Is ESG A Good Investment Strategy?
America's Newest (and Biggest) Scam
- By The Notorious CFP®
Of course it's not. ESG may be the biggest scam in global finance. If you are in or subscribe to an investment strategy that adheres to ESG, then you should run, not walk towards the closest exit as fast as possible. There are far better ways for you to support your pet causes or promote social justice than delegating the enforcement of those beliefs to oligarch billionaires.
If you're still not convinced, then read on...
Seek First To Understand
The first thing to understand about ESG is that Wall Street hasn't created much in the way of useful innovation in a long time. Like Apple improving their smartphones cameras by 1% (mostly filters for OnlyFans content creators) and increasing the cost of their products by 10%... and Ford packing their trucks chock full of unwanted electronics and ECUs that they can't get... at this point in the economic cycle, no one anywhere is doing much of anything innovative. It's basically an economic version of Zoolander's new look, Blue Steel.
It's the same look!
That's what happens when an entire culture goes woke and begins to label masculinity - the fuel of innovation for the past 12,000 years - as toxic... humanity is virtually guaranteed to stop moving forward technologically (as ours has now). When a very specific demographic - which shall remain nameless but has created 99% of all human innovation - becomes systematically vilified seemingly overnight and without reason, then we can't be too surprised when society stops progressing. I know that hurts some feelings, and I'm okay with that.
Unless you want to offer up some names for "the next" [Bill Gates, Jeff Bezos, Steve Jobs, Elon Musk, Warren Buffet, Richard Branson... (I can go back to the 19th and 20th centuries if you like?)], so we can all sit back and laugh at you. Then I can pull out my copy of Atlas Shrugged and show you how this all ends?
To be fair, though, the Robinhood trading app designed for Millennials (and those older investors who act like them) made it easier than ever before for retail investors to destroy their financial lives in an instant from the palm of their hand, as well as play them against their own best interests while enriching the balance sheets of hedge funds like Citadel.
But outside of creative financing, the financial services industry has remained pretty static, and the investment management world even more so. What passes as innovation is mostly warmed up leftovers, like woke Hollywood / Marvel movies for the past decade. I mention this only to set the stage for the securities industry's newest fad: Environmental and Social Governance (ESG), which is a type of investing strategy that evaluates "the extent to which a corporation works on behalf of social goals that go beyond the role of a corporation to maximize profits on behalf of the corporation's shareholders." (acc. to Wikipedia)
Are you nervous yet? Are you comfortable with social goals - which tend to vacillate every few years and are largely determined by very dumb and very lazy people with emotional issues who refuse to get productive jobs- setting parameters about what you can do with your earned income? If not, you should be. I distinctly remember that when I was young, GenX was told to be terrified by acid rain. I'm not kidding, that was how the powers that be (TPTB) thought they would to control us. Fortunately, our parents were Boomers, married and didn't want to be our best friends. So they presented an effective counterweight that gave us a fighting (intellectual) chance against this kind of nonsense.
My parent's generation was told to be afraid of an ice age. Also not making this up. If you're born after Carter you're probably unaware that mass hysteria was focused on global cooling before it was global warming. But they had suffered through problems based on reality- Vietnam, Watergate, JFK Assassination- so they were less gullible and a lot more street-smart than we were. And they loved cars that burned fuel at 8 miles/gallon, so the fearmongering had only limited effect. They were also raised by the Greatest Generation who was even smarter, harder-working and had actually struggled in their life and seen some (stuff.) And there was less mental illness (i.e. political zealotry) infecting Washington DC and the media. Or so we were told.
Today's youngest generations are being jerked around by 'climate change' (a more catch-all improvement over the ill-fated 'global warming' moniker that preceded it.) During our late-20th century acid rain fearmongering social experiment, I distinctly remember that they had any child (blessed to grow up) in the 70-80's terrified of rain melting our faces off. Anyone from that era that denies that has either a.) forgotten or b.) probably drinks too much and surrendered some brain cells in the past 40 years. I attended Catholic and then a Jesuit school, so my entire adolescence vacillated between feelings of existential fear of acid rain and Catholic guilt.
Unfortunately, parenting today is not as good as in the past (this is the fate of all affluenza), lessons always get lost in the ether - like fine details in a photocopy (of a photocopy of a photocopy...), a percentage of our young whippersnappers are more arrogant, entitled, self-righteous and largely ignorant (a deadly combination) and the tactics of manipulation are far more sophisticated. Few of them stop to posit when Greta Thunberg is going to visit Moscow, Beijing or New Delhi, where the vast majority of global pollution occurs but is less developed and therefore less "psychologically malleable." Translation: they're not wealthy enough to worry about the climate climate apocalypse. That's a first-world threat.
The key takeaway's of today's lesson are a.) it's always something and b.) when it's not, 'something' will always be provided for you.
The introduction of this new type of investment analysis is interesting and important because for the entire history of stock markets and associated capitalism (and most other forms of economics) stretching back through thousands of years of human evolution- from the very moment the first organized business entity was formed (presumably in a cave around a campfire) until just a few years ago- companies generally prioritized one thing over all others: profit. It was left to the participants, the industries themselves and government regulators to police them. It was never expected that companies would regulate their competitors or worse, companies in other industries they are not directly involved in.
For those that slept through Econ 101, the primary advantage of capitalism is that it was the best model ever invented for making it easier to align the incentives of the workers (labor) with those of the corporation (capital), it's shareholders and greater society as a whole. It's not perfect- far from it- and it has egregious holes, but it sure as heck beats every single alternative. Which is why you live here and not 'there.' If you disagree, please provide me with an alternative arrangement for us to discuss.
This is in stark contrast to the enemy of capitalism and the predecessor of ESG, corporatism, the preferred economic framework for some of the 20th centuries most brutal authoritarian regimes such as Mussolini’s Italy, Dollfuss’s Austria, and Franco’s Spain.
