Thoughts from the Frontline

Two weeks after SIC ended, I am still assimilating everything. Different pieces are connecting in my head. I would like to tell you I have a clear vision of where we are headed. Sadly, that is not quite the case. Good things are coming, but not just yet. I remain, as always, an optimist about the long run. The challenges are real. So is the ingenuity that has gotten us through worse.

One of the things I’ve learned after more than two decades of SIC is that the conference doesn’t really end when the final session wraps up. In some ways, that’s when the real work begins. It’s afterward, when I begin reviewing transcripts and notes, that the larger patterns start to emerge. I think there are a lot of attendees doing the same thing. What did we learn that will cause us to change something? Either in our portfolios or our lives?

"To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers."

~ Warren Buffett

There is a lot to unwrap this week. We’re going to explore what happened at the Fed, and what changes we can expect. Let’s just say it’s not what some are predicting, at least in my humble opinion. Inflation is sadly a growing problem. And that complicates Kevin Warsh’s coming tenure as Fed chair.

Like many of you, I am inundated with information. Most of it is not useful or repetitive. Even filtering for relevant content and source, it feels like I’m getting many times more data than even 10 years ago. Part of that is my own fault. I have “curated” a group of trusted friends who share information. I am part of several groups that interact with each other on that data. Most of it goes into the economic background or into my Outlook folders, but some of it eventually makes its way into Thoughts from the Frontline. Generally, I try to pick a theme for the week, go to the sources, and combine them into what I hope is a coherent letter.

I’ve been traveling for a week, reading and talking to a lot of readers and friends. It seems to me there is a great deal of angst in the media and newsletters and podcasts. And the more bearish you are, the greater your audience and clicks. There are so many analysts taking one or two data points and projecting a dismal outcome.

Let’s rewind the clock to late 2007. It was quite a tumultuous time as there was a lot of competing views about what would happen. I wasn’t terribly confused as I was convinced there would be a recession caused by major defaults in the subprime mortgage market. I had been on record for more than a year saying that. The SIC in 2008 was one of our largest because of the confusion in the markets.

As noted a few weeks ago, we get conflicting data that must not be extrapolated. The motto of the US Marines is a good one for all of us for the coming years: improvise, adapt and overcome. I would add, then adapt again.

I remember the summer of 2006 when I literally was searching for something to write about. Nothing was happening. I think I reviewed several medical reports and books. That is not the case today. We are somewhere along the lines of there are times when nothing important happens for years, and then you get months when decades happen. Readers want me to comment on a dozen topics all of which are significant.

The old cliché: do you see the glass as half-full or half-empty? Depending on what you’re asking about, this can be a highly personal question. One person’s half-empty is another person’s half-full. My answer to that question is that those two answers don’t adequately describe the current condition.  Let me lay out the case for what should be the answer. Today we will explore how long this condition could last and what we can do about. I think it will make for interesting letter.

There has been so much data released in the past week it’s hard to know where to begin. And that is all compounded by the fog of confusion/war surrounding the “Iran conflict.”

If you’re tuning in to see what I think of the latest Iran fireworks, you may be disappointed. My opinion is as accurate as market reactions have been. Which, given wild swings both ways, suggests no one really knows what to expect.