Year: 2019

Back when I was writing for magazines, this was the only headline my editors ever really wanted me to address.  Sometimes they would put NOW in all caps.

Wednesday, I suggested caution.

Yesterday,  Aristides Capital’s Chris Brown included this thought in his monthly investor letter:  “The yield curve inverted this month, portending a high-likelihood of recession within the next two years, so I am unexcited about cyclicals and financials here, while growth stocks remain historically expensive relative to value, so it’s hard to be excited about them either. We’re at a point in the economic cycle where even completely fraudulent companies can sport a $100 million to $300 million market cap, and money-losing companies can be worth billions or tens of billions. It’s a good time to find shorts.”

Chris is a deeply skilled investor but most mortals should avoid shorting stocks — you can go very broke shorting stocks even if, in the long run, you are proven to have been right.  And few investors come out ahead over the long run trying to time the market.  So especially if you’re young, just keep adding $100 a month or $500 a month to your Vanguard index fund and be thrilled if the market tanks — you got your new shares on sale.

Mary U: “I agree recession seems inevitable. The R’s will create a huge deficit, and the D’s will have to turn it around. Again (like Clinton) And again (like Obama) and AGAIN (like whoever gets the nomination in Milwaukee July 16, 2020).  Could you explain what you mean by putting your money in cash? Certainly you can’t mean getting a savings account with .ooo1 % interest.”

Having a cash cushion safely on the sidelines is the big picture.  Whether you’re getting a .0001% or a 2% after-tax return on it, I don’t much care — but, yes: you can get more like 2%.  Ask your bank if they have a deal like one of these — though the convenience of sticking with your current bank or discount broker is worth something, too.

And then there are the stocks you may own with money you can truly afford to lose.  The obscure lottery tickets we’re still hoping to cash in.  I certainly wouldn’t sell even a share of BOREF — who knows?  Even if there’s just a 10% chance WheelTug makes it, and I think the chance is considerably higher, its shares are undervalued.

And I have a new one for you.

Background: a friend owned a big chunk of  FANH when he first told me about it in 2013.  The stock was trading around $5.40 (under the symbol CISG)  but had $8 a share in cash, he said, and a growing auto insurance business in China.  The Chinese guy running it, he thought, was honest.  So I bought a bunch, and suggested it to you (and then again at $5.76 a couple of years later).  You just wait, and wait, and wait — but sometimes, patience pays off.  A year ago, we sold some or all of it above $30.  (Now, at $26, he’s give all his away but still thinks there’s good upside.  I’ve sold almost all mine.)

ANYWAY . . . I ran into him last week at a Democratic fundraiser thing and thanked him for all his support and good works (he is a superstar) — and for recommending FANH.  “I have another one for you,” he said.  Selling for under four times earnings, growing 20% a year.  NYSE symbol: CNF.  They do home equity loans in China.  (China may be in the latter stages of a real estate bubble; but he says the most they’ll lend is 50% of a home’s value, so even if the bubble bursts, they may survive it.)  Normally, of course, a company growing at 20% a year might sell for 20X earnings, not 4X.

It’s very thinly traded.  I bought a chunk for myself; if everybody else does, it could run up from the $6 or so I paid to $8 or $9 or wherever — and then fall right back down.  And of course, not everything works out.  We have a shot at doing well with CNF over the next few years, as we did with FANH.  But you truly never know.

Have a great weekend!

One of you, my esteemed readers, owns both mannkind (the speculative biotech stock) and humanity (the website).

I don’t know whether he’s underestimating the risks in MNKD shares (on a lark, I bought a few when they dipped to $1.01 a while back; Guru counseled against it).

I do know he’s not overestimating the risks to humanity.

Click here to read his advice to this year’s commencement speakers.

Then scroll down for his links to the 10 best commencement speeches of all time . . . and his index of the best commencement speeches from 1936-2013.

Also a few outstanding class day speeches. And suggestions on how to write a commencement speech of your own.

Sally from Iowa: “Thank you so much for writing about the Patrick Melrose novels on Audible.  I will sign up so I can hear them. I had read a few before seeing the Showtime series, which I was eager to watch because of its star. It was one of the best things I’ve ever seen on TV. (The very best? The Wire.)  I was amazed at how so much internal dialog from the book was expressed in so few words by the characters in the TV show. In other words, such a great adaptation. I so recommend it.  (Sorry you couldn’t find the John Lithgow Bonfire and hope that changes so I can hear it.  Funny story: I once bought Moby Dick from Audible, and when I began listening, it was in an English accent. That book, to me, is the Great American Novel, and there is no way I could bear listening to it in an English accent!)”

