Are Banks Necessary?

In today's increasingly digital economy, we can get through our day without ever having to touch cash, write a check or go to a bank. The question of what "money" is emerges as we consider what the relative advantages and disadvantages are of maintaining all of our transactions through electronic systems. Bitcoin poses yet additional challenges for those who believe that banks provide critical functions. Dr. Tiemann is continuing to explore these concepts and, in recent months, has focused his research into economic and banking history on the California Gold Rush. He plans to produce a series of articles from that work, which will help us better understand what money is and how and why it actually works. In the meantime, Dr. Tiemann has released a note examining the fascinating period just before the Gold Rush, when California’s economy suffered a severe shortage of cash and an absence of banks. Click on the image to read about William A. Leidesdorff, a successful San Francisco merchant in the pre-Gold Rush era of the 1840s, who dealt with those handicaps by becoming, in effect, his own banker.

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Just a Little Respect

Dr. Jonathan Tiemann

Barron’s, the Dow Jones business weekly, published its annual investor survey of America’s most respected large companies this week. I was one of 112 investors responding to the survey.

It’s important to note that the survey asked what companies we respect. I chose to interpret the question narrowly, recognizing that not every successful enterprise — and not even every enterprise that seems likely to deliver an attractive return on capital — is deserving of respect. Here’s how Vito Racanelli, the Barron’s journalist, under whose byline the results of the survey have appeared for the past several years, quoted me in his report on the survey: “Business is a human enterprise. What is most admirable in business is running a successful enterprise honestly, without cutting corners. As soon as you begin to be an apologist or say things that are untrue or only narrowly true, you run into trouble.”

Unfortunately, it’s impossible to build a well-structured, well-diversified portfolio entirely of stocks of companies deserving of respect in the sense I had in mind. There’s just too much routine mendacity in the business world. But that doesn’t mean that we have to give a pass to every executive that cuts a few too many corners.

Vito Racanelli, “The Winners: Alphabet, Apple, and Amazon.com,” Barron’s, June 3, 2017

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Changing the Economics of Energy

By Dr. Jonathan Tiemann

This February, a group calling itself the Climate Leadership Council published a paper titled, “The Conservative Case for Carbon Dividends.” The paper’s eight authors constitute sort of a blue-ribbon panel of thoughtful conservatives. They include former senior Republican officials (James A. Baker III, George Schultz, Henry Paulson), prominent economists (Martin Feldstein and N. Gregory Mankiw, who also served in Republican administrations), business leaders (Thomas Stephenson of Sequoia Capital and Rob Walton, a member of the Wal-Mart founding family and board), and the CEO of the Climate Leadership Council, Ted Halstead. The paper begins with a forthright acknowledgement of the seriousness of climate change as an issue. The paper’s main proposal is to impose a tax, initially $40 per ton, on carbon dioxide emissions, using the proceeds to pay every American an annual “carbon dividend,” which they estimate would initially amount to about $2,000 for a family of four. While we would all pay the tax indirectly because taxes generally find their way into consumer prices, the idea is those that choose to make our lives less carbon-intensive would come out ahead, while those that continued to lead carbon-intensive lives would be net payers. The proposal has the merit of articulating a coherent policy approach to greenhouse gas emissions, using a price mechanism to decentralize the day-to-day consumption choices and long-term investment choices, which consumers and businesses must make to effect substantial reductions in those emissions.

The Climate Leadership Council is an interesting group. They’re an […]

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Brokers still trying to duck fiduciary duty

By Dr. Jonathan Tiemann, February 11, 2017

On Friday, February 3, 2017, a group of business leaders convened at the White House with the President, members of his family, and his ever-watchful Vice President, presumably to lobby for policies conducive to the profitability of their businesses. The financial markets advanced, as though relieved that the President had chosen to take a break from erecting immigration and trade barriers, which most of the industrialists and financiers oppose, to concentrate on their agenda. Wall Street seems to take for granted that that agenda includes massive tax cuts for corporations and wealthy individuals, along with rollbacks of regulations they regard as either costly or annoying.

