Investment Climate January 2024: The Question of Our Time, Part VII
In writing the quarterly Investment Climate, we often pause and contemplate the mere fact that we are even bothering to write about a quarterly view of the market/economy/business environment, given that we fervently adhere to a long-term approach which defines short-term as 10-20 years, medium -term as 20-30 years and long-term as 30-100 years. Yes, we know, for all too many the comment is: “I will be dead by the time your long-term comes about”; to that we say: “if you want to truly be successful, and build wealth, that is the way you must think.
With that in mind, our discussion about the last quarter is simply that virtually everything recovered in the last quarter to end a rough couple of years on quite a positive note -- particularly in the stock values of growing companies. This was because the rapid rise in interest rates and inflation (the worst such rise in fifty years) appears to be over. It is likely that stock prices for growing companies will outperform their more cyclical counterparts in the coming quarters/years as the Fed grapples with the fact that they have now overshot on the upside with rates after years of being far too easy. It is notable that our portfolio companies, both smaller and fast-growing as well as more “stable-growing” and dividend paying, have witnessed relatively positive business trends over this period of rising rates/inflation. This is and always will be where our focus lies.
So, what of the of the question of our time? And “Part VII”?
On May 6, 2010, we wrote in our blog a post entitled “The Question of Our Time”. Within it, we asked what we believed to be a critical issue facing the world at that time: how much government involvement should there be in the economy? How much should the government spend on projects that do not produce? And specifically, in that piece, we were questioning the lavish pension payments that were being paid in Greece, and California, to people who no longer produce. The natural progression of such a question leads one down the path of asking what should the role of government be? Hence, it is the question of our time.
We had just witnessed the heavy hand of government involvement in the economy, and our everyday lives, in the wake of the dot.com bubble blowup (Sarbannes-Oxley, NASDAQ trading settlement, Regulation FD) and the 9/11 attacks (Patriot Act, et al) and were seeing the unleashing of Dodd-Frank banking regulations as the 2008-9 mortgage crisis was barely in the rearview mirror. The 21st Century was fast becoming the era of big government on steroids. Unfortunately, this trend has not only continued, but accelerated during the COVID fiasco where government took it upon themselves to literally shut down the world economy. This last episode of overreach may go down in history as the single most invasive, ill-fated, and absurd action from public servants in world history.
There has to be a “correction” in this trend, at the very least.
However, it is notable that as this piece is being penned, the “elites” of the World Economic Forum are gathering for their annual meeting in Davos Switzerland. These are the folks who believe you will “own nothing, and you will be happy”! Of course, that is in their fanciful world where they (and a few favored corporations) get to make all the decisions, and have all the wealth, while you can sit down and shut up! Now, almost fifteen years after we questioned how much, or even if the government should pay those who produce nothing, we are faced with questions about whether we even have a right to our private property.
This is all quite negative. And yet, it appears regular people are fighting back. Perhaps the best example of this has been the election of Javier Milei in Argentina; a country whose decades long heavy hand from government has driven the once very successful economy into the ground with wild money printing and control from the top down. Milei is wasting no time in slashing the size of government and is an example of what can be possible with the right leadership. Similar populist challenges to current regimes have been successful in Italy and New Zealand recently. We shall see if these trends hold in other parts of the world.
What is remarkable is that we continue to see innovative companies succeed in the face of all this massive government action (fortunately, the Davos crowd has not succeeded in keeping us from being owners). We expect that the question of how much government people want will ultimately end up being answered as such: not so much that our human progress is continuously eroded and our opportunities for advancement are totally controlled by others. The approach in which the few favored decide everything for the many has been tried and failed throughout history. In order to ensure that these last couple of decades of overreach are held in check, it will be important for individuals and businesses alike to stay diligent in fighting back against those who would just as soon take away freedoms “for your own good”.
Meanwhile, we keep plugging away at running our businesses and answering the questions of our time. And this may be a sign that we are answering the question correctly as the Supreme Court takes up the “Chevron Deference” case with the possibility of limitation on regulatory overreach. We shall see.
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