Guns Versus Butter

I haven't had much to say about the war with Iran.  On one hand it is easy to come down on the side of regime change or, at a minimum, defanging the regime. The Mullahs are a dangerous collection of twisted religious revanchists who would kill me in a heartbeat for simply being American, Christian or both.  Yup, I am the Great Satan.  Nuclear weapons in the hands of these gangsters is taboo.

On the other hand, my preference would have been for a President to take his case before Congress before going to war.  I am unconvinced of the clear and present danger of an immediate threat as much as I am convinced that the president would have gotten the go-ahead from Congress along with buy-in from the public.  What we got instead was more executive unilateralism.

Almost three weeks into Operation Epic Fury - the war on Iran - the President's promise of prosperity and economic growth in his second term is facing a handful of critical risks that heretofore did not exist.  Going into the new year the current economic condition was basically OK.  Notwithstanding a nonsensical tariff regimen my sense was that the president was counting on a second-term economic agenda of deregulation and tax relief to propel the economy forward.  

In the absence of a Congressional resolution supporting the war, shifting rationales for the war itself and no clearly articulated strategy to end the hostilities at this particular point in time and space there are any number of elements that might conspire to trip-up both the domestic and world economies.

The most immediate of which is the disruption to the energy supply chain.  Even an Iranian 'threat' to shipping via the Strait of Hormuz has caused oil prices to spike impacting everything from gasoline, to LNG and diesel. The domino-effect of this is a spike in inflation pressures as a consequence  higher prices for groceries (transportation and farming costs), airfares and utility pricing.

Wars costs a big pile of money; with the first week alone reported to cost us taxpayers $11.3 billion.  Even if the burn rate settles-in at $1 billion a day the implications for expanding the the federal deficit are huge.  The President and Pentagon are going to come back with hat-in-hand to ask for more money; and the resulting borrowing will crowd-out private investment and lead to calls for raising taxes.   

Iranian threats have disrupted maritime security resulting in the rerouting of shipping, higher insurance premiums and increased freight costs impacting virtually every last consumer good traveling the global supply chain. 

Economists have been setting-off alarm bells that a prolonged conflict could damage business confidence leading to a pause in hiring and capital investment.  A combination of persistently higher energy costs and depressed growth could lead to a 1970s style 'stagflation'.  Naturally, the investment market's response to uncertainty is greater volatility.

I do not believe that an air campaign alone can effect regime change much less political change. Consequently, I'm anxious to know how this gets wrapped-up before it morphs into an unintentional 'forever war'. 

Meanwhile, the resulting energy crisis and fiscal drain have very real implications to our economy, and the world economy writ-large.  The risk for shifting from an expected period of domestic growth to one of stagnation and rising living costs is quite real.

I want policy that improves your and my prosperity and general lot in life.  Along with making the world a safer place.  But what it is ain't exactly clear.  We have not been to a Trump rodeo like this before.

Lock The Clock

If you’re like me this semiannual switch between Standard Time and Daylight Saving Time is madness.  Today I lost an hour of sleep and in November after I set my clock back an hour I’ll still get out of bed in the dark to turn the coffee on.  At the end of the day I’ll pour myself a glass of Merlot in the dark.  This resetting of the clocks is messing with my circadian rhythms.

Daylight Saving Time is associated with the Western world as most countries outside Europe and North America don't observe the ritual. 

Courtesy of CNN research the notion of Daylight Saving Time has a curious pedigree.

1784 - The idea of daylight saving is first conceived by Benjamin Franklin.

1914-1918 - Britain goes on DLS during World War I.

March 19, 1918 - The Standard Time Act establishes time zones and daylight saving. Daylight saving is repealed in 1919, but continues to be recognized in certain areas of the United States.

1945-1966 - There is no federal law regarding Daylight Saving Time.

1966 - The Uniform Time Act of 1966 establishes the system of uniform Daylight Saving Time throughout the United States. The dates are the last Sunday in April to the last Sunday in October. States can exempt themselves from participation.

