the rule of politicians. The real threat to our democracy is not Donald Trump, Joe Biden, COVID-19, or this upcoming election. People and events are not nearly as dangerous as ideas. Ideas like the ones in that advertisement are the real threat, and we had better wake up to that threat. At least that is my perspective.

Warm regards,

Chuck Osborne, CFA
Managing Director

~Civics 101