The Weekly Quill — Risking Risk-Free Status — The U.S. Crosses into No Man’s Land

It takes a special sort of leader to excel as a wingman in waiting. Patience, wisdom, maturity – these are the requisite characteristics. Theodore Roosevelt and Harry S. Truman both fit this bill. In the case of Truman, historians rank him the 5th and 6th best President and Vice President, respectively. Roosevelt gets even higher marks – as Vice President, he garners 2nd place behind Thomas Jefferson, whose visage is next to his on Mount Rushmore. And he is the 3rd highest regarded President in U.S. history. For others, arguments can be made for stopping while you’re ahead.

As vice president, Nixon burnished his reputation for foreign policy expertise with international travel to dozens of countries. His South American tour garnered international headlines when a mob in Caracas, Venezuela, stoned his motorcade. The confrontations with the demonstrators abroad only made him more popular at home. His 1959 trip to the Soviet Union was even more dramatic and politically helpful. While taking in an exhibit showcasing a General Electric model kitchen at the U.S. Trade and Cultural Fair in Sokolniki Park, Nixon and Soviet premier Nikita Khrushchev traded words about the merits of their respective countries.

Under Dwight D. Eisenhower, Nixon’s expertise as a master in foreign affairs was established as he crossed the globe visiting dozens of countries. Two trips in particular endeared Nixon to the American public. An international headline-grabbing mob scene in Caracas, Venezuela, with demonstrators stoning his motorcade proved immensely popular at home. And his 1959 Cold War “kitchen debate” with Soviet premier Nikita Khrushchev sent his star rising even more. The occasion was an exhibit featuring a General Electric model kitchen at the U.S. Trade and Cultural Fair. Nixon lauded Soviet technology in the realm of outer space but derided their technology in other arenas, such as color television. Khrushchev countered that there was no U.S. “besting” of Soviet prowess in any arena and a spirited debate ensued in which Nixon shrewdly won the war of words.

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The Weekly Quill — Fighting the Last War — The Modern Financial Warfare Reset

“In this region, we are entirely too much taken with the idea that the Ardennes woods and the Meuse River will shield Sedan and we assign entirely too much significance to these natural obstacles. The defenses in this sector are rudimentary.”

Pierre-Charles Taittinger

Mention “Taittinger” and the mind’s eye invokes images of bubbles racing up crystal flutes. One can hear the cheerful pop of the cork being released and see glasses raise up to clink to the good wish “à ta santé!” To your health!

Before acquiring Forest-Fourneaux in 1931, Pierre Taittinger was a war hero and recipient of the Légion d’honneur. Prior to the war, he had run a successful champagne distribution and exporting company with his brother-in-law. But it wasn’t until he was injured as an officer in the Great War that he discovered a deep passion for Champagne, the region from which the tiny bubbles take their name. Transferred to the 18th-century Château de la Marquetterie, a major French command post south of Épernay, the young, convalescing Taittinger was so impressed by the elegance, beauty, and history of the building that he vowed to buy it if the opportunity ever arose.

As it were, by 1931, Forest-Fourneaux was on the brink of financial disaster. The venerable winery, founded in 1734 by a wealthy textile merchant, had been ravaged by World War I, the Great Depression, and Prohibition. Exports had ground to a halt, the final blow to France’s third oldest champagne house. Seizing the opportunity to fulfill his vow, the House of Taittinger was thus born.

Forest-Fourneaux was not alone in its misfortunes. More than any other country, the war had laid waste to France. More than 1.3 million Frenchmen were killed and another 4 million wounded. On a per capita basis, the losses were unmatched. But it was more than the loss of life – French industry had been devastated, its markets disrupted, and the country’s finances ruined. Before 1914, France had made loans to countries that were now bankrupt including Russia, which proved particularly costly. Combined with funding the war, the national debt proved so crushing that the franc had to be devaluated to such an extent, countless insurers, lenders and banks were wiped out.

