April 20, 2022
“The only true wisdom is in knowing that you know nothing” – Socrates
“A wise man can learn more from a foolish question than a fool can learn from a wise answer” – Bruce Lee.
I often tell our team and our clients that not having the answers and admitting that we do not have the answers is one of our greatest attributes in our pursuit of helping families navigate the future.
We have a rigorous process for assessing client risks and goals, and assessing markets risks and opportunities. We then try to match your situation with what we see as available opportunity and risk in the market.
We believe posing good questions may allow us to avoid risks and identify opportunities. We desire to work with clients who believe in our process and who want to build long term mutually beneficial partnerships with August Wealth.
I have been thinking, reflecting, and writing a great deal this month, but it was difficult to pick a topic to publish for my monthly commentary. So, I decided that the topic should be the questions we ponder. The questions we asked in the past, and the questions we are asking now. None of these are judgements; they are merely questions.
I believe that if we ask the right questions, it will lead us to the truth. It is not always what we want to hear, but it is what we need to know.
If any of the questions below pique your interest, please send us an email. If you believe you have the answers, we want to know. We would love to hear your thoughts.
“Fear is a question. What are you afraid of and why? Our fears are a treasure house of self- knowledge if we explore them.” – Marilyn French.
Past Questions: Are we likely to find a vaccine for Covid?
Will the government spend money in unprecedented fashion to offset the economic impact of Covid?
Will the Federal Reserve print money in unprecedented fashion to assist the government?
Will growth recover strongly?
Will New York and other cities recover?
Will real estate values in cities rise again?
Will people’s fear eventually subside? Will that lead to more logical risk assessments beyond just Covid?
Will growth and company cash flow recover quickly?
Will travel recover?
Do companies need this PPP money?
Do consumers need this much direct support?
Will consumers stop consuming fossil fuels as quickly as investors are divesting from fossil fuel companies?
Will Environmentally and Socially conscious investing funds work as an investment, or is it more of a marketing exercise for the fund management industry?
Are oil companies and pipeline companies a more practical investment that is being ignored?
Will inflation result from all the stimulus from central banks and governments?
What investments will protect investors from higher inflation and eroding purchasing power?
Will the suppliers of green energy be the best place for investment, or will there be too much price competition in these sectors?
Will Utilities companies be a better investment as they invest in greener energy and are assured a regulated rate of return during the energy transition?
Will divestment in companies that are perceived as “bad for the environment” (oil, gas, metals and mining) persist, or will investors realize these commodities must be supplied in order to transition to cleaner sources of energy in the future?
Now that Covid risks have subsided, equity and asset values are at or near new highs in prices, will investing is stocks be smooth sailing?
Are we being compensated for the risk of holding fixed income investments?
Is it true that fixed income is a “less volatile, more conservative” investment to retain wealth?
Does the financial industry look too much at the past and project the same for the future?
Current Questions: What does the rise in inflation mean for the future?
How much will the Federal Reserve hike interest rates?
Will higher prices necessarily mean that inflation will become entrenched in the economy?
I need to buy this product today because it will be more expensive next year. o
I need to book this travel because it will be more expensive next year.
I need to secure these commodities because they will be more expensive next year.
I need to secure employees now and lock in their wages because my costs will rise further next year.
Will higher prices cause growth to slow because consumers slow purchases?
Will real estate prices decline because of higher mortgage payments?
Will real estate prices rise because of a lack of supply?
Does the money that was previously injected into the economy support asset prices despite higher interest rates in the future?
Are the current higher interest rates and lower prices for government bonds, corporate credit, and municipal bonds compensating investors for the risk now?
Is inflation temporary and mainly due to Covid stimulus policies?
Does technological change continue to accelerate at an accelerating rate?
Will technology increase productivity and allow economies to grow faster without causing inflation to become entrenched?
Will prices for fossil fuels and metals continue higher? What will be the outcome of the war in Ukraine?
How impacted will Russia be by all these sanctions, or will they sell energy and mining products to China and India?
Does Russia or the West have greater will to get what they want out of the war with Ukraine?
Are people in the USA and Europe truly willing to make sacrifices for the people of Ukraine by reducing our own lifestyle?
Consume less energy.
Risk our own lives by escalating the consequences for Russia.
If countries want to transition to greener energy, higher prices for fossil fuels should restrain demand; why are politicians fighting to keep gasoline prices low?
Why do consumers want lower gas prices? Higher prices are most helpful for energy transition. Have technology shares corrected enough?
Will investors be more discerning about growth companies? Considerations like:
Competition within the company’s industry
What implications will there be for the Federal Reserve balance sheet unwind?
Long end yields rise?
Disorderly and less liquid treasury markets?
Given the price declines in municipal bonds, are yields high enough to justify the risk? Are the fundamentals sound given the money transfer from Federal to state and local governments?
Will globalization break down? Will trade among the democracies of the world increase while the interconnectedness with more authoritarian regimes break down?
Would a changing global order away from global trade bring higher inflation? Reduced productivity? New opportunities for domestic investment? What are the geopolitical implications?
What will be the result of the weaponization of the US Dollar? How will the world’s central banks of authoritarian regimes change behavior?
What does it mean for historic currency like gold?
What does it mean for newly developed digital currencies?
I apologize if you were bored with all the questions, but I thought it might be useful for you to know the considerations we are making in navigating your investment portfolios.
Lastly, all the uncertainty does not worry me; It goes with the job. We have positioned our portfolios more defensively at the start of 2022 because of our perception of increased uncertainty. We do not and will not wait for markets to price uncertainty prior to acting. We will do our best to reflect the risks and opportunities we see. As we get more evidence and information every day, and as the probable answers to these questions manifest themselves, we will invest with the goal of achieving long term growth subject to your individual financial situation.
Joe Joseph Cardello, Principal August Wealth Advisors, LLC 51 Riverside Avenue, First Floor Westport, CT 06880 Direct (916) 461-9451 toll free (800) 985-9477
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