…difference of opinion is not a difference of principle. – Thomas Jefferson, Inaugural Address 3/4/1801
We have two classes of forecasters: those who don’t know—and those who don’t know that they don’t know. – John Kenneth Galbraith
The Great Disappointment is often referenced as March 21,1844 when it was erroneously predicted that Christ was to return and the world as we know it would end. In researching this moment of history, you discover that the prediction was originally from 1843, but had to be rescheduled as the guest of honor failed to appear.
Predictions regarding the end of the world have persistently failed to accurately forecast apocalypse. The same can be said for those that make predictions of economic demise. Robert Gordon of Northwestern University, for example, speculated that humanity might never again invent something so transformative as the flush toilet.
Somehow the future turns out to be less dire than its forecast. 2020 will likely be studied for generations to come in an effort to understand how humanity coped and battled COVID-19. In the midst of suffering and disruption, there has been an astounding display of adaptation, innovation and resilience in the battle of Man vs Nature.
The pandemic of 2020 has challenged society at all levels. People have been harmed and taken by this malicious virus. Biotech is now rearing up on a more rapid timeline than was imagined, aided by mRNA vaccine development. “mRNA vaccines represent a promising alternative to conventional vaccine approaches because of their high potency, capacity for rapid development and potential for low-cost manufacture and safe administration.”
mRNA vaccines — a new era in vaccinology
A vaccine in less than 12 months is the result of years of efforts in development for other virus threats. “Over decades of work, however, HIV researchers developed a better understanding of the complex workings of the immune system. They mapped out in detail how HIV invades cells and replicates, and identified weak spots in the virus that can be targeted by drugs.”
How HIV Research Laid the Foundation for Covid Vaccines
WSJ noted on 12-14-20 that Blackstone Group “is amping up its bet on biotechnology lab space and other life-sciences real estate, agreeing to pay $3.45 billion for a portfolio of buildings primarily in the active Cambridge, Mass., market.”
Blackstone Raises Wager on Life Sciences With $3.5 Billion Property Deal
This article noted that the buildings are in the neighborhood of MIT. Imagine the economic activity associated with an educational institution of the highest order. This is an example of where breakthroughs come from. Education, investment and people converging to push society forward.
The stark reality of the pandemic is that the vulnerable are suffering while populist messaging is capturing headlines. Masks have become a symbol of control in the eyes of those who seek opportunity for anti-government messaging in the midst of this crisis. It is difficult to speculate on how much better we could have been if there was a central strategy for the public to follow.
The forte of those that see political theater as useful, are often disappointing once called upon to actually govern. The technocratic demands of our complex world are of little interest to the populists and sloganeers. The endless saga of Brexit is a marquee example. The British narrowly voted for a vague idea of “Independence” and removal from EU rules, yet the leaders that promoted those ideas are trapped in an endless negotiation or gone from the scene entirely.
Each deadline in Europe has been extended as the reality of breaking free from complexity and trade engagement meets reality. Going back in time fails in the face of stark consequences of nationalism and isolationist ideas that damage trade and opportunity. At the 11th hour, it seems that a complex new “trade agreement” has been reached. Now, the new disruptive rules will be implemented in the midst of this global health crisis.
“…far from closing the book on Britain’s tumultuous partnership with Europe, has opened a new one, beginning on its first pages with what analysts say will be the biggest overnight change in modern commercial relations.”
Brexit Deal Done, Britain Now Scrambles to See How It Will Work
“The post-Brexit trade agreement leaves many questions unanswered
Wrangling over the details—and the big omissions—will go on for years”
The post-Brexit trade agreement leaves many questions unanswered
The battle of populists vs. technocrats is a key concept for investors. Snappy sounding ideas that seek to smooth the arduous process of investing often lead to disappointment. You cannot build a wall around your portfolio. Tax shortcuts can lead to headaches. The “good ole days” are a myth. Portfolios are much more likely to benefit from the understanding that the investing process is one of life’s great challenges and there are no easy answers.
2020 has become a banner year for investors. The long term buy and hold philosophy has shown itself to be robust in the face of great volatility. In Q4, fears of a contested election gave way to change of the Presidency while the GOP gained seats in congress. The market ignored the accusation that democracy has been stolen and November 2020 was one of the best months in market history.
Political change will be a big part of the narrative of 2021. Less drama and disruption may prove beneficial to markets. The two remaining senate elections in Georgia and how that will dramatically impact the next two years of Federal policy as control of the senate will be determined.