I ended up as an activist in a very different place from where I started. I thought that if we just redistributed resources, then we could solve every problem. I now know that’s not true. There’s a funny moment when you realize that as an activist: The off-ramp out of extreme poverty is, ugh, commerce, it’s entrepreneurial capitalism. - Bono, New York Times, October 24, 2022
Gee, Bono. I could have told you that forty years ago, and I'm borderline illiterate.
Many Millennials and Gen Z ("Zoomers") respectfully disagree. A majority don't believe capitalism is all that great. So allow me to once again explain how the cow made the cabbage and reinforce that some of the laziest Americans in history are not where I generally turn for opinions on systems built on and around hard work and virtue. Change my mind...
I guess most of these brilliant young minds slept through the
home life class where they taught 20th century world history.
Yeah, I recognize that a third of Baby Boomers also favor socialism. I'm sure. I'd LOVE to see that polling data. How many times did Jane Fonda get to vote?
Speaking of Boomers, with their recent, ongoing and accelerating departure from the domestic workforce and their handoff to the Millennial (born between 1980-1996) generation, the latter is now sufficiently ensconced in the highly-valued (but professionally dubious) roles of mid-level management throughout corporate America. The generation in between, my generation - GenX (1965-1979) was the one "that nobody wanted" - birth control, abortion, feminism, no-fault divorce, etc.- so they are small in number compared to the other two and their levels of work ethic and intelligence are quite close to the Boomers, so for all intents and purposes no one really cares about us. And if I/we by chance also happen to posses a specific shade of skin pigment and reproductive organs, then in my experience our primary role today is to do the work and shut up.
As our Millennial predecessors have risen to prominence, they have introduced new dynamics into the workplace- including flexible work standards, redefining what's the bare minimum to be considered "employable," bring-your-dog-to-work-day, threatening your boss and integrating social justice into company culture. It's a truly special cast of characters. The stark dichotomy between GenX and Millennials is so pronounced that (interesting bit of trivia) the term "GenX" was actually coined AFTER the term "Millennial" (or GenY). Because of course it was.
With Millennial ascendency into the halls of power in most American corporations, apparently so has the need for companies to go beyond simply maximizing profits for shareholders and maintaining the infrastructure of a modern society, to other priorities like being like all woke and stuff. Like a landmine exploding at the top of Maslow's Hierarchy of Needs, the Western population and businesses have apparently now evolved to such a level of success, convenience and comfort that we can sit back, relax and focus on cultivating "a holistic work environment that guarantees equitable circumstances, diverse environments, and confirmed inclusion opportunities for all employees." We can finally bring to corporate America the priorities we didn't even know we needed!
The second thing to understand about ESG is that it's distorts the labor market and cripples marginally intelligent people. Not just the people making enormous sums of cash promoting it, but also the workers that it redirects into jobs that have little value to society, instead of careers that would better fulfill them and make them useful.
Many times when new government regulations are rolled out in any industry, the initiative is intended for the common good of society. However, there is also another, often more substantial but less discussed benefit that we don't like to talk about: a greater focus on creating jobs for a portion of the workforce that is otherwise unemployable. Strangely, this 'focus' also tends to enlarge perpetually like a cancerous tumor. It's not hard to make a case that far too many areas of civil service maintain maximum employment as their primary function (i.e. Department of Transportation, Transportation Security Administration, Department of Education, Department of Motor Vehicles, Department of Energy, The Executive Branch, etc.)
Even private corporations are getting involved in this exciting trend, as the field of Human Resources has been created over the past fifty years largely to employ white females, while Diversity, Equity, and Inclusion (DEI) jobs followed quickly behind to create the jobs for college graduates from underrepresented demographics. One paramount objective of DEI is to improve diversity statistics at the higher, better compensated levels of those publicly-traded companies who typically prioritize merit, intelligence and work ethic in more important departments of the firm like sales, engineering, research and development (i.e. without regard for how someone looks on the outside).
In short, ESG and DEI were created as public-sector-like enclaves within private sector companies that could cultivate and absorb the college students graduating with very expensive but otherwise worthless degrees, like gender and racial studies and soft sciences surrounding human resources. In this regard, ESG and DEI were solutions in search of a problem, like most modern social justice. It's how they can brand the National Football League racist for lack of black coaches but also criticize Major League Baseball for lack of (American-born) black players. It's a hilarious contradiction to the intelligent but completely logical to the stupid. And so it is with ESG and DEI, 'problems' that could only exist in cultures that frankly have lives that are too easy.
There is an interesting connection between ESG and DEI because a company must score high in certain DEI racial, gender and sexual quotas to qualify for and exceed ESG corporate scoring criteria. But ESG is so much more than obsessing over external, immutable human characteristics. Does a company add rainbows to their logos during Pride Day/Week/Month? Do they donate the minimum amount of money to corrupt extortion syndicates like Black Lives Matter? Do they support reparations from descendants of slave owners to the descendants of slaves, using the IRS as the arbitrator? Do they have Ukrainian flags and pronouns in their social media bios? Does their speech align with the political party currently in office? Are they willing to terminate employees that insist on 'my body my choice?" Do they return their shopping carts?
California, Circa Summer 2022
As you can see, ESG makes it easy to separate the good companies from the evil ones in a fantasy land occupied by college professors, liberal arts majors and CEOs, but not in the real world we currently live in. A problem arises because the concept of social justice is subjective. One person might (theoretically) believe that paying people not to work or to have children with different partners they are not committed to is compassionate and necessary while another might argue that enabling sloth or promiscuity could lead to permanent multi-generational poverty.