The country splintered at its seams, losing its national identity. In the decade through June 1940, 23 cabinets were formed and fell. The leadership vacuum was compounded by decimated military morale with high officers openly conceding that France could never survive another war of such magnitude. Working conditions in the collapsing economy were so poor as to invite far Left movements. And wealth decimation left the upper echelons bitterly demanding new systems that inevitably leaned far Right. The vast majority was silenced, supporting neither extreme but so distraught by war and depression they were paralyzed. The one galvanizing force was pacificism.

Crude War Games

“The fact is that the situation in Ukraine today is completely different because it involves a forced change of identity. And the most despicable thing is that the Russians in Ukraine are being forced not only to deny their roots, generations of their ancestors, but also to believe that Russia is their enemy. It would not be an exaggeration to say that the path of forced assimilation, the formation of an ethnically pure Ukrainian state, aggressive towards Russia, is comparable in its consequences to the use of weapons of mass destruction against us. As a result of such harsh and artificial division of Russians and Ukrainians, the Russian people in all may decrease by hundreds of thousands or even millions.”

Vladimir Putin, July 12, 2021

Sometimes, winter is not coming. Putin would be the first to attest to that reality. For Old Man Winter is a no show in the Ukraine this year. Data via Copernicus, the EU’s Earth Observation program, reveal this winter has been 1 to 3 degrees Celsius warmer than normal. Complicating matters further, it has been wetter than usual. Thus, the Russian strongman and oil baron may never seize the opportunity of the high-water-table freezing to a sufficient extent to roll his heavy artillery and tanks across Ukraine’s northern border with Belarus, a vast area known as the Pinsk Marshes. At more than 100,000 miles, these boggy lowlands are a crowded network of streams, rivers, and tributaries. The dense woods are as tricky a landscape as Mother Nature could have ever dreamed up.

From emperors to generals, the infamous terrain has been more nightmare that fantasy. This soggy, sandy eastern European swamp expands and shrinks as a factor of time depending on how much, what form, and when precipitation falls. Autumnal rains can cause extensive overflows in the waterways while the spring thaw summons the mutinous mud that’s vexed generations of military strategists and lowly foot soldiers.

By far the costliest losses were sentenced with the signing of Führer Directive 21 on December 18, 1940. This was Hitler’s grand plan to bring Stalin and the Soviets to their knees with such swiftness that, “We have only to kick in the front door and the whole rotten edifice will come tumbling down.” Due to delays in completing operations in Greece and Yugoslavia, “Operation Barbarossa — named after Medieval Holy Roman Emperor Frederick I, idolized by Hitler for his notorious appetite for conquering and destructing — would not launch until June 21, 1941.

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The Weekly Quill — Just in Case Inventory 101

“The more inventory a company has, the less likely they will have what they need.” 

Taiichi Ohno
“Lost in translation” is more than an idiom describing verbiage that loses its subtlety, its richness, its full meaning when robbed of these essentials by the blunt methodology of translation. Consider how flummoxed millions of Westerners were when they first read the following observation made by the godfather of Just in Time (JIT) Inventory Management, Taiichi Ohno: “Having no problems the biggest problem of all.” The postwar operations guru who created the Toyota Production System was indeed a philosopher grounded in Kaizen, which deftly translates to continuous improvement. In his mind, spoken through his words, “People don’t go to Toyota to ‘work,’ they go there to ‘think.’ Casting a harsh eye on the monotony of repetition, Ohno also said, “The only place that work and motion are the same thing is the zoo where people pay to see the animals move around.”

Is it any wonder that in a corporate culture filled with leaders, whose biggest challenges in life were taxes and death, who were duty bound to crack the whip to get the most out of their worker bees, were at a loss when JIT made its way to America in the 1970s and 1980s? In a million years, they’d have never thought to pay line workers to stop and think. And a lack of motion defined failure as productivity was then envisioned.

Two years ago, I might have started this next sentence with “Luckily.” Today, there’s less certainty that James P. Womack, Daniel T. Jones and Daniel Roos’ 1990 operations bible “The Machine That Changed the World: The Story of Lean Production — Toyota’s Secret Weapon in the Global Car Wars That Is Revolutionizing World Industry” saved U.S. manufacturing. It’s not that Ohno’s work was not relevant and worthy of translating into thinking that Westerners could exploit to their benefit. The authors’ introduction of the simplest term “lean production” has already soothed your mind. What’s not to like about lean? Who likes flabby?