1974-1975 - Congress extends DLS in order to save energy during the energy crisis.

1986-2006 - Daylight Saving Time begins on the first Sunday in April and ends on the last Sunday in October.

August 8, 2005 - President George W. Bush signs the Energy Policy Act of 2005 into law. Part of the act will extend Daylight Saving Time starting in 2007, from the second Sunday in March to the first Sunday in November. 

 

In 2022, the Senate unanimously approved the Sunshine Protection Act which would make daylight saving time permanent.  The House did not pass it and then-President Biden did not sign it.  Whether the second session of the 119th Congress will pass the Sunshine Protection Act of 2025 remains to be seen.  H.R. 139/S. 29 has not passed as of this moment.  The legislation, which proposes making daylight saving time permanent, was introduced in January 2025 but has remained stalled in committee, with low chances of passing, according to GovTrack.us and GovTrack.us. 

 

As for making Daylight Savings Time permanent there is evidence that the frequency of heart attack and stroke increases around the ritual resetting of clocks twice a year.  Benefits of Daylight Savings Time enhance public safety and make better economic sense.  Proponents of Daylight Saving Time argue that most people appreciate an increase in daylight hours after coming home from work.  

Speaking for myself - I like the notion of longer, lighter evenings and a happier more prosperous United States.  I like my clock precisely where it is.   

Make it permanent. 

 

Lock the clock.

Fact or Fantasy?

As a major voice in the American Libertarian movement the Cato Institute focuses primarily on policy analyses and independent research of contemporary topics including subject matter related to foreign policy, regulations, taxes and libertarian-influenced public advocacy.  

 

Naturally, over the last decade most anyone I'm acquainted-with who previously self-identified as libertarian have, for the most part, gone full-on MAGA.  Any of the remaining few diehard libertarians have gone underground or silent. Either way you slice it none of them are engaged in any meaningful dialogue with me anymore.  Which is too bad.  Productive dialogue lost and in some instances friendships broken is a waste.  I'm not sure how to fix or repair that condition; or if it is even worth the effort.  Time will tell and apologies for the digression.  

 

The purpose of this post is to discuss a recently-published commentary from the Cato Institute titled:  Trump's $18 Trillion Fantasy.  This article also appeared in The Dispatch on February 19, 2026 immediately preceding the recent groundbreaking SCOTUS tariff ruling.  You'll find it linked more than once in the post and I encourage you to read it at your leisure.  What follows is a summary of Cato's critique of White House claims that tariff policies have secured more than $18 trillion of new investment in the United States. 

 

They've performed yeoman's work in producing this commentary and hopefully this summary will tweak your interest in rolling-up your sleeves and engaging in some cognitive dissonance.

 

The key criticism from Cato is that a purported $18 trillion in new investment into our economy claimed by the White House is unsubstantiated and doesn't hold-up under scrutiny.  Trump's hyperbole and puffery is famous; and Cato describes the figure alternately as fantasy or a hoax correctly pointing-out that the number is nearly as large as the entire GDP of China.  Lacking any published evidence from the departments of Commerce or Treasury, or the Federal Reserve the real number, whatever it may be, is naturally much, much smaller.

 

The White House lists 132 'deals' totaling approximately $9.6 trillion; the lion's share of that doesn't come close to meeting the definition of 'new investment'.  Significantly, this figure includes previously-announced or planned technology ventures, routine and on-going business expenditures, orders already in the pipeline and vague promises lacking any enforcement mechanism.  The later are basically a verbal IOU with a promise of 'we'll see'.  

 

Foreign 'deals' are even sketchier as most of the 'pledges' lack even the creditworthiness of a verbal IOU as they come from countries unable to afford them anyway; or the respective government lacks any authority to dictate private business investment.  Previous pledges to purchase military aircraft and equipment or those that come with an implied Trumpian threat of a 'protection racket' do not count.

