Thus spoke Ronald Reagan’s OMB (Office of Management and Budget) director David Stockman (6/8/2017). Stockman has been making dire pronouncements like this for years, and for years he has been absolutely wrong. Yet the talent bookers for CNBC continue to call him back for reprises of his infamously bad calls. For years Stockman has been unable to square stock market fundamentals with valuations. Maybe this time those bookers figure the stopped-clock syndrome will come up in their favor. More likely they know Stockman’s ‘horrendous’ prediction will get eyeballs to their site. After listening to his rant about the “calm before a gigantic, horrendous storm” I’m truly beginning to question if the guy is in possession of his faculties. He terms the furor over Russian tampering in our election process as a “huge nothing-burger” and asserts that Mike Flynn did nothing wrong, even though it has been alleged that Flynn’s attorney has been shopping for an immunity deal.
To Stockman this Russia-gate business is one big distraction, with the impact being total absence of effective government, a libertarian dream-come-true. We are out of control: we can’t get anything done, it will lead to a market collapse. My take is that we have our priorities set exactly right. The economy is doing fine. We don’t need Congress doing something rash that might upset the apple cart. Focussing with laser precision on an the threat represented by the Russian hack of our body politic seems to be a much better way to spend our time. This should not be a partisan issue! Damn the tweets, full speed ahead!
Speaking of Partisan Politics, Kansas may provide a ray of hope.
One real problem that has faced our country is the extreme partisanship that has taken hold over the past couple of decades. George Washington warned against this in his 1796 farewell address. He posited that the affairs of state could get so bound up in political wrangling that the citizenry would be open to a strong man who promised to fix the broken system. Sound familiar?
I live in Kansas, just across the state line from my home town, Kansas City, Missouri. Although there is a Kansas City, Kansas, it is K.C.,MO that the natives refer to when they say they are from Kansas City. KCMO is the home of the Chiefs and Royals and some of the greatest cultural infrastructure in the United States. KCMO infrastructure keeps my property in Kansas valuable. So, I’m proud to be from Kansas City.
I have had trouble admitting I’m from Kansas because the politics here have been plumb crazy-to the extent that author/historian Thomas Frank wrote a book about it, “What’s the Matter with Kansas? How Conservatives Won the Heart of America.” Since the publication of Frank’s book in 2004, Kansas has become a total fiscal basket case. Interestingly, during the first six years after the book came out, the Kansas executive branch was in the hands of the Democrats, two-term governor, Kathleen Sibelius (who resigned in 2009 to become HEW secretary in the first Obama term) and her successor, Lt Governor Mark Parkinson. During that decade the make up of the legislature became significantly more conservative as a result of grass root politicking. By 2010 the stage was set for the return of ‘favorite son’ Sam Brownback to run for governor … after nearly 20 years in Washington, first in the House of Representatives and then 15 years in the Senate. Mr. Brownback was a true believer in the proposition that if you cut taxes on the job creators prosperity would be sure to follow. After being sworn in in 2011 the Governor, with strong extremely conservative majorities in both the Kansas House and Senate, signed into law a repeal of the Kansas income tax on all pass-through businesses (lawyers, doctors, family farms, sole proprietorships–some 330,000 of them).
The governor called the cuts a “real live experiment” of the principle that slashing taxes and cutting government spending would spur economic growth that would power the state.–Kansas City Star, 6/11/2017 It did not work. After five years of extreme cuts to infrastructure, education, safety net programs and dipping into the state pension funds (year-after-year one-time attempts to keep the state afloat), the Kansas Legislature, on a second attempt over-road the governor’s veto and reinstated the income tax on these businesses. According to The Hill this move could raise revenues by $1.2 billion.
Importantly, this required a bipartisan effort to meet the requirement of a two-thirds majority in both houses to accomplish the over-ride. Maybe the fever is breaking! If so, it would be a very positive development not only for the market (it should be a boost to our national psyche) but also the soul of our democracy.
Of course, thanks to the circus in Washington, this really monumental change in a very RED state was totally missed by the televised media, though it did make the front page of the New York Times -6/7/2017. Kudos to NPR who gave it a good working-over. Unfortunately, most Americans do not get their news from these sources.
What do you think?
P.S. I love this quote from Thomas Frank–“Bad government is the natural product of rule by those who believe government is bad.”
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Thanks Bill, I look at some of these issues differently and as a long term believer in the stimulative effect of tax cuts, I believe much of the anti Brownback commentary is out of context. We do not have a funding shortage in Kansas but lack the will to adjust the other side of the ledger. Funding for schools (many with large untouched reserves basically has gone up every year under SB contrary to KC Star paranoia. Politicians caving to cover their rear ends is a fact of life and writ large. Hope all is well.
.https://kansaspolicy.org/increases-in-education-spending-fail-to-improve-student-outcomes/
By the way, I agree with you on Stockman. He is trying to hard to be Dr. Doom. His valuation analysis is flawed. My own Armageddon scenario is compelling but has nothing to do with fundamental security analysis. Hope you are well. BZ.
Thank you for your comment Buzz. I realize that there is another side to every story. And, I have heard the commentary about education funding. Nonetheless, significant cuts were made in other state programs. Maybe those spending cuts were not large enough as you say because of weak-willed politicians. I would probably be on the other side of that argument.
Importantly, the tax cuts were made and they did not foster economic boom times in Kansas. It did not entice enough new business to the state of Kansas (potential sources of revenue from the taxes paid by the employees of those businesses) to make up for the budget shortfalls that came about as a result of the cuts.
