Markets Climb a Wall of Worry

Dear Clients and Friends,

In 1971 an Austro-Hungarian born immigrant named Peter Drucker started one of the first MBA programs at Claremont University. His goal was to teach young businessmen the art of business, but more succinctly the art of management. One of his teachings focused of “planned abandonment”, which was the natural tendency of governments and business to hold onto yesterday’s success regardless of their future usage. He cautioned that yesterday’s logic and success would not be enough to meet the challenges of tomorrow. Drucker went on to become one of the ‘Founding Fathers’ of Management as an art, and in the process helped develop a new way of thinking about managing organizational structures, business risk and most importantly managing talent. When you look at Corporate America today you can see Drucker’s prints all over the modern organization.

Drucker once stated that “the greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.” Investors see turbulence as something to be feared; unsteady and rough, but Drucker made the argument that turbulence should be embraced by those willing to think about future solutions. Today the market has plenty of problems to contend with, and there seems to be no end to the turbulence that we might sustain in the coming months. But if you embrace turbulence in the markets with yesterday’s logic, and take a step back from the ‘wall of worry’, the problems that we face may seem insuperable. In reality, by the time we notice market turbulence, the problems are being managed by those committed to fixing the problems, whether they be in government or business. We see the solutions in hindsight, but markets anticipate solutions! So, as the market will have to climb the ‘wall of worry’, we should view turbulence through the contemporary lens of problem solving. View turbulence as inevitable, but only as a temporary phenomenon.

The energy issues we have today are challenging, but with time we will figure them out. For example, according to the EIA, oil output from the US will hit an alltime high in 2023. The consumer will likely feel more comfortable with the economy as we move through the calendar, and inflation slowly migrating downwards will have some effect upon this. According to the BLS, consumer sentiment is down dramatically this year, but since April consumer expenditure has been positive every month. Higher interest rates are taking a toll on certain industries (e.g. Housing), but those industries will benefit as interest rates settle in and potentially go down in coming years. Market based economies have a way of allowing the best ideas to win, and if the market believes that the best ideas will prevail it looks through those current problems and projects better days ahead. Climbing the ‘wall of worry’ is more of a process than a feature. Markets tend to work in such a way that they defy logic until everyone realizes they were using “yesterday’s logic” to view tomorrows solutions.

*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All investing involves risks including loss of principal. No strategy assures success or protects against losses. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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