Lacy Harris Hunt is an economist and Executive Vice President of Hoisington Investment Management Company (HIMCO). He is Vice-Chairman of HIMCO’s strategic investment policy committee and also Chief Economist for the Wasatch Hoisington Treasury Bond Fund. He has authored two books, A Time to Be Rich and Dynamics of Forecasting: Financial Cycles, Theory and Techniques, and has had articles published in Barron’s, The Wall Street Journal, The New York Times, The Journal of Finance, the Financial Analysts Journal, the Journal of Portfolio Management, among other publication outlets. He received the Abramson Award from the National Association for Business Economics for “outstanding contributions in the field of business economics.”
Violent crimes down.
Mental health and drug-related issues up.
I would normally write a couple hundred words to go along with charts and graphs, but I think the two charts below convey all necessary information. So I’ll save you the time and simply share the charts below:
Did you know:
- 46% of the workforce planning to move because they can now work remotely.
- Remote job postings on LinkedIn have increased over 5X since the pandemic.
- Weekly meeting time has more than doubled for Teams users since February 2020.
- There was a 40.6b increase in emails delivered in Feb. 2020 vs. Feb 2021.
According to research conducted by Microsoft, the year 2020 introduced dramatic workplace shifts that are here to stay.
I’ve provided the key excerpts below:
1. Flexible work is here to stay
Over the past year, no area has undergone more rapid transformation than the way we work. Employee expectations are changing, and we will need to define productivity much more broadly — inclusive of collaboration, learning, and wellbeing to drive career advancement for every worker, including frontline and knowledge workers, as well as for new graduates and those who are in the workforce today. All this needs to be done with flexibility in when, where, and how people work.Satya Nadella, CEO at Microsoft
2. Leaders are out of touch with employees and need a wake-up call
“Many business leaders are faring better than their employees. Sixty-one percent of leaders say they are “thriving” right now — 23 percentage points higher than those without decision-making authority. They also report building stronger relationships with colleagues (+11 percentage points) and leadership (+19 percentage points), earning higher incomes (+17 percentage points), and taking all or more of their allotted vacation days (+12 percentage points).”
3. High productivity is masking an exhausted workforce
“Self-assessed productivity has remained the same or higher for many employees over the past year, but at a human cost. One in five global survey respondents say their employer doesn’t care about their work-life balance. Fifty-four percent feel overworked. Thirty-nine percent feel exhausted.”
4. Gen Z is at risk and will need to be re-energized
“Sixty percent of this generation — those between the ages of 18 and 25 — say they are merely surviving or flat-out struggling right now.”
5. Shrinking networks are endangering innovation
“…companies became more siloed than they were before the pandemic. And while interactions with our close networks are still more frequent than they were before the pandemic, the trend shows even these close team interactions have started to diminish over time.”
When you lose connections, you stop innovating. It’s harder for new ideas to get in and groupthink becomes a serious possibility.Dr. Nancy Baym, Senior Principal Researcher at Microsoft
6. Authenticity will spur productivity and wellbeing
Before the pandemic, we encouraged people to ‘bring their whole self to work,’ but it was tough to truly empower them to do that. The shared vulnerability of this time has given us a huge opportunity to bring real authenticity to company culture and transform work for the better.Jared Spataro, CVP at Microsoft 365
“Compared to one year ago, 39 percent of people say they’re more likely to be their full, authentic selves at work and 31 percent are less likely to feel embarrassed or ashamed when their home life shows up at work. And people who interacted with their coworkers more closely than before not only experienced stronger work relationships, but also reported higher productivity and better overall wellbeing.”
7. Talent is everywhere in a hybrid work world
This shift is likely to stick, and it’s good for democratizing access to opportunity. Companies in major cities can hire talent from underrepresented groups that may not have the means or desire to move to a big city. And in smaller cities, companies will now have access to talent that may have a different set of skills than they had before.Karin Kimbrough, Chief Economist at LinkedIn
The Consequence: Employees are More Willing to Quit
I’ll have to admit that I’ve thought and re-thought about how I should invest my kids’ education money. I feel an extra sense of responsibility because I don’t consider the money ‘mine’.
