Bioterrorism

Bioterrorism

The Wuhan coronavirus (COVID-19) will go down as one of the most effective acts of bioterrorism in history. If you want to destroy global capitalism and democracy, viruses are the ultimate Trojan Horse. Viruses destroy the very fabric of an open society by concentrating power in the hands of a few to make vast economic, societal, and political decisions without a single vote. Basic freedoms, like movement, are restricted.

Viruses are especially dangerous in countries that value human life highly because those countries are willing devote almost limitless resources to testing, treating, and caring for all segments of their society, especially the most vulnerable. If you want to take down a democratic society, a viral pandemic is an extremely effective agent to accomplish that goal.

Whether accidental or strategic, the results of the WuFlu have been dramatic; from an economic and social impact its devastation is global in scale on par with a World War. The story of "the Wuhan," however, starts not in November or December of 2019, but rather several decades before, when the seeds of destruction were first sown with something so seemingly benign as counterfeit goods.

The New York Times has an excellent article entitled "The Chinese Roots of Italy's Far-Right Rage" that helps frame the current disaster in terms of product theft, industry destruction, and ultimately killing of the former residents. In summary, the article details the initial theft of hundreds of Italian textile brands (linen, shoes, clothing, etc.) by visiting "tourists" who took pictures of all the products and factories while in Milan, then subsequently began making identical copies in the 1980s. The result was a flooding in the market of counterfeit goods. These goods led to the destruction of the industry because the Italian factories had a higher cost of goods for raw materials and labor; the authentic Italian goods, however, couldn't survive against their inferior clones despite the value difference in quality. 

In the decades that followed, Italian factories were systematically purchased by Chinese Nationals who brought over their own family and friends thus displacing generations of Italian families. While the New York Times story was written specifically about the Italian fashion industry, it applies generally to nearly every industry in every country with particular emphasis on manufacturing and pharmaceuticals. If there was a branded successful product, the strategy over the past 40 years has been to clone it, sell it, and capture the industry. In recent years this has been prevalent noticeably in software platforms.

Over the past 40 years global manufacturing has largely moved offshore. Coronavirus is simply the icing on the cake; not only have the products, jobs, and industry been destroyed, but the very residents of those areas are now being killed. The coronavirus pandemic is the final indication of what has happened to democratic Western Society since globalism has pushed industry to embrace "free trade" agreements like NAFTA...cheap goods and executive comp were the costs of losing a nation's self-reliance.

In times of crisis, allies evaporate, borders close, and citizens are left wondering why a country isn't self-sufficient. Fear, panic, and hate are not going to be the answers in the weeks and months ahead that will make this country stronger. Rather, it will be the collective awakening of our society, especially amongst GenX, of the need to seek greater political power and rapidly ween the United States off of dependence on foreign manufacturing; we have an abundance of God-given resources in this country capable of making the USA self-sustainable. A "New New Deal" should be a sustainability movement laser-focused on repatriation of industry. "Made in the USA" means a lot.

Middle Class Squeeze

It is often said a picture is worth a thousand words, so financial farmers I encourage you to click and expand the above picture depicting the "Middle Class Squeeze."

If you feel like you've been working harder than ever just to pay for basic life needs like rent, medical care, child care, or higher education well...you have. Over the past twenty years real family income has fallen nearly 10% while costs of essential services have skyrocketed. 

Much of the plunge in real income is due to the complete and utter destruction of the traditional manufacturing base. Productivity remains at an all-time high, but the jobs have disappeared. It is analogous to a cluster of neutron bombs going off in multiple cities across the United States, particularly in areas succinctly defined as NOT coastal America.

Technology is great...until it gobbles up all the manufacturing jobs and essentially hobbles an entire class of people. Probably the greatest article I've ever read about this ongoing phenomenon is entitled "Why Software is Eating the World" originally published in the Wall Street Journal on August 20th, 2011. If you do one thing today (besides read my blog of course!) please take a moment to read that article. It is brilliant.

Wealth creation, and concentration, has largely come at the expense of higher-paying middle class jobs. What I term the "technorati" (or in stock market parlance FAANG...Facebook, Amazon, Apple, Netflix, and Google) have swelled in market capitalization to ENORMOUS levels. But it's not just FAANG...the list can easily include any number of their peers: Adobe, Microsoft, etc. Even "new" startups like Uber and Airbnb largely leverage existing infrastructure (cars and homes) to derive profits as a software company. They manufacture nothing, except benjis.