Our binary system of Elephant and Donkey had been drawn into a reality TV script. Current references to The Apprentice are scarce, yet it seems that Season One – Presidential edition, has not been renewed. A political strategy is emerging to delegitimize the nascent Biden admin with the stain of (conspiratorial) fraud. The need for proof, plausibility or respect for years of election verification and process is cast aside. The narrative of the faceless mob of elite marionettes deciding who wins flies in the face of popular democratic rule and generations of election process development.
Let us pause for a moment and consider another view…might long term investors be just naive? 2020 was a year of events that show how drastically unaware we all are. We are blind to China sending the virus to hurt America. The masses willfully ignore those of great power, like Bill Gates, as he stands to become even richer from the COVID-19 crisis. Investors are blind to the malicious intent of the Federal Reserve and it’s sinister manipulations of the money supply.
The naive rabble are blind to the truth. The true reality is that our world is being exploited by a powerful cabal with nefarious intentions. The sheep do not see the marionettes pulling the strings. The conspirators who are in control are invisible to the masses.
Cheap, clean electric cars? Held back by big oil! Low cost health care for all? Buried by the medical industrial complex! Global trade is a plot to take jobs and reduce pay. Our economic reality is not competitive or free, but rather much like The Matrix that plugs into the back of your head and only shows you what “they” want you to see.
In addition to the clueless masses, we have two other groups. First are the conspirators that never make a mistake. Genius conspiracy plotters retain near perfection for lifetimes. George Soros, The Illuminati and FreeMasons are the ones “in control”. Don’t forget the bogus moon landing. Neil Armstrong and the gang stayed strong their whole lives with the deception that you actually believe!
Next, we have the visionary group that can see the conspiracy. Conspiracists are what they are often called. Those that have figured out the truth are very special. They have YouTube channels, newsletters and incredible books to sell you. These human truth detectors have internet broadcasts that appear to be nearly television networks. Sure, the sleuths that uncover what is really going on may not be actual social scientists or history scholars. That would make them part of the plot. It is imperative that those with unconventional backgrounds are the special voices that can enlighten the rest of us on what is really happening.
So the world is divided into these three groups? Of course not.
Are the ultra rich and stealthy actors manipulating the world in organized ways? Not likely. Yet these sketchy “theories” are running rampant all the way to the US President who claims dark forces are corrupting American voting and democracy. The power of the conspiracist is that they do not need any proof. Accusations are sufficient.
The bias of the human mind to avoid complexity leads to large numbers of citizens willing to entertain conspiracy theories and all manner of nonsense. David Aaronovitch, in his brilliant 2010 book, Voodoo Histories, states: “A conspiracy theory is likely to be politically populist, in that it usually claims to lay bare an action taken by a small power elite against the people.” Aaronovitch also points out the bumbling nature of many conspiratorial actions, like Richard Nixon and the Watergate coverup. These sham moments of history strain credulity for vast coverups like thousands of votes denied or a virus being purposely engineered in a secret lab.
Joseph McCarthy saw communist conspiracies and intended to get around to the proof after he destroyed many lives through unfounded accusations. The moon landing, JFK, 9/11…all very difficult for our mind to process and many succumb to simplistic, implausible explanations that involve plots less likely than the wildest Netflix series. The John Birch Society suggested that a vast communist conspiracy existed within the U.S. government with Eisenhower as Commie in Chief!
These movements are persistent. The ideas raise money and allow participants to feel part of a special cause. Investors need to stay on guard for all types of conspiratorial themes that perpetually circulate beyond politics. The accusations are spawned from the ever expanding techno media where any aspiring Cronkite can have his own news desk. Reality has no champion in the face of the conspiracy industrial complex. Just as McCarthy began an entire movement that invited the famous Red Baiters (see congressman Richard Nixon), all that these movements need are wild accusations, questions and fear.
Retaining confidence as an investor is crucial in the face of nonsense theories that melt away as the sunshine of reality beams in. The frightening idea that the system is “rigged” is prime material for populists and demagogues that seek support and political power. Successful investors understand that governance and financial systems are robust and likely to persist. We are continually tested and must stay courageous and strong in the face of scares and challenges. The intellectual reality is that the world is a crucible competition and random events that will perpetually defy forecast. These innovations are quietly moving forward without regard to political drama.
Innovation in transport electrification is accelerating the “peak” fossil fuel age. The clouds of energy shortage and fixation on Middle East supply have given way to falling costs of alternatives and supply gluts of coal and oil. The pandemic has had a dramatic short term impact, while long term skepticism across the fossil fuel sector is now a baseline belief of most portfolio managers. The next five years are likely to accelerate this trend as electric vehicles become the underlying reality of transportation. The gas station will compete with a 220V plug that will be installed in garages around the world.
