Many years ago, Oliver Stone made the ludicrous comment that “movies are the new literature.”  One of my college classmates and I almost busted our collective gut doubling over in peals of laughter. 

With 20/20 hindsight I am fully prepared today to expiate for this sin of pride and admit without discomfort that Mr. Stone has always been my elder and better and has written, directed, produced and even acted in some superb films that have completely changed my views on certain subjects.  “Movies are the new literature” is still an absurd statement.

Now that I have had the opportunity to view it several times, Quentin Tarantino’s “Once Upon a Time… in Hollywood” is a masterful piece of work with the potential to alter our consciousness, and much of its messages are well suited not only to increasing our understanding of business economics and market behavior, but also about self-improvement as we find ourselves with a lot of extra time on our hands to contemplate the meaning of life and specifically the meaning and purpose of our own lives afforded by the Covid-19 virus’ restrictions on our movements and activities.

At first (meaning the first two or three times I viewed it), I thought this masterpiece in filmmaking was simply an experienced hand’s look back at his own life and a humorous statement about the culture of Los Angeles in a different time when “politically correct” was an unknown term. Kind of like the time I found a pair of purple tie-dye pants I hadn’t seen since the 1970s and saying out loud to myself, “what in the world was I thinking when I wore these?”  That’s what looking back on your life can be like, and Mr. Tarantino has had quite a life in his craft commanding ever more attention as a master thereof.

But now in the context of the Covid-19 situation, the market and economic crashes and the policy response to all of these things, “Once Upon a Time…” has taken on a much larger significance in my estimation. And it has done so without losing a bit of its humor, entertainment or “slice of life in the 1960s/1970s” value. And I further believe this applies to millennials just as much as it applies to the contemporaries of Mr. Tarantino who actually lived in that era.

So let’s go back to Mr. Stone’s asininely phrased comment about movies being the new literature. I’m going to dare to say what I think he meant: that in today’s era of people reading books (actual literature) less and less, movies have become a medium by which big messages can be delivered. Mr. Stone proved this with “Born on the Fourth of July". Mr. Tarantino has done so with “Once Upon A Time….”

Here is what I believe makes a story done well capable of being viewed on such a level: the development of the characters. It is not easy, but in the written word, the development of a character, if the writer is capable of it, is unlimited. You just write and write and write and write and write. But if you don’t do it well, and if there is no point or purpose or lesson being imparted, it is just depth without practical meaning or message. The film medium is far trickier. And so accomplishing what Mr. Tarantino has accomplished with protagonist Rick Dalton is really quite amazing when instead of looking at this character, not as caricature of the “Hollywood heavy,” but instead seeing him in the context of a modest man from Missouri who comes to Los Angeles at a time in the United States when prime time television was a mixture of half-hour and one-hour drama series for the most part, dominated by a few producer/creators (Quinn Martin and Stephen J. Cannell come to mind), and there were only three channels to watch, and everything was broadcast through the air. Dalton is just a modest man from the Midwest who loves his acting craft. He is not Orson Welles and, to paraphrase Dirty Harry, “knows his limitations.” He is just trying to figure out what his job is and how to improve doing it and stay in the game. He is also riddled with sentimentality, self-doubt, insecurities, subject to emotional swings, susceptibility to vices (and women)…in other words he is the “everyman actor” that has been coming to Hollywood seeking fame and fortune since before the days of W. C. Fields and Buster Keaton. He is also totally paranoid that he is cursed and doomed to commit and repeat blunders that cause great embarrassment and injury to himself and everyone associated with him. This latter quality is so heavy a weight on his psyche that he even confuses moments of great achievement and success with being relegated to the dustbin of history.

What We Can Learn from Rick Dalton

Rick Dalton is an interestingly new kind of weathervane in a nation in which the winds of fortune are blowing in entirely new directions due to the coronavirus and financial market volatility, but his fundamentally realistic point of view and lack of filigree are time-tested American traits that have been foundations of personal success throughout the history of the United States.

We see this in bas-relief when he arrives on the set to shoot a scene with “Trudi,” portrayed powerfully by Julia Butters. I am far from a literature scholar, so I will say in my homespun way that this is “one of those play within a play” things where we are treated to a very illustrative counterpoint about what these two actors have as conversation pitted against their actual subsequent performances immediately after that conversation. The net of that counterpoint is that Trudi’s technique is remaining in character in the method acting doctrine; that is to say, “being who she is portraying.”  DiCaprio’s “Lancer,” however, is a product of technique. Indeed, he even has a book in hand about a fictional “broncobuster” whose story centers on a life and career changing injury that knocks him out of the box and destroys his confidence. This is not at all unlike Dalton’s own self-consciousness, riddled with doubts, and set against Butters’ brainy adept youth, the contrast is brilliant. The scene’s climax is the utterly unexpected moment of a child speaking calming wisdom to the frailer older man, the cleverest of role reversals, and the subsequent effect it has in eliciting a virtuoso performance from Dalton. The result is success and accolades.