One political persuasion might (theoretically) seek to free a specific demographic from three generations of servitude, helplessness and poverty by promoting self-dignity and self-sufficiency, while another might prefer to keep them enslaved to a failed and self-destructive ideology and environment that distains the nuclear family structure, promotes violence and drug use, ensures they will never be truly free, successful, nor enlightened, so that they continue to vote reliably for more and greater bondage.
One political party might (theoretically) seek to prevent rampant inner city criminality by increasing and strengthening law enforcement in the lowest income neighborhoods, while another might see such bigotry as racist, patriarchal and not sensitive to BIPOC, preferring instead to remove the rule of law in order to somehow maintain and even accelerate ethnic genocide.
One ideology might want to keep a certain sector of society small and powerless through expanded reproductive rights, while another might abhor and reject the concept of eugenics even if it means the percentage of Americans with certain skin pigment expands and assumes more control of society. So as you can see, social goals do indeed appear to be subjective, fluid and highly controversial. One person's desire for bodily autonomy is another person's genocidal slaughter. But despite the complexity and the risk of abject failure and a tearing of the social fabric, the adherents of ESG power on.
The third thing to understand is that ESG is bad for freedom and liberty, if that's important to you (which is admittedly a diminishing sector of Western society, as we happily trade privacy and liberty for smartphone apps and convenience). Similar to the confusion surrounding the environmental impact of EV (electric vehicles) like Tesla that ultimately require enormous coal-powered power plants to charge obscenely expensive new batteries that are as bad for the environment as fossil fuels and must be replaced every decade at a cost exceeding the car itself, ESG was all the rage for the past decade as most of American's best performing stocks were woke, Big Tech companies- the so-called FAANGs (Facebook, Apple, Amazon, Netflix, Google- and Microsoft). But now that markets have changed in 2021 and oil, gas and coal are beginning to outperform, suddenly all those socially conscious pension funds like Harvard and CALPERs are singing a different tune. It seems that ESG social justice enthusiasm only survives until it actually impacts the social justice warrior themselves. Any crusade with that lack of depth and incoherence is destined to fail.
The problem is that, like all government and corporate fascist tyranny, ESG subtly erodes freedom of choice, in many sectors but none more than investing. If you have a 401k today, it's likely the administrators, fund managers and your fellow investors are challenged- and in most cases, actually harmed- by allowing unelected bureaucrats and compromised corporate titans to decide how much money you can earn for your retirement. If that feels wrong to you, you're not alone, as research (and common sense) demonstrates that the ESG scam violates the basic fiduciary tenants that all financial professionals operate under, once again proving the eternal maxim that "everything woke eventually goes to [poop]."
"Retirement and pension-fund managers are fiduciaries, legally required to make every investment decision with one purpose—maximizing retirees’ financial interests... no form of so-called ‘social investing’ is lawful if the investment activity entails sacrificing the interests of . . . beneficiaries . . . in favor of the interests . . . supposedly benefitted by pursuing the particular social cause.” - Uniform Prudent Investor Act
The fourth thing to understand is that ESG is a poor investment, as Harvard itself recently proved conclusively when it added yet another study to a growing body of research (Univ. of Chicago, Columbia University and London School of Economics) demonstrating that even with the massive amount of woke money literally pouring into the sector, polluting your investing strategies with personal politics is still ineffective and even detrimental to long-term investing success.
Calm down, young folks. You still have paper straws and Ukrainian flag social media avatars.
"Investing in sustainable funds that prioritize ESG goals is supposed to help improve the environmental and social sustainability of business practices. Unfortunately, close analysis suggests that it’s not only not making much difference to companies’ actual ESG performance, it may actually be directing capital into poor business performers." - Harvard Business Review, An Inconvenient Truth About ESG Investing, March 2022.
The fifth thing to know about ESG is that it's illegal, and in a sane society with a functioning legal system, ESG proponents and adherents would be prosecuted under the full extent of the law. Unfortunately, that is not the world we live in. Like other social causes, ESG initiatives result in the explicit and blatant violation of a variety of federal laws already on the books, including antitrust, civil rights, and Employee Retirement Income Security Agency (ERISA) laws.
Sadly, we live in a bad episode of Looney Tunes where mental illness masquerading as political ideology has crippled the intelligence of half the population, and in order to preserve their old narrative about how the world (should) work in their fantasy-land imaginations, they are willing to destroy The Civil Rights Act of 1964 (which I vaguely remember as, "prohibiting discrimination on the basis of race, color, sex, religion, or national origin...")
ESG also violates the Sherman Act of 1890, which most people don't know about because a.) they don't read books nor b.) care about anything that happened before they were born. I get it, learning new information - even if it shatters your worldview and improves you as a human and global citizen- is hard. And this culture generally doesn't 'do hard.' Suffice to say, there's this law called the Sherman Act that's traversed three centuries (so maybe it's useful) that prohibits “every contract, combination … or conspiracy in restraint of trade or commerce.” The rough translation is that it's illegal to prevent free-market capitalism simply to satisfy your public school education and nonsense delusions of the world." (I'm paraphrasing.) Without the Sherman Act, virtually every payment you make to a company might would not be possible. ESG injures that relationship. Obviously, clearly and without argument.
ESG is also evil, but I'm trying to keep the list of obscene contradiction to a dozen. If I haven't already convinced you with the top 5,then hang in there. I'm just getting warmed up.
The sixth thing to know about ESG is that it doesn't work. And sometimes their social objectives end up being worse than what they were trying to fix.
I know you're shocked. Hiring people based on their looks is not as effective as their abilities. Who could have seen this coming?
The seventh thing to know is that ESG is an enormous fraud. Maybe the biggest since Enron, definitely since Bernie Madoff. And it's one that is starting to unravel. Both ESG and DEI are flawed concepts destined for failure because they were invented by buffoons, fail certain tests like common sense and are institutionalized rackets. So there's that. However, I fully recognize that when entire college degrees are developed in a particular area of specialization that really have no value to society but serve to raise university enrollment and profits, as well as boast participation and graduation statistics in areas of study outside the hard sciences (Science, Technology, Engineering and Math), then it's imperative to manufacture jobs to be ready to receive those graduates.
