“It's the economy, stupid.” James Carville 1992.
Are you waking up feeling anxious? Have pain in your stomach? Do you find yourself screaming at your TV all day? Do you look at your portfolio and start feeling faint? If you answered “yes” to any of these questions, you may have economic derangement syndrome.
I wish I could follow up with a convenient drug solution like the pharmaceutical companies do, but unfortunately, there's no drug that will relieve your symptoms. Does this mean you must suffer with a treatable ailment? That all depends on who is treating you and with what.
The symptoms of economic shock you are feeling at the grocery store and gas station have two main causes, massive monetary and fiscal stimulus (supercharged during the pandemic) and supply constraints. Your “specialists” at the Federal Reserve are currently trying to tame inflation by raising short-term interest rates and reversing their quantitative easing program, but I am not sure how much this will help as government spending, while less than in the past two years, is still astronomical with a lot of additional spending being proposed.
The supply issues are mostly tied to energy and are likely to cause long-term distress if not properly addressed. When you go see your doctor, they ask you when you first started experiencing symptoms, so let's do the same thing with energy.
What is causing current high energy prices? No, it's not Putin's price hike alone as problems in energy markets have been brewing for years. Energy has suffered from a lack of capital investment (except green energy), and several boom-bust cycles in oil, coal, and gas have made problems worse. Now investors in fossil fuel companies want a return on their investment, so energy companies are buying back shares and paying larger dividends to satisfy shareholders.
Current domestic energy policies discourage long-term investment in drilling, pipelines, mines, nuclear reactors and refineries, so unless there is an incentive to put money into projects, energy companies will continue to pay investors rather than put capital into something that may end up being canceled. Just like pharmaceutical companies want years of patent protection for developing new drugs, energy companies need some assurance that money put to work in developing new resources will pay off for them.
I'm all for green energy and nuclear power, but the gap between their widespread adoption for baseload power and current reality are running directly into the laws of physics.
Food prices are tied directly to energy supplies. Problems could be alleviated with trade and energy policy changes, but politicians appear to be suffering from cognitive dissonance, so many can't even diagnose the problem, so how are they going to cure high prices?
So what can you do to relieve the symptoms of economic derangement syndrome? Buy real assets like real estate and precious metals. You can own stocks that pay a good dividend. There are many that have good cash flow, low debt and will make a profit even in a recession.
Normally I would suggest bonds as they carry reliable coupons and return principal on maturity but inflation may remain higher than bond yields for some time leaving you with a negative return.
You can adjust spending to offset higher prices. Have a budget and stick to it. If you are working you may want to consider remaining at your job longer than planned or find another one with better pay/benefits. And instead of yelling at your TV, contact your senators, congressmen and even the White House as there are things they could do to lower prices. James Carville was right, it's about the economy and stable economies rely on affordable food and energy, not idiotic platitudes and deficits. There are cures for what financially ails you, but you must be a self-reliant and informed citizen. I don't see anything coming soon to save the economy, so it's up to you to save yourself.
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