Below Average Government Policy

Government policy is based on averages. But there is no such thing as average…it’s an arithmetic concept, not a practical one. Average is intended to describe “tendency”, not reality. When a small group of outliers skews an average in one direction the picture painted by the data can be highly misleading. Let’s say there’s a small town where the average household income is $50,000 per year. If Jeff Bezos, Bill Gates and Warren Buffett were to move into the town and average household income recalculated, the average wouldn’t be very representative would it?

Government policy is also based on categorizations. – putting groups into neat boxes. But this also distorts reality. For example, the government’s definition of a ‘small business”, causes a 5 employee hair salon to be lumped together with a 500 employee manufacturing firm and be subjected to the same lockdown order. Policies that are intended to make people safe or ensure economic survival in a factory aren’t going to adequately or correctly help the hair salon, yet that’s the way government regulations are applied and assistance is apportioned. Makes for poor policy with obvious results like protests and defiance!

Someone famously pointed out that two quarters of declining GDP may technically be a recession, but for the family breadwinner out of work it’s a depression! It doesn’t matter to the mid 50’s manager whose job was eliminated in a “right-sizing” at the company he or she works for that unemployment is at 3.5%!

Permit me to rephrase an old saying:

“Government can help some of the people some of the time. It can help a tiny few people all of the time. But it can’t help the “average” person most of the time.”

In short, government and politicians’ reliance on data, statistics, numbers and all their associated manipulations is a very messy way to devise policy.

This is why the less government the better. The less government regulation the better And conversely, the more self-reliance, the better. The more self-regulation, the better.

Let’s consider for a moment what would happen in the absence of government mandated Wuhan Virus lockdowns. Reasonable, responsible and self-reliant individuals would protect themselves, sneeze and cough into their handkerchiefs or tissues, protect their elderly relatives by staying away from them, and no doubt wear masks and wash their hands frequently knowing there was an airborne, highly contagious, nasty bug around. People getting sick would call in sick, (“I’ve got the flu and don’t want to infect everyone around me!”) and as soon as they got better, would go back to work.

If you asked an epidemiologist whether there IS such a thing as a common cold, they’d respond by citing a laundry list of rhinoviruses and bacteria that cause “cold-like symptoms.” I urge you to read the description of the Common Cold on the Mayo Clinic website, here. And there’s no cure for it!

Now we’re finding out there are a lot of people who have had the Wuhan Virus, were either asymptomatic or had only mild, temporary symptoms…just like the common cold.

This is not to suggest that the Wuhan Virus is no worse than the common cold, nor diminish the severity of this bug for those with compromised immune systems, underlying risk factors, other ailments like chronic respiratory disease, etc. Of course people with these conditions are more vulnerable, and of course we need to take extra precautions with them. And of course they need to take extra precautions themselves!

Had the government simply warned us of the severity of the threat as data was received instead of fueling the “if it bleeds it leads” media crowd, I can’d help but suspect we’d all have been better off.

And, on a personal level, I happen to fit into the category of the more vulnerable. Would I have taken extra precautions as I am now without government megalomania? Yes. Would I have run to get tested when not having any symptoms? No. Is there a chance I’d have gotten sick. Yup.

But there’s a chance I might contract a severe case of the flu, bronchitis and then septicemia that I’d have to fight too. Or have a stroke. Or get hit by a car walking across the street.  Or contract Ebola. Or be shot by a crazed sniper. Or be hit by a meteor. Or be struck by lightening (er…well, I HAVE been struck by lightening but that’s another story…) That there’s a chance to get sick or die or be killed in any of a hundred ways doesn’t automatically mean the likelihood is greater.

If instead of displaying a graph showing the rising deaths from the Virus, we saw one that simultaneously displayed other deaths, Wuhan Virus, as horrible as it is, wouldn’t appear so horrible! Here are CDC’s numbers for 2017. I’ve added Wuhan VIrus to show where it stacks up. Oh, and by the way, let’s not forget that of the deaths attributed to the Virus, many were caused by underlying heart, metastatic, or chronic respiratory ailments exacerbated, no doubt, by the Virus.

Number of deaths for leading causes of death in 2017:

  • Heart disease: 647,457
  • Cancer: 599,108
  • Accidents (unintentional injuries): 169,936
  • Chronic lower respiratory diseases: 160,201
  • Stroke (cerebrovascular diseases): 146,383
  • Alzheimer’s disease: 121,404
  • Diabetes: 83,564
  • Wuhan Virus: 80,000+
  • Influenza and Pneumonia: 55,672
  • Nephritis, nephrotic syndrome and nephrosis: 50,633
  • Intentional self-harm (suicide): 47,173

    Source: CDC

As I’ve also noted often, EVERYTHING is political. Thus, it’s in the interests of Leftist politicians to report as many virus-related deaths as possible so as to support their case that the Trump administration is incompetent. That’s why Mayor Bill de Blasio of New York suddenly, one day a couple of weeks ago, increased the total of virus-related deaths by several thousand. He simply declared that any death that could remotely be associated either directly with the Wuhan Virus, or even indirectly, be counted as a virus-related death. Why? For the obvious reason stated above.

