Sky Is Falling, Buy Sky, Global Province Letter, 28 August 2013

Buy Sky.  Years ago, somebody or other sent us a beautiful, delightful, making-a-point-gently greeting card at our New York office.  On the front, it showed a little boy and a little girl frolicking on the green, and above, a clean-smelling clear and sunny day, with just a single but very low flying cloud in the sky. 

Inside the card lay the inscription: “Sky is falling, buy sky.” To wit: the world and the skies are beautiful. If a slice of this wonderful pastry is falling, so what! It is made of grand, fine ingredients and one should own it. So buy it, even if the pundits say the world is coming to an end. This is a great thought for optimists, but we imagine real estate promoters could make hay with it as well. 

What the Money Men Are Saying? Through August the paunchy fellows at Morgan Stanley, and Goldman, and Merrill Lynch have been whispering that they are looking for a “pullback” in the market, implying that we should not buy stocks at the moment and that we should take some profits on what we have. Such chatter often occurs in the dog days of August when the money managers and psychiatrists go to the beach. Moreover, with easy money from the Fed, the market has been a little hyperactive. Still and all, maybe we should not put too much stock in all this nervous talk that is little more than gossip.  If we are long-term investors who do not want to enrich traders who are mostly after transaction profits, then we need not be nervous nellies who react to ill-formed thoughts off the Internet. Remember please that it was ultimately the greed of the traders and their cronies that gave us the 2008 financial Sturm und Drang.  You remember 2008:  that was when a bunch of derived securities peddled by the biggest houses in Wall Street vaporized.

A Helluva Guy. We were thinking about just this when the September letter of one John F. Hotchkis crossed our desk in which he happily (a) warned us that neither America nor the world was coming to an end and (b) implicitly advised us to take up writing letters so that we could ponder things more slowly and think straight. The very fast and furious and fragmented nature of modern communications leads to egregious mistakes.

We don’t know Mr. Hotchkis but we should. He’s a good writer, has been an able trustee at the University of California (his alma mater, but we cannot all go to good schools), has made enough money in his vigorous lifetime, knows everybody worth knowing in earthquake-tremor Republic of California, and has clearly had a boatload of fun in his long life. We wish we had been invited to his 65th birthday in 1996, which was a singular affair but we are putting ourselves forward for his 85th, 90th, and 95th. 

An Amazing Country. In splendid prose, Mr. Hotchkis reminds us that America has always been an amazing country and that “people who argue the United States has fallen behind and is not the country it used to be are nuts.” So enough of us. Here are his September 2013 words in full:

                                          The Writing Table

“The outrageously talented Mel Brooks once said, "Filling a page with words is hard work." Heavens, if it's such hard work for Mr. Brooks, the rest of us are just selling "bundled wind." Yet, for many of us the challenge remains to try and live up to Francis Bacon's wonderful comment, "Reading makes a full man, conversation makes a ready man, and writing makes an exact man." Needless to say, in today's world, the exact part is clearly a moving target. It is somewhat like the young lady leaving the cocktail party and telling the hostess, "I feel more like I do now then when I arrived."

We all know dreaded technology has now removed much of the need by most people to actually write, particularly to each other. Email and texting is so much easier. Yes, we will always have journalists, authors, and the like. But there was a time in our history when our President ran the country from a writing table. Yes, a writing table. That was the most used form of communication. In 1775, our government established the post office as the first department (and appointed Benjamin Franklin as the first United States Postmaster General). Author Jon Meacham in "Thomas Jefferson: The Art of Power", notes that by the time Adams and Jefferson died on July 4th 1826, they had exchanged a total of 329 letters in their lifetimes, 158 from 1812 until the end. All our early Presidents wrote prodigiously, mostly about their frustrations dealing with an obviously inexperienced, yet very egotistical Congress. Many years later Will Rogers said, "We would certainly slow the aging process down if it had to work its way through Congress." Can't say there has been much change.

Also, in 1811 John Eppes, Jefferson's son-in-law, must have been looking at a crystal ball. Jefferson wrote Madison that year quoting Eppes, "The rancor of party was revived with all its bitterness during the last session of Congress. United by no fixed principles or objects and destitute of everything like American feelings, so detestable a minority never existed in any country...Their whole political creed is contained in a single word, 'opposition'... They pursue it without regard to principle, to personal reputation, or the best interest of the country."

Our founding fathers learned to write at a young age. They had to, assuming they wished to communicate with anyone out of earshot. Today, kids old enough to hold a pen are placed in front of a computer and given the latest iPhone. When forced to write, all they can do is print. Spelling and grammar have become irrelevant. Reminds me of that old country western song, "I would have wrote you a letter, but I couldn't spell 'yuck'!" No one gets excited anymore to learn the only English word that ends in the letters "mt" is dreamt or that 'racecar', 'kayak', and 'level' are all the same whether they are read left to right or right to left (palindromes). Heavens, our leaders of today would more than likely have trouble writing a "to-do list." 

How did this country survive a very awkward early history and then, somewhere down the line, become the most powerful nation in the world? It's a little perplexing. I bet not even the Shadow knows. Remember, George Washington lost more battles in seven years than he won. As luck would have it, the British generals were not varsity material. Then the French came to our aid at Yorktown. When the war ended, America barely limped to victory. Once again, we got lucky. There were some awfully bright guys who were ready to "put Humpty Dumpty back together again." Historians have probably written a hundred books about Washington, Adams, Jefferson, and of course Lincoln. They faced enormous challenges. Our political woes of today just don't hold a candle to the savage Congressional debates of the past. How about slavery? Apparently we lost somewhere around 750,000 men in the Civil War, but somehow the country kept going.

