Tuco (reading from a note): “See you soon, [he struggles to read the next word.] Idi.. idi..” ‘Blondie’: “Idiots. It’s for you.” - Tuco (Eli Wallach) and ‘Blondie’ (Clint Eastwood) in ‘The Good, the Bad and the Ugly’, dir. Sergio Leone, 1966.
Another year passes. For those with the appetite for industrial strength snark, Dave Collum’s review of the year offers magisterial and cynical analysis of a year most of us would probably rather forget. The full essay can be found here, but here is a taste:
“A Year in Transition. This was my runner up for the title. Aren’t we always stuck on the “Mobius Strip from Hell” that never ends? Francis Fukuyama and Tom Friedman were wrong: history did not end, and the world is going spherical again rather quickly. Of course, we never know the future, but each year seems to have themes that play out with a quantized feel to it. By contrast, 2022 has left world economies heading south but with no bottom in sight. Neither the Fed nor the markets are done inflicting pain. The risk of global famine is real but with inestimable consequences. The futures of Bitcoin and other crypto currencies hang in the balance with more than just price corrections now in play. The war in Ukraine could end with a whimper (but only if Russia wins) or with a thermonuclear conflagration (nobody wins). Europeans are pondering the relative merits of freezing to death owing to lack of energy or starving to death owing to lack of food, but maybe those potentially biblical events are just clickbait. The WEF has reared its ugly head—the WEF’s Great Reset is not just a theory—yet we still haven’t a clue what those diabolical authoritarian meat puppets are up to. Why do we have to start eating bugs and forfeiting all earthly belongings and to whom. It is hard to see how we smoothly get to 2023 from 2022.”
‘The Good, the Bad and the Ugly’ is probably the most celebrated of the ‘spaghetti westerns’, so called because they featured jobbing American stars, were shot in Europe and were co-produced and directed by Italians. ‘Blondie’ (Clint Eastwood) represents “good”; Lee Van Cleef’s stylish but psychopathic gunslinger represents “bad”; Eli Wallach’s slobbish and ignorant goon puts in a workable turn as “the ugly”. The film is set during the American Civil War. In one celebrated sequence, Blondie and Tuco, dressed in Confederate uniforms, ride through the desert toward an advancing cavalry. But whose side are they on ? Judging from their apparently sympathetic grey, Tuco cheers them on. “Hoorah for the Confederacy ! Hoorah for General Lee !” But as the horsemen slow down to greet them, their commander slowly dusts himself down – to reveal his blue Union colours underneath. In the dust and chaos of a civil war, not everything is as it seems.
And for at least three years, our world has seemed to be at war with itself, giddily accelerating toward societal collapse with ‘government’ and ‘business’ fighting over the scraps. We have experienced what Scott Campbell calls “a neo-Marxist attempt to destroy the host culture, and all its categories.” Whether the rapid decline from a seemingly unipolar to a much fragmented multipolar world is a function of political incompetence or sheer economic malice barely matters any more. If you are freezing to death (courtesy of Germany’s ‘progressive’ energy policy) or starving to death (thanks to Holland’s ‘progressive’ agricultural policy), you have bigger things to worry about.
What is indisputable is that the Big State, with all its malign power, is back. We therefore offer the uncontentious advice that for the sake of capital preservation, portfolios should be as government-proof as possible. That which is independent, scarce and permanent – gold, for example – is objectively “good”. As are sensibly priced equity interests in real economic concerns. That which derives its value from any government’s promise to reimburse holders or protect them from state-sanctioned inflationism – fiat currency and government bonds, for example – in our view is objectively “bad”. And equity interests run by psychopaths working hand in hand with the Big State are also objectively “ugly”. (See Bad Pharma, Bad Tech and legacy media for more on this point.)
The investment environment is precarious, but not necessarily fatal. A brief diversion towards the Stockdale paradox seems apposite at this point.
As we have written before, Vice Admiral James Stockdale has a good claim to have been one of the most extraordinary Americans ever to have lived. On September 9th, 1965 he was shot down over North Vietnam and seized by a mob. Having broken a bone in his back ejecting from his plane he had his leg broken and his arm badly injured. He would spend the next seven years in Hoa Lo Prison, the infamous “Hanoi Hilton”. The physical brutality was unspeakable, and the mental torture never stopped. He would be kept in solitary confinement, in total darkness, for four years. He would be kept in heavy leg-irons for two years, on a starvation diet, deprived even of letters from home. Throughout it all, Stockdale was stoic. When told he would be paraded in front of foreign journalists, he slashed his own scalp with a razor and beat himself in the face with a wooden stool so that he would be unrecognisable and useless to the enemy’s press. When he discovered that his fellow prisoners were being tortured to death, he slashed his wrists to show his torturers that he would not submit to them. When his guards finally realised that he would die before cooperating, they relented. The torture of American prisoners ended, and the treatment of all American prisoners of war improved. After being released in 1973, Stockdale was awarded the Medal of Honour. He was one of the most decorated officers in US naval history, with 26 personal combat decorations, including four Silver Stars. Jim Collins, author of the influential study of US businesses, ‘Good to Great’, interviewed Stockdale during his research for the book. How had he found the courage to survive those long, dark years ?
“I never lost faith in the end of the story,” replied Stockdale.
“I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining moment of my life, which in retrospect, I would not trade.”
Collins was silent for a few minutes. The two men walked along, Stockdale with a heavy limp, swinging a stiff leg that had never properly recovered from repeated torture. Finally, Collins went on to ask another question. Who didn’t make it out ?
“Oh, that’s easy,” replied Stockdale. “The optimists.”
Collins was confused.
“The optimists. Oh, they were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving. And then it would be Christmas again. And they died of a broken heart.”
As the two men walked slowly onward, Stockdale turned to Collins.
“This is a very important lesson. You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.”
As Collins’ book came to be published, this observation came to be known as the Stockdale Paradox. For Collins, it was exactly the same sort of behaviour displayed by those company founders who had led their businesses through thick and thin. The alternative was the average managers at also-ran companies that generated average returns at best, or which failed completely.
Regardless of the situation, there is always room for optimism, especially on the back of an open mind, a willingness to follow the road less travelled, and some rigorous analysis. Or as Lee Van Cleef’s character ‘Angel Eyes’ puts it, again in ‘The Good, the Bad and the Ugly’:
“People with ropes around their necks don’t always hang.”
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you, too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio -with no obligation at all:
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: firstname.lastname@example.org
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and specialist managed funds.
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