By focusing on corporate tax cuts that have widened inequality yet further instead of on critically needed infrastructure revitalization that would have put people to work at good jobs, Trump has given us the largest budget deficit in history and, with his trade wars and threatened Mexican border shutdown, a possible end to the long Obama recovery.

John Mauldin titles his most recent newsletter “Recession Signs Everywhere” and ends it thus:

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. . . Last year, I explained how trade wars can spark recession and trade deficits are nothing to fear. I won’t repeat all that here. But we have since seen several market swoons/rallies as harsher trade restrictions looked more/less likely. Whether you like it or not, asset values depend on the (relatively) free flow of goods and services across international borders. Interfere with that and all kinds of assets become less valuable.

Starting a trade war, at the same time growth is slowing for other reasons, is more than a little unwise. Agricultural tariffs have already ripped through US farm country to devastating effect, leaving losses some farmers may never recover.

The president’s tariff threats had other impact as well. Companies raced to import foreign-supplied components and inventory before the tariffs took effect. This jammed ports and highways last year, not with new demand but future demand shifted forward in time.

This is important, and I think we will see the impact soon (if we are not already). Transport and logistics companies geared up for last year’s surge, expanding their facilities and hiring new workers. Importers built up inventory in an effort to avoid tariffs that were supposed to take effect in January. The deadline was extended, but the threat is still alive.

At some point, all this has to stop. Carrying inventory is expensive and will eventually outweigh the benefit of avoiding tariffs. Then the boom will come to a screeching halt. Imports will fall as companies work down inventory. All those jobs and construction projects will disappear.

That, combined with the other cyclical factors and high debt loads everywhere, could easily add up to a recession. Exactly when is hard to say. Recessions usually get pronounced in hindsight, so there’s some possibility we are in one right now. But I still think we’ll avoid it this year. Getting into this box took a long time and so will getting out of it.

Regardless, we’ll have a recession at some point. I think the next subprime crisis will be in corporate debt. Next week, we’ll look deeper into the timing question, what the yield curve tells us, and why the next decade will bring little or no economic growth.

I realize this is not a happy conclusion, but I call them as I see them. I’ll leave you with one final but critically important thought: Prepare, don’t despair. Tough times are coming but we can handle them. You have a chance to get ready. I highly suggest you take it.

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What does getting ready look like?  Not quitting your job; cutting back wherever you can to save all you can; not borrowing on margin; and, depending on your situation, perhaps moving some of your assets — if you’re lucky enough to have assets — into cash.

If a recession never comes, no harm done.

But with interest rates already low and the Republican deficit out of sight (as it was under Reagan, Bush, and Bush, with only Clinton ad Obama handing their successors a National Debt shrinking relative to the economy as a whole), if a recession does come, it could be a challenge getting out of it in the usual ways.  (The usual ways are cutting interest rates and ramping up government spending.)

Last week I offered, from New York Magazine, Trump Nominates Famous Idiot Stephen Moore to Fed Board.

But Robert Samuelson, writing in the Washington Post, explains that . . .

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The real reason that Stephen Moore does not belong on the Federal Reserve Board is not that he is unqualified for the job, though he is. Nor is it that he has been a highly partisan and divisive figure for many years, though he has been. The real reason is that, if confirmed by the Senate, Moore could become the Fed chairman — and that is a scary possibility. It could spawn a global financial calamity. . . .

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Read the whole piece.

And have you gotten around to Michael Lewis’s The Fifth Risk?

And then there’s this: Michiko Kakutani’s The Death of Truth: Notes on Falsehood in the Age of Trump.

Up is down, black is white, truth is false.

Remember love and truth?  Light and logic?  Excellence and modesty?

Is there any trace of those in Trump?

Nick Kristof asks: “At a time when American life expectancy is lower than Chile’s and falling, why would we compound the problem by taking away people’s health insurance?”*

Thinking that maybe Americans should have universal health care (like everyone else in the industrialized world), Bill Maher has a New Rule: Stop being so afraid of “Capitalism Plus”.

Well worth five minutes.  Watch.

