Markets have been troubled. Open any brokerage or 401(K) statement and you are likely to see a page of red. It seems that nearly everything has gone precisely the wrong way: bonds are down, stocks are down, and gas prices (along with the price of nearly everything else we purchase) are up.
Fear and uncertainty abound, and the headlines foreshadowing the end of the world are not helping.
And yet…perspective matters.
There are three important points:
- While painful, what has occurred is a healthy and needed reaction to the withdrawal of liquidity.
- I am beginning to find more optimism in our monetary policy than I have in nearly three decades.
- This is not the time to react emotionally. Even if we are pushed into a recession, if history is any indication, we will likely be fine.
With that, let us begin.
Liquidity and monetary policy
As we’ve discussed in previous updates, the U.S. Federal Reserve is the Central Bank to the United States and, as the name states, is essentially the lender of last resort. The Fed (as it is colloquially referred) has very crude tools. It can:
- Signal what it’s going to do by talking.
- Raise and lower the rates at which banks borrow (through one mechanism called the Federal Funds rate).
- Expand its balance sheet by (essentially) printing currency and buying bonds.
For the sake of brevity today, generally speaking, the Fed cuts rates when unemployment is too high and raises rates when inflation is too high (remember the dual mandate).
Yet, for four decades, the Federal Reserve has provided more and more liquidity by steadily lowering rates. And yet, for four decades, growth has been, by and large, strong and unemployment has been, by and large, reasonably low (with some exceptions).
This introduced a strange dynamic where each time the Fed cut rates, it would cut much more deeply than when it would raise rates … hence, rates fell over a long period of time.
This is, in essence, just an expansion of liquidity. If a consumer would want to borrow $10,000 at 5 percent, they would probably be willing to borrow a much higher sum at 3 percent.
More broadly, in the last three years, for example, the Federal Reserve has created (through the Treasury) an additional $5 trillion (yes, trillion) out of thin air to help counteract the economic effects of COVID-19. In 2007/2008, the Fed introduced a bit over $1 trillion to counteract damage from the Global Financial Crisis. To be clear, some of this was absolutely needed and a good deal of it was remarkably effective.
And yet, as with anything, there are no absolute decisions, only tradeoffs. The obvious consequence is we have increased the money supply in the United States and, therefore, the value of our dollars has diminished. This, along with pent-up demand from COVID and supply chain disruptions, caused inflation to rise … and has created a very specific form of inflation referred to as monetary inflation.
As such, once it was clear inflation wasn’t “transitory,” the Fed finally began taking steps to reverse the cycle.
First it signaled it was slowing or stopping the expansion of its balance sheet, then it signaled it was going to raise rates and now it is in the process of raising rates.
As markets (both financial and physical) went up because rates went lower, markets go down when rates go higher. On the margin, the introduction of liquidity makes prices increase and the removal of liquidity makes prices decrease.
This is both logical and, in aggregate, a healthy move to begin focusing more intensely on the real economy and less intensely on the performance of markets.
Market performance during recessions
The question on the minds of many is therefore how far will the Federal Reserve go? Will the Fed bring inflation back down? Yes, I believe so. Will the Fed irreparably crush markets? No, I don’t believe so. Will the Fed push us into a recession? Well, possibly…
Which brings us to Chart 1: market performance during a recession, after a recession, and during “normal” times.
The period following recessions is quite good, however, as markets recover and generally with less of the unhealthy excesses that exacerbated the sell-offs in the first place. These periods are so good, in fact, that over the seven recessions from 1970, the year immediately following the end of the recession were slightly better than “normal times.”
Therefore, what to make of it all and what are investors to do?
- First and foremost, breathe. We have been through inflation, pandemics, wars, poor policies, high rates, low rates, high unemployment, low unemployment, and many other difficult environments before. Incentives drive behaviors and markets are driven by incentives. Those incentives haven’t changed and, as providers of capital, we, as investors, must still rely on those principles above all else.
- Second, recognize our human brain isn’t very good at market timing. Markets are down and if you have experienced the pain thus far, there is very little expected value in trying to time the market going forward. Even the most sophisticated investment organizations in the world can’t time markets very well.
- Third, go back to your plan. Market sell-offs are wonderful opportunities to refresh on goals and objectives. Refresh on how much you are spending and whether savings rates are high enough. Dare I say there might even be opportunities (as most equities are now less expensive and most bonds are now yielding more)?
- Fourth, review your fixed-income (e.g., bond) portfolio. The yield curve is now inverted which means shorter-term bonds are often yielding more than longer term bonds, and those shorter-term bonds are often associated with less risk. There are many other factors involved, of course, but where possible, consider shortening duration (the maturity of the bonds in your portfolio) if you haven’t done so already. Remember, inflation is not yet under control and it is unclear how soon that will happen.