So, talk about shooting ourselves in the foot! We’re crippling our economy, causing immense emotional distress, and in just about every way doing exactly what our political, economic and military adversaries want us to do!

Hooray, therefore, for the protestors storming state capitols demanding the lifting of lockdown restrictions. Hooray for Shelley Luther, who stood up to a condescending, megalomaniacal judge. Hooray for the increasing number of law enforcement officers defying orders to arrest otherwise law abiding people defying lockdown orders. Hooray for the front line health care and other workers who  are choosing to help their fellow human beings. Hooray for the military and law enforcement of our country who are at risk every minute of every day while seeking to keep us safe. And finally, hooray for the AVERAGE (.sic) Americans who have had enough of this constant drone of gloom and doom and, despite risk, want to responsibly, thoughtfully and carefully return to living!

Grumps’ First Law of Experts as Applied to COVID-19

“On any subject one can find at least twelve world-renowned experts citing documented, empirical, irrefutable evidence to support arguments that are diametrically opposed to one another.” – Grumps

Who you gonna believe? Dr. Anthony Fauci? Dr. Deborah Birx? Dr. Oz? President Trump? Secretary Steve Mnuchin? Minority Leader Kevin McCarthy? Senator Chuck Schumer? Senator Mitch McConnell? Larry Kudlow? Rachel Maddow? Laura Ingraham? Nancy Pelosi? Andrew Cuomo? Chris Cuomo?

Simply put, there are no end of experts, pundits, commentators, ‘contributors’.

Have you ever wondered why these people after being interviewed by some television host most often say “Thank you,” at the end of their segment, right after being thanked by the host? If it were I, my last words would be “you’re welcome”, or “happy to contribute”, or “my pleasure”, or even a simple nod. No, most say “thank you” or “thank you for having me”.

The reason is simple. The media is theater and these people being interviewed are being paid to entertain (.sic…they claim to inform but they’re mostly offering opinion, parroting someone else’s commentary, or simply making up stuff on the fly) so I’ll say entertain rather than inform despite even the best of intentions. If they’re not being paid, they’re hoping to someday be paid. If they’re neither being paid or hoping to be paid they’re desperate for attention and recognition in order to advance their careers, at best, or just their egos, at worst. They got their 15-180 seconds of fame. That’s why they say “thank you”.

I say despite their best intentions because many of the talking heads really do try to present relevant, useful, information and some even say what they really think. And some tell the truth, some omit the truth, some flavor or color the truth, some think they’re saying what’s true, and some disclose that they’re offering their opinions, which many take as truth.

On the other hand, there are many who intentionally deceive, ‘spin’, twist and color truths as well as outright lies to further their agenda. The more outrageous the deception, the better to “make it bleed”, thus “lead”.

And of course, depending upon where one sits on the ideological continuum, lies are truth and vice versa, spin is omnipresent…it’s a question of degree.

So whom to believe?

Ourselves. We went to school and supposedly learned how to think there. Instead of lapping up what the talking heads tell us, we need to think for ourselves. And the thinking needs to be critical. If what we’re hearing is contradictory, obscure, wrapped in gobbledygook or simply sounds like nonsense, it probably is. Doesn’t matter who’s spouting it and it doesn’t matter how much of it is fact, applicable to our own circumstances, or how much is conjecture, fiction, outright falsehood, etc.

We need to believe in our own God-given good judgement and make decisions that are right for us, not just run along with the sheep.

The only expert needed is us.

Economics & Investing

What seems like a hundred years ago as I was applying for college I had no real idea what I wanted to be when I grew up. My Greatest Generation/Product-of-the-Depression/Corporate Treasurer- father’s influence made my default “engineering” and I was better at math and science than other subjects so that sounded about right. Four years later I graduated with a B.A. in Economics.

Economics was so much easier than engineering. In math, physics, chemistry you had to get correct answers. Get one sign wrong in an algebra or calculus problem and you were screwed. There were no points for effort or using the right approach if you ended up with the wrong answer or the machine you were designing/building didn’t work (think Hubble Telescope)!

In Economics, you didn’t need to get the right answer. All you needed to do was understand the theories underlying the various models economists constantly tinker with and regurgitate them. It was all entirely theoretical and so long as you had a reasonable explanation for your argument, and it didn’t contradict what the professor had been preaching throughout the semester, you did well.  

Some economic concepts like the ‘Laws’ of Supply and Demand seem to explain individual, institutional, government and market behavior, but not always! For virtually the whole of economics hinges on two specific assumptions: the Rational Man Hypothesis and the Absence of the Outside Shock. As my boss at a multinational oil company drilled into me, “Assuming something just makes an ass out of u m e.” He was right.