*Similarly, at a time when desperate asylum seekers are headed north from troubled countries, why would we cut off aid to those countries and make the desperation worse?  At a time when our infrastructure has become dangerous and uncompetitive, why would we cut taxes rather than hire people to revitalize it?  At a time when the world needs steady, farsighted — competent — leadership, why would we put our faith in a vulgar demagogue who lies constantly, knows little, fits the clinical definition of narcissistic sociopath, and describes himself as “the king of debt?” But I digress.

While Trump* calls House Intelligence Committee Chairman Adam Schiff “pencil neck,” committee Republicans began Thursday’s hearing by joining Trump’s demand that he resign.

If you’ve not already seen his response in its entirety (five minutes), you must.

In oratory and importance, it exceeds even Joseph Welch’s famous 1954 response to Senator Joseph McCarthy. (“Have you no sense of decency, sir? At long last, have you left no sense of decency?“)

That there is a connection between 1954 and 2019 is almost chilling. 

In 1954, Joseph McCarthy’s despicable right-hand man was Roy Cohn.  Cohn went on to become Trump’s mentor and fixer. 

Later this year, you can see an entire Sony Pictures Classics film about that — Where’s My Roy Cohn.

In a very real sense, Cohn and McCarthy live on through Trump.

*Objectively: a vulgar, lying, cheating bully and narcissistic sociopath.  No?  Is there any part of that you would dispute?

So okay, maybe you don’t have a lot of money.*↑

Would you like to feel magnificently, juicily, deliciously superior to a bunch who do?

Namely, to all but a couple of the characters in Edward St Aubyn’s Patrick Melrose novels?

Dreadful, unhappy rich people, brilliantly observed, maliciously skewered?

Fun! And exactly the sort of reading better done with ears than eyes.

Just as with the first book I ever read “on tape” — Bonfire of the Vanities, written by the genius Tom Wolfe, read by the genius John Lithgow — here, also, you have two extraordinary talents at work for you — St Aubyn, as read by Alex Jennings.  (Not sure who he is — but oh, my.)

Notes:

1. I am basing this on only the first of five novels that came with my purchase (one credit on Audible), called Never Mind.  From the reviews, I expect the others are equally good.
2. I am apparently the last to discover this guilty pleasure.  Showtime turned the novels into a five-part series.
3.  For reasons likely known only to some participants in an epic contract dispute, the John Lithgow version of Bonfire, linked to above, is literally “on tape.”  Audible offers a version read by someone else.  I can’t imagine it’s better and find it hard to imagine it’s as good.  I have weighed in with Audible to see if we can fix that.

*Shockingly, only 1% of Americans are actually in the top 1%.

↑Fortunately, you don’t need a lot of money.  You need food, shelter, a good internet connection; and, mainly, good health, good friends, and purpose.  As I’ve quoted Barack Obama advising his daughters: “Be kind and be useful.”  And as one of you generously wrote me, in that spirit, this week: “It’s frustrating that I can’t release the Mueller Report or treat children at the border with compassion. But I can help an old lady lost in the hardware store fix her remote control, or track down the stranger who lost his wallet on the sidewalk, or close my neighbor’s garage door for him while he’s asleep. Those are all real examples from the last six months. They’re small, but they were things I could do to help instead of focusing on myself.”

Whatever happens, it’s kind of thrilling to see Mayor Pete climb to #3 behind Biden and Bernie in the way-too-early-to-be-meaningful polls.  We have so much great talent, announced and unannounced.  I’d support virtually any of them with wild enthusiasm in a match-up against Trump.  But what makes it particularly fun for me to see Pete become known — and so well liked — is that, oh, by the way, in addition to being brilliant, brave, and effective — a Rhodes Scholar Navy counterintelligence officer back from Afghanistan who reads Norwegian and Arabic and has done a fantastic job for South Bend — his husband Chasten is a great guy, too.

To someone who grew up when the worst possible thing you could be was gay, it is just amazing and wonderful to see how for a lot of the country and the world, the prevailing response to this now is — as it ultimately was to Kennedy’s being Catholic or Obama’s being black or Clinton’s being female — “who cares?”

Mayor Pete knows how to bring people together in common purpose.  Once they had had a chance to kick the tires, South Bend voters reelected him by a margin of more than four to one (so he obviously got a lot of Republican votes, too).

