A Little Common Cents This Late in the Year?

December 29, 2017, by John Norris

Section I

Here it is, the last business day of the year 2017. Outside my window, it is seasonably chilly without a cloud in the sky. Traffic on the highway, which I can just make out, is a little lighter than it ordinarily is at this time of day. The trees have all lost their leaves, and I struggling to make sense of this past year.

For some reason, the first few lines of William Shakespeare’s Richard III come to mind:

Now is the winter of our discontent

Made glorious summer by this sun of York;

And all the clouds that lour’d upon our house

In the deep bosom of the ocean buried.

Now are our brows bound with victorious wreaths;

Our bruised arms hung up for monuments;

Our stern alarums changed to merry meetings,

Our dreadful marches to delightful measures.

Okay, I am not really that pretentious, only partly so. Candidly, I only knew the first line, as a lot of people do. It is one of those phrases you know (winter of our discontent) without knowing how you do. Prior to looking it up, I knew it was Shakespeare, but probably couldn’t have told you Richard III off the top of my head. So, give me a 3 for actual pretense, and a 10 for the effort.

Still, I kind of like the analogy, even if I have to play with it a little to make it work.

You see, Shakespeare portrayed the last king of the House of York in less than flattering light, to put it mildly. This makes sense, as the Bard wrote the play during the reign of Elizabeth I, who was the last monarch of the House of Tudor…the dynasty which supplanted the Yorks. Basically, for the purposes of the play, Richard (or Gloucester) is scheming, deformed anti-hero or villain. In reality, historical evidence suggests Shakespeare’s description of the man is, shall we say, a bit hyperbolic.

Sound familiar to anyone in today’s political arena?

Then there is the winter of our discontent thing with which to contend. Richard, himself, delivers the opening soliloquy. It is the year 1471, and his brother Edward IV has retaken the throne after a brief usurpation by the House of Lancaster. What should be a glorious time for the House of York is delivered thusly:

Now are our brows bound with victorious wreaths;

Our bruised arms hung up for monuments;

Our stern alarums changed to merry meetings,

Our dreadful marches to delightful measures.

To me, and I am admittedly no Shakespearean scholar, that sounds kind of like “things are pretty darn good, and no one is really all that happy about it.”

In a lot of ways, that seems to sum up 2017 pretty well: things are pretty darn good, and no one is really all that happy about it. Discontent seems to reign this winter; that is if one believes the headlines and watches the news. In my adult life, I am not sure if I can remember a time when people are so dismayed at having it so good.

Yep, in a lot of ways, you know, 2017 rocked, and I mean rocked….and no one predicted of thought it would, or almost no one. Think about it, and harken back to the end of last year:

  • All major large cap US stock indices up over 20% in total return?
  • Unless something really strange happens with the 4Q equation, the best calendar year GDP in at least 3 years? Possibly the first 3% calendar year since 2005…possibly, but not probably?
  • A 4.1% Unemployment Rate, the lowest this century (which technically started in 2001)?
  • In November, Consumer Confidence hit its highest level, again, this century?
  • The NFIB Small Business Optimism Index is currently at its highest level, again, this century?
  • The Conference Board’s US Leading Index (Ten Economic Indicators) is currently at its highest level, again, this century…actually all-time?
  • Median Household Income will likely top $60K in the United States for the first time in history?

In truth, the US economy ends 2017 in arguably its healthiest shape since 2000. The markets have created a surprising amount of household wealth this year, surprising. In terms of dollars & cents, and in hindsight, this year…you got it…rocked, and very few saw the magnitude of the awesomeness at the beginning of the year. Unfortunately, a lot of people still don’t see it.

As I see it, the bigger problems facing our nation are societal and NOT economic. Perhaps that is the reason why it seems, yes it seems, people aren’t as happy as the math would ordinarily suggest. Hmm. I could be onto something with this train of thought, and perhaps I will expand upon it on future Fridays.

So, let me close with this one: I have struggled this week in wondering what to say about 2017. Basically, we, as a society, should be a lot happy than we are….or at least seem to be from all accounts in the media. This should not be the winter of our discontent, and we should happily be marching to delightful measures.

Oh yeah, my prediction for 2018? As it has been for about a decade now: if you liked last year, you should like this one.

Happy New Year.

Section II

Since my column seems to have fallen into sort of weird rotation in the newspaper, let me give you my submission for next week just in case. I kind of like it, although I very admit it isn’t as heavy as what you just read:

 

“This year, I gave my wife a record player for Christmas. She actually bought the thing, and all I did was wrap it up and put it under the tree. Personally, I would have never purchased it, as it wouldn’t have crossed my mind to do so. After all, it is old technology, and who has time for that?

Knowing my wife was getting g a phonograph, my daughter bought her a long-playing album: ‘A Rush of Blood to the Head’ by Coldplay. Never mind we have it on CD, and can access it through the music application(s) on our phones. The Norris family was going old school this yuletide, and I mean old.