If pinning social credit scores to companies was a legitimate and useful idea, it would have been invented before now, and not just because so many evolved young Americans are now entering the management ranks of corporate America, pushing out Neanderthal Boomers and GenX, and we've run out of useless job openings in the traditional HR Department. ESG necessitates inventing new jobs to avoid doing productive work that improves society during regular business hours.
Until the idea that "companies will make more money if they simply adhere to my personal opinions" dies - and make no mistake, it will be a humorous footnote in the history of stock market investing- ESG will continue to run roughshod over and pollute true securities analysis, while continuing to careen and dodder back and forth between social justice and fascist bullying (depending on the party in power) as it searches in vain for an anchor that can define "what it should really be measuring" (Hint: shameless bootlicking and political whoring) until it collapses in on it's own glaring deficiencies, solipsistic navel-gazing and grotesque corpulence (like a white dwarf.)
A former high-level Blackrock insider just recently explained in great detail how these investments do little for the environment, while greatly enhancing Blackrock's bottom line. As someone who would consider himself a classic liberal, I never dreamed I would live in a world where neo-liberals proudly slept in the same bed with Big Pharma and Wall Street. Someone make it all make sense...
The eighth thing to understand about ESG is that its biggest proponents, cheerleaders and leaders all know it's all 100% unadulterated BS. It's financial theater, with uglier actors. Broadway didn't die (at the hands of NY government...), it just relocated to Wall Street. Like with progressive politicians and their public opinions on modern gender theory. Like Wall Street's unofficial view of cryptocurrency, but more far more devious. With 47 genders and cryptocurrency, they're just trying to exploit stupid people as usual, that's literally the business model of both institutions. I honestly don't believe they're thinking about the long-term (and totally predictable) consequences.
With ESG, however, the entire infrastructure- from the companies to the regulators to the investors to the human resource directors- knows full-well that they are causing pain and destruction for the people, companies and ultimately society.
"My concern is that I feel like socialists are taking over. They're marching through the institutions. They're…taking over education. It looks like they've taken over a lot of the corporations. It looks like they've taken over the military. And it's just continuing. You know, I'm a capitalist at heart, and I believe in liberty and capitalism. Those are my twin values. And I feel like, you know, with the way freedom of speech is today, the movement on gun control, a lot of the liberties that I've taken for granted most of my life, I think, are under threat." - Whole Foods CEO John Mackey
The ninth thing to understand about ESG is it's an insult to your intelligence. If you don't understand why by now, please call me and I will help explain to any sentient adult why one should reject any concerted, explicit and blatant government collusion with Big Tech and Wall Street to manipulate your thoughts, words and behaviors. That's just a good rule of life to live by. I cannot think of a single instance in American life since WWII when the combined power of these two entities was brought to bear on changing normal, biological human behavior on such a mass scale and in such a Fascist manner.
That's not a matter of opinion, that's just a fact, like being concerned anytime both houses of Congress agree on ANY subject (Patriot Act, Iraq invasion, increasing homeownership in the 90s, approving unqualified Supreme Court Justices, the entire COVID response, etc.) I could go on but a.) it would be everything they've ever agreed on in this century and b.) it would take less time to highlight occurrences when their collective agreement improved human lives.
Kids, here's a good rule of thumb. When the government and large transnational global conglomerates go into partnership, RUN. And if you can't run, then sell.
The tenth and (not even close to...) final thing to understand about ESG is that EVERYTHING that goes woke eventually goes broke. EVERYTHING. And that's rare in our world, because there are few absolutes in life. But this is one of them. There is almost never "all" or "none," but instead usually "some" or "most." The US could end the Ukraine-Russia war tomorrow by simply injecting progressive fantasy and liberal wokeness into Russian society and then letting it fester for a few months. (Much like the Chinese strategy against the US with fentanyl smuggled across our porous borders and social media like Tik Tok that politicians refuse to police because they are owned by Big Tech.)
Admittedly, some diseased entities and ideas do stick around a little longer than expected- for instance term limits, Congressional insider trading, the student loan and automotive financing bubbles, and now ESG- because they are created, condoned, supported and sponsored by the government. At the end of a barrel, like all government policy. So government has the ability to sustain them and keep them alive longer than nature (and markets and reality...) would normally allow. This is what the Fed has done with the economy and markets with Quantitative Easing. And that is why we are in the economic situation we are in now. It's misguided (human) policy. ALWAYS.
The government funds biolabs in China that unleash global destruction. (In this case, the US government in cooperation with our most existential enemy.) The government steps in to fix their mistake by locking down the citizens of the world. The government fixes that problem with free money, which unleashes a far more serious economic virus, hyperinflation. The government steps in to fix that problem by raising interest rates fast and furious...
What comes next? I don't know for sure but I suspect it's going to be government stepping in with a solution that costs money. Taxpayer money. How these people continue to walk the earth as free individuals is beyond me. Apparently, we the people seem to have an almost unquenchable desire to be controlled, deceived and repressed. The hand we hold is the hand that holds us down. And yet we return each day confused at our circumstances and wanting more. And as usual, the beating will continue until morale improves.
Point being that in the end, the woke always eat themselves. Their corpulence and corruption always and eventually does them in. It's an immutable law of sociology (which is this thing I learn from podcasts on my drive home but some families spend six figures attaining for their progeny in college.) Even as a CLASSIC liberal (i.e. George Washington and not Chuck Schumer...), there has never been a historical instance where neoliberal self-destruction has NOT occurred. Only the timing is unknown.
