Wednesday, July 31, 2013

The Straight Story

Just as we thought our evening at the Western Heritage Awards could not get any better, I heard Michael Martin Murphy (who had earlier received an award for Outstanding Original Western Music) announce the winner of the Chester A. Reynolds (founder of the Cowboy Hall of Fame) award. This award is given to folks whose lifestyles best represent the ideals of the American West. Tom Dorrance, eighty-two at the time, took the stage to accept the award, flanked by Red Steagall.

I own Tom’s book, True Unity, and was amazed to find myself in the same room with the man who (along with his brother Bill) is widely recognized as the founder of the modern horsemanship movement. The brothers were buckaroos raised on a ranch in the Great Basin.

Tom and Bill had a particularly strong influence on Ray Hunt, and Hunt’s disciple Buck Brannaman, who coached Robert Redford in The Horse Whisperer. These guys were practicing the gentling craft long before Monty Roberts wrote The Man Who Listens to Horses. (I never believed much of what Roberts said in that book and deplore the way he smeared his father’s memory. His own family has denounced it).

And let’s not forget the presence of the spirit of William Boyd (Hopalong Cassidy), who was inducted into the hall of great western performers. And we’ll always remember the Sons of the Pioneers and their performance that night. Their founding members were inducted into the Hall of Great Western Performers. I imagined Roy Rogers looking on and being well pleased. 

Looking back on the evening, I still marvel at how fortunate we were to be in a room so full of positive energy and accomplishment. The mood in the room was ebullient. All the folks seemed to like each other and everyone else. I don’t think it is too much of a stretch to say that we felt in the presence of greatness.

But the evening was not over, not by a long shot. After the banquet, Jan and I were touring the museum when we saw Richard Farnsworth and Ernest Borgnine walking toward us, engaged in jovial conversation and storytelling. As an aficionado of the Western lifestyle and Western movies, I tried not to gush as I asked Farnsworth to sign my program. He obliged with a smile. I still have it, of course. Someone called Borgnine away before I could get his autograph.

Consider Farnsworth’s accomplishments. He left home at fifteen during the Depression and found work as a stable hand in a polo barn owned by Walt Disney. Soon after, he began riding broncs in the Southwestern rodeo circuit. Then he worked as a stuntman for thirty years doing stunts for the likes of Gary Cooper and Kirk Douglas and doubling for Henry Fonda, John Ireland and Joel McCrea.
Remember the great riding done by tenderfoot Montgomery Clift in Red River? That was due to Farnsworth’s coaching. If you want to see the difference Farnsworth training made, watch Clift mount and dismount in Red River, then watch Matt Damon jump down from his horse in the remake of True Grit.

Shy, unassuming and dyslexic, Farnsworth was reluctant to take his first speaking role in 1976. Two years later, he got his first Academy Award nomination as supporting actor for another great Western with James Caan, Comes a Horseman (Jane Fonda notwithstanding). Then he starred in another of the greatest Westerns of all time starring Steve McQueen as Tom Horn. Folks who have visited our Across the Creek barn know that the movie poster hung there. It hangs in my office now.

Farnsworth played real life train robber Bill Miner in another great flick, The Grey Fox, and garnered a Golden Globe nomination. And he wasn’t just great in westerns. He played a baseball coach with Robert Redford in The Natural, starred with Colleen Dewhurst in Anne of Green Gables on PBS, with Redford again in Havana, in The Two Jakes with Jack Nicholson, and teamed with James Caan again in Misery.

In 1999, at age 79, he earned his second Academy Award nomination, this time not for supporting actor, but for a leading role in The Straight Story.

I have thought about that evening many times, especially when I learned that Farnsworth had cut short his battle with terminal cancer by taking his own life in 2000. I wish I had a “do- over”, knowing what I know now.

The lesson learned? Probably to pay better attention, absorb life’s “moments”, and not believe in coincidences. God must have been tired from winking so much that night. Or maybe not.

Wednesday, July 24, 2013

More Perception and Reality

More about perception vs. reality in a recent week’s news cycle. I discovered a quote by economist Laurence Kotlikoff that describes another way what I said last time about the stock market. “They (stock traders) have got some form of nonsense in their brains. They’re not really trading on the basis of what the fiscal realities are; they’re trading on the basis of how everyone else trades. Because they can’t lose their jobs if they lose money collectively, with everyone else. They can lose their jobs if they lose money alone.”

