Fin Ed
How to make sense of last week’s turbulent
confluence of politics, Covid, inflation news, and the Federal Reserve? Finding equilibrium in a world in flux is
vexing, at best. Perhaps we need to
amplify the premium we place upon managing expectations amongst all the confusion.
Tradition tells us that the economy
and the financial markets sometimes diverge from parallel paths. How else to
explain a stock market surge, while a large portion of the world’s economy is
stuck in wage, job, and health uncertainty?
First, this is not a zero sum game.
Gains in wealth do not insure parity across the board. The last decade was testament to the notion
that wealth does not always “trickle down” entirely to others. Look, its not profound to say that we exist
not just to inflate our own personal portfolio, but to help others succeed,
too. What a cruel world if the rich
belittled the poor or ignored their plight.
So how do the agencies of government
and finance accommodate the wealth gap?
Sometimes by passing laws or working the levers of power to even the
playing field. The Federal Reserve’s
announcements last week are an attempt to quell runaway inflation while still
maintaining firm control over the money supply and also propelling the engine
of public/private partnership to generate business and profitability. In my investment discipline, for example, we
acknowledge the quantitative irregularities of the real world and use those
dynamics to create asset allocation models that reflect both financial and
psychological probabilities of trend continuance or dissipation. Too many are asking for “fairness” where
fairness just doesn’t exist. S&P and
Dow Jones averages are at record levels, but not all sectors are creating
wealth equally.
There needs to be a reassessment
periodically that evaluates performance and intent from our institutions. People are more secure today than ever
before, but many don’t feel so. “Every
man for himself” is not a creed that
leads to good government nor good consumerism.
So how to tackle the news from last week that inflation is rising,
stocks are plateauing, and Covid is multiplying...?
Logarithms or intuition?
Despite the uncertainty, opportunity
abounds in the financial markets. In
fact, the greatest potential exists when a void is created. You just have to know how to find it. Longer term themes do matter.
They are the essence of creating an investment plan and diminishing the
impact of fear and panic when it occurs.
Said another way, ebb and flow…up or down…is the best way,
scientifically, to maximize “entry points” and quantitative probability for
portfolio growth.
Our current environment of “easy
money” (low interest rates) is about to phase out. Interest rates will rise; commodities prices
will rise because of scarcities and higher demand; growth (GDP) will expand as
consumers emerge from their psychological cocoon and new initiatives in the capital
markets accelerate; employment and wages will grow if/when the Covid virus is
contained. Above all we caution that
portfolio allocations must be consistent with risk tolerances and time horizons. Patience is key. “Fast money” is fast disaster.
Imagine…..
Investing is not just individual
aggrandizement, but rather committing capital to a purpose larger than personal
needs only. The importance of owning and
investing in assets is only as strong as the value that accrues to the common
good, while still providing comfort to ones’ self, family, health, and
community.
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