I am very fortunate to live a comfortable life in my retirement. However, as an individual in Kansas I pay four and a half percent of my income to the state of Kansas. Meanwhile, my daughter-in-law who runs a very significant medical practice and makes a lot more money than the average Kansan pays none. Frankly, she can’t understand it. I have a massage therapist Who operates as a sole proprietorship who also pays no Kansas income tax. She, too, can’t understand this, especially when the state is running deficits.
I believe it is safe to say that the program did not work. It should be taken as a serious example for others who would go down this path that simply cutting taxes and services is not a certain path to Fiscal riches.
I will give you one very important point and that is more efficient spending of our tax dollars would be a great Thing. Again, thanks for your comment and if you are in the Kansas City area, I would love to meet up and have lunch or a drink sometime.
Take care.
bk
Bill: I thoroughly enjoy reading Kort Sessions and totally agree with your point of view for long term investing. Being negative grabs headlines and has very little downside. If ones negative call is correct, you are a genius calling the market, if you are wrong, everyone is so happy most people forget what you said, unless of course, they sold everything based on your negative reading.
As far as Kansas goes, we grew up together just a few blocks from the Kansas state line and lived on the Missouri side. I have not lived in KC for many years, but we have family there and I still read about the political atmosphere and subscribe to the KC Star on line.
I read the book, “What’s the matter with Kansas”. When people ask where I am “from”, I say Kansas City. They always assume I am from Kansas and I have to immediately tell them, no I am from Kansas City, MO. Unfortunately that doesn’t work as well as it used to
because Missouri is getting nearly as crazy as Kansas.
When we were growing up, both states were somewhat center right, but progressive in many ways. I don’t know how this change happened. However, I did notice that many of our high school classmates live elsewhere today. Maybe that’s it?
Regards,
Mark
Mark, thank you so much for your readership and your comment. I hope all goes well with you and your family.
I think part of the problem in understanding what’s going on in Kansas and many other places is the fact that we both grew up in the bubble, successful white middle-class families. We managed because of our access to a good education and job opportunities to live the dream. That does not mean that we did it without some struggle and some luck. Globalization I think was the wildcard that nobody saw coming.
One of my favorite examples comes from my own life. I could not have picked a worse time (and in hindsight probably the best time) to get into the brokerage business than October 1970. The stock market was on its way to a decade of terrible performance scarred by skyrocketing oil prices, hyperinflation, the constitutional crisis of Watergate and much more. I started out making $500 a month as a trainee. That was bumped up to $750 per month when I got my license. There were many months when I did not make that number. It was a major struggle. Fortunately for me Management stood by me and overtime the rest was history – – a very successful brokerage career.
While that was happening to me there were guys at the Ford Claycomo plant in North KC making $20,000, $30,000 and $40,000 a year as auto workers (living the dream), apparently in an industry that had no major worldwide competition. Unfortunately that was not correct and because of foreign competition their wage schedule has really not grown. There were Japanese workers in Yokohama that were willing to work for three dollars an hour and guaranteed lifetime employment. They were building better cars with better Fuel economy. In the final analysis those Japanese workers all wanted to live like Americans. That fever has spread all over the world. For US corporations to compete worldwide US jobs had to go abroad.
Eventually, my education (like yours) paid off. Likewise, the lack of education and retraining for new jobs and lower Labor cost markets all over the world has created a tremendous income inequality in our population. I know it has created tremendous animosity in the electorate over issues like foreign trade and immigration giving rise to the base that has allowed the current administration to gain access to the White House. Eventually this all evens out as wage demands in developing economies increase. It will be a long and painful process.
Lately it seems that our whole country has become Kansafied.
Best regards,
bk
Bill, I’ve recently discovered your blog and appreciate your experience, perspective, and comments – thanks for putting them out there. Moreover, it takes a Badger to really understand another one. ON, WISCONSIN!
There are a few items I’d like to add to your latest ‘Horrendous Storm’ and postscript posts.
First, as you know the news (and now “media”) business has always and everywhere been shocking, negative, and salacious. Like any good business, its success requires ever greater consumption and, ideally, higher pricing. Unfortunately, many of today’s soundbites and headlines are no longer from organizations and people who value reputation because the fragmentation of information delivery allows for infinite re-creation, reducing the cost of error and offense. In other words, David Stockman has more lives than a cat!
Second, you cite globalization a few times as a headwind for our economy and employment, and open the door for higher wages in emerging economies to moderate this effect. A moderation would be massive. There have always been very few parts of the world that could compete with the American rule of law protecting human rights, enterprise and capital, and I believe we’re entering an extended period where our global competitiveness on other input costs (primarily wages and energy) will also be exceptional.
Third, your comments about knowing what you own, why you own it, and the perspective of private business owners are invaluable. While I’d like to believe that public equity shares are in firm hands of business owners globally, the current reality is vastly different. Which only raises the value of diligent understanding, and requires a further extension of investment horizon.
As investors, we should welcome the current environment for news (media), misinformation, confusion, volatility, and fear – they are a perfect recipe for opportunity.
-BAB
Brad, thank you for your comment. I agree with your conclusion. The reason I started this blog was to give back for The many blessings that I have had throughout my career … to apply my knowledge and experience to a pernicious cornucopia of media outlets that daily scare, confuse and befuddle investors. I maybe have a couple of thousand followers. It is probably that Badger thing working against me on the comprehension of non-badgers. On top of that I am constantly criticizing the media. It is very unlikely that I will get a Broad forum to share my views. I do not believe that there is any chance near-term that My work will screw up what I agree is the true advantage that you mentioned.
bk