In remarks earlier in the week, the President had promised to “do a number on Dodd-Frank,” presumably meaning that he intended to spearhead a drive to roll back some large portion of the banking and financial services regulations the Government has imposed under the Dodd-Frank financial reform law, which Congress enacted in 2010 as a response to the economic peril and dislocation of the financial crisis of 2007-2009. The President mused during his Friday meeting that many of his friends had complained they couldn’t expand their businesses because they can’t get banks to lend them the money they need, because of Dodd-Frank.

While Dodd-Frank is of interest to a broad range of financial services firms and customers, the brokerage industry has also been lobbying the Administration to take action to weaken the so-called “Fiduciary Rule,” a newly-enacted Labor Department rule […]

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Finally, DOL requires Advisors to put client interests first

Today, I’m calling on the Department of Labor to update the rules and requirements that retirement advisors put the best interests of their clients above their own financial interests. It’s a very simple principle: You want to give financial advice, you’ve got to put your client’s interests first.

          – President Barack Obama, February 23, 2015


Screen Shot 2016-04-09 at 8.25.20 PMWe are thrilled with this major step forward proposed by President Obama to correct some of the abuse that can happen when individuals seek financial advice from certain types of brokers and financial planners who are not Registered Investment Advisors (RIAs) (like Tiemann Investment Advisors is, who are held to a high fiduciary standard).  Such individuals receive compensation from  commissions, fees and a range of marketing benefits paid behind the scenes by the financial companies whose products the brokers sell.  These brokers do not have a fiduciary obligation to put the interests of their client first and while some will consider their client’s best interests, a substantial number will sell investment products to their clients based of the size of the commission they—the broker—receives. Unfortunately, the bigger the commission, typically the worse the product.  The new rule, described in more detail below by this U.S. Department of Labor Fact Sheet, is estimated to potentially protect and save middle-class investors billions of dollars every year once it is passed and in effect, although this will likely take until […]

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A question for Senator Ted Cruz

We are about three weeks away from the next Republican candidates' debate, but I'm still stuck on one item from the last debate. Toward the end, the moderators cited a Treasury Department proposal to replace the image of Alexander Hamilton on the ten-dollar bill with that of a woman, and asked the candidates which woman they would choose for that honor. When Senator Cruz's turn came, he prefaced his answer by saying he would prefer to keep Hamilton on the ten, and instead replace the portrait of Andrew Jackson on the twenty.

Sen. Cruz's defense of Hamilton seemed bizarre, given his stated positions on a variety of issues. Hamilton, after all, believed in a strong Federal government and a strong central bank (the type of bank that Jackson killed). He was the architect of the Compromise of 1790, under which Congress assumed the Revolutionary War debt of the states, rescheduling them where necessary – a bailout, if you will.

Hamilton also believed in a strong national economic policy. In his 1791 Report on Manufactures, he advocated major public infrastructure investments, along with other measures explicitly intended to promote the development of a manufacturing economy. In arguing both for assuming the states' debts and for setting up a strong central bank, Hamilton urged Congress to make a credible commitment to make timely payment of principal and interest on the public debt. This "funded debt," Hamilton felt, could serve as a monetary base in an economy desperately short on hard currency. The […]

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Dr. Jonathan Tiemann and Stan Thomas Announce Strategic Partnership

Thomas & Tiemann Strategic Partnership

We are pleased to announce another exciting development at Tiemann Investment Advisors.  Stan Thomas, Managing Member of Thomas & Atkinson Capital Management LLC (formerly Thomas Capital Management LLC) and Dr. Jonathan Tiemann of Tiemann Investment Advisors, LLC have agreed to a new strategic relationship.  Commencing September 2015, Stan Thomas (individually) will join Tiemann Investment Advisors as a Managing Director, move into TIA’s Menlo Park office and continue to provide investment management services for his direct client accounts through Tiemann Investment Advisors, LLC. The partners of Thomas & Atkinson Capital Management, Stan Thomas and Anne Atkinson, have chosen different strategic directions, so Thomas & Atkinson Capital Management and/or its successor entity, are not a party to this agreement.  This new strategic relationship will enable Stan Thomas to join forces with Dr. Jonathan Tiemann, an investment management expert, and work together to ensure that the highest level of investment services are available to Thomas' clients both currently and for the foreseeable future. Because of the significance of this event, TIA, a Registered Investment Advisor (RIA), will be updating its Form ADV, Part 2 with the Securities and Exchange Commission, to reflect this news.

