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Response to the prophets of doom
I subscribe to The Economist. It is an influential and highly reputable weekly publication. Each year it publishes a special edition with a look forward to the coming year. This year it was titled “The World Ahead 2023”.
The lead article by the paper’s Editor in Chief begins: “The editors of the Collins English Dictionary have declared “permacrisis” to be their word of the year for 2022. Defined as an “an extended period of instability and insecurity”, it is an ugly portmanteau that accurately encapsulates today’s world as 2023 dawns.”
In this post I propose to flesh out what The Economist says about the world going into 2023, tell you how our family’s retirement savings are invested in such a world and explain why, with some relevant words from Warren Buffett.
A crisis everywhere
The word ‘crisis’ pops up everywhere in the 50 or so articles in this edition of The Economist. In no particular order they tell us developing countries are facing a catastrophic debt crisis, that there is a national housing crisis, a global energy crisis, a global climate crisis, a global biodiversity crisis, a global food crisis, a global hunger crisis, an economic crisis, a healthcare crisis, an education crisis, a crisis in the EU brought on by the war in Ukraine, a cost of living crisis, an inflation crisis, a stagflation crisis, an intensifying labour crisis, a Chinese property and housing crisis, a crisis of aridification and, to round it out, a potential crisis around tactical nuclear weapons. The good news is that Covid is becoming manageable although some countries, especially China, are currently having a tough time.
In a nutshell
Let me summarize from The Economist lead article. The world is continuing to grapple with a commodity shock from skyrocketing energy and food costs largely triggered by the war in Ukraine. At a time of growing concern about climate change we are buffeted by a never-ending series of disastrous floods, fires and storms. We face a profound loss of macroeconomic stability with soaring prices to both businesses and consumers. And all this against the backdrop of geopolitical turmoil involving tensions between Russia and the West and China and the West.
Both a permacrisis and a polycrisis
Neil Turnbull, Head of Department: English, Linguistics and Philosophy, Nottingham Trent University wrote a thoughtful article about the notion of a permacrisis. He refers to a 2008 book, On Complexity, by French philosopher Edgar Morin who “argues that humanity now resides within a network of interlocking systems and any crisis in one of those systems will engender a crisis in all the others. Morin uses the word “polycrisis” to describe this situation.”
So, one might be concerned that crises in the ‘network of interlocking systems’ will lead to Armageddon.
Permabear meets permacrisis
Meanwhile, Nouriel Roubini, a New York University economist and permabear is calling for a “deep protracted recession” as well as a “severe financial crisis”.
Response to the prophets of doom
I have never known a time when the world was free of a cascade of crises. They are, sadly, the normal backdrop to the world we live. To explain how I have invested through a constant permacrisis that has also been a polycrisis let’s go back to the year 2002 when the economy was starting to recover from the DotCom bust.
As our family entered 2002 we held only two year government bonds in our retirement savings portfolio. In late 2002 I sold the bonds and went entirely into stocks. We have had a 100% stock asset allocation since, as I explain in this post: My thoughts on asset allocation
Readers will know that we hold a concentrated portfolio of the stocks of superb companies bought at very attractive prices. As 2022 closes we remain fully invested in stocks. I can see no reason today to change our asset allocation.
Let me explain why with a quote from Warren Buffett from his 2010 letter to the shareholders of Berkshire Hathaway. It was written immediately following the Great Financial Crisis when the world was also in turmoil:
“Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.
Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.
We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.”
Conclusion
We live in Canada. Our fate is pretty closely tied to the U.S. I have no idea how 2023 is going to play out either in world affairs or in the economy and the stock market. I do have enough faith in human adaptability and ingenuity that I am happy to invest our retirement savings in a carefully chosen concentrated portfolio of common stocks held for the long term.
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You can reach me by email at rodney@investingmotherlode.com
I’m also on Twitter @rodneylksmith
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