Computers aren’t for voting. Voting by computer sounds really cool and futuristic— if this were 1969. But now that we all have computers, we know that they are, in fact, huge f**k-up machines. They’re like having a compact, silicon version of Gary Busey on your desk— you never know what’s going to happen. I’ll tell you what’ll happen: Some 13-year-old hacker in Finland is going to hand the presidency to Kylie Minogue. You thought the 2004 election was bad— wait until the next one is decided by a customer service rep in New Delhi.
Maher, Bill. New Rules: Polite Musings from a Timid Observer (p. 24). Potter/Ten Speed/Harmony/Rodale. Kindle Edition.
Maher was prescient when he wrote that Joke in the mid 2000s. There is great confusion and fear regarding the threats that we face in our digital world. The fears are possibly over-blown as indicated by the hyperbole in Wired Magazine’s story: The Untold Story of NotPetya, the Most Devastating Cyberattack in History – Wired Magazine 8-22-18
https://www.wired.com/story/notpetya-cyberattack-ukraine-russia-code-crashed-the-world/
Now that is a headline that should grab you, although I am not sure how the story is “Untold” if it is right there in front of us. The piece is a fascinating account of a computer virus (suspected to emanate from Russia) that spread from Ukraine into the network of global shipping giant Maersk. As the dramatic reporting of this story unfolds, Maersk’s global shipping is brought to a halt from which it takes about ten days to recover. Ships and ports backed up all over the world. The drama is fascinating and illuminating of the risks of corporate networks and their inherent vulnerabilities.
Upon deeper analysis, it could be argued that these stories emphasize the intrigue while ignoring the mundane – the distinction noted in the article that Maersk had outdated PCs and antiquated servers running vulnerable software and insufficient backups that were the root cause of the breach leading to crisis. Here again we see that the media product focuses on the fear and danger rather than the boring story that Maersk needed to update its PCs and servers.
This Not Petya tale is a great illustration, not of what lies in a fearful future, but rather all the work that needs to be done for business and industry to insulate itself from the risks of the day. This is a great technical opportunity for the “White Hat” tech, security and infrastructure back-up providers to fortify and create a true info super highway that will be safe, secure and facilitate commerce.
Investors are grappling with a robust US economy, low American unemployment and tax cuts vs rising government debt and trade conflict alongside rising interest rates. Add in Brexit and numerous geopolitical threats. How can investors make sense of the world and position portfolios for effective strategies?
The outcome of these challenges is not knowable, but broad historical perspective may provide some fortification of the courage needed to “stay calm and hold on”. Historical archives of leading periodicals provide a treasure trove of experience to learn from.
The cover story in the Economist Magazine 10/10/1998
NOBODY could accuse the world’s financial elite of underplaying the mess in today’s global economy. The mood among bankers and politicians gathered in Washington for the annual meetings of the IMF and World Bank was grim. Bill McDonough, the president of the New York Federal Reserve, spoke of the “most serious financial crisis since world war two”. This week an extraordinary, frightening swing in the dollar’s value against the yen made things even eerier.
https://www.economist.com/leaders/1998/10/08/missing-the-point
The Asian financial crisis began in May 1997 in Thailand with a currency devaluation that triggered currency problems throughout Southeast Asia and other 2nd tier economies globally thru 1999. This period saw numerous debt restructurings and currency devaluations from the Philippines to Russia and Brazil. Yet this era of financial history did little permanent damage. This currency struggle continues today and is not limited to emerging market economies, but major global markets like the Eurozone and China are maneuvering to adjust to significant changes in US posture from a stabilizing hegemon to antagonist.
Long term buy and hold investors were faced with many down days and frightening headlines over the last twenty years. Headlines include: Asian financial crisis – Dotcom Crash – 9/11/2001 – Invasion of Iraq – Crisis of 2007-2009. One way to navigate this period was to stay calm and remain fully invested. Making changes in reaction to the headlines would be very difficult to manage or deploy with accurate timing. That brings us back to buying and holding broadly diversified equity portfolios and accepting downswings as part of the process.
