Analysts, and investors, are always fighting the last war.
The last war was the asset bubbles of the 1990s and 2000s. The first was in tech. The second was in housing.
Both fell after the bubble hit. Both times the government responded by juicing demand, first with the “forever wars,” then with a domestic stimulus and helicopter money.
Both times, this worked because the problem wasn’t related to what happened during the 1970s. Back then, resource inflation was to be feared. There was no substitute for oil. Now it’s just speculation and its aftermath.
The same kind of blow-off is happening now. There’s a fear that money will cost money, so speculators are pulling back, selling everything else to raise cash. (Cash is doing fine.) So far, it’s not nearly as bad as what came before. But fear is gripping the market because, this time, it’s accompanied by inflation.
Sadly, for the bears, this is not their kind of inflation. Except for oil, most resource prices are stable. The problem lies in “supply chains,” the networks of harvesting, factories, warehousing, and shipping that gets products to market.
Technology can address these problems. It’s already doing it.
Today’s inflation was the product of COVID-19. COVID crushed demand, but in 2021 people began going out again and demand increased faster than supply. This was exacerbated by the continuing impact of COVID on workers, and by demographics. (We’re getting older, and many are retiring.)
It’s a lot like the inventory recessions after World War II. Supply needed time to catch up after demand cuts. But it did. This was an era of enormous prosperity, thanks to the steadily increasing efficiency of manufacturing.
We’re in a different time. It’s technology that calls the productivity tune. As I’ve said here many times, the pace of change under Moore’s Law continuously accelerates. The benefits go partly to consumers, but mostly to stockholders, especially the largest stockholders, the founders and hedge fund managers who sponsor them.
Most of the problems caused by this are political, not economic. In terms of economics, this is all good. Demand for oil is headed down. For many other commodities there are ready substitutes. We’re harvesting energy from the Sun and the wind, not just bringing stuff up to burn like cavemen. The biggest problem is recycling. Not just money, but the waste we create when we consume things. We’re not paying enough to turn that waste back into goods and packaging.
In both cases the answer is the same. Stimulate demand. Create new tasks for the economy and technology will create viable solutions. Create new places to invest and money will get unstuck from wasteful speculation and flow toward what makes money.
For investors, this means you find some time over the next few weeks to buy some stocks. Buy the best companies, those whose sales and profits are growing. They’re cheap. They’re getting cheaper. These are the companies that will solve the inflation problem. Cloud companies, application providers, renewable energy companies, car companies and service companies. Anyone with control over their supply chain.
Productivity and efficiency, driven by Moore’s Law, will answer today’s economic problems. Then we can get back to the political ones.
