Tag: economy

Navigating Market Volatility: A Perspective for Investors

economy, Market Volatility

In recent times, we have witnessed significant market volatility that has understandably shaken the confidence of many investors. It’s important to acknowledge that while no one enjoys seeing periodic losses, these fluctuations serve a vital purpose in the marketplace.

Navigating Economic Cycles: Finding Stability Amidst Crisis

economy, Market Volatility

As we discern our crazy economic landscape, it’s important to reflect on the cyclicality of the crises that have shaped the U.S. economy over the decades. From rising energy prices in the 1970s to today’s concerns over tariffs, each period presented challenges and adaptation opportunities.

The Role of Misaligned Incentives in Economic Recessions

economy, Investing, Market Volatility

Fear of recession is causing current turmoil in stock prices. Recessions are often precipitated by an abrupt return to reality, a moment when the market corrects itself after a prolonged period of distorted perceptions and misaligned incentives. Historically, we have witnessed how such misalignments can lead to the mispricing of assets, which can ultimately culminate in significant economic downturns.

Recession and Volatility

economy, Market Volatility

For over two years, economists have been predicting a recession. As their timing has proven quite poor, recent market gains were built on the expectations that they were flat-out wrong. Proper perspective is that recent market profits provide ballast to endure all the downside the market can throw at us, rather than letting our risk tolerance ebb and flow. Long-time participants should have plenty of ballast by now. It is the recent new participants who might be victims of downside where they might not have a fair dose of time to build profits to then play with “house money”. This is why we are very slow and methodical with cash when given to us in large lumps. I have been recently squirming with a strong market and the half-cash positions of several clients who recently received life-changing amounts of cash from business sales and other events. It appears reprieve may have arrived.

Rising Rates

economy, inflation, stock market

The poor economic policy of the past is coming home to roost in the form of rising rates and spiraling inflation. To make matters worse, policy leaders spent months gaslighting us all, denying inflation’s presence when the signs were in plain sight. This lag in taking action has surely exacerbated the situation because it’s best to nip inflation in the bud before it blooms. Too late for that.

Dubious Economic Thought

economy

As economic thought has shifted toward mathematical rather than empirical evidence, economic conclusions are at risk of shifting toward “accuracies” while being wrong all the while. The economy functions as a self-aligning organism due to the harmonic motivations of value decisions within each of us. If we turn that into a math equation, we get outcomes nobody could foresee.

Recession on the Horizon

bonds, economy

In my last musing, I wrote about the current odd situation where the 30-year Treasury bonds yields 2.58%, but inflation is running at 8% annualized. Who would loan their money to the government for three decades while it is currently depreciating at a rate three times that? To add insult to injury, Treasury bond interest is fully taxable as ordinary income at up to a 40.8% tax rate. That’s a great deal…for Uncle Sam.

Oil Politics and Energy Prices

economy

It is surely apparent by now that a confluence of events is causing energy prices to spike like none seen before. In 2008, when oil prices breached $140, the recession that followed quickly brought it crashing back down to the $30s. Prices today would need to be $200+ to match 2008 in inflation-adjusted terms.

Tax Rule Changes: Build Back Better Act

economy, Tax Strategy

The language surrounding the Build Back Better Act suggests that it’s time for the rich to “pay their fair share.” But it is important to remember that 61% of all Americans pay no taxes. This vulnerability was addressed over 190 years ago, when Alexis de Tocqueville warned that the eventuality of non-taxpayers voting for the taxation of others would ultimately be America’s undoing. But don’t lose heart. We have been on such a brink before, and we voted in low-tax Ronald Reagan as a result.

Inflation? Yes, Then No.

economy, inflation

Twenty-five years ago, I had an archery deer lease in Refugio County, Texas. One time, I headed down there after a long day at work and arrived at Two-J’s Restaurant just at closing time. The place was empty, but they seated me anyway and promptly delivered my order. The waitress asked me what I did for a living and then pressed me about my economics degree. After pondering a bit, she returned a short time later and pulled up a chair. She then asked me a profound and now poignant question: “How come the government doesn’t just print twice as much money and make it so that I can have more?” I replied, “Because with two times the money and the same amount of productivity, each one of your dollars is then worth 50 cents.” She seemed to understand.

Thoughts and musings from my desk to you.