So the next time you or someone you know expresses glib satisfaction that those
obscenely rich poor, oppressive oppressed progressives are finally sticking it to the natural order and the universe and defying the odds of physics, common sense and common decency to impose their will on greater society- usually in cahoots with global corporations they have prostituted themselves out to- just remember that:
- Facts don't care about your feelings
- State corruption is eternal and ALWAYS collapses gradually and then suddenly
- He who laughs last always laughs loudest.
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually, then suddenly.”
- Ernest Hemingway, The Sun Also Rises.
I originally wanted to tell you how I really feel, but decided it would be more prudent to start off a little more dispassionate, and ease you into the more uncomfortable rhetoric.
Wall Street's Newest Grift
As crypto has begun its inevitable scripted decent into irrelevancy, Wall Street is moving towards ESG as it's next big profit center. This all reminds me of Matt Taibbi opening line in his famous 2010 article titled The Great American Bubble Machine, excoriating Goldman Sachs' role in the Great Financial Crisis (GFC) of 2008-09 as follows:
"The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." - Matt Taibbi, The Great American Bubble Machine
Man, that's my kind of opening. Way more efficient than my summary above. A world without GenX cynicism is a world I don't want to live in.
Taibbi then follows with a ruthless and comprehensive literary takedown masterpiece for the ages (one that I believe all investors should read), documenting conclusively Goldman's role in engineering "every major market manipulation since the Great Depression." What I've always found erudite about the piece is how well it lays out in simple terms how Wall Street investment banks rigged markets (including the classic and consistent high-stakes parlor trick of yanking the rug out on a new generation of investors roughly every 7-10 years. Kinda' like our current market correction...)
An Idea Who's Time Has Come
If you are unfamiliar with ESG, a.) congratulations, and b.) in my estimation, ESG is arguably one of the biggest and most recent scams in finance. It's been perpetuated by at most about a dozen investment bankers that may control significant swaths of the stock market. As heads of some of the largest mutual funds (think Fidelity, Blackrock, Vanguard), these extraordinarily wealthy individuals control the fund companies that manage the mutual funds and Exchange Traded Funds (ETFs) that largely control the most important decisions at the majority of the largest companies in the world. Which means they control the economy and the world, so this is not an insignificant situation.
Allow me to explain how this racket works: when contributing to a mutual fund, most investors (happily and usually unknowingly) transfer their proxy voting privileges to them as well. And in my experience, exactly zero percent of my clients care even three squirts of a cow's utter about losing this privilege. Even explaining to them what they're losing is usually wasted breath, like accepting the Apple user agreement. But they should care.
It's not that they're evil. It's that they think you're stupid. And that applies to anyone who holds national power across politics, media or entertainment. When you adopt that lens, the world comes into much clearer focus.
You see, when buying a share of stock in a company, you usually become an owner. And that ownership entitles you to a single vote at their annual shareholder meeting. When you own a mutual fund that owns a share- depending on the size of your investment in the fund- you might own a small fraction of a share in each of the companies it invests its assets into. So by default, mutual fund investors are (very) small owners in the companies that the funds select.
The nature of mutual funds means that your use of the mutual fund typically transfers your miniscule ownership in the component stocks to the fund company. Each individual investor's share of ownership is relatively small, but when combined from all investor contributions into the fund (i.e. the reason they're called 'mutual funds'), the fund company now controls a significant amount of proxy votes. And that in turn gives them significant control of the individual companies themselves. Which in turn gives them significant control of the American economy, which is turn gives them control of the country. And if you control the United States, you control the world.
Perhaps you can start to identify the problem. If not, I'm here to help...
As investors have piled into these funds over the past 13 years during an unprecedented, easy-money, buy-the-dip stock market bull rally, true control over these companies has transitioned from individual investors to the fund companies themselves. Or more accurately, the managers of these fund companies. Through their control of the largest mutual fund companies in the world, which control the largest funds in the world, which control the largest companies in the world, the managers of these companies become the largest shareholders and can then dictate how the fund company votes, which dictates how the companies are run.
Needless to say, the leaders of the fund companies are now some of the most influential investors in the world. This makes them some of the most powerful people in the world, because even though managers have boards of directors and shareholders of their own to answer to, most managers - especially of well-run and very profitable firms- operate somewhat autonomously and with few limitations (like Elon Musk at Tesla and Tim Cook at Apple.) They are highly-regarded and hold enormous sway.
In a world where justice is disappearing at a rapid pace (or at least rigged for the benefit of the chosen few elite - think Jussie Smollett, Michael Sussman and Paul Pelosi), these people do what they want with virtually no accountability. It's become painfully obvious that the Department of Justice (DOJ) has become so politicized that they now focus their efforts almost exclusively on those they view as their political enemies, which is anyone who disagrees with the current administration. That is hardly the bedrock of a viable democracy, normally leads to tyranny and so the proliferation of corruption and politically charged law enforcement at the federal level is not a good omen.
Sadly, most of our regulators are as smart as they are objective (otherwise they would actually be working in the productive class instead of resigned to the dependent class that survives off of their "hosts") and far too many lack the courage to pursue those people and entities who actually pose the greatest threat to our republic, generally and increasingly preferring to go after weaker targets, those less able to defend themselves (small businesses) and those who are critical of whichever administration happens to be signing their checks at that exact moment.
However, with our economy and markets temporarily trending more towards a facsimile of fascism than a pure free market, those elite disciples of a certain political persuasion speak, act and behave as if they are in effect above the law because a.) they are because b.) they control the Congress and are therefore also protected by the federal intelligence community (DOJ, FBI, CIA, DHS, INS, DEA, ATF, FJB, etc.) and the legacy media.
