Q3 Update

Just a quick update on what’s going on around here, and a look at the markets for the 3rd quarter.

Last quarter was pretty uneventful, even though it felt otherwise.  September wiped out all of July and August’s gains and left us virtually flat for the quarter.

Economically, supply shortages and inflation, that in our opinion, the Federal Reserve and the Biden Administration say are “transitory” (read temporary), are most likely not.  Allow me to explain.  There are certain commodities that certainly may come down in price.  Lumber being one, some metals being others.  However, wage inflation certainly isn’t transitory.  It’s extremely difficult to take a raise away from an employee once it’s given.

Energy is another potential problem area.  The problem on this side is a supply issue.  Demand is up since the depths of the Corona recession, but not nearly at pre-pandemic levels.  However, the US is not producing oil and gas at nearly the level we were just 18 months ago.  You can argue it’s a policy issue, and perhaps it is.  Either way, it’s left OPEC in a position to dictate energy prices for the foreseeable future, and to think that they want lower energy prices is questionable, at best.

Food is another problem.  Anecdotally, I went to the grocery store and the shelves were as empty as I have ever seen.  The reality is that as ports are operating at less than 100%, planes do not populate the skies as before, and there just aren’t enough trucks, not to mention truck drivers, to get goods from point A to B, prices and shortages will remain elevated.  To think that this can be fixed quickly, given the current environment, is doubtful. 

How will this affect the markets?  We, nor anyone else who is honest, have no idea.  We will continue to do our math, owning stocks when the markets dictate, and hedge when it doesn’t.

As always, be safe!

-Dave Melling