Crossing Wall Street

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I said I was going to take today off, but I had enough time to send you a brief market update. The S&P 500 had a very good day, and the Nasdaq and Russell 2000 did even better.

The S&P 500 closed at another new all-time high. The index has now closed higher for the last four days in a row. It’s also on pace for its ninth straight winning week.

Several big-cap tech stocks hit new highs today like Apple, Micron and Advanced Micro Devices. Some big banks also did well. Goldman Sachs, Morgan Stanley and Bank of New York Mellon all got to new highs today.

This morning, the Conference Board said that U.S. consumer confidence fell in May. I can’t say that’s a big surprise considering higher energy prices plus the war with Iran and concerns about the labor market.

The Conference Board said its consumer confidence index slipped ‌0.7 points to ⁠93.1 this month. Data for April was revised higher to ⁠show the index at 93.8 instead of 92.8. Economists polled by Reuters had forecast the index would drop to 92.0.

Consumer confidence will be a problem until inflation gets better. Stay tuned for Friday. That’s when the government will update its report on Q1 GDP growth. Initial reports said the economy grew by just 2% in Q1. Some analysts think the economy grew by more than 4% during Q2. (Those are real, annualized terms.)

Along with the GDP numbers, we’ll also get a look at the PCE numbers. This is the Fed’s preferred measure of inflation. The difficult problem for us is that a rise in gasoline prices is never solely just a rise in energy costs.

Let’s say you just bought some new furniture, and it was shipped to you by truck – that’s also reflected in higher gasoline prices. If you fly for a business meeting, once again, the fuel costs are passed on.

Given the abbreviated issue this week, I wanted to share a profile I wrote a few years ago. I hope you enjoy it:

Sir John Templeton: The Last Yankee

The disappearance of the WASP ruling class that once presided over American business has gone unlamented by almost everyone—including the WASPs themselves, whose moral confidence suffered a fatal wound during the Vietnam era and never recovered. Yet every so often, we’re reminded by certain figures of just how impressive the Protestant ethos at its best could be, and how much we’ve lost with its passing.

Sir John Templeton is one such figure. Templeton wasn’t a WASP: born and bred in rural Tennessee, he was too plebian ever to fit in with the yachting set at Bar Harbor, and too intellectually superior to want to do so in the first place. Nevertheless his life, which spanned the American century, embodied seemingly every one of the cardinal Yankee virtues—discipline, thrift, service to others, disdain for material display, always doing the right thing, even at cost to oneself—without any of the Anglophile trappings or snobbishness. All the more symbolic, then, was his demise on July 8, 2008, just two months before the markets plunged into turmoil. When he died, it was as though a whole era in American finance died along with him.

Templeton was born in 1912 in Winchester, Tennessee, a small hamlet later revitalized by the Tennessee Valley Authority. He seems to have inherited the distinctively Protestant conflation of moral probity and the profit motive from his father, a small-time entrepreneur and lawyer who ran a cotton-gin business after World War I. Harvey Templeton would buy up plots of land around Winchester, and if the tenant farmers living on them were hard up, he’d let them continue on free of charge. His ethically minded son appears to have taken due note of the charitable imperative.

It was hard not to, in those days. Especially in Tennessee, where a single bad harvest was often all that separated keeping afloat from going under. As it turned out, the Templetons themselves soon felt the sting of necessity: when the Depression hit, young John received a letter saying his father would no longer be able to finance his stint at Yale, then in its second semester. Undaunted, the future billionaire turned to poker to pay his tuition.

After graduation, Templeton decided he wanted to step outside the confines of the usual and see the world. So he booked deck passage on a series of steamers and wandered around Europe and the Middle East, sleeping out of doors and eating dry bread to save money—and occasionally hitting up the casinos to replenish his funds. His mother at one point gave her son up for dead. The 24-year-old was, however, very much alive, and the international outlook sown during his peregrinations would later bear rich fruit.

For in those days, globalization as a concept didn’t exist. Much of the world was still carved up into empires, usually under European control, rendering the notion of emerging markets a moot point. But Templeton saw opportunities everywhere he went. Many years later, that change of vision would be the key to his empire.

