“Which do you think is more important, the jockey or the horse?” a friend asked years ago.  Now I have friends who have become clients and clients that have become friends.  This man was one of the latter.    At the time, my friend was the senior executive of a major corporation.  So I surmised that this was a metaphoric question and that he was postulating a company’s business was the horse and the “jockey” was the CEO.  If so, it was a provocative and moot question!

The question initially caught me off guard.  However, I knew what his position undoubtedly was.  After all, he was the North American CEO of a global European company.  So I assumed he was on the side of the jockey.  One could reasonably argue both are equally important.  However, that wouldn’t answer the question.  And how often is something exactly fifty/fifty?  Generally there is a tilt even if it is subtle.  The question was … which would be the determining factor?  Could it simply be timing or something more powerful?

In my last letter I wrote how the current environment reminded me of 1965.  At that time, Fed Funds were 4% on their way to 15%+ by 1982.  That interest rate progression resulted in the Dow Jones going from 600 to 1,000 … and back… several times over seventeen years.  In effect, the “market” went nowhere because of rising interest rates.  Interest rates are now effectively 0% on their way to?

CEOs of large corporations obviously cannot control global events especially when an event is secular in nature. But in a rising interest rate environment, strong domestic companies with entrepreneurial “jockeys” can do very well.  First, the law of numbers does not affect them. They are usually small companies.  As such, they are domestically focused and generally not affected by global macro events.  More importantly, they are invariably new product or service driven.  Ed Land and Polaroid in the 1960’s comes quickly to mind.  As does Ken Olson and Digital Equipment.  Then, of course, there was Ray Kroc with McDonald’s and Sam Walton and Wal-Mart.  Going forward, the future will belong to Netflix, Facebook, or Tesla type companies.  These are businesses that have created new products or services and all have self made jockeys “riding” them.

The transition to a post- industrial economy really gained momentum after the severe recession of 1981-1982.  The evolution of the New Economy answers the question as to why there’s been so much dissolution to the previous middle class.  From 1982 the future has belonged to those trained in technology or health care.  How many people over 50 have been trained in these areas?

The “New Economy” has the same entrepreneurial spirit as companies in the previous period of rising interest rates.  As in that time, a jockey’s real contribution will prove to be the creation of a new horse; i.e. the development of a new business.  In the real world it’s why a thoroughbred’s owner will often be paid millions to breed his horse.  Everyone wants a chance to own a future winner!

FRANCIS PATRICK BOLAND