 

In my own view much of this is political theater intended to pacify Trump's mercurial tendencies before the Supreme Court brought-down the hammer on inconsistent acts provoked by one sole personality. 

 

On tariffs alone, Trump's claim of a manufacturing boom doesn't jibe with the continued decline of direct investment in American manufacturing which, in reality, has been falling and is continuing to fall uninterrupted.  Sure, tariffs may induce some domestic investment through protectionism; nevertheless, this comes at the cost of higher prices for business and consumers.  The math doesn't work.

 

Cato's concludes that the $18 trillion figure is a politically-motivated exaggeration used to justify a flawed and inexplicably contorted obsession with a high tariff regime that is lacking any basis in recorded economic data or accounting.

 

But don't take my word for it.  Read the the commentary in its entirety and draw your own conclusions about how much of it is fact or fantasy.

 

We've been to this rodeo before. 

 

 

A Disturbance In The Force

The first of my age cohort, the Baby Boomers, turn 80 this year, 2026.  Born between 1946 and 1964 all 76.4 million of us are kicking-off the new year with our growing dominance of consumer spending.  Why is this important anyway?  The US economy is primarily service-driven; not manufacturing.  Consequently, consumer spending accounts for roughly 68-70% of the U.S. Gross Domestic Product (GDP). This means that consumer spending is the largest component of the U.S. economy, and a major driver of economic growth.  More old people and fewer young ones are reshaping jobs and spending in all kinds of ways.  There's nothing nefarious about any of this; it's pure demographics. For instance, nearly all of January's job growth came from the healthcare and social assistance sectors with healthcare employment as the largest contributor to labor market growth in 2025.  

For any of you reading this who happen to be a dues-paying boomer ask yourself what of any of the following applies to you and your own situation. 

Exhibit 1 - The collective wealth of the baby boomers - estimated at over $78 trillion - is fundamentally reordering the global economy.  Retired and no longer accumulating assets boomers are spending discretionary funds while prioritizing quality of life over material accumulation.  Consider this: While younger generations may be tightening their belts due to inflation; boomers are the principal drivers behind a $544 billion travel market in 2026.  

Exhibit 2 - Boomers are more proactive with regard to medical care and lifestyle choices.  Whether it is preventative medicine, diet, exercise, active recreation and smartwatches boomers are investing in their future.  While some may choose to downsize, many are investing in their current homes and choosing to age in place.  This includes high-end appliances, landscaping, home improvements and upgrades in accessibility and other services to simplify daily life. 

Exhibit 3 - Value-based frugality.  Despite their wealth, it took a lifetime of saving, sacrificing and investing for boomers to get to where they are.  Consequently, they remain incredibly value-conscious.  Boomers demonstrate consistent brand loyalty and are more likely to drive their vehicles for longer periods than most Americans. They'll invest in home improvements if they believe it will add value to a future sale.  They're also less likely to spend on themselves and more likely to spend on their family members. 

To be clear, everyone's personal situation is different.  Moreover, as a cancer survivor I am smart enough to understand that anyone's number can be up at any time. Consequently, one day at a time.  Nevertheless, there's no escaping the fact that boomers are growing as a share of the overall aging population.  This demographic, referred to as the pig moving thru the python, along with their financial muscle is going to influence all sorta new business startups and marketing trends.  It's a good time to be alive.

Sound like anybody you know?

How To Blow-up The Budget

From the WSJ there is this.

According to projections from the Congressional Budget Office (CBO) U.S. debt will rise to more than 100% of U.S. gross Domestic product (GDP) before the end of this year. 

Debt held by the public will balloon to more than $56 trillion by 2036 as annual deficits continue to mount, according to the latest projections from the Congressional Budget Office.  By later this year, the federal debt held by the public is expected to surpass the size of the entire U.S. economy.

The main drivers:  increased spending on entitlement programs as the nation's population ages as well as rising costs related to paying interest on the debt itself.  Republicans have taken issue with the projections, suggesting the CBO's assumptions on economic growth are too low.

