“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

A few years ago when we began to write these Perspectives, we did so because we frequently get the question, “What is the election going to do to my portfolio?” We had never wished to discuss politics but we get the question all the time, so we decided that we would do it as a separate forum, so clients who were not interested could tune it out, and we would stick to discussing policy. What impact would a said policy have on the economy and therefore the stock market and your portfolio?

I never dreamed that I would be discussing defunding the police. This went from a ridiculous idea to actual policy in some cities in a matter of days. It brings to mind one of my favorite quotes:

“The truth is that, to many people calling themselves Socialists, revolution does not mean a movement of the masses with which they hope to associate themselves; it means a set of reforms which ‘we,’ the clever ones, are going to impose upon ‘them,’ the Lower Orders. On the other hand, it would be a mistake to regard the book-trained Socialist as a bloodless creature entirely incapable of emotion. Though seldom giving much evidence of affection for the exploited, he is perfectly capable of displaying hatred – a sort of queer, theoretical, in vacuo hatred – against the exploiters.” ~ George Orwell, “The Road to Wigan Pier”

Orwell packs a lot into that one paragraph. The first thing I love about this quote is that Orwell was a Socialist. He believed in the revolution, as he put it. Some find that odd with his obvious concern about totalitarianism, but he never disavowed his socialist views. He was criticizing his “side.” Wouldn’t that be refreshing today?  A little self-reflection and honesty – that is what is needed.

Today everything has become about politics and the next election, and people are too afraid to speak up for what they believe to be right. It is much easier to have loyalty to a party than it is to have principles. While this is normal for politicians (which is one reason we hold them in such low regard), it also seems true for even our friends on social media. I don’t want to sound overly dramatic, but if our republic is going to survive, this has to change.

When I was just a child, Richard Nixon resigned instead of facing an impeachment trial because his own party was set to vote for impeachment. He may have been a Republican, but what he did was wrong. Two presidents have been impeached since, and both impeachments failed on pure party lines. Something is wrong.

The first riots this summer in Atlanta occurred approximately a quarter of a mile from my house. I assure you there were no peaceful protests. That is not to say the protests don’t have peaceful moments, or that some individual protesters are not peaceful, but the fact is that every major protest that has occurred this summer has ended in violence. This did not happen in the real Civil Rights Movement because the leaders of that movement wouldn’t stand for it.

Martin Luther King, John Lewis, Andrew Young, and rest of the leaders in that original movement were trying to persuade, not punish. They were motivated by love for the exploited, not hatred for the exploiters. They fought for the right to vote, the right to ride in the front of the bus, and to eat lunch where they wanted. They did not fight to tear down anything except for injustice, no modifier necessary. They subjected themselves to violence, but they remained peaceful, and in doing so changed the world for the better.

Is defunding the police designed to help the exploited or to punish the exploiters? It seems self-evident. However, before we just completely dismiss the notion as absurd, we need to make sure that we are not guilty of declaring triumph over a strawman. Is there anything to this idea?

Self-reflection is called for on all sides. Police violence is a real issue and one that must be addressed. There is no doubt that across the country we have too many Barney Fifes and far too few Andy Taylors (for our younger readers, use your Google). My understanding is that the police officer who murdered George Floyd was in the top-ten percent of citizen complaints. Why did he still have a job, let alone why was he training the officer with him?

Republicans are supposed to be the party that is leery of public employee unions, yet when this black lives versus blue lives started four years ago, they lined up for the police vote. Party loyalty is easier than principles. To simply defund the police is, well, stupid. This does not mean there are not problems which need to be corrected. Franklin Delano Roosevelt, the great champion of organized labor, did not believe government employees should be unionized; perhaps that would be a good place to start?

Some may think I’m going too far with the idea that much of what we have witnessed since May is just hatred for the supposed exploiter. This past Saturday, a protester ambushed two Los Angeles County sheriff’s deputies as they sat in their patrol car. The deputies were taken to a hospital where protesters gathered and chanted, “we hope they die.” That isn’t affection for the exploited, that is hatred, and it is wrong. At least that is my perspective.

Warm regards,

Chuck Osborne, CFA

~Do What to the Police?

One of my favorite parts of my job is that we are constantly learning. All endeavors, whether it is sports or business, can teach life lessons. One of the great life lessons in investing is to take your opponent seriously. Every time we buy a stock, someone is selling it. Why?

