A New Head Gate
Last week, a local contractor came out to our property in Montana to help us better understand how to resolve some irrigation problems. Some of the problems were easy to fix. The beaver dams can be removed using an excavation machine in about two hours. Some of the other irrigation items required more lasting interventions. Let me tell you about our new head gate.
During irrigation season we are permitted to divert water flowing through our property to flood irrigate several fields where we grow native grasses. Relatively new to proper land management, flood irrigation has been our mode of choice rather than some other mechanized alternative. In order to flood different pieces of land, we intermittently block certain irrigation ditches. This requires manual efforts on our part, including annual creation of our “Hoover dam.”
The “Hoover dam” refers to a certain location where we use old fashioned techniques incorporating multiple tarps, poles, and large rocks to divert a hefty amount of water. It takes at least two people to install the Hoover dam and a good deal of work. This diversion has the biggest influence on water flow on our property, effecting the streams, ponds and waterfall. Our neighbors’ irrigating plans are also impacted when we utilize the Hoover dam. And yes, you do get wet when you install the “Hoover dam.”
The local contractor suggested a different approach to this problematic situation, the installation of a new head gate. What is a head gate? A quick google search indicates: “a gate for controlling the water flowing into a channel (such as an irrigation ditch)”. I braced myself for the answer to my question: “how much will it cost?” I was surprised to learn it won’t cost all that much. We told him to move ahead with the installation, and I am looking forward to the time saved (and snakes avoided).
Your next question may be: “what does a head gate have to do with my investments?” The parallel is quite simple. The Federal Reserve has begun reducing the money flowing into our economy to combat inflation. Around the globe, other central banks are also doing the same. Money flows influence economic activity, and less money flowing into the system reduces economic growth.
The last real inflation pains occurred in early 1980’s. This is a battle that most of us have not experienced in our investing lifetime. Paul Volker came to the rescue back then. The markets eventually responded. Where were you in 1982?
We might be asking ourselves if central banks will be using old fashioned tools, the equivalent of tarps, poles and rocks, to reduce inflation. Or does the Fed have more modern, time-saving or cost-effective means to combat this very real and rapacious threat? Finally, we want to know will the Federal Reserve be able to avoid the snakes? Our collective hope is that the Fed doesn’t wind up getting all wet doing the hard work to overcome inflation.
For what it’s worth, the optimist in me believes the Fed will have its own version of a reliable “head gate.” We are all rooting for this outcome. The sooner inflation is in check, the sooner markets will recover.
Yet, my pessimistic side has a feeling the “cost” of the Fed’s efforts will be more expensive than most of us would prefer. Be careful out there.
Ralph McDevitt July 5, 2022
Any opinions are those of Ralph McDevitt and not necessarily those of Raymond James.