Here's a closer look at the numbers, in five easy charts.

The CBO projects that the annual U.S. budget deficit will top $3 trillion by fiscal year 2036. The deficit was briefly that high when the federal government spent heavily during the Covid-19 pandemic. 

By fiscal year 2036, the deficit will hit 6.7% of GDP, up from 5.8% in 2025.

Social Security and Medicare costs will drive mandatory spending to 15% of GDP by fiscal year 2036. Mounting debt will increase spending on net interest to nearly 5% of GDP.

CBO projects a $23 trillion deficit from 2026 to 2035, up around $1.4 trillion from its last projection. Tariff revenue will only partly offset effects of the GOP’s ‘one big, beautiful’ tax law.*

Debt held by the public will surpass 100% of GDP this year and is projected to exceed 120% by fiscal year 2036.

 *Projected revenues generated by import taxes are uncertain as a consequence of the recent SCOTUS decision.

  

Fools and Lapdogs

The U.S. merchandise trade deficit hit a record $1.2 trillion last year, despite President Donald Trump’s promise to eliminate it by imposing the highest tariffs in eight decades on foreign-made products.

Thursday’s Commerce Department report represents the first full-year assessment of the president’s ambitious reordering of global trade. The persistence of the deficit in the face of steep new taxes on imports from China, the European Union and scores of other nations reflects the limits of Trump’s blunt policy tool.

As expected, the Supreme Court today nullified Donald Trump's signature economic policy this morning in a ruling that invalidated the president's arbitrary and capricious imposition of trillions of dollars of import taxes on our trading partners around the world.  

Naturally, the President's response was to be presidential and call the justices fools and lapdogs for ruling against him on tariffs.    

 

Back in August the president threatened the court stating that this ruling would: Literally destroy the United States of America. 

Well, it's happened and in the long term we're all likely to be better-off for the ruling.  Tariffs, on their own, are not likely to raise-up or destroy the country inasmuch as imported goods account for only about ten percent of our total economy.  Because we are largely a service economy tariffs don't have much direct impact on things like education and healthcare.  Manufacturing constitutes less than ten percent of the US economy.

Nevertheless, the imposition of import taxes at the sky-high levels the administration imposed are a tax on all consumers, business and manufacturers shrinking the country's Gross Domestic Product by an estimated .3 percent per year. If you put a number on that it amounts to roughly $90 billion a year in losses. That isn't insignificant but nowhere close enough to destroy America.  It just raises everyone's cost of living, jeopardizes farmers, ranchers, small business and contributes to inflation.

So where is this all going to lead us?  Too early to tell but I suppose there are companies for whom imports are a necessary part of doing business; and they're going to want a tax refund. 

Meanwhile, I guess none of us are getting the tariff dividend we were promised and the income tax isn't going to be replaced by tariff revenue.  Of course the DOGE dividend never showed-up in my checking account either.  

Money talks, baloney walks.....

Trail Camera Update

A funny thing happened to the trail camera supply chain this winter.  There wasn't a Moultrie trail camera to be had.  Nothing in stock locally.  Nothing on Amazon Prime.  Nada.  Was it a chip shortage?  A consequence of tariffs?  A shipping container that fell from a ship and is bobbing-around somewhere between China and a California port?  I have no clue.  What I know for sure is I've been wanting to acquire two more cams and I'm not used to being denied for 3 months.

Since they don't need to be cellular-equipped I know I should be able to snag them for under a $100 apiece; only they've been unavailable.  Other brands and models, yes.  Moultrie. no.  Pardon me for brand loyalty but it is what it is.  It's a boomer thing.

Anyway, after waiting for months, the Missus announced they were back on Amazon and that I should check-out the selection so she could include them on our order.  In short order they arrived - a couple of A-900 bundles including SD card and batteries - free shipping too. Set me back about $90 a camera.