While I control the account and I can get the money back now or if the kids don’t go to school, for its intended purpose – funding an education – it’s not mine anymore, and that’s how I treat it.
If I allocated $20,000 towards my childrens’ education, the last thing I want is for them to end up with less than $20,000. The second-last thing I want is the stress of trying to earn back losses. While some argue that kids can take on debt to fund their education, I’ve seen how huge college debts can be debilitating. When a fresh graduate needs to start repaying big student loans within six months of graduating, they don’t have the time to be picky. They take the first decent job they can get and become debt-slaves for the rest of their lives. Many probably won’t be debt-free again until retirement – and debt is the antithesis to freedom.
Student loans –> credit cards –> car loans –> mortgage
Everyone I know who graduated with big student loan debts has not lived a free life. All these people have dreamt about ‘doing what they love’ but none could because they could never get a break from their debt repayments. I don’t want my kids to go through that.
So, if I put in $20k I want my kids to receive at least $20k. Of course, if invested in equities the probability that I accomplish this rises with my kids’ investing time horizon. Research has shown that very few historical 5yr equity market returns are negative.
How do you invest within an RESP?
The first step is simple. Simply put money into an RESP account and get that sweet, sweet Canadian Education Savings Grant (CESG) of up to $500 per child per year. This easy first step nets an instant 20% ROI.
Next, consider when your child(ren) will need the money. If it’s in less than 5 years I would suggest being very conservative. More than 5 years? Then you can start to take a little more risk.
Personally, I add an extra layer of conservatism on top of my baseline allocation. For example, if I considered a baseline allocation for a particular person with a 7 year time horizon to be 70/30 then I might ratchet down to 60/40. Also, within this mix, despite ridiculously low rates, I consider an allocation to risk free deposits (high interest savings accounts, GICs, CDs).
I know I’ll get flack for being too conservative, but I do this because time-lines are fixed. When a child graduates from high school they immediately (usually) go to college and have to pay a fixed cost. In contrast, I can delay retirement or adjust my expenses to live off less if I mess up my retirement account.
There was a time when an HIV+ diagnosis was a death sentence.
According to Elizabeth Ranes, RN, “life expectancy for a person infected with HIV now extends to 70 years of age. That’s a remarkable improvement from the early days of HIV, when many men succumbed to the disease in their 30s.”
Someone diagnosed with HIV in 1989 would have little to look forward to, and no need for retirement planning at all. Anyone with any savings would spend it all, as most had no heirs and many were isolated from their families.
However, as diagnosis and treatments quickly improved during the 1990s, a subset of HIV patients started to outlive their wealth. This subset had planned for the worst, but unexpectedly benefited from new treatments. This new hope was a mixed blessing, as many of these people were now penniless.
Today, a growing number of teenagers are increasingly hopeless about the future. Instead of a disease, a convergence of global warming, resource shortages, political extremism and wealth disparity is painting a bleak picture.
Guidance counselors and therapists have commented on a growing number of young people seeking help amid existential gloom. Like it or not, agree or disagree, Greta Thunberg is the poster child for global teenage grief, anger and hopelessness.
The thread below illustrates what’s going on:
I know people love to hate on Greta, but remember she is a child. The value she provides might not necessarily be her arguments. Rather, the fact she is expressing her worry is what we need to take away. She is a barometer for the psychology of a growing portion of tomorrow’s leaders.
As I’ve explained by looking at the AIDS epidemic, when people lose hope they adjust their behaviours. They live like they have no future.
What does that mean for teenagers today?
And what if they are wrong?
Let me tell you a secret. When I was a teenager I had little hope for my future. I’m not entirely sure why. Perhaps I received no encouragement or help. Maybe I had pessimistic tendencies. I definitely had no path in front of me.