In closing, take a moment to breathe, do not react emotionally, and use the difficult markets as an opportunity to reaffirm your long-term plan.
Securities, investment advisory, and wealth management solutions offered by MML Investors Services, LLC member SIPC, a registered broker-dealer, and a registered investment adviser. CRN202506-301948
Hybrid work is a big departure from the traditional work arrangement. Switching between two workplaces may be a change, but it doesn’t need to cause your productivity to decline. Here are some tips to consider that may help boost your productivity as a hybrid employee.
Maximize Your Schedule.
Home and office environments are different. Plan tasks based on where you’ll be working. You may find tasks that require focus are best at home while collaborative tasks and meetings are better suited for the office. Different locations may spur creativity and focus in different ways.
Maintain a Consistent Schedule.
Your schedule at home should be consistent with your office schedule. Blocking your calendar each week can help you stay productive and maintain a healthy work-life balance.
Mirror Your Office Setup at Home.
Maintain the same organization at home that you use in the office. Keep your items in the same place on your desk. Consider which items are worth having at each location and which ones are worth shuttling between workplaces. This will save you time each day.
Using technology, such as digital communication, project management tools and cloud-based platforms, can make it easier to jump into any project and stay productive from wherever you work.
Continue Communicating With Your Manager and Co-workers.
Hybrid work may cause you to miss out on key information or lose focus of your manager’s expectations. Using company communication channels and regularly checking in with your manager and peers can help you stay connected and updated on the most recent information and expectations.
Connect Regularly With Your Co-workers.
Feelings of social isolation can lead to a decline in your productivity. Find creative ways to have fun with co-workers even when working remotely, like playing games or virtual happy hours. This can re-energize you and counter feelings of burnout.
While no two work environments are the same, these tips are worth considering as you build a more permanent hybrid work routine that is effective and efficient. The hybrid work model is new and evolving. Communicate with your manager about what is working and what could be improved. Make adjustments when necessary, and when issues arise, keep trying.
Improving the fuel efficiency of a company’s fleet of vehicles can have many financial and environmental benefits, especially with fuel prices on the rise. Fuel can be one of the largest and most difficult expenses to predict and control. Therefore, it’s important for vehicle fleet managers to conserve fuel, maximize efficiency and reduce vehicle emissions by implementing fuel-efficient policies, technology and maintenance strategies.
Managing a fleet’s fuel usage—even for just a couple of vehicles—can feel overwhelming. The following are ways to reduce fleet fuel costs and make operations more efficient:
- Monitor driving patterns. A U.S. Department of Transportation report found that there can be as much as a 35% difference in fuel consumption between a good and poor driver. Monitoring speeding, braking and acceleration patterns can indicate whether drivers are using good practices on the road or operating inefficiently.
- Cut engine idling. Idling can burn a quarter to a half gallons of fuel per hour. To reduce fuel and oil waste:
- Turn off the engine while waiting or making deliveries.
- Turn off the engine while stuck in traffic.
- Do not idle to warm up the engine.
- Improve route efficiency. Route efficiency can be improved with GPS tracking technology to ensure operations are streamlined and drivers don’t spend their day and fuel driving back and forth.
- Remove unnecessary weight from vehicles. Every extra 100 pounds in a vehicle can increase gas costs by up to $0.03 cents per gallon, which can quickly add up over the course of hundreds of thousands of gallons across multiple vehicles. Only travel with necessary packages or equipment.
- Schedule maintenance. Preventive and regular maintenance can reduce fuel costs, extend the lifespan of fleet vehicles and ensure the safety of drivers and the community.
- Check the tire pressure. Tires should be inflated to 75% of the recommended pressure; underinflated tires can significantly lower a vehicle’s average gas mileage. Checking the tire pressure should be a mandatory part of the pre-trip safety check since it not only improves the cost per mile but also helps the vehicle respond properly in unsafe situations.
- Dispatch the closest vehicle. Business margins and fuel efficiency can be improved by dispatching the closest vehicle to a new delivery or appointment. Fleet-tracking programs can help automate dispatching and routing.
- Leverage a fleet telematics solution. A fleet telematics solution can help managers gain data and insight into fleet status in terms of individual vehicle performance and overall operations, allowing them to make changes that will help fuel efficiency
- Provide incentives. Fleet managers can encourage efficient driving by offering drivers incentives, such as recognition or special privileges.
- Implement driver training. Providing drivers with training regarding fuel-efficient habits can increase their awareness of fuel efficiency on the road. It can help them be mindful of things like keeping gears low when accelerating, changing gears early, driving at slower speeds and learning to read the road more effectively.
By implementing policies and practices that monitor and reward fuel-efficient behavior, fleet operations can reduce fuel costs. For more risk management guidance, contact us today.