Review
Markets gyrated significantly last
week on conjecture and psychological paradox about shortages and bottlenecks in
the supply chain of oil and other commodities, re-inflation of the economy, and
probable durability of earnings in a consumer climate devoid of high risk
tolerance. Nowhere was this more typified than in a sudden rush on regional
petroleum products throughout the East coast of the United States after the
ransom-ware attack on the Colonial Pipeline Company. These
signals demonstrate how vulnerable the recovery is, and will continue to be,
without absolute certainty about defeating the Covid virus; addressing
infrastructure decline, including the internet highway; and bringing the
world's economies back to and beyond pre-pandemic levels. All in all, last week was about expressing
that anxiety through stock trading.
Everyone has an opinion about global deficiency in necessary
commodities, and many are not positive.
The 4% annualized inflation numbers reported
for March are not a rebirth of the 1970's runaway in prices, but rather a
reflection of economic activity quickly bouncing back from the disruptions and
slowdowns engendered by the pandemic.
We live in a world of hyper
sensitivity and immediate gratification.
It is human nature to grab for simple explanations, especially where
there are none. It helps people shake
off their uncertainties. Fortunately, we
also know that facts and truth are usually the best paths towards effective
decision-making. Misunderstandings and
polarization are fodder for another kind of debate. The world of finance has no such tolerance.
It is hard to believe that we are
almost halfway done with 2021. As many
are just now emerging from the pandemic's self-quarantine cocoon, we look
around and realize that almost every element of our lives has been changed by
the ravages of a once-in-a-century health plague. Learning what to do going forward is our new
mission as a society, an economy, and for our souls.
As alluded to above, the financial
markets are flailing and grasping for direction because the erosion of
traditional fundamentals has been exacerbated by a wave of speculation and
conjecture in prior months designed to seize
the moment but, unfortunately, at
the expense of long term design. Gambling
and speculating are behaviors that either pay off handsomely at the betting
window, or which fail miserably, catapulting losers into deep financial
despair. Many don't realize that they
are sacrificing clarity for the sake of a percentage gain. After all, who doesn't like to score big on one
roll of the dice?
But what constitutes a good
investment? Is it a wager that pays off
today? Or might it be a social compact in which money is used to do good,
mitigate risk, and pay off the investor in the long run? Each is so much different from the other. This is, ultimately, what makes markets.
Resonance
The good news is that we don't have
to look backwards at yesterday's gambles to recognize the path ahead. Trends evolve and always reveal
themselves. Our research discerns patterns
of leadership and dynamism for the future.
Quantitative studies successfully allow us to measure phases and
durations. It will not surprise my
readers to know that we look for earnings growth and price performance as
critical first step elements to determining portfolio risk and allocations,
with a high priority upon globalization and the world's supply/demand
paradigm. The market touched several new
highs recently. In fact, we see very few
securities moving towards their historical “lows”...except for interest rates. Last week's contractions merely highlight how
precarious investing can be without a plan.
We still feel confident that we can
parse winners from losers, leaders from laggards, and that the economy is getting
better.
We are more concerned, however, about
the nefarious emotional environment enveloping Wall Street. Too many of you are conflicted or
fearful. There is no denying that these sentiments
are real. But one's responses should be
academic, practical, and fact-based.
Fear and greed are dissonant to that effort. I would suggest that the last question you
ask when making an investment decision is “what's
in it for me?” Distinguishing between greed and empathy is,
after all, what makes us human.
