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End of a Long Year

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The end of 2018 marks the demise of Donald Trump’s “rubber stamp” Congress. To the surprise of many, the Democratic Party managed to regain control of the House of Representatives during the midterm elections. With the Democrats controlling the House, Trump might decide that the Presidency is no longer any fun – with too many obligations and duties, demanding such loathsome tasks as reading and listening to other people.

Meanwhile, the Democrats are scrambling to present a united front behind whomever might be their 2020 presidential nominee. The party’s establishment seems terrified that a new generation of progressives – exemplified by Alexandria Ocasio-Cortez – might scare away the deep pockets of K Street lobbyists. On the other hand, progressive-minded voters have been conditioned to view Centrists as corporatists in the tradition of Hillary Clinton. Will a unifying candidate, with the backbone to advance a forward-looking agenda, gain enough traction to rise above a large pack of ambitious contenders?

January 2019 brings us the long-awaited release of American Cosmic, a book by Professor Diana Walsh Pasulka from the University of North Carolina at Wilmington. I discussed American Cosmic in my last posting. Although the book was originally scheduled for release in April of 2018, the publisher (Oxford University Press) found it necessary to “dumb-down” the book so that it would be accessible to a mainstream audience. (Oxford University Press is primarily involved in the production of academic textbooks.)

American Cosmic will offer information about the involvement of Silicon Valley entrepreneurs in the reverse-engineering of UFO technology and the assimilation of that technology into products manufactured by aerospace industry giants. This book could have a significant impact on the acceptability of the taboo subject of UFOs. (They are now referred to as unidentified aerial phenomena or UAPs to avoid the stigma of lunacy associated with UFOs.) A significant amount of rumbling from the rumor mill suggests that the Pentagon is poised to release some “dramatic” UAP videos in January or February.

Beyond the damage inflicted upon the environment by Donald Trump’s deliberate efforts to sabotage the measures and mechanisms of environmental protection, 2018 brought us more bad news about the outlook for climate change. A rather bleak National Climate Assessment (NCA) report was released on Black Friday (the day after Thanksgiving). The NCA is a United States government interagency effort focused on climate change science. At the website for the Union of Concerned Scientists, senior climate scientist Rachel Licker discussed the sleazy handling of the report by the Trump Administration:

The Trump Administration tried to bury the report, which they were legally mandated to issue, over a holiday weekend. When that failed and the report drew wide coverage, President Trump, his press secretary, and two cabinet secretaries tried to discredit the assessment and disparage the work of more than 300 scientists and experts from federal, state, and local governments, tribes and Indigenous communities, national laboratories, universities, and the private sector who contributed to the report, many on a purely voluntary basis.

Hopes run high that 2019 might be the year when decisive action is taken by special counsel Robert Mueller and Congress to end the destructive, scandal-plagued Trump presidency.

More Great Thoughts from Jeremy Grantham

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I always look forward to Jeremy Grantham’s Quarterly Letter.  Grantham is the Co-founder and Chief Investment Strategist of Grantham Mayo Van Otterloo (GMO), an investment management firm, entrusted to oversee approximately $97 billion in client assets.

Unlike many asset managers, Jeremy Grantham has a social conscience.  As a result, during the past few years we have seen him direct some sharp criticism at President Obama, Tim Geithner, Ben Bernanke and – of course – Goldman Sachs.  Grantham fell behind schedule when his Third Quarter 2011 Letter was delayed by over a month.  As a result, Grantham’s Fourth Quarter 2011 Letter was just released a few days ago.  At 15 pages, it earned the title “The Longest Quarterly Letter Ever”.  As usual, Grantham has provided us with some great investment insights – along with some pointed criticism of our ignorant legislators and mercenary corporate managers.  What follows are some selected passages.  Be sure to read the entire letter here (when you have time).

To leave it to capitalism to get us out of this fix by maximizing its short-term profits is dangerously naïve and misses the point: capitalism and corporations have absolutely no mechanism for dealing with these problems, and seen through a corporate discount rate lens, our grandchildren really do have no value.