So I behaved like I had no future. I did many stupid things. Luckily I snapped out of it and doubled-down on forging my own path. But I could have easily gone the other way and simply continued to be a burden to those around me. Or worse.
What happens when a big segment of the population feels this way for similar reason, thus reinforcing their belief? They certainly won’t be thinking about retirement savings. More likely, they’ll be drop-outs, criminals and pot-heads. Not all. But more than under normal circumstances.
Maybe they’ll be proven right in the end. Maybe there is no future. But if they’re wrong, they’re basically cornering themselves into a pretty shitty life. In the end, it becomes a self fulfilling prophesy.
I’m not blind to the problems we face, but I think it’s important to maintain some hope. We each have our ways. Acceptance, action, religion.
We must continue saving and investing like we have a future. Perhaps the nature of those investments and the way we budget for risk change. We need to broaden our definition beyond financial instruments and invest in skills, resiliency and self sufficiency. We also need to plan for a greater number of contingencies and develop a better understanding of ‘risk’.
As we’ve learned during the AIDS crisis, simply dropping the ball to sulk on the sidelines won’t do anyone any good.
I recently came across a chart on Reddit that showed the average daily mean temperature in Toronto has risen about 3.5% since 1841. This chart is nice and simple to understand.
However, I wanted to dig beneath the surface to get a more detailed picture of what’s actually going on. Specifically, I wondered whether Toronto is experiencing hotter summers or milder winters. So I broke out the data and created my own chart.
To answer my question I needed to add more variables to my chart, unfortunately making it more complicated to understand. However, if you take the time to digest the information the conclusions are pretty clear.
Each data point in the red shaded area in my chart below represents the maximum mean temperature in the previous 12 month period. The blue shaded area represents the minimum mean temperature in the same 12 month period. Maximum mean temperatures occurred during the summers and minimum mean temperatures occurred during the winters. So what this basically shows is the hottest periods of historical summers and the coldest periods of historical winters.
I then layered on a linear trendline to illustrate the broader trend.
As you can see, the trend is up – for both summers and winters. Summers are getting hotter and winters getting milder. What I found interesting, however, was that while mean maximum temperatures during summers has increased by about 2 degrees Celsius since 1840, mean minimum temperatures during winters has risen about 3.5 degrees Celsius.
Simply put, winters in Toronto are getting milder faster than summers are getting hotter, significantly contributing to the city’s overall rise in average temperature.
Note: The data for this particular weather station is only available until June 2003. I suppose the weather station was closed then?
How does one explain a world in which macro trends are deflationary (DumbWealth: The Case for Deflation) yet the basic necessities of life are increasing in price?
While it sounds contradictory, the two paradigms can coexist. Look at housing prices and healthcare costs over the past 10 or 20 years. Look at commodity prices during the 2000s.
From the late 1990s to early 2010s commodity prices across the board were going through a super-cycle, driven by rising Chinese demand. Commodity prices were booming, yet – despite some cyclical bounces along the way – the secular disinflationary trend that began around 1980 continued until present day.
Makes no fucking sense, right?
There are those who argue the CPI stats don’t reflect reality. The thing is, price ‘reality’ for one person isn’t ‘reality’ for another. We all have different baskets of goods and all spend different proportions of income on those goods, so our true experiences will differ.
ShadowStats has re-calculated CPI based on its own interpretation and has consistently printed double the reported inflation rate:
So, despite the long-term deflationary pressures of debt, demographics, productivity and imports, one must still respect how quickly commodity prices have risen lately. We’ve seen this battle before.
Over the near term, we’re going to see rising prices. Perhaps the scariest part of all this is how quickly global food prices are rising. Over the past year, the FAO Food Price Index has risen almost 40%!
This doesn’t necessarily mean that you’ll witness a 40% price increase in the grocery stores or a huge impact to your food budget. However, for the poorest portions of global society this could mean the difference between paying rent and feeding their kids.
In the end, the cure for high prices is high prices. This means two things.
