The Six

Dear Sendero,

In this edition I take a personal trip down memory lane, then share a couple of investment speculations, one of which has to do with the imminent outbreak of war, and the other with a situation potentially even more damaging than war.

As we set off on the trail I am accompanied by a playlist of eclectic rock songs I put together, all of which I remember loving while still an impressionable youth. Here’s the link: https://www.youtube.com/watch?v=ZCkHanF4v1w&index=1&list=PLCFk3_wrNvGv1ok3Lgvm2PI7OixMCFNM9

The Six

Each of us are shaped in our formative years by a combination of well-understood factors, including our DNA and our environment which encompasses cultural norms and, of course, the people we encounter in our lives.

The range of variables in determining our character extends nearly to infinity, and starts from our first moment on earth, with the developmental experience differing entirely for, say, a healthy boy born to a wealthy family in the United States, compared to a disabled girl destined to be left at a Mumbai orphanage.

While all the variables will tilt the balance one way or the other, in my opinion the single most important variable has to do with the people you encounter in your formative years.

Supporting that contention is the long list of people who came from nothing to become successful in every sense of the word versus the many people who failed to transcend their circumstances and ended up instead in jails and cemeteries.

The difference, as I see it, comes down to character, and character is hugely influenced by our roles models, both good and bad.

With that preface, I would like to share my list of the six people who I believe did the most in influencing who I am today. Mind you, I am not talking about the important people in my life - my wife, children and many friends and business associates who have so enriched my time on this planet.

Rather, I am focussing only on those crucial people who touched my life in truly profound ways when I was young and still trying to find my path.

Starting with the number six slot…

(6) Paul Knauff. Paul was my 10th grade creative writing teacher. Ultimately a tragic character, Paul came to the school as something of a pariah, having been booted from the best high school in Hawaii for having an affair with one of his students, whom he subsequently married. Thanks to his energy and a great sense of humor, he may have been the only teacher I ever had whose class I looked forward to.

It was he who first urged me - an otherwise poor student in every regard - to be a writer. While I had enjoyed writing from a very young age, the idea of actually “being” a writer had not dawned on me until I encouraged by Paul Knauff.

Sadly, about three quarters of the way through the year Paul’s young wife left him for another teacher at the school and shortly thereafter he died in a suspicious car accident. There were no tire marks left where his Volkswagon left the road.

(5) Jim Blanchard. I met Jim when I was about 26 years old and running my own convention planning company out of a small office in Beverly Hills. Jim was a serial entrepreneur and the first libertarian I ever met. He contacted me a week before his out-of-control-successful National Committee for Monetary Reform conference in New Orleans was due to begin. I arrived to a chaotic scene as Jim and his staff scrambled to prepare for the imminent arrival of thousands of investors.

Having had a lot of experience in convention planning at that point, I was able to take the situation in hand and the convention was a great success. As a result, Jim and I began working together on all of his conventions and, in fairly short order, became the best of friends and, eventually, business partners.

Jim was a larger than life character, brimming with a passion for life and an enthusiasm for ideas with an intensity I am not sure I have ever met the equal to. Given he had been in a wheelchair since 18 thanks to an automobile accident, his passion was all the more remarkable.

The list of Jim’s contributions to who I am is long indeed, on both the positive and the negative side of the ledger. We saw the world together, started businesses together, got drunk together, were involved in an African revolution together, sailed the Indian Ocean in a dhow together and so much more.

His passion for life, and for diving headlong into adventure and seeking out new experiences were a major influence on me. Unfortunately, on the negative side, Jim’s love of beer evolved into a gripping addiction to vodka and then worse, ultimately cutting his life short.

My relationship with Jim lasted almost thirty years, with the first twenty of those years, before his demons began to hollow him out, some of the best years of my life. They were certainly among the most interesting.

(4) Christine Brown. I met Christine when we were both about 22 years old and living and working in Chicago. Christine was the daughter of a well-known artist and so she was well plugged into the local art scene. I forget where we met, but it was during the disco era so that’s a possibility.

Christine was well educated, pretty and well spoken. We spent a lot of time together, more or less living together for over a year. I learned much from her about polite society, but the powerful influence she had on me came from our time as lovers. Up to this point, though, I had had several girlfriends, I was clumsy and inartful. My real sex education began our first night together, the start of a relationship that saw me grow from a clumsy youth into a more confident individual, a crucial step in every life.

(3) Jay Lurye. Jay was the founder and president of IMPACT International, the first independent convention consulting company in the US. He was also my first boss of any real importance.

