Eating Your Porridge
I read an article in the Wall Street Journal yesterday which prompted me to think about a favorite old fairy tale, “Goldilocks and the Three Bears”. In the fairy tale, Goldilocks enters the home of the three bears. The hungry girl, who clearly does not know what trespassing means, goes on to sample three bowls of porridge – too hot, too cold, and finally just right. The article I read discussed interest rates and the impact on markets, a subject that is important to investors. It got me thinking about three “bears” in today’s market and gave me thoughts on how we might gauge the proper temperature of “our porridge”.
Currently, it is clear we have three major “bearish” influences: Papa Bear is inflation, Momma Bear is war, and Baby Bear is the 2024 election. All these factors concern investors, are clearly unresolved, and defy one’s ability to accurately predict in a cogent and useful way. In other words, it is extremely difficult to map out economic, investment and financial models when the key factors are so doggone unpredictable.
According to the WSJ article, Papa Bear Inflation may turn out “higher-for-longer” (WSJ, 3/14/24, p B12). Yes, inflation is much improved versus twelve months ago, but certain elements stubbornly confound Fed efforts. Last month it was rent. This month, apparel costs. My pet peeve is when people celebrate lower inflation “ex food and energy”, as if we could live without food and energy. The emerging consensus is for three rate cuts, down from four or six in some models, with the first cut likely to come following the June Fed meeting. It is safe to say that we don’t want Papa Bear’s porridge to be “too hot”.
With two wars taking place concurrently, both of which involve important and historically significant allies and enemies, Momma Bear stretches our varied national resources. Do we fund Ukraine? What support will best help their cause? How can we encourage peace in the Middle East? Should we rethink our longstanding support for Israel? These are not minor considerations, by any stretch. As a student, I learned about the far-reaching impact of geopolitics. I also learned that no situation is completely intractable. While I believe the current threats engendered by these two wars can be managed, they may get more complex and challenging before the situations begin to improve. Speculating on “worst case scenarios” is not wise either, in my opinion. Personally, I will continue to pray for peace, compassion and safety. Momma’s bowl of porridge needs to avoid being “too cold”.
Lastly, Baby Bear is not just the election for President of the United States. In 2024, over fifty countries will hold elections. Elections in democratic countries include India (April/May), Pakistan (completed in February), Mexico (June), the European Union (June), and of course our quadrennial presidential elections in November. Elections in autocratic countries include Russia (taking place now), Iran (completed earlier this month with record lowest turnout), Venezuela (December), and North Korea (April). Fun fact: over 49% of the world’s population will hold national elections in 2024. This will be the largest number of voters ever. Pretty cool if you ask me. While we know some of these elections will be staged and others contested, let’s hope that Baby Bear and voters get their porridge “just right” in as many elections as possible.
The moral of the fairy tale “Goldilocks” is arguable. The morals of these musings are clearer and can guide one’s approach to investing:
- Be aware of major current events.
- Understand the context and consider possible implications.
- Recognize that unpredictability brings us challenges.
As I close, I am reminded of two appropriate quotes by brilliant thinkers:
“That which does not kill us makes us stronger.”
Friedrich Nietzsche
“In the middle of difficulty lies opportunity.”
Albert Einstein
Please let me know if you have any comments or questions.
Ralph McDevittMarch 15, 2024
