FOLLOW THE MONEY -MARCH 15, 2026
War in the Mideast dominates the news cycle and the domestic fallout should not be underestimated. The recently coined “Affordability” political issue, naturally dependent to a large degree on the rate of inflation, can now be set aside, since the cost of groceries and gasoline does not matter if Western Civilization does not survive. Whether we, as individuals, believe in the war or not, it is a reality and it is expensive. The USA is spending $1 billion/day, and President Trump is lobbying for a new defense budget of $1.5 Trillion. Recall that Reinhoff & Rogart, in their 2011 seminal treatise, This Time is Different, Eight Centuries of Financial Folly, concluded that national debt beyond 90-100% of GDP becomes an increasing drag on the relevant economy. Ronald Reagan took over an economy in early 1981 with $900 Billion of debt, which was only 32% of GDP. By 1990, the debt was $3.2 Trillion, or 54% of GDP. By 2000, after Bill Clinton’s regime, encouraged by Newt Gingrich’s “Contract with America”, the debt was up to $5.7 Trillion, but only represented 55% of GDP. By 2010, unfortunately, after Alan Greenspan “saved” the economy with spending to counteract Y2K, the dotcom bust and conducting two wars, the US debt had more than doubled to $13.6 Trillion, a dangerous 90% of GDP. By 2020, after Obama and Trump 45, debt had more than doubled again to $27.7 Trillion, or 129% of GDP. Five and a half years later, on 3/6/26, the debt is $38.9 Trillion, or about 125% of GDP. Most recently: the annual deficit has been relatively flat over the last two fiscal years at about $1.9 Trillion and $143 Billion lower in the first five months of FY’26, thanks lately to an additional $90 billion of tariffs and $100 Billion of individual tax payments. Since both of these helpful ’26 items are about to reverse, and the defense spending is going through the roof, it seems inevitable that the deficit both this year and next will exceed $2 Trillion, likely by a lot in fiscal ’27. Moreover, we reiterate that DJT’s “greatest economy in the history of the world” has been a fiction. In January the Atlanta Fed (which is almost always overly optimistic) doubled their Q4’25 GDP estimate to 5.4%. Donald Trump immediately started talking about an 8% objective sometime soon. However, the final Q4 GDP came in at only 1.4%, and that may yet be revised (usually downward). Storms and tariffs and wars have affected Q1’26, so the month-to-month numbers will be all over the place, but this time is not different. We’ve called it stagflation for some time and will continue to do so.
Relative to the equity market, we recently stumbled across an interview of Warren Buffet, which offered some predictably profound simple investment principals. In essence, he said he is drawn to businesses he understands, along with simple corporate “structures”. He pointed out that complexities built in by management and/or their advisors (i.e. consultants, investment bankers, etc.), whether understood or not by investors, are hardly ever for the benefit of the investing public.
Our first example of undesirable complexity is the use of more than one class of common stock. Recently brought public, Black Rock Coffee Bar (BRCB), a well-run Company with attractive long term fundamental prospects, is but one current example of this approach, with their A, B & C classes of common stock. Their 17.5M Class A shares get one vote. Their 10.9M Class B shares, representing the “Continuing Equity Owners” get one vote, and the 21.7M class C shares (owned by founders) get TEN votes. Setting aside the practical control provided to the Class C shareholders, the most recent earnings report headlines earnings per share based only on the A shares outstanding, requiring a trip the footnotes for further explanation. We find financial reporting services showing both 17M and 50M shares, obviously a wide divide. While the B & C shares “have no current economic rights”, they are “exchangeable, on a one for one basis, from time to time, at the option the Company” (essentially controlled by the C shares). If Class A shares were paying a dividend or going private at a premium (for example), the Class B and C shares would no doubt exercise their right to share in the payday.
Our second current example of undesirable complexity, also put in place prior to the Black Rock Coffee IPO, is the “Tax Receivable Agreement”, where 85% of tax benefits realized “as a result of Basis Adjustments and certain tax benefits (such as interest deductions) would be paid to Continuing Equity Owners (Class B stock owners).” Within risk disclosures, corporate documents caution: “This payment obligation could “make us a less attractive target for an acquisition…… and our organization structure, including the Tax Receivable Agreement, confers certain benefits upon the Continuing Equity Owners that do not benefit holders of our Class A common stock (the shares that the public owns) to the same extent they benefit the Continuing Equity Owners”.
Warren Buffet would not play.
Roger Lipton
