EIEIO...Land of the Free

“Those who expect to reap the blessings of freedom, must, like me, undergo the fatigue of supporting it.” – Thomas Paine

“Freedom is the the right to tell people what they don’t want to hear.” – George Orwell

“Freedom is never more than a generation from extinction.  We didn’t pass it along to children in the bloodstream.  It must be fought for, protected, and handed on them to do the same or one day we will spend our Sunset years telling our children, and our children’s children what it was once like in the United States where men were free.” – Ronald Reagan

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As is our custom for three-day weekends, EIEIO took last week off to commemorate Juneteenth. As most know, Juneteenth recognizes the effective end of slavery in the United States.

What you might not know is that Juneteenth marks the day (June 19, 1865) when federal troops arrived in Galveston, Texas to take control of the state and ensure that all enslaved people be freed – two and a half years after the Emancipation Proclamation (obviously, the bandwidth was bad and Texas didn’t get the message until 2.5 years later!)

In 1979, Texas became the first state to make Juneteenth an official holiday; several others followed suit over the years. In June 2021, Congress passed a resolution establishing Juneteenth as a federal holiday; President Biden signed it into law on June 17, 2021, and U.S. financial markets observed the holiday for the first time in 2022.

While Juneteenth acknowledges the end of slavery, it’s really about the enduring power of freedom. And while everyone seemingly has a different definition of freedom today, it’s clear that it’s having a massive renaissance in three key areas: Schools, Speech, and Skills.

Schools

The narrative around K-12 education in the United States has gone from despondent to depressing in recent months. NAEP scores are at their lowest level in decades, while states are dealing with what’s been labeled a teacher shortage crisis.

The statistics are sobering. 1/3 of 4th graders and 1/3 of 8th graders aren’t proficient in reading…if you can’t read, it’s pretty tough to learn anything. 1/4 of fourth graders aren’t proficient in Math or Reading. In Chicago, there are 55 schools where there isn’t one child who is proficient in math or reading.

Analogous to the upcoming cage match between Elon Musk and Mark Zuckerberg, for decades there were barbs and bombs that caused more confusion than traction for the Choice Movement. Since Waiting for Superman, many people understood how wrong it was that a child’s future was determined by what zip code they lived in or a lottery, but the forces of evil were tough to overcome. What’s changed is:

1. Covid…where parents saw what was actually going on, or not going on in the Classroom. Governor Youngkin in Virginia was the direct beneficiary of parents’ visceral reaction to seeing the poor education offering.

2. Studies like Stanford CREDO’s National Charter School Study showing unquestionably that charters have provided better education…at a lower cost. 62% of parents now give Charters an “A” or “B” grade.

   The study covered over two million students in 29 states and found that most charter schools “produce superior student gains despite enrolling a more challenging student population.” That’s the key – charter schools provide a better education to those who need it the most. 

3. Education Savings Accounts (education’s equivalent of HSA’s in healthcare) were a clever way to slightly depoliticize creating school options, with over 75% of parents being in favor.  

   

4. Of the $666 billion spent on K-12 education last year or $13,185 per child, parents increasingly (71%) understand the fairness of the money following the child.   While every state and every district is different, generally a portion of the money spends in the school that a child going to a charter leaves.  So in other words, the bad school keeps more to do less.    

   

   With the average teacher salary in the United States being $59,184 doing some simple math, assuming 20 students in a classroom, there is roughly $260K revenue per classroom and $60k of teacher salary….so where does the other $200K go? Sure, some books, and give every kid a computer or maybe two, but what happens to the rest?  There isn’t a service business which exists in the World where over 50% of the revenue is spent outside of where the service is being rendered.   

Speech

There are over 4,000 colleges and universities in the United States, but there is one point of view.  

This past year, law students at Stanford, Yale, and UC Law San Francisco disrupted conservative speakers during campus presentations. In 2021, MIT canceled UChicago Professor Dorian Abbot’s guest lecture because he opposed aspects of affirmative action (next week, this could become the law).

Thankfully, not all of these events have fallen on deaf ears. After the Stanford incident, Dean Jenny S. Martinez released a 10-page memo clarifying the school’s support of free speech. In fact, she argued that “the commitment to diversity, equity, and inclusion means that we must protect free expression of all views.” Seems straightforward to us, but easier said than done.

Riley Gaines, the All-American swimmer, was attacked by the mob when she spoke at San Francisco State University when she said she didn’t think biological men should compete with women in sports. Whatever your view is on that issue, the idea that we can’t have respectful debates is disgusting.

While UC Berkeley was the leader of free speech in the 20th century, UATX is positioned to become the leader in the 21st century.

Last Tuesday night, I had dinner with the University of Austin’s President Pano Kanelos and a small group where the conversation was around freedom of speech, inquiry and civil discourse.

UATX’s first offering to undergrads is a summer program called “Forbidden Courses,” a reference to the reality that “higher education has made it difficult to inquire openly into vexing questions with honesty and without fear of shame.”

Skills

While school choice and free speech have become political footballs, the movement for skills over schools has become a bipartisan issue. 

Historically, the hiring director at Google was outsourced to the admissions director at Harvard.  From a fairness and freedom standpoint, it’s always been troubling that a legacy student was 10X more likely to be admitted to their parents’ alma mater, perpetuating privilege over merit.