Do you want to know something else? Putting that stupid 33 on the turntable was fun. So much so, we scoured the house for our old records, which we have never been able to throw out. After all, I vividly remember buying my first album at the Musicland in Brookwood Village. It was ‘The Grand Illusion’ by Styx featuring Montgomery’s own Tommy Shaw. My second one was the 1978 greatest hits collection by the Tuskegee-based band The Commodores. As an aside, I bought that one solely for the single “Brick House,” although “Slippery When Wet” soon became my favorite. You don’t throw out memories do you?

Even so, a record player in 2017? Really? Yeah, and I even went to a couple of book stores looking for gifts this year.

Despite all the predictions and advancements in technology, people are still buying books and, strangely enough, record players and albums. In fact, according to the Record Industry Association of America, after bottoming out in 2005 with only $17.5 million in sales, LP/EP (vinyl album) sales have kind of mushroomed to $429.7 million as of 2016. Outside of ‘paid subscriptions,’ these figures suggest the good old-fashioned long-playing record is the fastest growing format for music revenues. I imagine sales will be even higher for 2017.

What’s more, from what I have read, it seems physical books are staging a bit of a comeback while eBooks have been shrinking in sales. How know brown cow? Is our new technology dead?

Perhaps I am the wrong person to answer this question, because I am not sure if I ever turned on the Kindle I received. To be sure, the technology was, and is, pretty cool, and I understood why it was going to be popular with a lot of people. However, I liked the ceremony, if you will, of reading an actual book.

There is something about a dog-eared page, a coffee cup stain, judging how much more there is to read by the thickness remaining, and the physical aspect of holding a book which makes it, well, real. All of these things, and more, give my books some intrinsic value, at least to me. They make them mine. I own them, and am not just renting them from some technology company out in the ether somewhere.

There is a message in there somewhere.

Technology will continue to advance, and we will continue to place value on that which we can see, feel, and touch. The greater the sensory experience, the more value we will ascribe. This makes perfect sense, as it is as it has always been. Perhaps that is the reason why I gave my wife a record player for Christmas as opposed to a cassette deck.

Perhaps that is next year’s gift.”

That one was kind of fun, in more ways than one.

Section III

Also, I would be remiss if I didn’t share this one with you. I think this idea has a lot of merit, and would very much like to build it out to some degree. However, as the old saying goes: “a journey of a thousand miles begins with a single step.” Keep on reading for a small one.

 

I have read numerous articles which asked the following question in a number of different ways: “does corporate America really need a tax cut?” After all, big business pays a lot of people the big bucks to find loopholes and ways around paying its fair share, right? Apparently, these are the same companies which give their top executives eye popping salaries, with all kinds of perks on top of sweetheart fringe benefits.

To be sure, there is plenty of that in the United States. However, it is far from the norm, as just about any business person will tell you. In fact, they are probably just as indignant about that behavior, if not more so, than even the most left-leaning journalist. For every S&P 500 company which makes headlines over egregious executive pay and tax avoidance strategies, etc., there are at least 1,000, at least, small business owners scratching their heads wondering: “why did I not get the memo?”

You see, while the companies in the S&P 500 or Dow Industrials Average might be the proverbial face of corporate America in the US, they are small percent of the number of actual businesses in the country. So, does corporate America really need a tax cut? I suppose it all depends on your definition of corporate America, but almost no one thinks of it as a 5-10 employee small business.

But what can government do about the perceived abuses in business without hurting the proverbial little guy, gal, or mom and pop? That is a great question.

One of the biggest problems with reigning in big business, if it needs to be, is large dispassionate investors own a big chunk of it. These include things like mutual funds, exchange traded funds, insurance companies, pension plans, etc. In other words, there is a significant wedge between the boardroom and the living room.

Many of these managers follow a passive investment strategy, meaning they base their investment in a company on its weight in an index, as opposed to anything specific to the firm itself. As a result, institutional investors who don’t really care about corporate governance own a substantial percent of the stock market. For instance, my dog could be the CEO of a company in the S&P 500, and many investments managers will buy the stock regardless. Seriously.

So, what chance does a single, activist shareholder, or even a group of them, have in effecting meaningful change in a company controlled by the institutional investment industry? Let’s just say not much.

I submit all publicly traded companies should have a voting share class of stock and a non-voting one. This isn’t all that uncommon in the industry. However, in my perfect world, all passive or index managers and investment vehicles would have to buy the non-voting class. This would effectively remove dispassionate, passive investors from the ultimate management of the company, thereby allowing the potential for great shareholder activism.

Clearly, the devil in this proposal is in the details, and I can’t imagine the executive committees at many large companies meekly acquiescing to such a plan. To be sure, index managers and other passive institutional investors help to keep them a safe distance from the maddening crowd.

Who knows? Maybe we will see more articles about topics like this, as opposed to whether corporate America deserves a tax break or two. As for that, I am all for it, but you probably guessed that already.”

 

HAVE A GREAT AND HAPPY NEW YEAR!!!!