I deployed the first, replacing the last of two A-25i models deployed April 24, 2020.  Its twin succumbed in 2025 and after five years of continuous use this cam was nearing the end of its useful life and will be held in reserve or maybe finish its tour of duty as the 2026 Oriole Cam this year.  We'll see.  Bottom line is I have one new camera still in the box and one old cam in reserve for the present.

Here are the last two pics from the old trail camera... 

Prepping and deploying the new camera...

Stay-tuned for some new photos before too long....

Datapoint

I didn't see this coming; consequently, it caught me by surprise.  

Here we are, barely one month into the new year, and the Conference Board's long-running consumer confidence index fell 9.7 points from 94.2 in December.  This was a sharp drop with all five components of the index deteriorating making it one of the largest monthly drops in four years and placing American's confidence in the economy at the lowest it has been in a dozen years.  

click on image for a closer look

Popular sentiment about the economy is both a curious and fickle phenomenon.  Over the last couple of years consumer confidence did not necessarily reflect the underlying strength of the US economy.  This drop is an assessment of survey respondents' current state of economic affairs and their expectations for the future.  Notably, the index is now below the level it sank during the pandemic when unemployment was approaching 15%.

Asked about jobs the share of consumers who shared that jobs are plentiful fell to 23.9% from 27.5% in December.  Similarly, 13.9% expected more jobs to be available in the next six months compared with 17.4% in December. 

Economists suggest that these data point are the latest evidence of American's perceptions of a weaker labor market than the actual numbers may imply.  It this a wariness of potential impacts from artificial intelligence?

Again, economists over at the Conference Board suggest that respondent's answers to the survey continues to trend pessimistic with elevated concerns over food and grocery prices, health insurance, utilities, future business conditions, income prospects and trade war impacts.

Despite robust GDP growth and an overall low unemployment rate U.S. consumers are pessimistic about the general economic outlook.

Go figure. 

Inflation Steady as Fed Considers Rate Path

 

In the event you were interested the numbers are in today  

Inflation ended the year on a subdued note, as the administration's 2025 import taxes (tariffs) worked their way through to sticker prices.

Consumer prices were 2.7 percent higher than a year ago, data from the Bureau of Labor Statistics showed on Tuesday, or 2.6 percent when stripping out volatile food and energy prices.

That was about in line with the number for November, which was artificially depressed by irregularities arising from a lapse in data collection during the government shutdown. And it was only slightly slower than the pace at the beginning of 2025, before the prices of durable goods like cars and toys began rising as President Trump imposed steep tariffs on most countries.

The report is the last of its kind before the Federal Reserve meets again in two weeks. With the employment report for December showing the unemployment rate sinking back to a relatively healthy 4.4 percent, officials are expected to hold interest rates steady after cutting them three times since September.

The Consumer Price Index was pulled down by the cost of used cars and trucks, which fell 1.1 percent over the month, and have risen only 1.6 percent over the past year. Yearly growth in that category peaked at 45 percent in June 2021, before turning negative in 2023 and 2024. Airline fares, on the other hand, unexpectedly jumped 5.2 percent, potentially reflecting record travel during the holidays. And the price of groceries also came in hot, at 0.7 percent over the month and 2.4 percent since this time a year ago. That was the fastest one-month gain in grocery prices since 2022, driven by higher prices for items such as meats, dairy and coffee.

Inflation has been pulled down over the past year by apartment rents, which have been sinking from pandemic-era highs after cities like Denver, Phoenix and Austin, Texas, saw a boom of new supply. In December, rents rose 3.1 percent over the year, while the cost of owning a home has risen 3.4 percent.

Energy prices overall have risen 2.3 percent over the year, but that masks big differences between sources: the price of gasoline was down 3.4 percent, while electricity prices rose by 6.7 percent.

Jerome H. Powell, the Fed chair, last month said he expected the peak impact of tariffs on price pressures to materialize in the first quarter of the year, meaning that the next couple of inflation reports will be even more closely scrutinized.  Of course, that was before the DOJ locked horns with the Fed with a probe that the Fed chair attributed to political retribution over its approach to monetary policy.