Obviously shareholders, and in particularly founders, have made tremendous profits. But at what cost? It is going to be nearly impossible to to rebuild the middle class base in my opinion. If anything, there will be further wealth stratification into binary classes; the "Alphas" and the "Betas." Upward mobility has basically stalled for an entire generation, save for those smart and lucky enough to latch on like Velcro to the runaway tech horse.

A potential solution is tricky in a democratic republic that values, indeed prizes capitalism, and loves a Horatio Alger story in every successful person. The reality, however, is starkly different. Dynastic wealth is alive and well...and growing across the political spectrums...and that is the true enemy of meritocracy in the world.

The middle class has the votes and needs to elect pragmatic politicians willing to broach traditionally taboo subjects like true inflation (the Federal Reserve calculates inflation in tons of soybeans rather than legit metrics like housing, education, healthcare), tax avoidance (via "non-profit" foundations which collectively have avoided billions in taxation), and monopolies which clearly violate the Sherman Antitrust Act. Unless the middle class acts, the shenanigans will continue; wealth will concentrate amongst the top Alphas leaving a proverbial ocean of Betas to fuel them.

Alphas & Betas

Some believe the economic bifurcation of America is well under way; billionaire investor Ray Dalio recently was interviewed on CNBC about this pressing issue. As the head of Bridgewater Associates, one of the largest hedge funds in the world, Dalio has a unique investment process championing "radical transparency," an approach that analyzes facts with stand-alone openess. It has provided him over the years with unique insights that have resulted in an enviable track record for his hedge fund. Bottom line, Dalio is right...a lot.

Economic bifurcation is a deeply troubling, even embarrassing, issue for many billionaires to address because it cuts to the very core of their social standing, success, and political leanings. Make no doubt, there is a growing and potentially violent Civil War 2.0 brewing in this country, although it is concealed in large part via faux political unrest...and something even worse. Let me explain.

Don Henley's song "Dirty Laundry" bemoans the intrusiveness of "journalism" into people's lives, and more importantly the exploitation of "news" for profit.

Fast forward from the 1980s and what Henley's song translates to is clicks, pure and simple divisive clicks. The money is made on Facebook and Google, indeed all advertising, on user engagement from advertising. And those dollars don't roll in unless the product is purchased, and in Facebook and Google's monopolies that means clicks. And lots of them. Billions of dollars resulting from clicks.

The economic bifurcation of America is in large part due to POLITICAL bifurcation which has pitted American against American while the oligarchs have consolidated wealth and political power. It has been said the "greatest" minds of our generation have been singularly dedicated to optimizing clicks. And optimizing clicks means feeding targeted content to users' mobile devices. Period. That content has been sliced and diced into an irresible curated feed specific to each, allegedly, non-idenfiable user.

What does all of this have to do with Investing Like A Farmer? A lot. Much of the bifurcation in our country has resulted in the loss, or perceived loss depending on your economic situation, of the availability of upward economic mobility...read opportunity.  Opportunity in America has traditionally meant blue color manufacturing jobs with quality wages, health care, and a retirement pension. The loss of these manufacturing jobs, and the swell in the opioid epidemic, I believe, is no accident.  The timeframes sadly overlap; over the past 15 years we have seen the utter collapse in blue color manufacturing jobs coupled with an unparalleled spike in opioid deaths.

What does big tech (Facebook, Google, Amazon, Apple) have to do with the loss of manufacturing jobs and the rise of the opioid epidemic? Consolidation in tech into niche monopolies of scale has eliminated many traditional manufacturing jobs, which has lead to a spike in slack human labor capital which no longer has access to quality wages, health care, or retirement pensions. This in turn has lead to a cultural shift into alternative sources of pleasure...or pain relief. Hence, a strong argument can be made that the rise of the opioid epidemic is a direct result of the loss in blue collar manufacturing jobs.

I believe there is a distinct relationship amongst opioids, tech, and manufacturing jobs. I suspect tech continues to prosper with further monopolization and consolidation. The tech titans will not willingly release their incessant drive towards full automation, ownership control, and elimination of human jobs. You can bet on further cannibalization of margins across retail and manufacturing...and any other industry with high are margins is susceptible to tech compression. Big Tech's cost of capital is virtually nil and their monopolistic scale is unprecedented in the annuals of human history.

Sadly, the most "promising" sector might just be in the inevitable misery that the loss of blue collar manufacturing jobs will cause, namely the rise of the Vice sector; tobacco, alcohol, gambling, etc. The Vice sector is poised to continue its recent trend of strong growth as the Caesars implore the masses to vote for them via appeasement with "bread and circuses." 

So what's the trade? How can you survive this economic bifurcation? Buy assets early and often, hold for the long-term, and leverage the power of compounding. Ownership interest is paramount to deriving economic benefit.