Piling On

When we were kids, we played a game…well, it wasn’t actually a game, it was just a thing we did, where someone would shout out “Dog Pile” and someone else would jump on the ground and then everyone else would start piling on top of them.  Laughing bodies stacked on top of laughing bodies.  As the number of bodies started to pile up, it became a lot less fun for those on the bottom of the pile, and eventually the laughter became a little bit manic and the person on the very bottom would scream for everyone else to get off.  The bodies would quickly unstack themselves amidst a lot of pushing and pulling and, inevitably, we were back on our feet and ready for the next game.  Looking back, it is a wonder we survived our childhoods.

Recently, it felt a little bit like someone yelled “Dog Pile”.  Maybe it was Covid, or maybe it was Putin, or it might have been Inflation, or Stagflation, or Reflation, or a Bomb Cyclone Hurricane (whatever that is) but somebody yelled something and it felt like we were at the bottom of the pile.  Inflation is the highest it has been since the early 1980s, the housing market is on a tear, there are supply shortages around the globe, energy prices are climbing, mortgages just topped 5% and the Fed is eyeing several more rate increases this year. 

Yet, unemployment is at historic lows, consumer sentiment is on the rise, household spending is up and we are seeing real wage growth for the first time in a long time.  The effects of the Covid virus seem to be increasingly manageable, at least in the US.  People are travelling, the schools are open and businesses are trying to balance productivity with employees who want to work fewer hours in the office and spend more time at home.  There is some reason for optimism.  Maybe a little less piling on?   

The figures in the chart above are not pretty.  Large-cap US stocks were down, international stocks were down more, and small-cap US stocks were down even more.  Rising interest rates caused the aggregate bond index to lose almost 6% last quarter.  Real estate was down, even though housing prices and rents are increasing.  The only bright spot was gold, and when gold is the only bright spot it doesn’t usually bode well, as it is still considered the safe haven of asset classes.  It was not a good quarter, yet… it just feels like it should have been worse.  

We are entering an interesting phase.  Some of the forces at play are event driven and should correct themselves over time, such as the war in Ukraine and the Covid pandemic.  The gradual unwinding of the Federal Reserve’s decade long easy money policy will be painful to go through, but it should hopefully end in an environment where an investment in a CD will generate enough of a return to make it a viable savings option.  We have a ways to go, a long way, perhaps, but it is starting to feel like some of the weight is shifting in the pile.