Healthy, but Not Fun

July 12, 2022

In my experience, the older you get, the harder you must work to stay in shape. Without disciplined effort, strength and stamina tend to go down while weight and cholesterol tend to go up. Entropy is relentless. And cycling is my primary weapon against it.

Twice this weekend, I found myself cycling in the rain. AccuWeather and radar screens are convenient but imperfect tools. In case you were wondering, there is nothing pleasant about cycling in the rain. My glasses fogged up and were useless. My shoes filled with water. And my bike was a dirty mess that would later have to be meticulously cleaned. None of this is pleasant when you are more than 25 miles from home.

As I was slogging through the rain, a couple of phrases from the week’s chatter were stuck in my head. After reviewing recent market action, i.e., interest rates up, stocks down, and growth slowing, one veteran strategist described it as “healthy, but not fun.” In that moment, with the rain in my face and the phrase repeating in my head, it had the ring of truth. What we are experiencing at present in financial markets is healthy but not fun.

Another phrase was close behind it. When asked about the forces shaping the investment landscape, Charlie Munger, Warren Buffett’s right-hand man, recently commented, “If you’re not a little confused by what’s going on, you don’t understand it.” That also has the ring of truth. Inflation has been hotter than many expected, driven in large part by supply shocks. After being slow to react, the Fed is now aggressively fighting inflation, but their tools are designed to reduce demand, not fix supply issues. Also, the effects of Quantitative Tightening, which is just now getting underway, are not well understood by the Fed or anyone else. There is very little precedent to draw on when evaluating how these policies are likely to play out. If you’re not a little confused by what’s going on, you don’t understand.

In the meantime, the labor market remains strong, with unemployment at 3.6%, job openings are plentiful, wages are growing, and consumers have cash on hand. None of this sounds recessionary at present. Earnings season is just around the corner, and all eyes will be on forward guidance. If companies report in line with expectations, we may see a lifting of the clouds.  

Despite the wind and rain, my training buddies and I made it home safely Saturday and Sunday. We did good work together. We looked after one another out on the road. We had coffee at a local shop and talked about rides to come. It won’t always be sunny and cool. The wind won’t always be at our backs. Sometimes the road turns up, and the weather is foul. After some time, things improve. The sun comes out, the roads dry off, and new adventures await. It is the same in cycling and finance. Training and discipline are healthy but not always fun. 

It is good to be back inside, in front of my three screens, and busy with the work of the day.

Mike Masters