Compare the fates of Roger Stone and Peter Navarro to Eric Holder and Christopher Steele and you soon discover the very essence of the golden rule: "He who holds the gold, makes the rules." While we as a society collectively determine whether unelected government bureaucrats with little accountability or objective oversight should be allowed to pick market winners and losers based on who best adheres to their unique public sector solipsism, I will let you in on a little secret: when Big Tech, Wall Street and The Securities and Exchange Commission (SEC, under the Executive Branch- shocker... where so much central intelligence thrives but human intelligence goes to die) are all fully aligned in lock-step on the same issue, that should be an enormous red flag that it's time to abort.
If no one in power is voicing a single major objection across either political party, the entire securities industry or the technology companies that now control our lives, it's certainly worth pausing to make an honest assessment of whether y/our own political ideologies have subverted our ability to properly evaluate such close 'coordination.' For instance, historically when both political parties align (Patriot Act, COVID, McCain-Feingold, income tax, term limits, military spending), it's usually an opportune time to pump the brakes, breathe and sleep on it. I have some other suggestions, but they're NSFW.
When this guy - my top cop - is in session, I can guarantee you that no retirement account is safe. 18 years at... wait for it... Goldman Sachs.
And if you believe an unelected government bureaucrats should be deciding what companies you should own in your 401k based on social credit scores that can change with the party in power, perhaps I'm not your best option as a Certified Financial Planner. If you don't think that he and his staff should be able to cram down climate change regulations on small mom and pop businesses and farms (that aren't even publicly traded companies and have nothing to do with the stock market and therefore the SEC...), then you can start to understand why and how ESG "advocacy" can quickly spiral out of control. It's a slap in the face to all anti-racism proponents and programs.
"I have a dream that my four little children will one day live in a nation where they WILL be judged by the color of their skin but NOT by the content of their character." - Martin Luther King (re-paraphrased for the modern SEC, wokeism and other losing philosophies)
If you believe it's legal, ethical and Constitutional to force America's publicly-traded corporations to have federally-dictated racial and sexual quotas applied to their Board's of Directors, or risk prosecution and fines, then I would submit that you know very little about business, economics, finance or morality.
It's also worth mentioning that ESG is also hypocrisy at it's finest, and can and will have consequences that are beyond the capacity of 90% of voters because most people lack much knowledge of history, aren't sociopaths and struggle with understanding why bureaucrats should be prevented from controlling most environments and cases where their roles are not explicitly granted power by the Constitution.
These may be harsh indictments but quite easy to prove. I recognize that feels a bit morbid and depressing, but a.) welcome to my world and b.) it's imperative to understand this dynamic when considering the impact of ESG - or frankly any arbitrary system of scoring that is cosigned by both government and Wall Street. One must ask themself if they believe such a system represents a positive benefit for the stock market or for the individual investor. I guess it comes down to who you think is the best suited to direct your life and money... you or someone else. Personally, I choose myself. But what say you?
The important point to consider is that the power held by the largest mutual fund companies is immense, so much so that even legendary investor, John Bogle- who founded Vanguard, launched the lost-cost investing revolution that we all now take for granted and changed the world of investing more than any other human in the past century- publicly expressed alarm at what could amount to a consolidation of power within the top bosses of these firms. He noted that this control was impressive, staggering and could be dangerous to the free market and capitalism itself. It's insidious. And now they want to dump this garbage into 401ks.
If these individuals were to ever band together to decide that they would only allow investments in companies that (hypothetically): have rainbows in their logos during Gay Pride month, have commercials with only biracial couples, or contribute to a certain political party, that would in effect be a "sanction" of sorts (similar to the US response to Russian aggression in Ukraine), which would block capital investment into these companies, isolate and ostracize them.
"Three index fund managers dominate the field with a collective 81% share of index fund assets: Vanguard has a 51% share; BlackRock, 21%; and State Street Global, 9% ... It seems only a matter of time until index mutual funds cross the 50% [share of corporate ownership by index funds] mark. If that were to happen, the “Big Three” might own 30% or more of the U.S. stock market—effective control. I do not believe that such concentration would serve the national interest." - John Bogle, Wall Street Journal, Nov. 29, 2018
As one can imagine, it hasn't taken long for companies like Vanguard and Blackrock to realize that by personally directing the vast majority of investor money nationwide through their mutual funds into the companies that they invest in, they can control them. So when it was decided that ESG should become a new moneymaker in an otherwise stale industry struggling to bring in new customers (like crypto), Wall Street dictated that all companies that wished to receive their money (as well as bank capital) must adhere to their own personal opinions and whims on such controversial and hotly-charged issues as social justice and climate change. As a result, a massive financial distortion developed in capital markets that has starved a lot of good, viable companies out of significant investment.
If you want to know why the price of oil is so high (when not being manipulated by draining the Strategic Mid-Term Reserves for cheap votes), the primary reason is that the industry has been labeled a pariah by the ESG crowd for the last 20 years... right up to the point where energy prices began to rise and it was no longer cool to hate energy. Suddenly, the soccer mom driving the Land Rover in Los Angeles became a lot less committed to the cause of 1% increases in global temperatures. The politicians who loved virtue signaling about their commitment to mother earth suddenly went silent nine months ahead of the midterms. Turns out that a lot of people that love the planet, also prefer cheap fuel and plentiful grocery aisles full of goods.
Right on time, federal regulators and industry advocates were quick to create new and friendly-sounding standard-setting bodies such as the "Financial Stability Board" and industry coalitions such as Climate Action 100+ and the Glasgow Financial Alliance for Net Zero. Perhaps at it's zenith last year, these asset managers colluded to elect ExxonMobil board members who publicly committed to getting Exxon out of the oil and gas business. Yes, that really happened.
Can you imagine the board of an oil company actively getting it out of the business it was founded to operate? Only in this alternative reality that so many in our country inhabit - between making Tik Tok videos and protesting in front of Supreme Court Justice homes. I can, however, imagine a world where our SCOTUS Justices lived in Texas, and let's just say that problem would have already been permanently dealt with the first night.