President Trump seized on the inflation report to demand that the Federal Reserve lower interest rates swiftly, as he renewed his public attacks on Jerome H. Powell, the chair of the central bank.

Yesterday, and overnight the Senate, former Fed Chairs and the business community started circling their wagons around the Powell with the admonition that meddling  with the independence of the Federal Reserve will likely increase inflation expectations and probably increase rates over time.*

Watch the bond markets, folks.

Meanwhile, any wagers on who blinks first?______________________________________________________________ 

*The New York Times Breaking news: Inflation holds steady as Fed considers rate path

 

 

 

Disinflation v. Deflation

Inasmuch as it is the start to a new year I figured this would be an opportune time to discuss something that has been on my mind and recently seems to be misunderstood by a significant number of lay individuals.

While the words in the title of this post may imply similarities they are differentiated by singularly unique identifiers and consequences.

Disinflation is a slowdown in the rate of price increases.  In the real world prices prices might be continuing to climb but they're rising at a slower pace.  Think: 18 months ago inflation was 6%; today it is 3%.  Causes of disinflation include central bank (Federal Reserve) policies that tighten credit by means of raising interest rates to cool consumer demand for goods and services.  If the policy is successful it results in slowing the growth of inflation by stabilizing growth in prices. 

Deflation is a decrease in the general price of goods and services (negative inflation) meaning prices are actually falling.  Think: 18 months ago the price of a gallon of unleaded regular was $3.15 a gallon; today it is $2.30 a gallon.  Causes of deflation can include oversupply or increased productivity as well as tightening of monetary policy leading to decreased demand.  Generally-speaking, deflation can be harmful as consumers naturally may delay purchases if their expectation is for lower prices in the future.  This can lead to a drop in demand, reduced business profitability, wage reductions and a deflationary spiral.

So, what does that have to do with the price of tea in China?  Not much.  It has more to do with perceptions and messaging. 

During his campaign, and since taking office a year ago, Donald Trump has made repeated promises to bring down the overall price level - a goal of price reductions.  He has made specific promises that the price of various and sundry goods: gasoline, groceries and utilities would decrease from their inflated, post-pandemic levels.  To be sure, the president has promised what would amount to deflation, or falling prices.  The ramifications of this is two-fold; consumer expectations and economic consequences.

Consumers would be better served by a steady dose of disinflation and slowing the growth of inflation.  The economy would be better served avoiding an across the board sustained decrease in prices; the unintended consequence of which might lead to a recession.

My sense is that consumers seem to have placed a higher value on prices actually coming down than they want inflation to slow and prices to stabilize.  In my view, they don't completely understand the consequences of these two choices; and if I had to hazard a guess it may be a result of the president's own rhetorical excess. 

Donald Trump has promised, Prices will come down.  You just watch;  They'll come down, and they'll come down fast, not only with insurance, with everything.   

He promised that: Starting on Day One, we will end inflation and make America affordable again, to bring down the prices of all goods.

Only last month the president suggested that inflation was essentially done but cautioned that he did not want actual deflation, saying this:  We don't want it to be deflation either.  You gotta be careful.  

In case your memory needs a refresh; the troubled period of time spanning The Great Recession gave us a taste of everything. 

Inflation-Disinflation-Deflation Illustrated - Data BLS

The bottom line is that since he took office Trump has begun to walk-back any number of his promises as a consequence of two incontrovertible truths.  First, price reductions are more easily said than done.  Second, broad price drops can expose the economy to self-inflicted and unintended consequences.  Moreover, with consumers smarting from rising pressures in the cost of living, Trump has begun to walk-back and delay implementation of many of his import taxes.

Where does this leave us?  Three things to watch.

The White House's unilateral use of executive authority to arbitrarily impose broad trade duties (tariffs) on imported goods has most certainly contributed to inflation.  Thus, prices for consumers and businesses have continued to increase while at the same time the rate of inflation has slowed.  Perhaps as early as Friday it is expected the Supreme Court will rule on this matter providing guidance to the administration and the rest of us going forward.