First, however, he had to amass some capital. So after marrying Judith Folk, an unconventional Nashville belle and Wellesley grad, and furnishing a sixth-story walkup in Manhattan with cast-off furniture picked up on street corners, he set about becoming an investor. From the start, he distinguished himself with his against-the-grain way of doing things. In September 1939, with the markets in free fall from the impending war, he borrowed $10,000 to buy up 100 shares of every stock worth $1 or less on the New York Stock Exchange. Of the 104 companies purchased, 100 turned a profit, sometimes sizeable, when industry picked up again after 1945. His motto, he said, was to wait till the moment of “maximum pessimism,” and then pounce.

Still, times were lean before those rewards started to roll in. When Templeton bought an investment company in 1944, he had only five families as clients and didn’t see a dime’s worth of profit for three years. Eventually, though, his buy-and-hold approach began to pay off, to the point where the family could at last take a vacation, to Nassau in the Bahamas. There, tragically, Judith was killed in a freak motor-scooter accident. She was just 39.

Judith’s death was, according to the family, a loss from which Templeton never fully recovered. He did remarry, however, seven years later, this time to Irene Reynolds Butler. During this time, too, his business underwent a profound transition, with the launching in 1954 of the Templeton Growth Fund, a pioneer in the now-ubiquitous field of globally diversified mutual funds. With seed capital of some $13 million dollars and offices in an attic above a police station in the Bahamas, it was among the first firms to invest in Japan and Korea, which in those days fell under the heading of emerging markets. To manage the fund, Templeton hired John Galbraith, a gifted analyst whose trust in his boss was so implicit that he worked for him until his retirement in the 1990s without ever signing a written contract.

It wasn’t long before Templeton Growth really started to pay dividends. Galbraith’s skillful management and Templeton’s own vision made their funds top performers: $10,000 invested with them in 1954 would have grown to $2 million in 1992, when Templeton sold his stake to the Franklin Group—an annualized average return of 14.5%. Money magazine called Templeton “arguably the greatest global stock picker of the century.”

As Templeton’s fortune grew, so did his philanthropy. A longtime elder of his Presbyterian church, he believed in a non-dogmatic, open-ended Christianity that allowed for dialogue with both science and other faiths. Such eschewals of doctrine were (and remain) common in much mainline Protestantism, and ultimately led him to set up the Templeton Foundation, a kind of spiritual think tank that gave grants to scholars interested in exploring the sacred implications of secular disciplines ranging from psychology to physics. He deliberately set the cash value of its top award, the Templeton Prize, at $1 million as an implicit critique of the Nobel, which ignored “life’s spiritual dimension.” Templeton would ultimately give away some $1 billion to charity, and even renounced his American citizenship to funnel the $100 million in taxes that he would otherwise have paid upon the sale of Templeton Growth towards more charitable ends. In 1987, Queen Elizabeth knighted him for his philanthropic efforts; twenty years later, Time named him as one of its 100 Most Influential People for the same reason.

Templeton maintained his spiritual serenity and curiosity well into old age, but he also voiced increasing skepticism regarding the barbarization of America’s economy. He pulled out of the dotcom and Nasdaq tech-stocks market in early 2000, just before the crash, and in 2003 predicted the collapse of the housing sector, which he saw as fueled by irrationalism and greed. More trenchantly, he wrote a private memorandum in 2005 predicting that the world would soon be plunged into financial chaos, and later publicly pronounced the stock market “broken.” For the man who all his life never flew first class and who made his own notebooks from scrap computer paper, dismay and consternation were the only possible reaction at finding the Depression-era values on which he’d been raised jettisoned in favor of the new Wall Street’s crassness and institutionalized grift. As though to signal the starkness of the change in the America he renounced, the truth of Templeton’s gloomy prophecies was already apparent when he died in late 2008.

The days of investors like John Templeton are done. The values he embodied are fast being replaced by, or transformed into, the self-seeking and self-promoting of the new careerist meritocracy. In the future, his life will serve as a reminder of another, older America, where money wasn’t everything and character was ultimately an individual’s greatest asset.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy