August 25, 2022

Full Circle?

     The key focus of managing investments is to take on risk when the markets decline and lighten up on risk when the markets rise. The ensuing changes historically favor a rising markets, but when the two changes become interchangeable, such as they have since the beginning of the pandemic, volatility takes over because of the increase in uncertainty surrounding the facts that are necessary for the markets to self-predict the future.

    The pandemic began with a sharp decline in the markets when governments around the world chose to lockdown their economies in an action that no living person has ever had to experience. The extreme

moves began what, in my opinion, have been an extreme series of outcomes, all to fueling the volatility and the resultant uncertainties of the future. Once the lockdowns began the various medical and geopolitical institutions that become the voice of the narrative, woke a world up to entities we all knew about but never thought about how they impacted the worlds dialogue. The distraction created a headwind that caused careful interactive behavior resulting in remote working, and careful management of businesses, especially those of services and hospitality. The outcome resulted in the first of three broad stimulus packages amounting to roughly $2.3 trillion dollars and the resulting spike in the M2 money supply to the highest level in over 30yrs. Welcome inflation.

    In 30yrs of managing money I’ve used the beginning of my career to measure the historical commonalities that have occurred over time and on the side those commonalities that prevailed humanity throughout history. Inflation has really been a problem, but the blame is never short of narratives, the first being the war in Ukraine. The uncertainty of war, and war with China are is topic of speculation although, in my opinion, with lower probability. But I mention this because so many aspects of our post pandemic world have turned nearly everything into a war; trade, politics, economics (sanctions), and each carries its own unique uncertainty. Wars and their impact on economics have had many precedents in history, including the impact on inflation. 

    So, while no person or entity can stop the reality of economic cycles, letting the markets technical behavior and fundamental vacillations define the right time to take on risk, it’s important to avoid the narratives that want to keep us eternally doubting.  I’ve never been more aware of this reality then when the pandemic struck and various extremities that rose out, massive market decline, massive market rise, historic printing of money to fuel stimulus, business disruption, supply chain disruption and while all occurred, changes in the world that would make a conspiracy theorist melt with glee. Now, the war in Ukraine is moving on, China has enough problems then going to war with the US, traveling is nearly higher than before the pandemic, and the consumer is defying the call of recession. As a well followed economist named Brian Westbury, recently wrote “These aren’t macro-related developments; they are a realignment of economic activity from a distorted world to a more normal one”. I couldn’t have said it better, and if full circle isn’t here yet, in my opinion, it’s definitely around the corner.

No comments: