There are eight global mountaintops scaling 26,000 feet or higher, including Mt. Everest, the most famous of them all. Climbers that have been fortunate enough to reach the top and successfully return, call 26,000 feet the “death zone”. A climber can live for perhaps an hour at that height and then —-? At 78 years of age, I and millions of others are reaching a death zone at sea level – an age with more than 60 minutes left on life’s stopwatch but one where epitaphs seem to multiply – arithmetically and then geometrically. Along this future path lie increasing aches and heartaches. “The last of life” is not (physically at least) the life for “which the first was made.” There’s an 88-year-old senior at my golf club in Newport Beach who upon listening to the travails of younger golfers about their artificial hips, knees, hearts, and of course prostate maladies, responds in an increasingly fragile voice, “Just wait, just you wait.”
Investors holding a multitude of assets seem to have climbed upward toward a “death zone” of their own by the beginning of 2022. Whether it be NFTs, cryptos or the more conventional bonds and stocks, the threat of higher global interest rates are now increasingly discounting future income streams. Global COVID, Russian aggression, China, and supply side disruptions have accelerated the damages. Investors didn’t seem to notice on January 1st that the air was getting increasingly thin and that their individual bull markets were asphyxiating by the minute. But then many of them had climbed a bull market for most of their investing years, never seriously contemplating that momentum has two directions, at 4800 on the S&P for sure. The likely next step was down.
I’m an avid viewer of CNBC, having appeared on their screens hundreds of times in the past and now observing the likes of new guest faces confidently forecasting the future much like I did for 30-plus years. The current crop as always, seem perpetually optimistic even as they descend from 26,000 feet. Their optimistic skins morph from momentum-driven euphoria to unflinching trust that new technologies will inevitably lead in the “long term” to prosperity and peaks on new or perhaps “virtual” mountaintops. And so despite 50% or greater losses on a long, long list of prior “can’t miss” fliers, they claim to CNBC viewers that they are “nibbling” on stocks with eyes fixed on the Everests of 2022 and beyond. Nibbling? Their portfolios remain loaded with huge chunks of losers that would satisfy Hannibal Lecter along with a side of fava beans. Cathie Wood’s definition of cash is “whatever is available for next day investing.” I wrote in my book six months prior to its recent publication that she was just a two- to three-year wonder, too focused on the future instead of a stock’s current price. Her current “fans”, I hear, remain loyal. Fine. Hannibal Lecter would salivate over these “vocal” lambs that don’t believe in value/price.
So what would this aging investor do besides memeing his temporarily less fortunate successors?
The focus should be on interest rates/inflation and the Fed’s somewhat Volckerian intention to contain it. The current inflation has been fueled by a surge in stimulus-fueled demand compounded by disruptions to supply. Reducing the $10 trillion global stimulus via lower future deficits will help, as will a return to positive interest rates worldwide. Supply disruptions may take longer to squelch. Still, even commodity and housing prices have their own 26,000-foot barriers, as do used car prices and a host of consumables.
4%-5% annualized inflation awaits markets in 2023. If so, The Fed and other central banks may take a little pedal off the metal, stopping at 3% or so for U.S. Fed funds for example. In that scenario legitimate growth stocks may pause from the inflationary discounting of future profits that have created an avalanche in Cathie Wood’s and millions of others’ portfolios. This is not a call on my part to reinvest cash balances. There are safer choices outlined in prior Investment Outlooks and tweets that have worked well for me during this volatile market period. But at some point in the next few months the carnage may stop, evolving into a diminished expectation for future returns. Think of it as a return to Everest’s base camp, far lower than 26,000 feet but offering a glimpse upward as opposed to down. As my 88-year-old friend advises — wait, just you wait.
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