On another cable TV show, a Harvard economist opined that unfunded liabilities are not the same as debt. Seriously. Perception: Unfunded liabilities are a technical, legal or accounting term that we don’t need to worry about. Reality: Can you say Detroit? Chicago? America?

Apparently the Harvard economist skipped English and accounting on the way to his doctorate. Look up debt in the dictionary and what will you find? Liability. Look up liability and you will find debt. Imagine borrowing fifty grand to be paid back ten years later and pledging your house and autos to secure the loan. If you don’t start putting back money now to repay, that’s an unfunded liability and at the end of ten years, the bank will take your house  and you will also be afoot if you don’t have the money to pay it back. 

When we used to do seminars together on tax exempt bonds, my old friend CT McCarley used to talk about the unfunded liabilities of cities (specifically Detroit and Chicago) as well as states across our great country and warn about consequences . When I asked him when his dire predictions would come true, he said, “I don’t know, but there will be a tipping point and I think it will be around 2003-2010. He missed it by three years for Detroit. I wonder what he would say about America’s unfunded liabilities if he were alive today. Detroit and America's politicians want to spend money during their terms in office, make promises (unfunded liabilities), then pay it back or renege during the term of some future politician. The future is now for Detroit and politicians don't like it.

Economist Laurence Kotlikoff (see above) says that America’s unfunded liabilities are $222 trillion and that they went up by $11 trillion last year alone. Bill Archer and Chris Cox say it’s closer to $87 trillion. Almost everyone agrees it’s a least $47 trillion.  Why the difference? Most folks don’t know how to calculate the present value of future obligations. Kotlikoff does.

One of the most respected financial advisors in America recently advised buying gold in his newsletter. Last week, less than a month later, he said that gold was a fool’s play. I asked about the contradiction. He said investing is done by the hour now, if not by the millisecond.

When I connected with him years ago, that statement would have drawn nothing but scorn from both of us. It flies in the face of almost everything either of us has ever written or advised. Yet, perception is everything. The early perception was that gold was right. The later perception was that it was wrong. Neither notion has much to do with supply and demand or economics. Gold prices are almost entirely driven by perception.

Another cable TV host recently lamented that women are now the primary breadwinners in 40% of families as compared to about 10% in the sixties. He was lambasted by his female colleagues who saw this as excellent news signaling great advances for women. That’s partially true, but when you delve into the numbers, you see that it’s more of a loss for men than a gain for women.

The stats are skewed because in more and more families, women are the only breadwinners. Men are absent, too lazy to work, work only in crime and thus are not included in the stats, or can’t find work. Many of the primary female breadwinners’ families are at or barely above poverty levels. Also, a lot of women chose not to work in the sixties, skewing the numbers. Now, most of them have to work. Perception: Great news. Reality: Bad news.

How about unemployment rates? Don’t like the result when we calculate it by the method we used for decades? Change the method. Just consider that people not looking for work are no longer unemployed. (How do they know they’ve stopped looking?) Even though more people are out of work, the rate goes down (Q:How do people survive who simply quit looking for work? A: They milk the government benefit system).

Perception: the economy is recovering and unemployment is dropping. Reality: Real unemployment remains in double digits and workforce participation is at historic lows. There are more people on government subsistence now than in the workforce. But perception wins.

Statistics don’t lie. Really? That’s partially or even mostly true only if you know how they were calculated and understand them in relative terms. A recent headline said that interest rates rose 35% in six weeks. Makes you want to run to the bank and buy a CD until you discover that the 35% came when the change in yield on a ten year treasury increased from 1.7% to 2.23%. That created perception that rates were skyrocketing.

Folks say that low interest rates are what fuel the housing market. However, the market was just fine when I financed my home at 15% and refinanced it at 11%. But it is almost certain that that perception might put a damper on home sales if the interest rate soars to say, a whopping 5 or 6% (about the historical average) on a home mortgage. 

Be diligent. 