Because there is no such thing as a Rational Man. Mr. Spock, after all, was half Vulcan, so he doesn’t qualify.  The truth is, people don’t make wholly rational decisions. Psychology (another imprecise subject far from engineering) obviously plays a huge roll in decision-making.

Similarly, there are frequently wholly unpredictable outside shocks that screw up the ability of economic models to forecast the future. Outside shocks range from tiny to massive. An unexpected labor report figure on one hand, can have outsized impact. A 9-11 on the other hand, messes up everything! 

Another thing that makes me question the wisdom of economists. The numbers on which the models and theory are built, the numbers that are supposed to support them, are in a word, crap! Wrapping data in fancy PowerPoint presentations or published reports along with charts and graphs and analysis doesn’t mean the data is any good.

I once had the job of collecting health care expenditure data and decided to go right to the source, what was then called HCFA or the Health Care Finance Administration. Interviewing one of their reported top statistical gatherer/analysts on the subject of the percent of Gross National Product being spent on healthcare, I took a detour to ask how they came up with the numbers.

“Do you interview all the hospitals, doctors’ offices, testing laboratories, clinics, etc. to obtain primary source data?”, I asked.

“Oh yes,” the analyst proudly replied, “We use rigorous sampling methods.”

“And how do you know the data the health care providers are giving you is accurate?” I queried.

“We have to rely on what they submit to us,” he explained without an ounce of skepticism.

“And you just take a sample, not a universal survey?” I pressed.

“Yes.” And he went on for five minutes talking about sampling methodologies. And then I asked,

“When did you last take a sample?”

“At the last census,” he said. (At that point it had been six years.)

“So how then do you know if your data for last year is accurate?”

“We apply inflation and other adjustments to the prior year’s data,” he explained.

In short, unverified source data from health care providers obtained not from all health care providers but from a “sampling” of health care providers six years earlier, adjusted each year by “factors” that came out of the head of one analyst or worse, a committee of analysts, resulted in a proclamation, say, “Health Care Expenditures last year represented 10.5% of Gross National Product” that was used in numerous scholarly journals, the Congressional Record, used over and over to justify arguments that expenditures were either too high or too low by self-serving politicians, and also used by investment analysts to justify portfolio and trading decisions.

Yes, it’s a bad as that. Oh, and by the way, there were six other authoritative studies/surveys done by reputable and lauded experts and their institutions that came up with numbers anywhere from 9.875% to 12%! Does that inspire confidence in the wisdom of economists and experts? If you still have doubt, look up the history of Long Term Capital Management. It was staffed with the smartest guys in the world, and crashed, losing BILLIONS!

Investing and Investment Management are activities that benefit mightily from appearances and the chaos.

If there’s one ‘rule’ that, in our opinion, has universal merit at all times and in all situations, it is the one made famous in the 1976 movie All the President’s Men: “Follow the Money.” It doesn’t just apply to corrupt politics. It applies to human behavior generally, and investment management in particular.

I’m not suggesting that altruism doesn’t exist, it does; just look to your church and your community for examples which thankfully, abound. Altruism just doesn’t exist in finance.

While the inability of economists to reliably explain or predict anything is good for economist job security because the further study and refinement of models must therefore continue, it gives rise to a lot of sound bites and platitudes, not to mention “expert” opinions that contradict one another.

So what does all this mean? Here are my conclusions:

There are no absolutes, no formulas, no algorithms, no laws, rules of thumb, or experts, statisticians or economists who can consistently lead you to correct investment decisions. The guy who made a fortune overnight is today a wizard. When he loses the fortune over the next couple of trades he fades into the background.

No-one cares more about your investments than you do. No matter how much they advertise objectivity, expertise and fiduciary responsibility, if you make money, they make money. If you lose money, they make money.

If you feel you must use an investment advisor of any kind, look beyond track record, slick brochures and the charts and graphs. The most important qualities to look for are transparency, honesty, and conservatism. Here’s a hint: if he or she speaks and behaves like a high-flying success, run away as fast as you can. If he or she looks, sounds like and behaves like Warren Buffett, take a closer look.

And finally, consider the cost of advice. It’s often deeply hidden. Insist on and make sure you understand how your investment advisor is compensated for helping you. The compensation of fee-only advisors is a lot easier to understand and evaluate than that of brokers and agents. But even then, is his or her advisory firm affiliated with a broker-dealer through which any investment trades are routed and on which fees are earned and either accumulated or distributed back to the advisor, albeit indirectly? That’s just one example of a conflict that, even if fully disclosed, eludes most clients.

In short… Be skeptical. Think critically. Trust but Verify. And don’t believe everything you read or hear from economists!

Caveat Emptor.