Market Update: The New Old Economy

As a child of the 70s and 80s growing up in Pittsburgh, we often ventured from the east suburbs to my grandmother’s house in the city. As we made our way toward the Monangehela River, the smoke-spewing steel mills came into focus visually and by olfactory means. I distinctly remember passing what we called jalopies (beat up bondo-covered cars). More often than not these were cars dragging mufflers, or had patchwork paint schemes. Today, I’m starting to see more jalopies on the road.

Back in the 70s and 80s money was not free, you could get a return on savings and people pinched pennies and clipped coupons. Over the last few decades all of the above seemed to be as foreign to folks as an alien landing. Today, I’m seeing the return of such foreign ideas and it’s likely here longer than many assume.

While global central banks think they can control people, the reality is that they cannot. Decades of free money has led to significant price increases in just about every aspect of life from raw materials to insurance premiums. Global geopolitical tensions have led to supply chain disruptions that are not going away any time soon. These two points alone indicate that prices are going to remain elevated. Hence, the US Federal Reserve walking back the notion that they will be cutting rates soon.

Now that money is not free (interest rates higher) we are seeing a return to thrift. People are fixing cars, staying in homes and finding ways to make extra money. While thrift never goes out of style, it becomes more popular when borrowing money gets expensive.

Here is something many people will have to get used to – the current environment is the new, old normal. This is what an economy is supposed to be like. Getting a return on savings is not novel and neither is fixing things up to make them last longer. Staying in your home longer than you planned is normal. Not buying a new car every few years is normal. Questioning if you really need something versus savings is normal.

The last two decades have been an anomaly where we have not recognized the full consequences.