Wednesday, July 17, 2013

The Sunrise Side of the Mountain

Last time, we talked about meeting the original Marlboro Man at the Western Heritage Awards Banquet in 1995. Jan and I looked at each other in astonishment as we looked at the folks who surrounded us. Far from being star-struck types, we nonetheless recognized that we were in for a unique experience.

I was astonished as I watched Jan walk two tables over and start a conversation with Michael Martin Murphy, one of our favorite cowboy singers. I can’t recall if wine had anything to do with her bold move. She denies that it did, of course. 

I looked behind me and saw Barry Corbin, pretty fresh from his great performance as Roscoe Brown in the best western of all time, Lonesome Dove. Then I saw Bill Wittliff, who wrote the teleplay for Lonesome Dove. Jan and I have part of his photo collection featuring the actors and scenes from the movie in our home.

Richard Farnsworth (maybe my favorite actor of all time) and Ernest Borgnine were also at the next table over along with William Devane. Two tables away from that, I saw a favorite western villain, Jack Elam. Elam had been inducted in the hall of fame of Great Western Performers the previous year. He lost sight in one eye when he was stabbed with a pencil in high school at a Boy Scouts meeting. Few know that he began his career as an accountant. 

But there was another couple sitting across from us at our table (beside the Marlboro Man). They were quiet and I had no idea who they were until Richard Farnsworth began the program as emcee. 
When Tom Lea was announced as an inductee in the Hall of Great Westerners, I was shocked to see all eyes turn to the elderly gentleman across the table from us. As he stood to receive the award, I waited for ushers to come and tell us we had been seated in the wrong place.

I don’t have the space here to list Tom’s lengthy list of accomplishments. The best summation would be from an award-winning article in Roundup, the official magazine of the Western Writers of America, titled “Tom Lea: The Eyes of an Artist and the Ears of a Writer”.  He had previously received the Owen Wister Award (a lifetime achievement award in western history and literature) from the Cowboy Hall of Fame.

Five years later, he would be quoted in George W. Bush’s acceptance speech at the Republican National Convention. “My friend, the artist Tom Lea of El Paso, Texas captured the way I feel about our great land, a land I love. He and his wife, he said, ‘live on the east side of the mountain. It’s the sunrise side, not the sunset side. It is the side to see the day that is coming, not the day that has gone. The best day is the day coming.” Tom was weak and blind when the President later requested the loan of his painting “Rio Grande” to hang in the oval office.

During the Great Depression, Tom produced paintings that still hang in post offices from Washington, DC to Odessa, Texas. He illustrated some of the books of the great J. Frank Dobie

Tom was a war correspondent for Life magazine during WWII and accompanied Allied Forces into both theaters of war, documenting the horrific reality and raw emotion of war in a way that had rarely been seen before.

He was aboard the USS Hornet where he met Jimmy Doolittle. He watched a Japanese sub sink the USS Wasp and later did several paintings of that event. While in China, he painted portraits of Chiang Kai-shek and the head of the Flying Tigers, General Claire Lee Chennault (who hails from Commerce, Texas). 
Lea produced six books over the next twenty years, fiction and non-fiction, winning numerous awards, including two from the Texas Institute of Letters. Two of his novels were made into movies. He also authored two volumes on the King Ranch.

His paintings hang in private and prestigious public places all over the world, including the Smithsonian. Yet the man was unassuming and accepted his induction into the Hall of Great Westerners with deep humility and appreciation.

Just wait. There’s more. 

Wednesday, July 10, 2013

When Perception Meets Reality

Two decades ago, my boss pulled into the sheltered parking garage next to our leased office space driving a new automobile that cost more than seventy-five grand in today’s dollars. I had to shake my head in wonder. I had only been working for him about six months, but that was long enough to determine that the only thing standing between him and bankruptcy was the paperwork being filed.

He was maxed out on all of his credit cards and owed all the relatives that would loan him money. Not to mention the banks, etc… where he was overextended. And this was not just his personal situation. The business where I worked and where he was CEO and majority stockholder was just as broke, with bigger numbers.

I knew it was probably best to keep my mouth shut, but I had to ask him why he decided to buy such an expensive auto when he could have had a reliable ride for half the bucks. He said, “Perception is everything. I have to keep up a good front.”