Long term minded reluctance to sell can often create a feeling of vulnerability and exposure to danger. It feels a bit like “doing nothing” yet it may have great long-term benefits. The beauty of holding over extended periods is that we can avoid the mistakes of impulsive reaction to events as they are happening in real time. With the mitigation of patience, conflicts and crisis take on a much tamer texture that can prove to be less threatening than when they are happening. My Dad used to tell me to go for a walk instead of watching the market on down days. That makes for a lot of miles to walk during bear markets.
Traditional “brick and mortar” retail is in a major upheaval. 2018 is witness to the last Chicago area Sears store being shuttered, the closure is symbolic of the Darwinian change in retail imposed by Walmart, Amazon, Costco and numerous others. This evolving landscape of creative destruction has existed throughout American retail history notably with the first American “Department Store” established on September 21st, 1846. The “marble palace” was built by retailer Alexander Turney Stewart, the grandfather of modern American retail. Alexander Stewart became one of the richest men of his time.
Jeff Bezos, the richest man of our time is now the king of retail. He seems like a ruler that will retain the throne for generations, but it is rather likely that Amazon will become a target of new upstarts and ideas in the perpetual battle to sell you stuff. The dynamic combination of web marketed goods and the UPS / Fed Ex / US Post package delivery within 48 hours is changing the way we shop. This is another step along retail history that included “Home Kits” that were sold in the Sears Catalog. Sears Archives notes:
From 1908–1940, Sears, Roebuck and Co. sold about 70,000 – 75,000 homes through their mail-order Modern Homes program. Over that time Sears designed 447 different housing styles, from the elaborate multistory Ivanhoe, with its elegant French doors and art glass windows, to the simpler Goldenrod, which served as a quaint, three-room and no-bath cottage for summer vacationers. (An outhouse could be purchased separately for Goldenrod and similar cottage dwellers.) Customers could choose a house to suit their individual tastes and budgets.
Sears was not an innovative home designer. Sears was instead a very able follower of popular home designs but with the added advantage of modifying houses and hardware according to buyer tastes. Individuals could even design their own homes and submit the blueprints to Sears, which would then ship off the appropriate precut and fitted materials, putting the home owner in full creative control. Modern Home customers had the freedom to build their own dream houses, and Sears helped realize these dreams through quality custom design and favorable financing.
http://www.searsarchives.com/homes/index.htm
Ordering a home from the Sears catalog (Montgomery Ward offered similar home kits) is an historical remnant that reminds us of the constant changes on the battlefield of business and commerce. This is an everchanging realm from department stores to catalog shopping with Rural Free Delivery and now Amazon Prime. There is no endpoint or predicting where the next innovative actor will arise. The lesson is again one of constant competition for making a sale.
I remember my Father talking about the “Old Days” when someone drove a Cadillac you knew they were wealthy. For the last few decades, anybody can walk in and sign a lease. He was observing that ubiquitous credit has changed the landscape and opened a wide range of luxury goods to the masses.
On the surface, this seems like a nice element of modern life. Widely available credit fuels more opportunities for consumers and producers to come together and grow economic activity. The United States has become a consumption driven economy resulting in perpetually growing levels of household debt.
This era of debt expansion has driven additional economic growth. The US economy has recently been pushed higher by un-funded tax cuts that are accelerating the rate of Federal borrowing. The aggregate of all this borrowing can stoke fear of ultimate monetary crisis. Individuals have great difficulty restraining themselves from overleveraging their lifestyle. The over-borrowers were a major factor during the crisis ten years ago, and they will be there again for the next downswing.
The timing of the economic cycle of growth followed by recession is impossible to predict. Many current market discussions are centered on how long the growth cycle that started in 2009 can continue without correction. This debate will go on perpetually and often tempts us with the idea that you can get out before the storm. As we know, the investor brain has great difficulty distinguishing between the predictability of an oncoming hurricane and storms of finance. Many vacated in advance of the arrival of the disaster, hurricane Florence. The financial industry has a deep recognition of this desire for shelter from negative financial events, but they are not forecastable with any accuracy. That does not stop an endless stream of commentary, prediction and questionable investment strategies designed to protect from the unknowable.
The list of threats to the investor is always long. The number of risks that we face simply changes as time ticks by. The longer the market moves without correction, the more dramatic the downswing will feel when it arrives. The novelty of a downswing after this long period of growth will prompt doomsayers to swarm the airwaves with scary scenarios of doom that are likely to be much scarier than just another economic cycle.
