Sometimes, remembrance of things past can serve as an excellent tool to help illuminate a current situation. This is true not only for our personal lives, but also for the life of those organisms we call the financial markets and the economy.
Today, I wanted to present you an excerpt from the April 12 edition of my daily market briefing, Eagle Eye Opener. In it, my partner and “secret market insider” in this venture shared a heartfelt anecdote about a very difficult time for him personally, and he uses it to provide what I think is one of the most powerful analogies about what the market and the economy face going forward.
So, without further preamble, here are the powerful thoughts from the Eagle Eye Opener…
One of the biggest lessons I’ve learned from studying markets for over two decades is that experiences in real life, both positive and negative, can provide valuable insights into the assessment of risks and opportunities in the economy and the market.
I was reminded of that again this weekend, as I was trying to explain to some friends why I was nervous about the U.S. economy and the markets — not right now or in the next few weeks, but instead in the coming months and quarters. I was trying to explain that, while everyone knows the Fed is hiking rates and dialing back accommodation, we haven’t even started to feel the pain from these actions — and we shouldn’t be lulled into a sense of security.
To help better explain this situation, I revisited a difficult period for my family from years ago, when my mother was diagnosed with cancer. Surprisingly, I found that experience provided a clear analogy as to why I am nervous about the economy in the months ahead.
Now, before I begin that analogy, let me be crystal clear: I am in no way equating the tragedy of cancer with economic matters. People are more important than money, and I know firsthand the carnage and tragedy that cancer can unleash on a family. That said, I think the analogy of my experience some years ago and my current concern for the economy are apt, and the analogy helped my friends understand my concern, and I hope you do as well.
In the mid-2000s, my mother was diagnosed with breast cancer. The diagnosis was a shock, as she was healthy and vibrant. As far as we could see, nothing was wrong. But clearly there was something wrong.
Notably, when the cancer was diagnosed, that’s when we all emotionally braced for what was to come. It was like we expected everything to turn bad right then. But at first, it wasn’t so bad. My mother didn’t feel bad. She had to go to numerous follow-ups that impacted her schedule and obviously there was anxiety about the future, but life generally carried on as normal while her doctors formulated a treatment plan.
As we all went through that process, with my mother still feeling fine, we were anxious, but life was mostly normal — just talks about what was to come and dealing with the doctors, etc. And, at times, we remarked to ourselves that it wasn’t so bad, and we were making the best of it.
Then the chemo began.
Chemotherapy is a necessary evil in the fight against cancer, but what damage it can do! In many ways, my family walked into the chemo part of the treatment naïve. Yes, we had heard it would be bad, but my mother was a New Yorker, and she was tough!
It was awful for her and us, and while, in the end, the chemo did its job and my mother thankfully became cancer free, those months were brutal for all of us.
Turning to the economy, it’s become infected with a cancer of sorts, i.e., inflation. If left untreated, it will destroy savings, make the less fortunate even poorer, reduce corporate profits, increase unemployment and slow consumer spending. If left unchecked, inflation will end an economic expansion.
Like cancer, inflation largely goes unnoticed at the beginning. But it has now been diagnosed by the Federal Reserve and monetary officials, and the Fed has been formulating its treatment plan for the past several months. While the Fed has been formulating its treatment plan, there’s anxiety about what will be done: Rate hikes, quantitative tightening (QT), etc. However, life is continuing generally as normal, and it’s not that bad right now.
But the financial chemo hasn’t started.
Just like real chemo was a necessary evil to rid my mother of cancer, “financial chemo” (rate hikes and QT) is a necessary evil to rid the economy of inflation. But the economy hasn’t started treatments yet, and just like my family was taken aback by how hard those chemo treatments were first on my mother but also all of us, so too am I nervous the economy isn’t prepared for how hard this financial chemo might be for the U.S. consumer and the economy. The problem has been identified and the treatment plan formulated, but the real hard stuff hasn’t even started yet.
That’s why I’m nervous about the economy in the future. The market has not priced in the impact of all this Fed tightening and QT. Hopefully, my fears are overblown. But I worry that they are not, and while I still think we could see stocks rally short term if we get some good news on inflation (peaking), earnings (solid) or geopolitics (Russia/Ukraine cease fire), we must be cautious here, because the financial chemo to rid the economy of inflation hasn’t even started yet.
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The Sweetness of Sad
“Our sweetest songs are those that tell of saddest thought.”
— Percy Bysshe Shelley
It is my opinion that one should never discount the power of sadness. Without sadness, our happiest moments wouldn’t mean much. Besides, as humans there’s no way to escape sadness. It’s part of the game. Knowing this is important, because as you live, don’t hide from the pain, discomfort and sadness that takes up so much of it. Rather,
“embrace the suck,” as the expression goes, and allow yourself the sweetness of sad.
Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.