To move from the problem of long time horizons to the short-term common good, it is quickly apparent that capitalism in general has no sense of ethics or conscience.  Whatever the Supreme Court may think, it is not a person.  Why would a company give up a penny for the common good if it is not required to by enforced regulation or unless it looked like that penny might be returned with profit in the future because having a good image might be good for business?  Ethical CEOs can drag a company along for a while, but this is an undependable and temporary fix.  Ethical humans can also impose their will on corporations singly or en masse by withholding purchases or bestowing them, and companies can anticipate this and even influence it through clever brand advertising, “clean coal” being my favorite.  But that is quite different from corporate altruism. Thus, we can roast our planet and firms may offer marvelous and profitable energy-saving equipment, but it will be for profit today, not planet saving tomorrow.

It gets worse, for what capitalism has always had is money with which to try to buy influence.  Today’s version of U.S. capitalism has died and gone to heaven on this issue. A company is now free to spend money to influence political outcomes and need tell no one, least of all its own shareholders, the technical owners.  So, rich industries can exert so much political influence that they now have a dangerous degree of influence over Congress.  And the issues they most influence are precisely the ones that matter most, the ones that are most important to society’s long-term well-being, indeed its very existence.  Thus, taking huge benefits from Nature and damaging it in return is completely free and all attempts at government control are fought with costly lobbying and advertising.  And one of the first victims in this campaign has been the truth.  If scientific evidence suggests costs and limits be imposed on industry to protect the long-term environment, then science will be opposed by clever disinformation.

*   *   *

Capitalism certainly acts as if it believes that rapid growth in physical wealth can go on forever.  It appears to be hooked on high growth and avoids any suggestion that it might be slowed down by limits.  Thus, it exhibits horror at the thought (and occasional reality) of declining population when in fact such a decline is an absolute necessity in order for us to end up gracefully, rather than painfully, at a fully sustainable world economy.  Similarly with natural resources, capitalism wants to eat into these precious, limited resources at an accelerating rate with the subtext that everyone on the planet has the right to live like the wasteful polluting developed countries do today.  You don’t have to be a PhD mathematician to work out that if the average Chinese and Indian were to catch up with (the theoretically moving target of) the average American, then our planet’s goose is cooked, along with most other things.  Indeed, scientists calculate that if they caught up, we would need at least three planets to be fully sustainable.  But few listen to scientists these days.  So, do you know how many economic theories treat resources as if they are finite?  Well, the researchers at the O.E.C.D say “none” – that no such theory exists.  Economic theory either ignores this little problem or assumes you reach out and take the needed resources given the normal workings of supply and demand and you can do it indefinitely.  This is a lack of common sense on a par with “rational expectations,” that elegant theory that encouraged the ludicrous faith in deregulation and the wisdom of free markets, which brought us our recent financial fiascos.  But this failure in economic theory – ignoring natural limits – risks far more dangerous outcomes than temporary financial crashes.

*   *   *

As described above, the current U.S. capitalist system appears to contain some potentially fatal flaws.  Therefore, we should ask what it would take for our system to evolve in time to save our bacon.  Clearly, a better balance with regulations would be a help. This requires reasonably enlightened regulations, which are unlikely to be produced until big money’s influence in Congress, and particularly in elections, decreases.  This would necessitate legal changes all the way up to the Supreme Court.  It’s a long haul, but a handful of other democratic countries in northern Europe have been successful, and with the stakes so high we have little alternative but to change our ways.

*   *   *

Capitalism, by ignoring the finite nature of resources and by neglecting the long-term well-being of the planet and its potentially crucial biodiversity, threatens our existence.  Fifty and one-hundred-year horizons are important despite the “tyranny of the discount rate,” and grandchildren do have value. My conclusion is that capitalism does admittedly do a thousand things better than other systems:  it only currently fails in two or three.  Unfortunately for us all, even a single one of these failings may bring capitalism down and us with it.

Keep in mind that the foregoing passages were just from Part II of the Quarterly Letter.  Part III is focused on “Investment Observations for the New Year”.  Be sure to check it out – it’s not as bearish as you might expect.  Enjoy!