We've seen this before?

There has been much talk about how we’ve seen the economic situation we are in before, or similar to it. Analogies are made referencing the Roaring 20’s or the inflation driven days of the 70’s claiming that a scenario from the past is going to repeat. Samuel Clemens (a.k.a. Mark Twain) once wrote that “History doesn’t repeat itself, but it often rhymes”, that rhyming gives us a sense of what to expect as things unfold but will it rhyme this time? Perhaps humorist Max Beerbohm said it better “History does not repeat itself. The historians repeat each other”. While today there are similarities from a number of past investing eras, there are some things that could cause a remarkably different story this time.

In a recent presentation, Mark Melhman explained what is different this time. Through the 90’s up until 2019 we had some tailwinds:

1. Technology helped dramatically to accelerate efficiency; think of all the apps, robotics, programs, fiber optics etc. Change happened quickly.
2. The US and China worked together and seemed able to set differences aside.
3. Globalization helped get things done efficiently, not only in terms of price but delivering things for a just-in-time production systems.
4. The global economy was shareholder driven. Returns to shareholders in the form of buybacks, dividends were rewarded.
5. Prioritizing efficiency meant getting things done quickly and effectively.
6. We had a period where, generally speaking, there was price stability. Nothing got too far inflated to never return to “normal”

Mehlman said from 2020 onward is different now is that those tailwinds have now become headwinds which could cause remarkably different outcomes, different than any time in recent history. To compare:

1. Technology is threatened. Governments are becoming more involved and while technology will continue to help us the far reaching platforms are being scrutinized.
2. The US and China are decoupling, still very dependent on each other but more cautious.
3. Rising nationalism will mean more things will be supplied closer to home and by closer allies.
4. Stakeholder resisted issues. All stakeholders are a bigger part of the corporate decision making process, this isn’t in and of itself bad, just different.
5. Prioritizing resilience over efficiency is growing. Making sure we have what is needed from secure sources with minimal disruptions.
6. Whether logistics, wages, raw materials or energy for a number of reasons we have cost escalation, some of which are influenced by higher interest rates, others not.

The message is that there are several common prognostications and estimates but at the end of the day, much is simply unknown. There are too many variables to pinpoint a conclusion. Regardless of the outcome, our focus needs to be on what we can control and realizing what is beyond our control. We can’t control economies or market actions but we can control how we respond to keep the odds of success in our favor. Morgan Housel recently summarized this very well:

“What that shows, I think, that is so easy to ignore in this field is that good investing is not about what you know, it’s not about how smart you are. It’s not about where you went to school. It’s not about the connections that you have. Good investing is overwhelmingly just about how you behave. It’s about your relationship with greed and fear, how gullible you are, who you trust, who you seek your information from, your ability to take a long-term mindset, long-term time horizon. That’s what actually matters. That’s what moves the needle more than anything else”.