I have just finished Robert Merry's book about James K. Polk, our 11th President. As happens from time to time with our Presidents, number eleven wasn't considered the quickest guy on the block. As they say, down deep he appeared to be very shallow. Not only that, he only wanted to serve one term. Imagine. He didn't much like people. He did not have the forceful presence of Andrew Jackson, nor Henry Clay's famous wit. He did have an absolute conviction that he was a man of destiny. Underneath his veil of dullness, he possessed significant analytical skills and a clear zest for bold action. Frequently underestimated, he could often outmaneuver his adversaries. As an example of how history may repeat itself, his party controlled both the House and the Senate, but was so split he continually endured a terrible time with his own people (to say nothing about the very vocal Whigs who hated him). He just was not a natural leader.

Amazingly, despite his shortcomings, Polk somehow managed in his one term to bring Texas, New Mexico, Nevada, Utah, California, and the Oregon territory (Oregon, Washington, and Idaho) into the United States. In other words, he created about one third of what the U.S. is today. Polk did all this from his writing table, day and night. He took a huge political beating over the war in Mexico. Communicating with his generals took days, and these guys were not very good to start with (what is it about generals?). In his diary we learn about the relentless wounds he incurred dealing with Congress before he finally got his way. He died completely exhausted four months after he left office.

Communications today is a whole different barrel of fish. Maurine Dowd recently described it as, "Everybody is continually connected to everybody else on Twitter, Facebook, on Instagram, on Reddit, emailing faster and faster with a suffocating flood of information. Everybody is talking at once in a hypnotic hyperdin...the cocktail party from hell." We have evolved a very long way from the writing table!

It's no secret, all this amazing advancement in communications has made a huge impact on the world's financial markets. Even transactions of only a decade ago were done in slow motion relative to today's hyper speed. Roll back time a couple of hundred years, and everything moved at a glacial pace. At our nation's founding, most wealth came from owning land and farming. It doesn't get more long term that that! Now everything happens so fast, it's a bit scary.

Here is an idea. To dispel the rat race in the financial markets, pretend you are living back in the writing table days. Slow things down a bit. Maybe even write a letter! Try not to react to every statement a Fed Governor makes or what some hot-shoe equity strategist recommends on CNBC. Stay fully invested in the best run companies you can find. You want healthy balance sheets and a history of dividend increases. Yes, the U.S. stock market is up 150% or so from March 2009 and has been up as much as 20% so far this year. Such a steep trajectory often makes an investor want to sell everything, take the money, and hide under his bed.

Typical for this time of year, when the heavy traders go to the beach, stocks usually slip a bit. Keep in mind markets do fluctuate. They don't go straight up or straight down (hopefully). All this volatility I'm sure adds to your anxieties. Think long term. Our wobbly economy does show signs of recovery and Europe's economy has a weak but discernible pulse. Coming up will be a German election at the end of September, the usual U.S. debt ceiling debate in October, and probably somewhere along the line an announcement of the new Fed Chairman. But more importantly, significant U.S. economic growth is on its way. This will be translated quickly to corporate profits. All the talk about addiction and tapering has become old news, as well as the "new normal" in Chinese growth and the mess in the Middle East.

People who argue the United States has fallen behind and is not the country it used to be are nuts. We are the headquarters of innovation and entrepreneurship. There is simply no other country that comes close. It is what we do here. And we do it very well. Britt Harris, the accomplished CIO of the $117 billion Teacher Retirement System of Texas, recently summed it up nicely, "We are living in the early years of the American Empire. We have the soundest economy, the most innovation, the best rule of law, a relatively deep spiritual core, a competitive banking system, and the largest and best military force in the history of mankind." And remember, it all started with the writing table just 237 years ago!

Here's hoping you enjoyed a very pleasant summer.

John F. Hotchkis”

Writing Table.  We hope Mr. John did compose this letter at a writing table, perhaps out of Philadelphia.  We ourselves have just brought in an architect to redo several aspects of our domicile.  Maybe we will build a partners’ desk to write on with hopes that it will make our prose sweeter and our mind more transcendent. Come to think of it, our head could use a makeover as well. At any rate, our redone digs will put us even further away from the madding crowd.

P.S. Mr. Hotchkis brings a couple of golden oldies to mind.  I’m Gonna Sit Right Down and Write Myself a Letter.And Johnny Mercer’s Old Buttermilk Sky. O that Mercer, he was one fine writer out of Savannah. 

P.P.S. One of our bright readers proposed that we write about the recently deceased and much admired detective novelist Elmore Leonard. We will get to him, but old Elmore is a bit too depressing for us at the moment, and never tires of using the word “never.” Nonetheless we are much taken with some of his writing rules:

1. Never open a book with weather.
2. Avoid prologues.
3. Never use a verb other than "said" to carry dialogue.
4. Never use an adverb to modify the verb "said."
5. Keep your exclamation points under control.
6. Never use the words "suddenly" or "all hell broke loose."
7. Use regional dialect, patois, sparingly.
8. Avoid detailed descriptions of characters.
9. Don't go into great detail describing places and things.
10. Try to leave out the part that readers tend to skip.


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