This tells us lots of useful things in these topsy turvy volatile times. Stick to basics. Do your homework. Know yourself. Exploit all the resources around you. Don’t be afraid to “let it all hang out” and improvise.

A far more prosaic scene in the film occurs when Dalton returns from an extended stay in Italy; this seems to be a loose adaptation of Clint Eastwood’s Sergio Leone period. Part of what comes out of this is that Dalton does not have a great deal of fondness for Italian filmmaking or European filmmaking in general, and that his views on that subject are not regarded as either sophisticated or particularly intelligent. On the other hand, they are honest views, and “you can’t argue with success.” Dalton doesn’t cave on who he is and pulls off making four films that generate for him a nice lifestyle in Rome and a pocketful of cash with which to return to California. We see him with a furrowed brow on the returning flight back to Los Angeles, where he is content to smack his lips over an airline bloody Mary, contemplating what he’s going to do next.

This is in my view a key moment because this is when we learn how much his stuntman and inseparable pal Cliff Booth (Brad Pitt) really means to him, and Dalton has already come to the conclusion that he is going to have to let Cliff go, and he’s not happy about that, but he just can’t see a financial future that makes his continued employment possible. What I find interesting is that in the course of breaking the news to his good friend, in passing he speaks out loud his recognition that he might even have to “go back to Missouri,” and that one of the things he is considering is acquiring rental real estate, “but that might not work out.”  He also points out that he has a new bride to support.

What we are again seeing in another permutation here is Rick Dalton’s practical way of seeing his life as a set of capabilities and a need to “make the monthly nut,” and that in his deliberations of how to accomplish that, part of it is acting, and part of it is whatever else he can, like a quarterback, run the option play to wing it. Again, it’s distinctly American.

What we are observing in Rick Dalton is the uniquely American talent for success achievable by modest men who stick to their knitting and beyond, recognizing change and seeing problems as opportunities. We are seeing that courage is not the product of not being afraid, but proceeding as best you can and as much as you can according to a basic plan, DESPITE the fears you have.

Business and Economic Cycles, Political Incentives and Motivations and Strategic Calculations

According to research developed at NYU’s Stern School of Business, more than half—55%—of nearly 42,000 companies around the world don’t generate returns sufficient to cover the cost of their stock purchases and dividend payouts.

This is why many market commentators point out that when a major event like Covid-19 seems to be ushering in a downturn in the economy and a change in the fortunes of financial markets, it’s more likely the other way around.  Usually what you have is an economy that is already showing “long in the tooth” characteristics in PMIs and other hard data measures, and yet stocks continue to ascend anyway.  FOMO, or “fear of missing out,” is one tendency of investors and speculators used to explain why buying continues, often at a frenetic or even record pace, even though trailing twelve and forward earnings multiples are hitting the pin and beyond.

More likely it is the case that the “big event” is more catalytic than causative. In this particular instance here and now, the Coronavirus and related policy actions is also having a substantial added effect on both the demand and supply side with the quarantining at home mandates.

But what worries me most is that what makes our economy and our markets susceptible to collapse in the first place is the many previous policy measures that go all the way back to the 1980s with the jettisoning of Paul Volcker and the beginning of the return to interest rate rather than money supply targeting era ushered in by Alan Greenspan. The subsequent reigns of Bernanke, Yellen and Powell have seen that compounded to massive quantitative easing and direct purchases in the markets. And despite the cries that “the Fed is the only game in town,” it’s certainly hard for me to see it that way because this entire new millennium we have been running massive and increasing deficits.  So now, of course, you hear politicians and economists saying “sure we need to do something about all the debt and central bank interference, but right now we’ve got to put out the fire.”

In other words, “sure we’ll eventually attend the AA meetings, but right now we need to take the hair off the dog that bit us.”  Sorry, I don’t buy that, and I don’t buy “modern monetary theory” either, which in its most scholarly and rational moments suggests that you can borrow as much as you want if you’re not upsetting various kinds of curves and interest rates are low.  I say BS, and I also say this is the underlying cause of our current problems which the virus has only catalyzed and intensified, and I further say that how we are addressing this with loan guarantees, subsidies, bankruptcy intervention, rent and mortgage forbearance and long list of other prescriptions will bring more bad than good, make matters worse, and will exacerbate and extend the pain.  Big debt is a problem, and it's getting bigger all the time.

But what I also see is opportunity, because opportunity is always primarily a function of problems, and lacking a world war, it’s hard to see how we could have more problems than we have now, and maybe we will get a world war as well.

What Are the Trends?

So what does this tell us? Well, if you are an investor, as I have said in the past, keep buying bonds. Look at the TLT chart. It just keeps going up.