- Much of the current increase in commodity prices is caused by supply chain issues created (exposed?) by the pandemic plus growing shortages of raw commodities. Higher prices are incentivizing production (and delivery) to quickly come back on line, which will eventually mitigate further price increases – potentially even lowering prices.
- Higher prices could break demand. At some point people simply can’t afford to pay higher prices. There’s an argument that the final straw that broke the housing market’s back prior to the 2008 Global Financial Crisis was higher gas prices. People could no longer justify longer drives, eroding demand for new suburban sprawl developments. Simply put, higher prices eventually erode demand somewhere, somehow and this can have a domino effect on the economy, ultimately replacing rising prices with a deflationary shock. This is what we saw in 2008.
Although the ‘peak oil’ movement seems to have disbanded with the influx of lower quality, relatively expensive American shale oil, it is quite possible the world is riding a deflationary low-tide coupled with broad resource shortages that result in inflationary waves.
My prevailing shower theory (i.e. something I came up with in the shower) is that the secular deflationary forces will remain omnipresent, but most of the world will fixate on the boom/bust cycles driven by resource demand and shortages, exacerbated by fragility in the global just-in-time supply chain.
There will be rotation from good times to bad and back, but ultimately there is no end to this inflation-deflation battle. We can’t make more easily accessible, high quality oil, copper, etc. Yet, ‘economic progress’ requires us to use more and more. However, demographics and debt will continue to act as a counterbalancing force for our destiny.
According to new research by Tearfund, the International Institute for Sustainable Development and the Overseas Development Institute (source), governments around the world are talking more than acting when it comes to mitigating climate damage.
G7 governments – UK, US, Canada, Italy, France, Germany and Japan – spent $189bn to support oil, coal and gas between January 2020 and March 2021. They spent another $115bn to prop up struggling automobile and airline industries, during that time. Despite all the green economy rhetoric, 80% of this money was given with zero environmental conditions.
In contrast, G7 governments only spent $147bn on clean forms of energy. That’s less than half the $304bn given to big CO2 offenders.
Governments around the world are promoting plans to ‘build back better’ in a post-pandemic world. Yet, looking at these numbers, I have to ask: ‘better for whom?’
Folks living in rural communities have become increasingly vocal about the deterioration of their way of life. Understandably so.
Flyover states are often overlooked by policies crafted to support economically dominant coastal regions. Meanwhile, they’ve watched globalization pass them by as jobs were replaced by machines or overseas workers. They blame city elites, immigrants and foreigners for their misfortunes, and gravitate to those who promise a return to the ‘good old days’.
Politicians have long used this to their advantage by misdirecting fear and anger to scapegoats, as opposed to the true source. Cheap labor didn’t steal American jobs – corporate executives drove the decision to dismantle labour power, automate and offshore. All in pursuit of higher profits, funneled to executives and shareholders. Old fashioned corporate greed, one might say.
Really though, this isn’t new. The urban-rural divide has long existed in many forms. Put aside blame and ethics, and you’re left with a rural population passed over for generations.
The following chart illustrates this.
In the early 1900s, the standard of living in America was rapidly improving as new technology was introduced. However, the experience wasn’t evenly distributed. Infrastructure – water pipes, electrical wires, gas lines – is easiest and cheapest to build in dense areas. Consequently, dense urban cities were the first to benefit from essential modern conveniences like flushing toilets.
Of course, rural populations understandably took this inequality as representative of America’s priorities. The characterization of urban favouritism has since passed down for generations and continues to this day.
Did you know that during any given year when the market is rising, up to 42% of stocks may simultaneously be declining?
Simply being ‘in the market’ during an up year doesn’t guarantee positive performance. Some years are worse than others, but history shows stock-pickers can easily lose money despite being right about market direction.
The chart below demonstrates this phenomenon over the past 20 years. The blue bar shows calendar year performance for all positive years dating back to 2002. The red line shows the % of stocks that were negative during the same year.
Lesson: unless you have the golden touch, it’s best to tap into market gains by building exposure to a broad basket of stocks. The easiest and cheapest way to achieve that is by using a low cost index fund.