For additional historical perspective I have discovered https://timesmachine.nytimes.com, an incredible tool that is available to New York Times subscribers. Times machine allows access to full copies of the NYT dating back to September 18, 1851.
This archive provides a valuable perspective of past events that help our investor mindset stay grounded in the realization that todays’ headlines are not much different from the past. We could take the cover story heading “US and Soviet Exchange Charges Over Propaganda” from the NYT 9-25-1968 page one as a mirror to the current controversy regarding social media voter manipulation. In 1968 there was severe concern over the August 20, 1968 “Prague Spring” – a short period of liberalization and subsequent invasion of 200,000 Warsaw Pact troops and 5,000 tanks into Czechoslovakia just as the Ukraine and Crimea are regions of grave concern currently. The similarities are eerie yet reassuring in the sense that this moment is another in the cyclical struggle of people in the difficult regions that lack stable government, civil and legal rights or robust economic systems.
Another great historical resource is available to Economist subscribers in the searchable archive that goes back twenty years. The September 12, 1998 issue had some items that illustrate the endless cycle of repetition that cycles through the human experience.
Great Grandfather of the IPhone
Twenty years ago we can see the emergence of the “Personal Digital Assistant” or PDA. This device was a revelation that was growing rapidly in popularity and as the Economist wisely noted was likely to become more portable similar to …mobile phones?
https://www.economist.com/business-special/1998/09/10/palm-springs-eternal
“The biggest opportunity may come from the PDA industry’s convergence with mobile phones. The current wireless version of the Pilot is bulky—just as early mobile phones were. But it will shrink. It does not then take much imagination to picture people using wireless PDAs to call up bank balances, settle utility bills or process sales orders—all things that, until recently, were the preserve of the PC.” Economist Magazine 9-12-1998
When the Palm Pilot was ascending into the marketplace of electronic devices, could anyone foresee what the devices would be, and which companies would prosper? 1998 was the late stage of what became known as a technology bubble that was to implode two years later.
The very same issue of the Economist featured a cover with the heading “Unwanted…Slick Willy Clinton” with a mock wanted poster of a beleaguered President Clinton. The irony is unmistakable as we persevere through another controversial presidency.
There is an incredible challenge to face the populist backlash reaction to the difficult impacts wrought on labor by globalization. The demagogic slogan of “America First” implies that decisions of the past did not place our interest as a country foremost through initiatives like the Marshal Plan, Bretton Woods, IMF, WTO and other post WWII mechanisms that have contributed to making the USA the world’s largest and most vibrant economy. In reading the real time reactions via periodicals of the past we can see the constant struggle to make sense of the world while it is happening in real time.
The dire trials of the Korean and Vietnam Wars, the Cold War, assassinations, energy crisis and so many numerous events of the past 75 years must be considered with humility and reverence for those charged with making the tough decisions. The idea that the US was taken or duped into bad trade arraignments denies the reality of our wealth, resources, standard of living and numerous other concrete factors that have worked well over the recent century for Americans. To turn dramatically away from that based on dangerous experiments of tariffs, nationalist and belligerent treatment of traditional allies, and numerous domestic policy changes is unlikely to have much permeance as the political pendulum swings over the next few election cycles.
The “wall” against the threats of the world outside our borders may not be able to be high enough nor is it likely to protect against the real threats of global economic innovation, low domestic population growth, struggling national education standards and many other potential threats to our way of life. To build a real fortress and path to an even greater future, we need to continue to innovate and invent the great companies beyond Amazon, Google, Apple and Microsoft. The answer lies in education, productivity and continuing to be the magnet for people from all over the world. Who we are as a people that creates the most valuable things is likely to be a much stronger idea than a “wall” – a foundation. A platform on which to build an even greater engine of innovation that is globally dominant. The Great American melting pot that blends the best and brightest from around the world into the most diverse and dynamic culture on the planet. Silicon Valley. Motown. Agriculture that feeds the world. Hollywood that remains unrivaled. The beacon of freedom, equal rights and unlimited opportunity that we are all lucky to be a part of.