A Megatrend we’ve predicted for the past decade is “Knowledge as A Currency…it’s about what you know, not where you go…knowledge not college.” The shortage of workers combined with a more enlightened way of viewing someone’s qualifications has seen a gigantic shift in both large corporations and government around “skills” versus the old-fashioned degree.   

This movement is being adopted by governments and corporations alike. As Business Insider puts it, Democrats, Republicans, and companies all seem to agree: college degrees aren’t the future.

LinkedIn – the platform with the most human capital data in the World – is betting that skills will overtake degrees as the future labor market currency. More than 45% of recruiters on LinkedIn now search for candidates using skills data, while LinkedIn is building Microsoft’s AI into the platform to help make the match between employers and prospective employees more efficient. 

Meanwhile, states ranging from Alaska to Virginia to New Jersey have eliminated degree requirements for government jobs, opening up hundreds of thousands of state jobs to people with skills who happen to not have degrees. 

We’re betting that the success of this movement will go far beyond state jobs. States such as Florida are going one step further and enabling military veterans to lead classrooms while they earn education credentials. 

All three of these movements are about giving people real freedom – the freedom to say whatever they want, learn however they want, and work wherever they want, regardless of their race, gender, politics, and income. That’s a mission that we can get behind...and we look forward to proudly supporting each of them.

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Market Performance

In the Holiday shortened week, the market took a break and gave back some of the gains they’ve had for the year.  Reasons for the pause included interest rates being raised around the World, and continued concern over domestic and geopolitics. For the four days, the Dow was down 1.7%, with the S & P 500 and NASDAQ retreating 1.4%.

D.C. was abuzz with Indian Prime Minister Narendra Modi’s official state dinner at the White House and address to Congress.  PM Modi’s rock star treatment was buoyed by his 76% approval ratings (vs. Western leaders being between 20-40%), fast growing economy and pole position to be the leader of the emerging Indo-Pacific Century.  India has become the “New China” in terms of growth hopes, and PM’s message of destiny, demographics, determination.

In other Washington news, Majority Leader Chuck Schumer said that Congress needed to join the A.I. revolution but be on top of accountability and security.  In state government news, Texas became the first state to mandate the Tesla charger.

Other capital markets information, only 3% of the 199 SPAC’s that went public in 2021 were above their $10 offering price.  While clearly mainly a hangover from the mania that was present, undoubtedly there are opportunities where the baby got washed out with the bath water.

We continue to be cautiously optimistic based on individual growth companies fundamentals, valuation versus growth and pessimistic sentiment…which makes us more optimistic…especially since despite all the gloom and doom, stocks don’t want to seem to go down.

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Need to Know 

READ: Fidelity legend Peter Lynch: 'I never said to invest in the stock market'

LISTEN: Eric Resnick – Ski, Golf, and Vacation Investing at KSL (Capital Allocators, EP.322)

READ: Meta's Moat

WATCH: Marc Andreessen: Future of the Internet, Technology, and AI | Lex Fridman Podcast #386

READ: Your Brain Has Tricked You Into Thinking Everything Is Worse - The New York Times

READ: Indiamerica

READ: How the Identity Cult Captured America

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Looking Up

Study: Most early-stage breast care patients will be long-term survivors

72-year-old graduates from college with 99-year-old mother cheering him on

Born in jail, Texas teen is now headed to Harvard

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GSV’s Four I’s of Investor Sentiment 

GSV tracks four primary indicators of investor sentiment: inflows and outflows of mutual funds and ETFs, IPO activity, interest rates, and inflation. Here’s how these four signals performed last week:

#1: Inflows and Outflows for Mutual Funds & ETFs

Source: Yardeni

#2: IPO Market

Cava’s blockbuster IPO is giving life to the previously dormant IPO market. On Friday, Bloomberg announced that Pinstripes, an Italian-American restaurant chain with bowling and bocce, is going public in a SPAC with Banyan Acquisition Corp. 

Two more positive signs: public companies and their backers have sold stock worth more than $28 billion through April in follow-on and secondary sales (up 4x over a year ago), while the VIX is at its lowest levels since February 2020. 

Source: Renaissance Capital

#3: Interest Rates

Last week, the Fed held off raising interest rates after 10 increases in a row. The war on inflation isn’t over, but the Fed is comfortable taking a pause. We’ll see if that’s the start of a break 

Source: Atlanta Fed

#4: Inflation

Headline rates of inflation across have fallen since the fall, but core rates (which exclude energy and food) remain at or close to multi-decade highs. As Torsten Slok, chief economist at Apollo shared, “the only way to get inflation down to 2% is to crush demand and slow down the economy in a more substantial way.”

Source: FT

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Charts of the Week  

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Chuckles of the Week

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EIEIO…Fast Facts

Entrepreneurship: 54% – percent of female CEOs that played college sports (Source)

Innovation: 150 million – number of people who have sent messages to My AI (Source)

Education: 34% – percent of new undergraduates at America’s top 35 universities that went to private school (Source) 

Impact: 24% – increase in number of cancer survivors by 2032 (Source)

Opportunity: $59 billion – decrease in charitable giving from 2022 vs. 2021 (Source)

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Connecting the Dots & EIEIO…

Old MacDonald had a farm, EIEIO. New MacDonald has a Startup…. EIEIO: Entrepreneurship, Innovation, Education, Impact and Opportunity. Accordingly, we focus on these key areas of the future.

One of the core goals of GSV is to connect the dots around EIEIO and provide perspective on where things are going and why. If you like this, please forward to your friends. Onward!

Make Your Dash Count!

-MM