Worldview Investing - Ruminations on the World Economy

Inflation is at thirty-year highs. Markets are at extreme over-valuations. Fuel and winter heating costs are spiking. Governments are seeking to dictate ever more of what you can do and when you can do it. Real interest rates are at negative levels. Politics has never before been so divisive. Social activists are seeking to overturn national histories and cultures. Why have things become so fraught? Lance Morrow, writing for the Wall Street Journal, observed that everything in politics, the economy, and society is threatening to self-destruct. He tartly explained why: We are “living in a golden age of stupidity.”

The Fed assures us that the major US banks are in good health and have passed rigorous stress tests that ensure taxpayers will not have to bail them out yet again at the next financial crisis. The banks’ health is critical to the US economy. When they are stressed their ability to lend to corporations and individuals is severely restricted and the economy quickly suffers.

We want to be able to retire with enough money to support ourselves in reasonable comfort. That means saving relentlessly over the years. It also means anticipating the financial threats that face us now and in the future. We must correctly identify our enemies.

The inflation debate continues.  Of course, no one knows what the future holds.  If they did they could quickly accumulate all the wealth in the world.  While many people have an opinion about what is to come, it is just that, an opinion.  The great frustration is that very cogent arguments can be made for both temporary and long-term higher prices.  John Mauldin recently concluded his annual Strategic Investment Conference.  He presented many heavy-hitters in the world of economics, finance and investment.  Most of them addressed the inflation debate.

We are not predicting an imminent financial crisis.  But what has transpired over the last decade ensures that we will suffer major pain at some point. It is difficult to wrap one’s arms around what has happened since the 2008 sub-prime mortgage debacle.  But what has happened during just the last year is astonishing.  If you tally up all the money the Fed has  ever printed , over 40% of it was printed in 2020. 

We are all familiar with the aphorism that, “those who do not know history are doomed to repeat it.” But even those who do know history are often doomed because they convince themselves that “this time is different.” Some events occur infrequently, so we are repeatedly surprised by and unprepared for them, like recessions, pandemics, and social unrest.