If you are buying stocks, beware, because fewer and fewer issues are holding up the beam, and numerous companies have suspended guidance.  Dividends are being cut and more will be. The earnings outlook is dubious.

But the business opportunities are also boundless, and they center on some very obvious things that were visible before we entered crisis mode.

One of them is obviously all the people staying at home instead of working and what you can conclude about that regarding income and purchasing patterns.

Let’s tackle income first because that’s easy.  There’s a lot less of it.

Now purchasing. There is a huge transition from impulse/discretionary to restrained/staples. This transition is made all the more dramatic by the fact that we were in the late stages of a record lengthy expansion, the point at which luxury purchases are at their highest.

But here’s the most important trend in my opinion, and that is the impact of tech, scale and degrees of labor intensity vs. capital intensity.  Most of this trend that is worth thinking about in depth is the value of the labor in labor intensive businesses and what that is worth, and how it happens to coincide with dynamics of social contact vs. distancing.

In two industries, health care and hospitality, you see respective endpoints of labor intensive value and the real need for change.  Just ask yourself why it is that there is so much attention focused on “flattening the curve.” It’s not because it will ultimately lessen the number infected or killed once this disease runs its eventual course, but it is rather how to draw out that course so as to keep facilities from being impossibly overburdened at any given moment in time along the journey to the endpoint. That endpoint will have more to do with a prospective vaccine and therapies than with social distancing.

Some say healthcare is inherently labor intensive and that you can never change that.  I totally disagree and endorse the feasibility of distance medicine, just as I do distance learning.  I think much of the resistance here is political rather than technological.

As for hospitality, you couldn’t get more contrast with healthcare insofar as pay scales are concerned. What does this tell you about where we are in the progress of the human species when so many people are dependent on jobs that in many cases are not even covered by minimum wage statutes because if they were, a lot of bars, restaurants and other establishments couldn’t make a dime?  Why is so much of how people make a living tied up in serving food and beverages?  I think this is something we need to think hard about, and we are going to have to face the reality that we need to apply technologies to a whole list of labor intensive services at this pay level, and first and foremost that means a huge portion of the labor pool has GOT to get up the food chain on education and skills.

Markets and the Economy vs. Expectations

I have more to say on the topic of expectations than I will say here in the interest of keeping my audience engaged. So let me limit my remarks to a simple comparison with the 2007 – 2009 experience. As for stock prices, you have to keep in mind that most indexes are cap-weighted and that with the dominance of technology and only a few other non-technology stocks, a handful of issues push up and hold up these indexes. So when the market measured in terms of population distribution is not going up and is actually even declining (deteriorating breadth), averages can plateau or even continue to rise and create a false impression of overall health. This is essentially a way of saying that stocks are a lot like people: the one percent and the 99 percent, and their respective fortunes and influence.

When the dust cleared after the various bailout packages for the financial industry were put in place after the mortgage meltdown (e.g., TARP, TALF), the widespread expectation was that markets would languish and were risky and vulnerable. The opposite turned out to be the case and stocks ran like a cat with its tail on fire for the next decade and more.  Of course there were periods of correction but not many that were significant. This was attributed to a variety of things, including government and central bank intervention. Hedge managers also had a hard time if they pitted cleaner balance sheet longs against indebted shorts. Some said this was due to intervention designed to save the weak, a.k.a. “the dash for trash.”

But notwithstanding such explanations, there’s a handier way to summarize this. Stocks defied expectations, as they almost always do. And I predict they will do it again. And since the din out there seems to be “we will have a V-shaped recovery in the economy, and the stock market will join hand in hand with that kind of economic recovery,” I would say you should be a doubter of that thesis. Not because I’m predicting a disaster but because that seems to be the widespread expectation, and also because, as I noted above, a lot of fundamentals were unraveling way before the market and the economy were and also because earnings multiples were reaching unprecedented levels due to the numerator of valuations.  Now they are moving even higher due to deterioration in earnings outlook denominators.

Duration will also be something to think about.  The bull market just ended set records on that score too. I would not expect the next bull to do the same, either in terms of how soon it starts or, once it does, how long it will last. Simple reversion history suggests otherwise, and this would be true even if we were not experiencing the current extraordinary assaults on economic activity and dramatic increases in leverage in both the public and private sectors.

In short, if you are looking for avenues for better plays, choose active entrepreneurial over passive investment. Get involved in innovation on healthcare and hospitality and creating businesses serving the needs of those consumers, as well as the education and productivity of the labor forces in those fields.

And don't forget Rick Dalton. Stick to what you know and only do new things you think you can handle. Play it straight and be true to your friends. Keep your plans basic, simple and understandable.  Know yourself and your strengths and weaknesses. Trust your gut. Practice your craft and improve. Read.

And watch some Tarantino films. Especially this latest one. You've got plenty of time.