Month: November 2021

In the News: Supply Chains and Yoyos
photo shows a silver yoyo and its string

There has been a lot of talk in the news lately about problems with the supply chain. Fuel shortages, power shortages, microchip shortages, transportation shortages—these days, it seems like there is just not enough to go around.

Listening to dire predictions about how much worse things will get, it is easy to get nervous for the future.

We have been here before, though. Remember the early days of the pandemic? Bare grocery shelves and toilet paper panics. Or the early days of the recovery? Home values shooting up and hardware stores adjusting lumber prices multiple times per day.

For one item after another, we have watched supplies dry up to a trickle—and then come flooding back. Once the initial supply crunch is resolved, quite often other, smaller shortages eventually come back. And eventually go away.

The global pandemic has done a lot to expose the weakness of our supply chains. Sometimes, it seems each one is less like a chain and more like a yoyo spinning up and down, up and down. Maybe the disruptions get a little slower each time, and eventually they will come to rest.

But none of it is new. Commodities have always been cyclical. We hear about chip shortages and gas shortages, but these things happen with some regularity. The disruption of the past year and a half has just sped things up. In the past 30 years, oil has dipped below $40 a barrel at least five times and has peaked above $80 a barrel at least five times.

It is difficult to get too hot and bothered about oil being $80 a barrel when within the last decade it spent multiple years well above $100 a barrel.

What eventually cures our shortages is always the same thing: as long as it is possible to make a buck doing something worth doing, there will be people stepping up to fill that need. When gas supplies are low, oil companies drill new wells. When chip supplies are low, chipmakers build new fabrication plants. When transportation capacity is low, logistics companies buy new trucks. There is a lot of money to be made selling gas and microchips and shipping when things are tight.

New supply does not come online overnight. It can take a long time for supplies to ramp up to meet demand. And by the time they do, the yoyo has so much momentum that it usually overshoots the mark and keeps going the other way. A drought turns into a flood, slowly, but still faster than most people would expect. Supplies dry up again as prices come down and production becomes less profitable. High prices plant the seeds for low prices, which plant the seeds of high prices again.

We have been around this story before—and around, and around, and around again. Clients, if you need to go around it with us, just give us a call.

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In the News: Supply Chains and Yoyos – 228Main.com Presents: The Best of Leibman Financial Services

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What Is Social Security Telling Us?
photo shows a fan of $20 bills with a rubberbanded roll of $1 bills on top of it

We’re taking a swig of some big news, fresh from the Social Security Administration.

They’ve announced that the COLA—the Cost-of-Living Adjustment—for 2022 will be 5.9%. Payments for January 2022 will be increased by that amount.

Who doesn’t like getting a raise? But let’s think about how we earned this one.

Our cost of living has been rising. Inflation is running at levels we have not seen in decades. And the laws governing Social Security benefits call for annual adjustments to help offset the rise in the cost of living. In other words, our expenses have been rising for some time, and this “raise” will help us get back some of the purchasing power we have lost.

Inflation has other ramifications, too. Sometimes we assume that financial things with stable values are safe. Savings accounts or certificates of deposit, bonds, and other fixed-income investments generally do offer more stability than long-term equity investments such as common stock.

But perhaps the news from the Social Security Administration is a chance to remember that our cash on-hand pretty much always buys less this year than it did last year—because of the cost of living. If we make 1% interest while prices rise 5%, we are going backward in purchasing power over time.

When there was little inflation, our cash cushions did not cost us a lot. We love the sensation of having the money we need, readily at hand. Funds for emergencies or opportunities are always good to have.

But the purchasing power of excess cash laying around is melting away, day by day. It might pay to consider whether more should be committed to long-term investments.

Clients, if you would like to talk about your cash cushion or anything else, please email us or call.

Investing includes risks, including fluctuating prices and loss of principal.

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What Is Social Security Telling Us? – 228Main.com Presents: The Best of Leibman Financial Services

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The High and Rising Cost of Stability
photo shows stacks of mostly empty wallets in various colors

On what fraction of your wealth can you tolerate wiggling in price?

At the heart of our approach to investing is the idea that we get paid to endure volatility. Short-term fluctuations matter less and less the longer the time horizon; living with volatility is an integral part of seeking true investment market returns.

Your wealth may be divided into that fraction that may wiggle… and the rest: the part that must remain stable in value, either because it is to be used in the near future or for your own preference about liquidity.

When inflation was near zero and interest rates were near zero, stability did not cost much: it was likely that a dollar put away in a stable form would still buy a dollar’s worth of goods or services a year hence.

But the situation is changing.

With the cost of living rising by 3 or 6% and interest rates still near zero, money put away in stable forms is losing purchasing power by the day. Money that needs to be stable will buy less and less, year by year, while inflation is greater than interest rates.

It may be time to rethink the question: “On what fraction of your wealth can you tolerate wiggling in price?” When the cost of stability was close to zero, it was easier to justify stable money balances. Now, stable money not only misses out on the risks and rewards of long-term investing, it may act more like lumber exposed to termites, a force that eats away at its power over time.

If a person is not suited for this approach, if they are not within our niche market of the mind, or not tolerant of volatility in the value of money meant for the long term, these coming changes in the cost of stability will not affect their desire for stability.

But… some have embraced the advantages of “some of each,” of thoughtfully pursuing both some stable balances and some investments that wiggle. For these folks, it may be appropriate to rethink the proportions at this moment.

Clients, if you would like to talk about the balance among your holdings, please email us or call.

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Play the audio version of this post below:

The High and Rising Cost of Stability – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.