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Iron Capital Insights

  • Iron Capital Insights
  • July 18, 2022
  • Chuck Osborne

Attitude is Everything

‘Tis the season for family vacations: The kids are out of school, and now is the time for some good old-fashioned family togetherness. It will be great, or it will be miserable, depending on the age – and therefore the attitude – of the children. (Vacations with adult children is another thing altogether, so I’ll keep this to school-aged children.) In my opinion, the best times are when they are seven to nine years old – there is no more gear to haul around, they listen and obey, and everything is new and wonderful. This was the age our son was the first time we took the kids to Disney. It was magic. His younger sister cried when we had to leave.

Years pass, and children turn into teenagers. The vacations have not changed all that much, but the attitudes sure have. If the kids aren’t fighting each other, then they are busy being too cool to care about whatever we are doing. This is the age of knowing everything, or more precisely, thinking they know everything. Attitude.

Attitude is also driving the market. The actual economic data is certainly not great, but the sentiment surveys are downright depressing. Small business owners are more negative than they have ever been in more than 40 years of surveying such things. That means they are more negative than they were after 9/11; more negative than in the midst of the Great Recession. There is a feeling out there that everything is going wrong.

This feeling isn’t unfounded; there are a lot of things going wrong. I know I personally am frustrated because one of my pet peeves is making the same mistake twice, and so much of what got us into this mess is mistakes that we have as a nation previously made. Why don’t we learn? However, this is not the worst situation we have been in in the last 40 years. We made it through everything else, and we will make it through this.

This attention to attitude-measured-by-surveys is not helping the market. Attitude changes far more rapidly and more extremely than reality. There are a lot of real issues out there, primarily inflation. There is fear of a recession, and it is possible we may technically be in one. The definition of a recession is two quarters in a row of negative GDP growth; the first quarter of 2022 was negative, and it is certainly possible that the second quarter was as well. However, we have full employment and consumers are spending, so it is difficult to have a severe recession while that is occurring.

The biggest issue in the market right now is the fixation on mood. A survey says inflation expectations are up and the market dives; a survey says inflation expectations are down and the market surges. Attitude leads to volatility, but ultimately what matters is reality. We will get some reality as companies report earnings; until then we will see violent swings with mood, but we are going nowhere.

This too shall pass. It is hard today, but we need to keep a good attitude. Our problems are real but fixable. It takes hardship to learn lessons, and hopefully this time we learn from it. Meanwhile we can’t control what happens, but we can control our reaction and most importantly our attitude.

Warm regards,

Chuck Osborne, CFA
Managing Director