Now, Blackrock and State Street have formed a coalition pushing utilities to retire all of their gas and coal plants. It's hard to know where to start with the consequences of dismantling gas and coal's impact on two-thirds of the U.S. electricity supply:
- Weaken our country
- Drive up energy prices higher than they are today
- Produce blackouts threatening our most vulnerable (i.e. "systemic racism")
- Eliminate the ability to build windmills, since 100% of them are made from coal-powered energy (and not unicorns as some people think).
By now, it should be quite obvious that incompetence is a far more serious and contagious illness than any virus. I'm not advocating quarantine camps, like many were advocating for antivaxxers in those backward days of 2021, but I am all for shaming those who support eliminating coal and gas. It's unfortunate to interact with those who fail to realize that the US will NEVER lower their use of either resource, it will only increase. The only question is how much and the best we can hope for is to diminish their share of the market as we transition to renewables, which will take at least 30-40 years minimum, assuming we're all on the same socio-economic spectrum of reality that strives to avoid societal collapse in the transition.
Many want this to happen in the next 5-10 years, but these are mostly liberal arts and other non-STEM degree holders suddenly pretending they are engineers and used to getting what they want when they want it. This pretty much sums up large swaths of America these days- a nation of children in adult bodies with a bullhorn called social media and 85 like-minded followers that think their opinion matters. Thirty years ago, these same people would be alone, yelling at the sky from their porch or running their mouths at the country club, if not for the blessing of Facebook. What a time to be alive.
As ESG has "evolved" over the past decade, companies that didn't achieve sufficiently high ESG scores (which are decided upon by these unelected boards and coalitions, kinda like the credit agencies and the China social credit systems), would not ineligible for any investment whatsoever from the world's largest mutual funds. Which would be like denying you water and air. As you can imagine, this institutional con has targeted and certainly includes energy companies like Exxon and Shell that make modern life livable (since only 44% of petroleum is used in vehicle/ transportation and the remainder used for other forms of fuel and as well as components of devices like the one you are reading this article on and almost every other physical entity in the room you are sitting in now.)
I may have failed to mention before, but it's really hard to run a company of any size in this country in the 21st century. Think of the average job. Then imagine if it was 20x more difficult and stressful and add 3-4 hours of work each day in the office. And that's only what it's like on federal holidays like Juneteenth when the phone's not ringing off the hook with pissed off clients looking for someone to talk to, and occasionally to blame. (You can pick any other holiday. 'cuz federal employees get 44 paid days off per year. In addition to 104 days off on weekends. That's almost 150 days off. Out of 365.)
Annnnyways, my point is that being a business owner is really hard. It's even harder to manage a larger firm with
lunatics people working for you, and most businesses have become even more challenging to manage in the last few years after the government made it virtually illegal to work in the office for all but the most politically well-connected firms- think Amazon, Target and Best Buy. And even they had their problems with customers breaking in to them and stealing all of their merchandise, which far exceeded the benefit of being a beneficiary of the federal government's attempt to make them monopolies during the pandemics by destroying small business. Only for Fauci to get COVID this week. At age 81. And live. Oops.
Only in government can you be so wrong and do so much damage and still keep your job. If I have a bad quarter, I'm looking at bankruptcy and financial ruin. Humorously, Governments barely run on fiscal calendars and with virtually no consequences for poor performance. America, what a country....
So in addition to the myriad responsibilities of running a large company in the United States, CEOs now get to enjoy being scrutinized through a completely contrived and arbitrary social scoring system that is managed by the Wall Street versions of "Karen in HR..." untested, unreliable, wholly disconnected from what actually makes a company popular as an investment (profit) and subject to massive fraud and abuse.
At this point, perhaps you're starting to see the problems with ESG. But if not, let me twist the knife...
First, it was basically impossible for ESG to have been introduced in the 20th century when market darlings like Exxon and Phillip Morris led the indexes and made enormous long-term profits. To have excluded them through a social scoring system (and many tried) would have adversely impacted, and more likely crippled, the market performance of any mutual fund adhering to an ESG strategy. In the 21st century, however, it's been a different story as Big Tech has ascended to the throne and dominates all indexes.
Apple, Google, Amazon, Microsoft and Netflix are enormous heavyweights in the market, filled to the brim with bright, young people, with many extremely woke. So it's now extremely easy for a fund or investor to promote ESG scoring and still make money. This solidifies their control and access to capital, which in turn solidifies their control over the Congress and therefore the country. So now you can start to see how an unholy alliance can quickly form around government bureaucrats, Big Tech billionaires, and the dangerous whims of mutual fund manages like the infamous Larry Fink, an extreme ideologue who looks like a movie villain with matching visions of world domination who has made numerous public dictates to America's CEOs that they will adhere to his extreme politics and ESG fantasies or else.
As power consolidates, it
always often turns abusive. And Larry Fink is not an isolated case. You know if The Washington Post is concerned about corruption, then it's serious.
"We have a new bunch of emperors, and they’re the people who vote the shares in the index funds. . . . I think the world of Larry Fink, but I’m not sure I want him to be my emperor.” - Charlie Munger, partner of Warren Buffett at Berkshire Hathaway
You may think that one man at one company is a small factor in the investing world, but when you observe nonsense like this from Blackrock (simply to score ESG points with some nebulous court of wokeness), an intelligent person can quickly becomes jaded, insulted and begin to understand how an ultra-progressive agenda in the hands of a few billionaires is not just bad for the country and the economy but also the markets.
The actual introduction of these gimmicky, lowest-common-denominator marketing tactics aren't meant to help their target demographics but actually exploit and fleece them. If you're unable to make that connection, call me and we can walk through the last sixty years of benevolent government policy to ask "Qui Bono?" The effects and the neurological damage that such delusion causes to their sycophantic disciples - who are so wedded to a political ideology that they eventually fall prey to the Mass Formation Psychosis - is immense.
