Here we are, about a month into Spring. Even though we’ve had a few days in the eighties, it’s been the cold days, including having snow pretty close to home, which have been the most remarkable lately. Still, Spring it is, and to remind us that there is still a standard model to these things, the green has abruptly shown up. One day it was all grey and brown bare limbs, and the next I found myself driving down streets through windy green tunnels. That overnight beauty was accompanied with the usual choking pollen, of course, but still, it’s beautiful nonetheless. Along with this, at church, the Easter season just arrived. So, as I found myself surrounded by themes of Spring, Easter, rebirth, and renewal, I was hoping for something fresh to talk to you all about. However, not much has changed when it comes to investing, finance, and the economy.
Geopolitics and inflation are still top of mind, and are what most people continue to worry about. Inflation continues to edge higher, while talks between Russia and Ukraine continue to lead to nothing but more fighting.
There are other things though, where more of the same is a good thing. Unemployment numbers continue to go down, as do continuing claims for unemployment insurance. This strong labor market is good news, as economic growth estimates continue to decline bit by bit. Although a strong labor market means wage growth, which allows consumers to help fight price increases, wages are also a cost to businesses, adding another input into inflation. Still, more people working allows for more production and strong consumer purchasing, both requirements for economic growth.
I’m still amazed at the resiliency of consumers. Not everyone is in the same situation, of course, and people at the lower end of the wage spectrum are being harmed much more than others. I think it would also be ignorant to believe that people can go on paying for this much stuff at these higher prices forever. Eventually, increased prices will lead to a more noticeable change in spending habits. But anyone who has been out shopping in person lately can see we are definitely not there yet. We obviously live in our own small worlds, but you can barely drive across town on the weekends, and parking lots of almost every store I see are full. If you’ve done any vacation travel planning recently, you’ve seen first-hand both the shortage in supply, and the price hikes because of it. This strength in demand and consumption is a double-edged sword. It supports growth, but also supports high prices.
So, what are we to do? We are going to find ourselves in this environment longer than we want. We have a problem and thus should have a solution to the problem. I know I’ve said this before, and it isn’t the answer any of us are looking for, but there is no definite remedy to the inflation we are experiencing, especially when it comes to investing. There isn’t a tried and true “inflation fighting” investment product.
Inflation is like the pollen of the economy. It is a massive, “macro” force that overlays everything. It increases prices we pay for widgets, the cost of producing widgets, the cost of borrowing to produce widgets, and the return on investment for investors of widgets. I am not pointing this out so specifically to be negative, but rather to show that inflation is something that effects everything equally. The strategy for coping with it is not uncovering some single, overlooked investment option, but rather an acceptance through understanding, and then a strategy based on that acceptance. Just as pollen must be endured when it comes to going out into the world, inflation must be endured when it comes to meeting costs, saving, and investing.
I have a quote to share. I don’t know if I’ve joked about this before, but I believe we all use quotes for a couple of reasons. First, using a quote can make you seem smart! But also, as we all learned when writing papers for school, quotes take up space and help us meet word quotas. The quote I’m sharing is taken from Hagakure, which is a guidebook and code for samurai. It was written by Yamamoto Tsunetomo in the 1700s, when the need for samurai as warriors and protectors was almost obsolete. It is one of those books often referenced for business strategy. Although I’ve actually read Hagakure, I’m more familiar with its words from the many quotes referenced in the movie, Ghost Dog: The Way of the Samurai, which I believe is a classic!
Among the maxims on Lord Naoshige’s wall there was this one: “Matters of great concern should be treated lightly.” Master Ittei commented, “Matters of small concern should be treated seriously.” Among one’s affairs there should not be more than two or three matters of what one could call great concern. If these are deliberated upon during ordinary times, they can be understood. Thinking about things previously and then handling them lightly when the time comes is what this is all about.
Now the main understanding and lesson here is that if you continuously think about and prepare for something that is big and of great concern, when the required time comes to act you will be able to do so easily, without anxiety. Through acceptance and understanding you have transformed this matter of great concern into one like any other. From a samurai’s point of view this could be a battle to the death, whether a one-on-one dual or a full-flung war between two armies.
However, I also look at it another way, which I don’t believe is wholly different from that first meaning. The matters of great concern in our lives are truthfully out of our hands. Those big things for most of us are things like dying or running out of money due to some unforeseeable misfortune. However, those very big matters of great concern are also the accumulation of so many matters of small concern. Whether we are talking about our bodily health or our financial health… our individual habits are matters of small concern, which if treated seriously will lead to the preparation, acceptance, and success over matters of great concern.
We don’t have control over when we may pass on, nor do we have direct control over global inflation. But we can choose to try to live more healthily, taking the stairs over the elevator and grabbing an apple instead of the Little Debbie Cosmic Brownies that are right there when we open the pantry door. When it comes to inflation, we can choose store brand items, skip the candy bar at the register, cut back on some of our monthly streaming subscriptions, contribute more to paying off loans, and contribute a higher portion of our income to retirement plans. We can treat these matters of small concern that we have control over seriously, so we can treat those matters of great concern, where we have less control, more lightly.
I know I’ve rambled a bit, and this all seems like common sense, but we do advertise that we deal in common sense. I also know that most people want a shiny investment idea that will make all these worries go away. Our team continues to cast our search for investment strategies far and wide. The solutions being presented by most today are real estate, including real estate investment trusts (REITs), commodities, and Treasury Inflation-Protected Securities (TIPS). However, each of these come with their own risks and reasons why we aren’t interested. Most of you already have a significant “investment” in real estate: your home. The reason people say to invest in REITs is that they can pass the cost of inflation on to renters (meaning increase the rent), but rents are already at all-time highs. If they are increased much more, they’ll likely lose the renters, which is their source of income. Commodities have been, and will always be, some of the most volatile investment options out there, and they are just not suitable for most of us. Finally, TIPS are bonds. The benefit you receive from them in the form of principal increases tied to inflation is currently paired with the price pressure you receive in a rising interest rate environment. We are willing to discuss any of these with each of you individually if you are so inclined. All of you also receive different “advertisements” in your personalized data streams then we do, so I urge you to contact us if you get something you may want our opinion on.
We wish you all a wonderful Easter and Spring season. Summer is just around the corner, and I hope time with friends and family is also a renewed option for you all this year.
Kendall J. Anderson, CFA, Founder
Justin T. Anderson, President