In their words: “Our conclusion is simple: Lean production is a superior way for humans to make things. It provides better products in wider variety at lower cost. Equally important, it provides more challenging and fulfilling work for employees at every level, from the factory to headquarters. It follows that the whole world should adopt lean production, and as quickly as possible.”

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The Weekly Quill — A Middle Kingdom Masquerade

“The purpose of history was to teach people that life was always dominated by struggle, that race and blood were central to everything that happened in the past, present and future, and that leadership determined the fate of peoples. Central themes in the new teaching including courage in battle, sacrifice for a greater cause, boundless admiration for the Leader and hatred of Germany’s enemies, the Jews.” 

Wilhelm Frick, Hitler’s Minister of the Interior, 1933

Eight years after the War to End All Wars, German Foreign Minister Gustav Stresemann shared the 1926 Nobel Peace Prize with French Foreign Minister Aristide Briand. The prior year, the two had signed a reconciliation agreement in the Swiss town of Locarno paving Germany’s path back into Europe’s fold. Though many argue this was Stresemann’s greatest achievement, contemporaries argue that distinction should be accorded to his introduction of the Rentenmark in November 1923, itself remarkable given he was able to do so in his 102-day stint as chancellor, which ended that month.

The irony is that history has bequeathed upon Stresemann the highest accolades in the Weimar Republic, a chapter in history that solely conjures the scourge of hyperinflation…which his Rentenmark ended. Businesses and the exhausted people of Germany supported this new currency as it was tied to the value of gold and thereby arrested the printing presses. It was the newfound peace proffered, however, that made way for one of the world’s evilest empires. The French could only be persuaded to pull back from their occupation of Germany’s Ruhr region because they believed the new currency could credibly make good on reparations that were hugely unpopular.

In 1962’s Hitler: A Study in Tyranny, Alan Bullock applauded Stresemann’s courage and wisdom, which opened the door for peaceful negotiations by restarting reparations repayments. The catch: “It was also the signal the Nationalists had been waiting for to stir up a renewed agitation against the Government.” Seizing the moment at a speech in Munich, Hitler attacked Stresemann as showing “subserviency towards the enemy, surrender of the human dignity of the German, pacifist cowardice, tolerance of every indignity, readiness to agree to everything until nothing remains.”

Such was the groundswell of unrequited spite, Hitler was able to launch his first of many uprisings, which landed him in jail, but not hanged for treason. As documented by American scholar Louis Snyder, the “Beer-Hall Putsch” was anything but a failure as it emblazoned on the mind of a then obscure Adolf Hitler how nuanced a path to power could be: “It was necessary that he seek political victory by winning the masses to his side and also by attracting the support of wealthy industrialists. Then he could ease his way to political supremacy by legal means.” One of his fellow usurpers who was also tried, found guilty and served prison after the attempted putsch was Wilhelm Frick.

Frick’s loyalty was rewarded with the position of Minister of the Interior when Hitler became chancellor in 1933. In that capacity, he was responsible for the Enabling Act, which conveyed dictatorial powers to the new leader. But Frick, quoted to start today’s Quill, was just getting started. He claimed that the idea of history being taught objectively was rooted in the fallacy of liberalism. Frick went on to draft, sign and authorize the Nuremberg Laws, which gave birth to the Gestapo and persecution of Germany’s Jews and ultimately one of the worst genocides to stain humanity.

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The Weekly Quill — Corporate America Pulls a Garbo

Distilling the Illusion of “Strong” Balance Sheets

 

“A river cuts through rock, not because of its power, but because of its persistence.”