Jay was a rotund, homely (he had smallpox as a child), Jewish man who had been a theatrical producer before shifting into convention planning. What to say about Jay? Well, basically he was the most revved up, over-the-top-creative, hardest working person I had met to that point. As a boss, he was a disorganized disaster, but somehow miraculously our conventions, some of which had upwards of 40,000 attendees, came together at the last moment.

And by last minute, I’ll mention the time Jay was typing up the speech of the President of a trade association while the man was on stage delivering the speech… sending the final pages up to the podium via an employee dressed in dark clothes and crawling on all fours behind the head table.

One of my favorite memories of Jay was the time he was trying to sell a “big” idea to the staid board of directors of some trade association and, as he wasn’t getting any traction, kicked off his shoes and climbed onto the boardroom table and began doing a soft shoe routine.

I started with IMPACT as the office boy just before my 20th birthday, but as the company was always understaffed, was soon traveling around the world helping with the conventions, staying in comped suites, eating the finest foods, etc. For a young person who, up to this point, had been pretty directionless and probably suffering from ADD to boot, the convention business was a perfect match.

Most importantly, under Jay’s tutelage I came to believe that I could literally accomplish anything I set my mind to, including the time I found an elephant to walk into a ballroom in Memphis.

Also from Jay I learned the importance of always being truthful because Jay habitually lied to his clients, usually in pursuit of more money. Invariably, like a the lead character in Fawlty Towers, he would forget what lie he had told to whom making his already chaotic life, at times, insanely complicated. When I realized the depths of his deceit to his trusting clients, I quit, but my debt to Jay remained as, with his encouragement and my growing sense of confidence, I went from a timid office boy to a confident owner of 25% of the business by the time I was 25.

(2) Mat Kelemen. Mat was one of a number of “stringers” that worked with IMPACT, to be hired for a week or two at a time depending on the size and location of the conventions. Mat, who comes from Hungarian roots, had previously been what was called in Hollywood a “dog robber” - the guy you ask to find the unfindable, and do the impossible… and get it done quick.

Mat took me under his wing at the second convention I ever worked on, in Los Angeles. Mat was, and still is, the perfect embodiment of the “can do” attitude. He also has a natural tendency to be supportive and encouraging. And so it was that he took the lump of clay that I was in those formative years and with constant positivism and encouragement, helped me to feel that, yes, I could accomplish anything.

Our lives have remained intertwined ever since, a period now stretching back forty years. That’s because after setting up my own convention planning company in Beverly Hills, Mat showed up one day with a brown paper box of his belongings and moved in. He worked for me for free for the first six months, then as we gained traction, continued to work with me directly for another 10 years, first in California and then Louisiana.

Mat is about to have his 98th birthday and we make it a point to talk by phone every couple of weeks. Though doesn’t see too well these days, Matt is completely plugged into what’s going on in the world and in our regular conversations, remains as sharp as the proverbial tack.

(1) Henry Davis. Somewhat counter-intuitively, the most influential person in my life was a man I learned to hate, and then feel pity for - my step-father Henry Davis.

My mother married him when I was just six, the starting gun for decades of drama and disaster. There is an old saying that you can tell the true character of a person when they are drunk or broke.

Well, Henry was a mean and abusive drunk. As he was also an alcoholic, that meant spending countless nights trying to block out the sounds of his drunken rage. While I could fill a book with pitiful tales, I’ll just mention the time, when I was about six years old, we awoke to find my sister’s pet bird dead on the bottom of it’s cage, coated in a white crystalline material. Next to the cage was an empty highball glass and a can of Raid.

From his first marriage, Henry had three children, as did my mother - us - from her previous marriage. I can’t tell you how many times I had to listen to Henry exclaiming how wonderful “his” children were and what useless bums were were. As a young child, that’s not easy to hear.

Henry, an airline pilot, was supposedly Hawaii’s only World War II ace. I used the word “supposedly” because despite all his stories, I learned after his death that it was all a lie. He faked the whole thing.

So, how does Henry rank as the most influential person in my life? Simply because he inculcated in me a terrible insecurity. So strong was my insecurity that I wet my bed regularly until well into my late teens. In my teens I was convinced I was worthless and, to some extent, acted that way, to the point of being arrested on multiple occasions, including for grand theft auto.

However, I guess the old saw that if something doesn't kill you, it makes you stronger holds water, because that insecurity morphed into a powerful drive to prove to myself, the world and, I guess, to Henry that I wasn’t useless.

And so it was that, at 19 years old, I decided to change my life completely and had the good fortune to land the job with the convention planning company in a city far from home and, thanks to the positive people who subsequently came into my life, turn my insecurity into a drive to excel that still burns to this day.

