Back in the snowbird chapter of my life, we learned that stormy weather—rough seas—washed a wealth of interesting shells up on the beach. Looking for shells was always more fruitful when the weather had been rough.
The world situation and our markets have been nothing if not stormy this year! War has few parallels as a human tragedy; the economic ramifications are widespread.
Some of our holdings have risen in price because of the disruptions: raw materials and miners and energy, for example. Others have gone the other way.
But overall, we’re pleased with how our holdings have behaved.
Just as rough weather washes shells up on the beach, we’ve found new opportunities in the rough markets. The other thing that turmoil brings us is the chance to rebalance—take some money off the top of things that have gone up, add to the bargains that emerge among our holdings.
While some are paralyzed by the commotion, we’re finding that our principles are serving us well:
We look for the best bargains
We own the orchard for the fruit crop
We avoid stampedes in the market
Clients, want to talk more about what this means for you? Reach out, at any time.
Want content like this in your inbox each week? Leave your email here.
Clients, some of you have reached out to talk about the latest global developments and their implications for our work together.
We’re watching the news carefully, like everyone else. The hopeful view, if there is one, is in the vibrant and quick response by NATO, the EU, as well as what might be called a Western alliance and our allies around the world. These organizations are responding to a situation which could clearly continue to escalate. And those American politicians and media platforms most influenced by Russia do not seem to have much sway in shaping public opinion overall, thank goodness.
Ukraine was said by some to be a threat to Russia, for talking up increased ties to NATO and the EU: this is a pretense to reframe aggression as prevention. Putin is like the farmer insisting he doesn’t want to buy all the land—just what adjoins his own. If Ukraine were assimilated by Russia, then would Poland pose a similar threat next? And then maybe Germany and France in turn?
Russia’s economy is small, as a share of global trade. The problem is in the raw materials and energy on which the rest of the world has come to rely. Ukraine likewise is a significant exporter of crops and natural resources. The disruption to these markets will probably exacerbate inflation; a recession may well result. (Remember, though, that one is always on the way.) If energy costs, for instance, continue to rise—and they could—it is hard to see how the sales of all other goods and services avoid shrinking.
It is also important to remember that, technically, a recession is a decrease of any size in GDP for two quarters running. So if we had a quarter where we were at 99% of the record quarter before, and then did 1% less again the next quarter, that’s a recession. So we should never assume “what the next recession will mean” without some context and perspective.
The crosscurrents in the markets have been vicious. We’ve made portfolio changes cautiously, of course. We always want to make sure we can meet your needs for cash flow while keeping your long-term goals in the picture.
The key thing is, we can meet your need for cash flow without selling anything at a bad time. We can wait out a downturn whenever it comes, and we’ll seek to make the best of it by swapping into holdings likely to recover the fastest.
No guarantees. But clients, you’re watching things; we’re watching things. Call or email me with questions or concerns.
Want content like this in your inbox each week? Leave your email here.
You’ve heard us talk before about not getting caught up in panic. It goes to one of our core principles, the idea of avoiding stampedes.
It gets a little complicated when we’re talking about world events that are so immediate. Conflict can be deadly and do serious damage, and the effects reach us all—whether we realize it or not.
We’re in a moment where the business headlines and market volatility are more stark than usual. It can feel disturbing, like things are less certain than ever.
But those of us just beyond the emergencies have an opportunity to reflect. What an important time it is to make sure that our goals, our values, and our resources are aligned. Are we focusing our efforts within our sphere of control? Are we investing in those causes we believe will be of service in this world?
Perhaps it’s how we keep panic from our hearts: find stability in being the most you that you can be. The dust will never settle if we insist on all the pacing, jumping up and down, or spinning in circles.
Invest wisely, spend well. It goes for our money and our attention. The leap to panic is a shorter—but way more costly—trip.
When you need to talk through anything troubling, please reach out.
Want content like this in your inbox each week? Leave your email here.
Disturbing news can make us feel overwhelmed. When it seems like a fine time to panic, we’ve got an opportunity. How to take a moment—and make room for only what matters most.
Want content like this in your inbox each week? Leave your email here.
The interlocking international trade agreements crafted over the past several decades have all been threatened by recent abrupt changes in U.S. trade policy. Many countries seem to be in the business of threatening retaliatory tariffs, in the name of ‘fair trade.’ When countries engage in rounds of tariff-raising, it is called a trade war.
The human tendency is to expect current conditions to continue. We believe we must strive to think objectively about how things may change, assess possibilities, and be proactive in our decisions and actions.
We can seek to understand the impact of a tariff by examining the case of pickup trucks. The U.S. assesses a 25% tariff on imports of these vehicles1. In practice, this tax collects no money—it simply stops the import of pickup trucks.
Have you noticed how expensive trucks are, relative to cars? This benefits U.S. manufacturers at the expense of consumers, farmers, and businesses small and large which use trucks.
So generally the tariff has the effect of increasing consumer costs and reducing consumer choice, while making profits for a very few companies higher and reducing profits at all truck-using companies by a little bit.
Imagine if other countries retaliated by increasing tariffs on things made by Deere and Caterpillar and Boeing. This would be great for Airbus and Kubota and Claas, which would have less competition in the rest of the world. Foreign consumers, both individuals and companies, would pay more and have less choice. And workers employed in the U.S. by Deere, Caterpillar and Boeing would lose their jobs.
Forget for a moment which countries are charging how much in tariffs on which goods. Any increase, either by other countries or the U.S., increases costs on balance for consumers everywhere and reduces employment overall, in every country.
Typically, in a trade war the economy is depressed because consumers face higher prices so buy fewer goods. Production decreases to match reduced demand. Incomes are lower, jobs are fewer, and profits are slashed. This is why the stock market reacts to potential trade disruptions.
We believe the best approach to investing is to seek the best bargains and avoid stampedes in the market, with a very long time horizon. Chaos produces bargains and opportunities and stampedes; taking the long view may be the best hope for coming out on the far side in better shape.
Diversification may help, but will not eliminate volatility. It is not good fun to see portfolio values go down in the short run—but it is inevitable from time to time. Clients, if you would like to discuss this or anything else, please email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
You must be logged in to post a comment.