Jim Watkins, American author

 

The great Greta Garbo had nothing on the persistence of Juan Pujol Garcia’s capacity for elusion and illusion. Though both were born into the humblest of circumstances in Europe within seven years of one another, Garbo Lovisa Gustafsson was discovered early on. At the age of 15, Stockholm’s thriving film industry caught sight of striking beauty in advertisements she made for the department store that employed her. By 1925, when she was 20, she had set sail for the United States where she’d signed a contract with Louis B. Meyer to film two movies for a salary of $400 a week, an unprecedented sum for an undiscovered starlet. Until she retired at the age of 36 to become one of history’s most enigmatic recluses, she knew only fame and fortune.

On February 23, 1939, seven months before war broke out between Britain and Germany, Garbo won her third Oscar for Best Actress in a Leading Role for Ninotchka. By then, Garcia’s life was all but washed up, at least on paper. Born in 1912, he had botched his studies, flopped as a chicken farmer, and his marriage was on the outs. Undeterred, this veteran of the Spanish Civil War was determined to succeed at one thing in life — taking down his totalitarianism nemeses, Francisco Franco and Adolf Hitler. Garcia was undeterred at being rebuffed by MI5 and U.S. intelligence when he approached them to be a spy. Unlike most of history’s most notorious sleuths, he was anything but well-educated and well-healed sleuths; he had no connections or credentials.

Rejection being old hand at this point, Garcia set out to fake it. Step One was approaching the Germans as a fascist sympathizer. Skirted off to London with nary a word of the English language in his vocabulary, he diverted himself to Lisbon. There, he set up a façade, sending postcards of Big Ben and other tourist hot spots to Nazi Germany alongside fabricated “reconnaissance” gathered purely from the radio and newspaper reports of troop movements, all the while bemoaning the gray, depressing London weather.

In a stroke of genius, he raised his stature by creating a spy ring numbering 27 including a British censor in the Ministry of Information, a Cabinet office clerk, an American soldier stationed in London, a Dutch airline stewardess and a sympathetic Welshman. The Germans giddily funded Garcia’s expanded network. When word leaked to MI5 of a veritable cavalcade of snoops right underneath their thumbs, they went berserk. Proving that timing can be everything, Garcia re-approached the Brits, who finally saw the err of their initial judgement.

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The Weekly Quill — Playing Offense to the Fed’s Defense

Canada & Mexico Caught in the Middle of a Policy Error
Before Antonio de Padua María Severino López de Santa Anna y Pérez de Lebrón of Alamo fame, who Mexican purist historians rank as “one who failed the nation” for ultimately losing Texas, among other military defeats, there was Jóse Santa Anna. Alongside Encarnación Rosas, he helped defeat the original aggressor, Spain, in one of the longest and bloodiest battles of the Mexican War of Independence.

Though buried in history, The Battle of Mezcala Island reshaped Spanish/Mexican relations for the remainder of the war, savings thousands of lives. It started with 60 enraged men from Lake Chapala outside Guadalajara in the state of Jalisco. They rose up to staunch the indignities and savagery the Spaniards were unleashing on the region’s indigenous inhabitants. The year was 1812, two years into the war that would know no end. Spanish troops quickly moved in to contain the insurrection. It’s likely that neither they, nor the rebels, knew they were at the precipice of a historic standoff.

A series of Spanish miscalculations led to the steady armament of the revolutionaries. Battling back against lances, sticks and hurled rocks, Spain’s first defeat on the north shore of Mexico’s largest lake started the buildup. The next battle pitted an equal number of men against one another, 200 on each side. Defeated once more, this time the Spaniards left behind 300 firearms. Despite Spain’s upping its contingencies anew, the subsequent battle was bloodier than the one that preceded, sending the insurgents temporarily into retreat in the surrounding Sierra Madre Mountains, ones they knew all too well. From their position of strength, the rebels claimed yet another victory capturing 100 more firearms, two cannons and a full cache of ammunition.

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The Weekly Quill — China, CRE and Central Banks

Xi Jinping Fights to Hold on in the Year of the Black Water Tiger

 

“The complete reunification of our motherland is an aspiration shared by people on both sides of the Taiwan Strait. I sincerely hope that all the sons and daughters of the Chinese nation will join forces to create a brighter future for our nation.”