Concluding Thoughts

Life is indeed a process. And there’s no question being lucky - or at least not having bad luck - plays its role, too. In that regard, one might say it was horrible luck when Henry came into my life, and I guess in many ways it was.

Yet, without that unfortunate occurrence or the crucible of spending countless tense nights in an abusive home, there’s no question I would have become a completely different person than I am today.

I can’t even begin to contemplate that alternative reality. At the end of the day, when the tally is made, my life ended up being as fulfilling and interesting as I could have possibly hoped for.

There is another old saying that it is not life’s inevitable challenges that matter, but rather it’s how fast you get up when you are knocked down. The people in my list of six were all instrumental in helping to me learn how to handle the ups and downs, and show me the path to that led me to this happy place. And for that, I will be eternally grateful.

So, who are your six?

Investment Ideas

While it’s not my intention to write much about investing in this blog, there are a couple of interesting opportunities I have my eye on which you may find of interest.

They are actually not “investing” ideas, but rather speculations related to geopolitics. For the record, I much prefer investments - which is to say good companies which, under no existential threat, are selling well below their intrinsic value. That describes 85% of the stocks in our family portfolio.

However, one must admit that speculating is a lot more fun. That’s because speculations are typically short-term trades which allow you to see your ideas come to fruition (or not) in a satisfyingly quick time frame.

So, with that preface, here’s the trades, the first related to South Korea and the second to Mexico.

South Korea

At this very moment three US naval carrier groups and a lot of warplanes have been moved into position to attack North Korea in order to stop it from acquiring a nuclear bomb.

I have read quite a bit on the situation, and the bottom line is the US wouldn't move that much hardware into place if it didn’t have every intention of using it.

Thus, it increasingly seems likely a US attack on North Korea is imminent.

As the South Korean capital, Seoul, population 10 million, is only 35 miles from the border with the North, should an attack take place it is a certainty the North will retaliate with devastating effect.

The trade, then, is to short EWY, the only South Korean ETF with any real size. It’s heavily concentrated in all the major South Korean companies, the largest single component being Samsung.

Here’s the chart showing that the ETF is already overbought, so the case could be made for putting on a short regardless of the potential for war.

This is a very short-term trade, as the ships and the attack aircraft are already in position, and the US government is now giving the citizens of Guam self-defense training, reinforcing the point that the attack, if one is to come, is imminent. The estimates I have seen calculate that within the next three weeks either North Korea clearly capitulates, or the dogs of war will be unleashed.

While I hope the war can be avoided, and if the North Korean leadership has sense it will be, even a little bit of brinksmanship on the part of the North over the next couple of weeks should be enough to tip the South Korean market over the edge, at least on short-term basis.

Here’s an article from Geopolitical Futures on the quickly-developing situation. North Korea Stares into the Abyss. https://geopoliticalfutures.com/north-korea-stares-abyss/?utm

Mexico

With a thumbs up to Jared Dillion in his excellent The Daily Dirt Nap newsletter for bringing the story to my attention, a left-wing totalitarian politico named Andres Manuel Lopez Obrador is all but a shoe-in to win the July 2018 Mexican presidential election.

In his article, Jared points out that Obrador has run for president twice, and lost by just half a percent last time around. Now, thanks to the Mexican backlash against the Trump presidency, Obradors credentials as a staunch anti-Trump nationalist and a raving socialist all but assure him victory.

Jared points out that Obrador is a vocal fan of Castro, and even of Venezuela’s Maduro, despite the clear evidence of the destructive consequences of their socialist policies.

As the elections are not until July 1 of next year this play will take awhile to play out. However, we probably won’t have to wait that long because (a) the Mexican market is also in overbought territory, and (b) once the investment community begins to realize that Obrador is looking like a winner, they will exit in droves.

To that end, I corresponded with a friend of mine who is an Emerging Markets Fund manager last week and he said they were watching the situation with Obrador closely and, in fact, had already closed all their Mexican positions.

One simple way to play it, is by shorting the largest Mexican ETF, symbol EWW. Here’s the chart.

As you can see, the Mexican market is also looking fairly toppy.

If nothing else, you’ll want to start paying attention to the situations in South Korea and Mexico. Obviously, a war with North Korea is far more potentially devastating in the short-term, but having a hard core socialist come to power in Mexico would prove just as devastating, or worse, over the longer-term.

And on that somewhat dire note, I bid you farewell until next time and wish you happy trails nonetheless.

David Galland
Cafayate, Argentina
April 2017

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