The market acumen of semipro basketball players is dubious at best, dangerous at worst. They'll be writing articles and book chapters about this kind of marketing in the coming years. Remember the E*Trade baby?
Now, in an escalation absolutely no one could have seen coming, the ESG complex has graduated from intimidating and threatening specific companies to actually targeting individuals. And not only that, they have devised a way to attack one company (Tesla) based on the actions of another company (Twitter). If that seems confusing, congratulations- you still have a functioning prefrontal cortex, there's still hope for you.
In retaliation for Elon's Musk's bid to buy Twitter and take it private (an action which threatens the left's version of Brownshirts within BigTech from being able to control human thought), the ESG Index recently booted his other company, Tesla, from ESG qualification, citing claims of racial discrimination and crashes linked to its autopilot vehicles.
That would be like the NBA barring LeBron James from competition for forcing his teenage daughter to close her OnlyFans account.
To give you some additional perspective on the validity of ESG, Apple is the largest member of the ESG index, representing an incredible 10%. This despite Apple's notorious and shameless record of supporting human rights abuses at its galactically inhumane and oppressive partner factories in China so atrocious that they make Saudi Arabia recoil. The Foxconn facilities' claim to fame is the installation of 'body catching nets' on the outside of their buildings to catch all of their workers trying to kill themselves by jumping out of windows....
Ladies and gentlemen, may I introduce you to Apple and its partner, China Communist Party (CCP)... benevolent world citizens and poster-children for ESG...
“It’s not a good place for human beings,” says one of the young men, who goes by the name Xu. “It wouldn’t be Foxconn without people dying... Every year people kill themselves. They take it as a normal thing."
At this point, do I even have to keep going?
Yes, of course I do. There are still jokes to be told. And there are still people with IQs above room temperature still taking ESG carnies seriously.
Far be it for me to explain how the cow ate the cabbage, but Elon Musk is the most ESG individual in the history of the world (and I'm hardly a fan). Not the year, and not just in the United States. The history of the world. He's the first and most successful African-American to run a major corporation in history EVER, a fact you would think would garner more respect and press in these especially woke times. He's landing rockets on robot-drone rafts in the ocean. And a bunch of hacks in the media and grifters running financial companies are claiming he doesn't know what he's doing.
Tesla is the most ESG company in the history of the world (despite being terribly managed). Even when you understand that a battery is a storage unit for coal power (and not a generator of power and energy itself), the truth is that if Tesla is not ESG, then nothing is ESG. It's a word that has lost all meaning, like "racist," "patriarchy" and "Nazi." These are the things that people that grew up with effeminate fathers and are compensating for their own failures utter to their equally cucked friends, at cocktail parties in Austin. They are not serious people, they might as well be journalists.
So for Musk to be kicked out of the ESG club because of his personal beliefs and a refusal to sell his soul or deny reality, simply exposes the entire ESG movement as a complete farce. The entire ecosystem of cronies and sycophants continue on, acting out their roles like extras in Orwell's 1984 and reinforcing the persistent trope (in some circles) that neo-liberalism is a mental disorder masquerading as political ideology. Which is a perception you would think they'd be intent on jettisoning given the almost certain political annihilation they'll be suffering this coming November.
While I'm apolitical and thoroughly enjoying Musk's evisceration of the ESG hustle by stealing a page out of former President Trump's destruction of the media 2016-2020 (perhaps his only lasting legacy), the lack of any sign of intelligence or morality in the ESG camp honestly surprises and saddens me. ESG absolutely could have been a legitimate movement and a genuine force for good for our country and the world- like Black Lives Matters, Occupy Wall Street and MeToo- all powerful forces with hollow cores that imploded in on themselves.
Now ESG is just the latest stark remainder of the immense dangers of misguided, short-sided, fascist rackets. ESG has served to cripple the integrity of both Big Tech and government regulators. Once again proving that, "absolute power corrupts absolutely." Fortunately, the ESG graft appears to be nearing it's end. This is a positive development because it's not good for the market and it's not good for America. As Matt Taibbi ended his infamous article referenced above as follows:
"It’s not always easy to accept the reality of what we now routinely allow these people to get away with; there’s a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can’t really register the fact that you’re no longer a citizen of a thriving first-world democracy, that you’re no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.
But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It’s a gangster state, running on gangster economics, and even prices can’t be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can’t stop it, but we should at least know where it’s all going."
Even a decade earlier, Taibbi could have been talking about the Lords of ESG.
Environmental and Social Governance may not move to the dustbin of history today or even this year. It may even take a crisis to finally expose its inefficacy and fraudulence. But someday even dumb people will understand that adherence to their flawed woke agenda is mutually-exclusive and counter-productive to the mission of any corporation, and as such its objectives are impractical, foolish and delegitimizing. But until such time that a significant portion of the investing public understands this and responds accordingly, my advice is to steer clear of anything that attempts to combine subjective political criteria with business profits. To do otherwise is to believe that the survival of a corporation can and should be subject to the political whims of another corporation and individuals with fringe political agendas. And there's just not much evidence of that being successful in the history of the stock market.
If you hear someone promoting ESG around you, grab your wallet and back out of the room. Because it's a con and someone's about to get fleeced. Because climate change and racism are real and deserve our attention. However, it's the delusion that attention should start with- and be controlled by - billionaires that should give all investors, regardless of political or ideological beliefs, intense pause. It's 2022. ZERO change will come from the top, politicians or business leaders. Change only comes from the bottom, and delegating that authority to large investment firms - while intoxicating - does not, has not and will not work. Consolidating power only leads to inefficiencies and graft at worse, and the deaths of millions at worst.