I asked, “Yes, but considering the precarious state of your finances, what happens when perception collides with reality?”

He answered, “Perception always wins. Put another way, perception becomes reality.”

I didn’t want to get fired, so I just nodded. But I did not believe him. Of late, however, I have come to think he might have been right. He retired, by the way, a very, very rich man.

Most of you who read my stuff know that I spent three decades advising clients on investments and taxes. I still try to stay abreast of things, and actually have more time now to listen to and read the experts. I am astounded by what they write and say. Here’s what I noticed in just one week of news.

On a recent news/business channel, the host interviewed another financial guru who said that the Fed’s pumping billions into the economy would eventually cause inflation. When you print and infuse money into the economy that has not been generated through the creation of goods and services but printed (digitized) out of thin air, the value of all money must go down. That’s reality (arithmetic), and economics (the law of supply and demand).

The guru mentioned that the cost of purchasing a cab medallion now is a million dollars in New York City. He also mentioned how fine art is soaring in price. The host remarked, “When it works its way to the grocery store and the gas pump, I’ll start worrying. Right now, we just don’t have inflation.”

Apparently, this host neither shops for groceries nor fills his car with gas. Reality: groceries have soared in the last four years. So has gasoline. Oil is over $100 a barrel as I write this. But the perception that we don’t have inflation is caused by what Fed Chairman Ben Bernanke says the rate is. When the government and Fed don’t like the inflation rate, they just change the way it’s calculated. Voila. Inflation is low or non-existent. Perception wins. Most of us start to believe it even when we know better.

Think inflation doesn’t hurt? A new high end Ford cost about $3500 fifty years ago. Today, one costs anywhere from 12 to fourteen times as much. Okay, you say, you make fourteen times as much in salary. Maybe you do, but median wages for men have actually decreased from 1968 to 2012.

Bernanke, arguably the second most dangerous man in America, is out of bullets on the interest rate front and he has made it easy for the national debt to balloon to previously unheard of levels. He used all of his bullets foolishly. There is only one direction rates can go now. They can’t drop below zero.

The inevitable rate increase that is coming will focus our attention on 17 trillion in debt because the cost of servicing that debt will become impossible to manage (and that could happen very quickly).
Perception: The Federal Reserve pumping money is going to make the economy recover. Reality: The Fed is stealing from savers and investors just as if it were holding guns to our heads and asking us to empty our wallets. In the nineteenth century, most banks paid 2.5 to 2.7% on savings. Now, the average is one percent or below.

In the last twenty years, savers who invested in “safe” investments like Bank CD’s have taken an 80% cut in pay. Retirees living on interest have been devastated. Got a job? What if your boss told you were going to have to take an 80% haircut on your salary?

Think old savers don’t matter? Think again. They fuel growth when they invest and the economy needs their money to grow. More on this later.

Tax rates: Perception: Raising them will increase tax revenue. Makes sense, doesn’t it? Reality: They might raise revenue the first year, but then taxpayers will change their behavior. That change in behavior will result in less income to tax and a negative impact on the economy. Tax revenue will go down.  How do I know?  A century of history and I spent three decades helping folks change their behavior to lower taxes.

The stock market: Perception: Traders (most have the attention span of a gnat) love how Bernanke is keeping interest rates artificially low, because that positions stocks as the only alternative for investors who have to earn income from their savings.  Reality: The market has been thinly traded since the debacle in 2007. The guys who move it now are traders, not investors.

That means that big banks (that used to be brokerage houses) and big government can almost control the direction of the market, and certainly the price of a stock or group of stocks. Today, good news for the economy is usually bad news for stocks because stock prices are fueled by the fed’s money pump. A growing economy means that pump might be turned off.

Traders say, “To hell with its long term deleterious effects, just give me my money for today.” Ever see the zoo that is the floor of the NY Stock Exchange?

But if one keeps on drinking too much alcohol long enough, he will become an alcoholic who can’t function. Interest rates will someday have to be based on the free market if we want to keep free enterprise in America. After a probable debacle that will be blamed on the wrong people, the market will have to return to being driven by profits and real economics. 

This is just a few days of news. More later.