Why are they willing to sell something we believe should be bought? I have known of firms that force their analysts to take opposite sides of this argument and debate one another in front of the investment committee. They do this in an effort to make sure they are truly considering why they may be wrong. We have never gone to that extreme at Iron Capital, although I often play the part of devil’s advocate in our investment committee meetings.

We don’t do it because in my experience when one is asked to argue a point of view that she does not actually believe in, she will tend to create a straw man. As a reminder, a straw man is an intentionally misrepresented proposition that is set up because it is easier to defeat than an opponent’s real argument. We may be debating if we should invest in Apple, for an example. (As always, this is an educational example not a recommendation to buy the stock; I do own Apple, and we own it in client accounts where we have deemed it appropriate.)

The argument for Apple is that their business has never been better. The new phone really is an improvement and services are finally taking off. The argument against Apple is that its stock has risen too far too fast and is now hugely expensive, and its service business is under scrutiny from legislators. Both of these arguments are real and should be taken seriously, but human nature being what it is, we tend to land on one side or the other and then we downplay the other side. We create a straw man.

If one is on the side of buying he might say, “If we pay attention to valuation, then we will never own this stock and we will continue to miss out on its return.” On the surface that sounds like a decent argument, but it isn’t actually factual. It is a complete straw man. For most of the last decade Apple’s stock was cheap; it is only after this huge run that it has become expensive.

On the other side one might say, “This company has not innovated since Steve Jobs passed away. The growth is not sustainable and it is foolish to pay these valuations for a company that no longer innovates.” Once again, a straw man. Yes, the iPhone was created while Steve Jobs was still in charge, but the seamless Apple universe has been improved and its business has really changed from a hardware company to a service company.

It is easy to put words in others mouths and then defeat those words. Ultimately, what we are saying is the people who buy that other argument are stupid and we are smart. Well, not so fast.

In my world we get to find out. Ultimately, we have to choose what side we are on and then the market lets us know if we were correct or if it was those idiots with the feeble arguments who were correct. One does not last in the investing world if he doesn’t learn to take the other side seriously.

I wish this lesson could be learned in our politics. Nowhere do straw men exist in more prevalence than in politics. I believe it is the straw men that give us the perception of polarization. We continually exaggerate the positions of our opponents to make them ridiculous, and through the magic of our social media feedback loops, we begin to believe these straw men are actually real arguments.

Trigger warning: If any of our readers send these messages to their children who grew up with “safe spaces,” they might not want to read on. For those who wish to continue, I am not going to tell you what “side” you should be on, nor, contrary to your belief, am I going to reveal what “side” I am on. That is not our place. I am going to attempt to show how we might all start getting along a little better.

When the NBA re-started their season, the entire league wore Black Lives Matter shirts and took a knee for the national anthem. One player, Jonathan Isaac, did not. He did not wear the shirt and he stood during the anthem. After the game reporters asked him, “Do you not believe black lives matter?” For those who are not aware, Jonathan Isaac is black.

It is not my place to suggest what any of our readers should think about the Black Lives Matter movement, or Jonathan Isaac; it is to point out how ingrained the straw man has become in our society. The reporter who asked this sounded sincere. She made it sound as if she believes that if one does not support the organization named Black Lives Matter, then the only reason that could be is that he doesn’t believe black lives matter. This is a classic straw man. Mr. Isaac absolutely believes that black lives, including his own, matter. He has other reasons for his actions, and if you are interested you can look it up on Google.

Black Lives Matter is an organization and they have a platform. That platform, as laid out on their website, includes among other things, defunding the police and redefining the “western construct” of the nuclear family. Regardless of one’s view, these are certainly controversial positions. They may be correct, but certainly one could understand why someone would disagree. Many neighborhoods throughout the country, including mine, pay for extra police presence. Many Americans of all backgrounds still value the importance of family.

On the other hand, those athletes who take a knee are often booed. Those who boo say the act is disrespectful to the flag and the nation for which it stands. We all grew up pledging our allegiance to that flag every morning at school. The response from multiple kneelers has been, “They don’t understand.” This brings up our inability to effectively communicate, but that is another topic in and of itself. The point for today is that the people kneeling believe they are making a statement in favor of a real issue.

It is easy to just think “they” just hate minorities. It is easy to think “they” just hate America. It is hard to actually listen to the arguments of those with whom we disagree. My career in investing has taught me that if we want lasting success, we had better do away with those straw men and start taking the other side seriously. “They” might be right some of the time. At least that is my perspective.

Warm regards,

Chuck Osborne, CFA
Managing Director

~Straw Man