Xi Jinping, December 31, 2021

On June 15, 1953, Chinese President Xi Jinping was born in the Year of the Snake. Lest you think this (highly stereotypical Virgo) has gone full Shirley MacLaine, one-in-four Planet Earth inhabitants is influenced by the Chinese Zodiac. Given what Xi has already and further aims to accomplish in this most critical year of his life, it shouldn’t surprise your open-minded side that those born in the Year of the Snake tend to be great thinkers; they are proverbially cool, calm and collected, which Xi clearly exudes. Critics call out snakes as rigid, but equally praise them for their intellectual fortitude. Again, he fits the bill.

A (obviously outside) study conducted by Nathaniel Lutmer, Anna Faerber and Mariah Ogden-Kellington of St. John’s University Department of Psychology, published April 25, 2019, took a stab at what makes Xi tick, to be grossly untechnical. Their determination: Xi’s “primary personality patterns are ambitious/confident and dominant/asserting, complemented by secondary (personality patters of) outgoing/congenial and accommodating/cooperative features.” In sum, “Xi may be characterized as a confident, high-dominance extravert.”

Per the Chinese Zodiac, the contrast with the typical Snake is striking. Mind you, I “ascribe” more weight to the ancients from the clueless position of one of the furthest on the outside looking in. Though few would squabble with either characterization, a snakish acute degree of intuition conflicts with “dominant” and “asserting,” a la DJT. Moreover, the idea of intelligence and wisdom with great communication skills but extraordinary succinctness defies “extroverted.” The powerful desire to possess all with no patience for pantomiming the attainment of worldly goods contradicts “congenial” and “accommodating.” And finally, Snakes being easily stressed and demanding space and time to ease their internal tensions mocks “accommodating” and “cooperative.”

And yet, the St. John’s trio did a bang-up job of depicting the person Xi openly endeavors to project. One can only imagine how on edge he is after Li Zhanshu, chairman of the Standing Committee of the National People’s Congress and the third-highest ranked official, failed to show at last Friday’s New Year’s tea party of the Chinese People’s Political Consultative Conference, a political advisory body. A top member being absent from such an official event is unheard of.

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The Weekly Quill — Chasing Inflation Rainbows — The Fed is Denied its ‘Pot of Gold’

“At the end of the rainbow there’s happiness

And to find it how often I’ve tried

But my life is a race just a wild goose chase

And my dreams have all been denied

Why have I always been a failure? 

What can the reason be? 

I wonder if the world’s to blame

I wonder if it could be me?”

“‘Til death never us never part.” These must have been the words on Frédéric François Chopin’s mind when he passed into the next world on October 7, 1849. The composer and virtuoso pianist had left strict orders that none of his unpublished works be published posthumously. Lucky for the classically, and not classically inclined, his wishes were dismissed. The irony is that the most famous and enduring example of these “leaked” compositions was published by the individual to whom Chopin had dedicated the secret sonata in 1834. The romantic in me likes to think that Julian Fontana held his close friend’s work in such high regard, he had to share the beauty with the rest of the world. And so it was, in 1855, that Fantaisie Impromptu in C-Sharp Minor was released.

As cleverly reported by The Oklahoman in 2001: “‘I’ve never cared much for classical music,’ said a woman who was overheard humming the tune to ‘I’m Always Chasing Rainbows.’ She clearly had no idea of the song’s origins.” In 1917, with lyricist Joe McCarthy, vaudevillian composer Harry Carroll adapted and published Chopin’s work, which premiered in the 1918 smash Broadway show Oh Look! Starring the Dolly Sisters and Harry Fox (of fox trot invention fame). I’m Always Chasing Rainbows would go on to sell more than a million copies. Entire studies have been conducted on the number of remakes that followed. For the record, Perry Como’s melancholy 1945 recording of the song was by far the most popular, hitting Billboard’s Best Seller chart that next January where it endured for four weeks and peaked at #7.