The US economy finished the year on a strong note - gross domestic product grew at a 4.3% annual rate, faster than the previous three months.  The president will try to laissez les bon temps rouler.  

I expect him to continue badgering the Fed to reduce interest rates and he'll be announcing a pick for a new Fed chair before too long.  At the same time, corporate tax cuts under the One Big Beautiful Bill will be kicking-in this year and could juice spending. Will this stimulus and tariffs goose inflation?  If so, how will the Fed respond?  

Since I lack the powers of clairvoyance my only prediction is that 2026 may shape-up to be an interesting year.  I'm sleeping very well lately; yet because we've all been to this rodeo before only time will tell.

Nativity Story

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was no room for them in the inn.       

Some people think Mary and Joseph were mistreated by a greedy innkeeper, who only cared about profits and decided the couple was not worth his normal accommodations. This version of the story (narrative) has been repeated many times in plays, skits, and sermons. It fits an anti-capitalist mentality that paints business owners as greedy, or even evil.         

It persists even though the Bible records no complaints and there was apparently no charge for the stable. It may be the stable was the only place available. Bethlehem was over-crowded with people forced to return to their ancestral home for a census – ordered by the Romans – for the purpose of levying taxes. If there was a problem, it was due to unintended consequences of government policy. In this narrative, the government caused the problem.          

The innkeeper was generous to a fault – a hero even. He was over-booked, but he charitably offered his stable, a facility he built with unknowing foresight. The innkeeper was willing and able to offer this facility even as government officials, who ordered and administered the census, slept in their own beds with little care for the well-being of those who had to travel regardless of their difficult life circumstances.         

 If you must find "evil" in either of these narratives, remember that evil is ultimately perpetrated by individuals, not the institutions in which they operate. And this is why it's important to favor economic and political systems that limit the use and abuse of power over others.  In the story of baby Jesus, a government law that requires innkeepers to always have extra rooms, or to take in anyone who asks, would "fix" the problem.    

But these laws would also have unintended consequences. Fewer investors would back hotels because the cost of the regulations would reduce returns on investment. A hotel big enough to handle the rare census would be way too big in normal times. Even a bed and breakfast would face the potential of being sued. There would be fewer hotel rooms, prices would rise, and innkeepers would once again be called greedy. And if history is our guide, government would chastise them for price-gouging and then try to regulate prices.

This does not mean free markets are perfect or create utopia; they aren't and they don't. But businesses can't force you to buy a service or product. You have a choice – even if it's not exactly what you want. And good business people try to make you happy in creative and industrious ways.         

Government doesn't always care. In fact, if you happen to live in North Korea or Cuba, and are not happy about the way things are going, you can't leave. And just in case you try, armed guards will help you think things through.         

This is why the Framers of the US Constitution made sure there were "checks and balances" in our system of government. These checks and balances don't always lead to good outcomes; we can think of many times when some wanted to ignore these safeguards. But, over time, the checks and balances help prevent the kinds of despotism we've seen develop elsewhere.         

Neither free market capitalism, nor the checks and balances of the Constitution are the equivalent of having a true Savior. But they should give us all hope that the future will be brighter than many seem to think.

Credit - First Trust Advisors

Price At The Pump

While out running errands today I gassed-up the Missus' Honda and paid a whopping $2.299 per gallon for unleaded regular.  Full disclosure, I used a BP/AMOCO rewards card saving 15 cents a gallon at the pump and also good for all sorta cash back on other purchases like groceries, Fleet Farm, restaurants or Costco stuff.  The card is free and everyone should have an rewards program in their gas fueling protocol to bring the everyday price per gallon even lower.

You're probably thinking, why are prices lower anyway?  It depends who you talk to.  If you speak with an economist the answer is supply.  The world oil market is awash in crude oil and as a consequence the price at the pump has fallen.  If something were to change; either on the supply side or on the demand side it will impact the price for good or bad.  