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Tom Brady’s Victory Pumps up Organized Labor

By Dr. Jonathan Tiemann

In honor of Labor Day Weekend, here’s a note concerning a matter that could have surprising implications for organized labor:

Fans of the New England Patriots are no doubt celebrating yesterday’s ruling from US District Court in the Southern District of New York, which overturned NFL Commissioner Roger Goodell’s imposition of a four-game suspension on Patriots uber-star quarterback Tom Brady. But there’s another group that potentially gained even more from the ruling than Patriots fans did: Leaders of organized labor should see in the ruling a strengthening of both the role of collective bargaining agreements and protections for workers facing arbitrary and capricious workplace disciplinary action.

Mr. Goodell’s action, you’ll recall, stems from the Patriots’ apparent use of under-inflated footballs (in the NFL each team provides the balls for use when its offensive platoon is on the field) during last year’s AFC Championship Game. After investigating the incident, the League imposed sanctions on the Patriots, including a fine of $1 million and the loss of two future draft picks. At the same time, the League informed Mr. Brady that it would suspend him, without pay, for the first four games of the 2015 season. Mr. Brady asked for, and was granted, an arbitration hearing. Mr. Goodell appointed himself arbitrator at that hearing, and found in his own favor, reaffirming Mr. Brady’s suspension. Yesterday’s opinion resolved a pair of cross-motions: the NFL’s motion to confirm, and Mr. Brady’s (actually, and crucially, the NFL Players Association’s) to vacate, the suspension. […]

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Competition? Oh, the horror!

By Dr. Jonathan Tiemann

I’ve written on this theme before, but it bears repeating. As often as we hear politicians, venture capitalists, bankers, corporate managers, and even economists extol the virtues of free market competition, business leaders know better: Competition is bad for business. And every once in a while, one of the designated cheerleaders of American capitalism suffers a lapse and admits it.

Wednesday morning on CNBC, Jim Cramer was discussing the poor recent market performance of stocks in the transport sector, and the airlines in particular. Here’s what he had to say :

"Sometimes though, this kind of action is a sign not of weakening trade, but of potentially ruinous, cutthroat competition. And that's what is driving the group down at this very moment," Cramer said. Cramer considers competition to be the absolute worst thing that could linger in the market. On Tuesday, the "Mad Money" host spoke with Doug Parker the CEO of American Airlines. Parker confirmed that his competitors in the industry have decided to take advantage of the strong travel market right now by ramping up capacity.

Mr. Cramer’s remark was an unusually frank admission that in their hearts, many business people view competition as destructive. In the case of airlines, what if an increase in capacity results in lower fares, better service, and perhaps more comfort? That would add up to a transfer of value, whether in dollars or not, from the owners of the airlines to the public at large. That would be terrible, wouldn’t it?


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A Stock Pickers’ Market?

By Dr. Jonathan Tiemann

Pity the poor hedge fund manager. The lead item in one of the many daily “news” emails I received today — this one from Chief Investment Officer magazine — reads, “Don’t Blame the Hedge Fund Managers.”

So why did the hedge funds do so badly? According to the CIO item, an analytics outfit called Novus figures that the reason is that the markets have been going through a period of unusually high correlations among stocks, and unusually low dispersion of returns across stocks. The idea is that in such an environment, the opportunities for managers to add value through stock-picking are unusually sparse. So it must be good news for hedge fund managers that Michael Santoli of Yahoo! Finance has declared the current environment a “stock picker’s market,” which he defines as “a market where a greater number of individual stocks and sectors go their own way, rather than track the broad market.” And really, it isn’t just hedge fund managers that should, it would appear, be happy. Managers of traditional active mutual funds, which try to out-perform the market, should see greater opportunity in such a market too, right?

Let’s set aside the point that fund managers are constantly on business TV, claiming that we’re in a stock picker’s market, and suppose Mr. Santoli is right. That would mean it’s a good time to invest in hedge funds, or at least in actively managed mutual funds, right? Well, not so fast. The problem is that […]

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