While not the case with his I’m Always Chasing Rainbows, Como was so prolific in success that he refused to have some of his hit songs certified gold. One must wonder what goes through the minds of failed Federal Reserve and global central bankers who’ve long searched, and been denied, their own pot of gold at the end of a rainbow they’ve chased for generations. As 2021 draws to a close, this cohesive cohort is now as close to self-actualization as it will ever be. For more than a fleeting — “transitory” – moment, they found the end of the inflation rainbow they’ve been chasing with anything but gold at the end. They now know they couldn’t complete their journey into inflation madness without the assist of socialism. Robbing power to the people and replacing it with money in people’s pockets has indeed ignited inflation, the most regressive of taxes, some of which the Fed will struggle to contain in the New Year.

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The Weekly Quill — Investors Storm the Castle

The Quill Intelligence 2022 Residential Real Estate Outlook

‘Tis the season for joyously revisiting your favorite films with the next generation. We hope the holidays include the brilliantly written happy exemplified in Rob Reiner’s 1987 classic, The Princess Bride. Though “Inconceivable!” may be the most repeated of the one-liners, it’s “Have fun storming the castle!” that most delights. Portrayed to perfection by nine-time Oscar winner Billy Crystal, this is the line that Miracle Max and his wife caustically scream at the main character Westley, a.k.a “Farm Boy,” who’s just been brought back from the “mostly dead” to the “sort of alive”, and is intent on rushing off, or being carted off, to rescue his true love from Humperdinck’s castle.

Director Reiner was shrewd to secure the setting of the stately Haddon Hall, started in the 11th century, by Peveril, the illegitimate son of William the Conqueror. It’s the best-preserved medieval castle and has also been the set of other motion pictures such as Jane EyreThe Prince and the Pauper and Elizabeth. Even better, it’s solid as a brick and imposing as such, that’s for sure. No, you correctly surmise – the structure remains as solid as the Lower Carboniferous Eyam Limestone Formation near Derbyshire where it stands.

As historically important as Haddon is, at roughly 37,500 square feet, neither it nor any other fortified stone edifice can compare to that of Poland’s Malbork Castle, which cannot even be measured in feet. Construction was completed in the early 1400s by the Teutonic Knights of the German military. As difficult as it is to fathom, the outermost castle walls enclose 52 acres, or 2,265,120 square feet, 60 times that of Haddon, or for a more realistic comparison, four times the enclosed area of Windsor Castle. One can only imagine how operationally brilliant the head cook was given Malbork once housed 3,000 “brothers in arms in its three separate castles – the High, Middle and Lower Castles – which were separated by multiple dry moats and towers.

As for the brick used to construct the behemoth, the impetus was pragmatic as the region lacked quality building stones. That doesn’t mean the foundation was not rock solid, which was essential to the castle standing up to invaders. Per Amusing Planet, “The first four to seven feet of all the walls were constructed with river boulders, infilled with smaller stones. Bricks were made and baked on site in the outer yard using mud from the riverbanks. Later, brick construction was shifted to the opposite bank of the river. Stone was used sparingly, but only for decorative elements, particularly in the church and chapter house entrances. It is estimated that between seven to thirty million bricks were used in its construction.”

Ultimately for those Knights, a combination of greed and a lack of vision saw them tossed out on their Teutonic arses. It came down to 15th century Prussia’s economic coming of age while the Knights stubbornly refused to follow. They imposed arduous customs and charged egregious fees for the privilege of trading grain, which was so 14th century. The pushback was inevitable and at the root of the Thirteen Years’ War which culminated in the Polish Army’s seizure of Malbork in 1457. Polish kings would occupy the formidable castles for the next 300 years.

The idea of uprisings against unfair taxes harkens the predicament in which Federal Reserve officials find themselves today. Middle income earners in the United States are being ruined by inflation ignited by a toxic combination of monetary and fiscal policy run amuck. Food, energy, living the iLife, and especially housing costs are experiencing price pressures not seen since the Carter administration. For those who rent, a reset when their leases come up for renewal after signing at rock bottom levels in the heat of the pandemic will be quite the rude awakening. And buying a home has never been so unaffordable in 45 years of data kept by CoreLogic. On the flip side, while foreclosures are not problematic, nor should they be, rental evictions have picked up and will continue to rise if the child tax credit is allowed to expire.

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