If you talk to a MAGA idolater it is because the president controls the price at the pump.  Just like magical wishful thinking the president can dial it up or down at will.  I'm not making this up.  I can think of six people I am acquainted-with on a personal basis who believe this like it was an article of faith.  Oh well.

The bottom line is this is a great time to be a consumer and not so much if you operate an oil services company or energy company.  Persistent low prices over extended periods of time create a disincentive to exploration and drilling which catches-up to supply, eventually.  

Learn more about the risks and opportunities here...  

SRI and ESG Simplified

For some odd reason it occurred to me the other day that the movements in the title of this post have spanned a significant portion of my life and most of my career in the financial services business as a Registered Investment Advisor. 

The common acronym for socially responsible investing is SRI and the concept has been around for awhile.  SRI utilizes a screening process that excludes investments in industries or specific companies engaged in business or activities that an individual may consider undesirable.  Varying by individual investor, SRI popularly excluded companies engaged in the manufacturing or sale of alcohol, tobacco, firearms, gambling and the like.  

The movement has its roots in faith-based investing and the anti war movement during the Vietnam conflict.  In 1971 it led to the first ethical mutual fund - Pax Fund (renamed Impax Funds in 2022).  By the time I joined the fray in 1980 popular divestment campaigns in opposition to South African apartheid raised the profile of SRI and its potential for drawing attention to social change.  The movement achieved broader recognition with the adoption of the Domini Social Index in 1990 - recognizing the US Social Investment Forum and the growth of assets in this sector.

In 2004 the acronym ESG was coined. Named for a new emerging movement known as Environmental, Social and Governance; it introduced specific environmental, social and governance factors into traditional financial analysis to better assess a company's risks, opportunities and long term sustainability.  Financial considerations have continued to remain the primary focus of ESG.  In its nascent years ESG was a niche or boutique movement - a small frog in an enormous investment pond.  Notably, SRI didn't go away; as a matter of fact it persists to this day.   

By 2010, driven by global climate crises and events along with growing corporate support driven by evidence that sustainability improved returns; ESG entered the mainstream. 

ESG initiatives have boosted profitability by means of reducing waste and improving operating efficiencies.  They also enhance brand imaging which improves market position and attracts customers and talent. Stock prices benefit from enhanced stability as a consequence of managing risks associated with everything from labor issues, to brand loyalty to long term climate-smart resourcefulness.

For sure there are mixed results among specific industry sectors including emerging vs. mature markets; and there is not universal success in every single company. Nevertheless, there is strong evidence that ESG may provide a strategic advantage leading to long-term value creation over short-term gains.

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While the terms SRI and ESG are frequently used interchangeably there are nuanced differences.  SRI is values-driven (who you won't invest-in); while ESG is data-driven (evaluation of risks and opportunities).  

Why is this important?  When evaluating the application of the former vs. the latter in the drafting of an investment policy consider a very common misconception about the ownership of common stock.  Aside from an IPO (initial public offering) your purchase of a stock does not 'support' the company.  Nor does your divestment of a stock 'undermine' the company.  This is because it is not a transaction between you and the company; it is a transaction between you and the previous stock owner.

If you don't care to own shares of an armaments manufacturer because it is cross-ways with your value system that is perfectly OK.  The company will pay dividends to whomever owns the shares on the record date and it cares little for whom that person or entity happens to be unless you are amassing so much stock that you are approaching majority ownership. This is why companies are generally mum in response to divestment campaigns.  They're a welcome distraction from other, more potent, forms of activism such as a product boycotts.  A scenario altogether better managed by means of the latter vs. the former. 

Don't take my work for it, speak with your trusted financial advisor about how this may, or may not, impact you.

Cheers!  

*More background on the chart here:  https://www.bloomberg.com/professional/insights/sustainable-finance/are-esg-scores-relevant-for-portfolio-returns/