Every time we think something is permanent, we are eventually proven wrong. It’s especially true with the economy and financial markets.
After the financial crisis of 2008 – 2009, inflation remained low for over a decade. Imports from China and other countries with lower labor costs allowed retailers like Walmart and Harbor Freight Tools to sell TV sets, power tools and other products at lower prices. Technological advances allowed prices to become more transparent, and both retailers and wholesalers had to compete against manufacturers and vendors from all over the world, not just down the street. Technology impacted production efficiencies as well, which helped limit the financial impact of tight labor markets. By 2019, articles appeared warning about the threat of deflation, and with the emergence of the coronavirus in early 2020, the warnings grew louder.
Now we’re experiencing rising food prices and being warned about the possibility of an inflation-triggered recession.
As Millennials and Gen Xers entered the workforce and competed for promotions, HR recruiters and their clients complained that opportunities to advance were blocked by Baby Boomers delaying retirement. An article in USA Today described it as a multigenerational traffic jam on the upper rungs of America’s career ladder. The Pew Research Center noted that nearly 30% of Boomers ages 65 to 72 were still working; a much higher rate than the prior two generations at the same ages.
Beginning in 2020, the Covid pandemic convinced many of these Boomers to retire, while much younger workers opted to leave their jobs in what has been labeled the “Great Resignation.”
The gas apocalypse predicted by the Mad Max series of movies was originally inspired by the oil crisis of 1973. High gas prices and shortages caused by the OPEC oil crisis created long lines at gas pumps, which caused the explosion in sales of Japanese economy cars built by Toyota, Honda and Datsun, and preceded the death of the Detroit-built muscle cars that guzzled gas. But higher oil and gas prices made pipeline expansions and exploration in the US worthwhile, and by 2012 the US had the 4th lowest gas prices in the world – wedged between the countries of Russia and Tunisia. By September 2015 gas had dropped to 2004 price levels, and the Dodge Ram 2500 truck boasting 12mpg in the city was one of the bestselling vehicles in America. A slowdown in business activity during Covid drove oil and gas prices even lower.
As of last year, Russia was the world’s biggest exporter of natural gas, the second-biggest exporter of crude oil, and the third-biggest exporter of coal. With Russia’s invasion of Ukraine and the resulting bans on the import of Russian commodities, world energy prices have climbed and will probably continue to be higher for some time.
This year’s stock market returns are not pretty, and as Chip explained in his blog, bonds are not helping at the present time either. Together, this can create an understandable sense of fear and frustration, especially if you are at a point in your life where you rely on your investment portfolio to provide you with the income you need to live comfortably.
If history has taught us anything, we know the world economy and financial markets are complex, and there are many different factors and influences constantly impacting the supply of goods and services and the market prices of stocks and bonds. What we are experiencing now may last several years or only a few months, but we can have confidence that nothing – good or bad – is permanent.