And amazingly, he knows to beat “the claw game,” as you can read in this excellent Indianapolis Monthly profile.

Enjoy.

And then, yes, of course, if you want to watch a Georgia-born, Alabama-educated, conservative long-time former Republican Congressman ranting all yesterday morning, click here. And here. And here.  And that’s just for starters.  But he’s right of course.

And so was Lindsey Graham back when he called Trump unfit for office (“a race-baiting, xenophobic, religious bigot . . . undercutting everything we stand for“) and Hillary Clinton “one of the most effective secretaries of state, greatest ambassadors for the American people that I have known in my lifetime.”

It is to cry.

Have you toured the new KGB Espionage Museum down on West 14th Street?  I just did — sort of — via Russ Baker’s report.

Remember when the KGB was our enemy?

Steve Israel writes in The Hill:

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. . . But if there is one damning conclusion of the Mueller report that ought to unite the left and the right it is this:

Russia meddled in our democracy.

The summary by President Trump’s own appointed attorney general reflects that the Mueller investigation has laid-out a clear and comprehensive case of such Russian meddling. That case has been backed up by multiple indictments.

President Trump has said that “it is a shame that our country had to go through this. It’s a shame that your president has had to go through this.”

No, Mr. President. The Mueller investigation revealed that a strong adversary opposed to our strength and influence in the world did, in fact, embark on a massive effort to sway our presidential election.

The job of a president is to protect and defend the Constitution, not to complain about the inconvenience of it all. . . .

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Have you got an iPhone?  Here are some tips. (Mark Jansen already shared his hold-down-the-space-bar-to-turn-the-keyboard-into-a-trackpad tip.  These are more extensive.)

And this point of personal privilege:  My dad, who died in 1983, would have turned 100 today.  A man of exceptional talent and integrity.  How lucky were my brother and I to have had such amazing, loving parents.  And what a century it has been.  I wish he’d gotten to see a lot more of it.

From New York Magazine: Trump Nominates Famous Idiot Stephen Moore to Fed Board.

From government statistics: U.S. Posts Largest Monthly Deficit In History As Corporate Tax Receipts Plunge.

Please note: the corporate tax rate was slashed in 2017 by a Republican Senate and Republican House, signed into law by a Republican President.

Democrats have long been ridiculed as the “tax and spend” party.  But there’s a lot government needs to do and Democrats think it makes sense not only to do it — but to pay for it.

Republicans are the “borrow and spend” party.  They spend, too — they just don’t pay for it.  Some might call that fiscally irresponsible.  Or even immoral.

• Reagan/Bush41 inherited a National Debt under $1 trillion — and quadrupled it.
• Clinton raised taxes on the best-off and by the end of his second term was able to hand Bush 43 a balanced budget with the prospect of “surpluses as far as the eye could see.”
• Bush 43 slashed taxes on the best-off even further than Reagan had and handed Obama the largest deficit in history.
• Obama raised taxes on the best-off and, by the end of his second term, was able to hand Trump and the Republicans a National Debt once again shrinking relative to the economy as a whole.
• Trump and the Republicans have exploded the deficit once again.

If you’re “socially liberal and fiscally conservative,” consider this: you lean Democrat on both fronts.

Erich Almasy: “The swan story you attributed to the late, great Hermione Gingold (what a wonderful baritone giggle she had) is an oft-told opera story starring Leo Slezak, an Austrian tenor who performed in the 20’s and 30’s. As told to me by my father (a Viennese opera lover) and by Leo’s granddaughter, ‘Papa told her about a Lohengrin performance. It was just before his first entrance. He was ready to step into the boat, which, drawn by a swan, was to take him on-stage. Somehow the stagehand on the other side got his signals mixed, started pulling, and the swan left without Papa. He quietly turned around and said: What time’s the next swan?‘”

Jonathan Cartby: “That story about the swan is an old one indeed.  I have seen it quite a number of times, first around 1969, generally in the following context.  In Wagner’s opera Lohengrin, the hero departs, as he came, on, or with, a mechanical swan.  In one production, the stagehands mistimed the swan so that it crossed the stage before the tenor could get there.  He then said, more or less to the audience, Wann faehrt der naechste Schwann ab? I can’t imagine someone writing a play in which people are hauled off by a swan after Wagner’s opera was written (around 1850) — it would have looked like a burlesque.”