Wars fought for oil may be a vestige of the past as inventiveness mints new fortunes and opportunity. Elon Musk, the relentless promoter of these innovations with Tesla, has rocketed to space as a side business and is now vying for the top individual spot in the list of richest in the world. Money is flowing at a manic pace and many of these new entities may fail, but the days of dominance by Exxon, Shell and the House of Saud seem to be waning.
In the December 8, 2020 edition The Economist noted: The pandemic could give way to an era of rapid productivity growth. Businesses have adopted new processes and technologies—and there are signs that they may pay off. Productivity growth—wringing more output from available resources—is the ultimate source of long-run increases in incomes.
The pandemic could give way to an era of rapid productivity growth
Productivity is the essence of progress and rising living standards. We are living with assistance from technology and connectivity in ways that were unimaginable a few years ago. These tools are likely to fuel robust potential for growth as the virus is repelled by the arduous task of mass vaccination.
Dire predictions of pandemic economic damage have been proven overly pessimistic by the forces of Federal Reserve action and supply chain resilience. As I write this material, there is live coverage of the first shipments of vaccine going from Pfizer loading docks in Portage Michigan to a FedEx plane taking off in Grand Rapids.
Vaccine rollout footage is a glimpse of the supply chain that has kept society functioning. The mRNA vaccines are now being distributed across America and around the world. These vaccines appear to have very high levels of efficacy and safety, and they can be produced more quickly than conventional vaccines. The vigorous beauty of capitalism is what delivers these moments just as that Amazon order rapidly arrives on the doorstep. Grocery stores, Costco and Home Depot have remained robust in the face of a dramatic demand shift.
This flex away from travel, dining and close contact activity has done great damage to sectors of the economy that require close human contact. People formerly employed in these areas have been bearing dire economic consequences. The reference to “flex” is optimistic as the hope here is in anticipation of many workers seeking opportunity and training in other areas. If a bartender is seeking training in computer security, might she be better off and more productive, even after the bar reopens?
Noah Smith recently speculated, “Robots, artificial intelligence and new sources of energy will empower workers, drive more innovation and raise demand for labor…it’s easy for this kind of apprehension to lead to a sort of neo-Luddism in which technology is viewed as the enemy. So I want to talk about another possibility: That new technology could actually help reduce inequality.”
We May Be Exactly Wrong About Technology and Inequality
The economic reality of 2020 reflects this dichotomy between high demand areas and the (hopefully temporary) economic ghost towns of sports arenas, hotels and many other areas. Digital retail, agriculture, and cloud computing technology have boomed. Shipping, logistics, and remote learning are a small sample of what is under a dramatic demand shift. Economic growth is found in a wide range of tech enabled commercial endeavors.
Investors are constantly bombarded with all manner of theories, often with the flavor of “elites” vs the “masses”. Stories often promoted by celebrities and other well known spokespeople are now part of the SPAC boom. SPACs are special purpose acquisition vehicles.
Forbes magazine states “In the 1980s, SPACs were known as “blind pools” and were the domain of bucket-shop brokerage firms infamous for fleecing gullible investors under banners such as First Jersey Securities and The Wolf of Wall Street’s Stratton Oakmont….The basics of the new SPACs are as follows: A sponsor would pay for the underwriting and legal costs of an initial public offering in a new shell company and have two years to use the proceeds to buy an acquisition target.”
Baseball executive Billy Beane of Moneyball fame, former astronaut Scott Kelly, 15-time NBA All-Star Shaquille O’Neal, and former Speaker of the House Paul Ryan have one thing in common: They are all involved in SPACs, special purpose acquisition companies, now the rage on Wall Street. A wave of boldface names getting into the game suggests that the market for SPACs is in the throes of a full-throttled mania.
When It Comes to SPACs, Be Wary of Celebrity-Backed Ones
Here lurks another example of opaque process and disadvantage for investors. Attractions like SPACs, speculative IPOs and the endless array of complex ideas and products available are the shiny objects that seek gullible money. The idea that there is some new magical way to investment success often ends in mediocrity or worse. Buyer beware.
Hundreds of millions are quietly being deployed so that man can be more resilient and productive. As long-term investors we can have a deeply held belief system that continues to grow. Reinvest dividends and plan for a future that owns a stake in the vibrant future that is Western, Democratic and Capitalist.
As education, science and innovation converge, we can look forward to the next challenge to unfold. Resilience as long-term investors shall guide us as we do our best to ignore the fright, joy and excitement that 2021 will undoubtedly bring. 2020 has shown that we can cope and battle unique challenges.
Let us hereby resolve to see the world for all of the complexity, randomness and challenge that it has always been. As we enter the new year, an accounting of just how lucky we all are is in order. That good things will hopefully be numerous, and I look forward to discussing them with you very soon.