Inflation is the most spoken word when discussing the state of the economy these days.

To kill inflation, interest rates are raised to the point where business and consumers spend less.

This causes people to lose jobs.

The combination of reduced spending and growing unemployment causes a recession.

The theory goes that when spending falls, demand falls to the point where there is excess stuff for sale and prices fall.

Voilà, inflation goes away.

One of the problems with this strategy of raising interest rates is that it does not encourage home construction, increase the supply of oil, eggs, or anything other than the ranks of out of work people.


It’s about demand destruction, not supply growth and for this reason this form of monetary policy is called a “blunt instrument.”

You are hammering the economy.

For most investors this is a new concept.

Ernest Hemingway famously wrote about bankruptcy when one of his characters is asked how he went bankrupt.

“Two ways”, he answers, “gradually, and then suddenly.”

That is the dilemma bankers face when considering how high they must raise interest rates to slow the economy enough to cause prices to fall, all the while trying to avoid a deep recession.

It is a tall order and investors are increasingly expecting that a sharp slowdown is right around the corner.

Hence turmoil in the “Markets”.

While many think the world is falling apart, all the news is bad, and darkness is everywhere, we must remember that the sun also rises.

Hemingway’s famous line above comes from the novel The Sun Also Rises.

Those are wise words to consider.

How many of you think our world is captured, to some extent, with this picture I took in High Park recently?

Green algae-infused still water, littered with safety cones, with ducks taking refuge on a small island?


This summer my daughter graduated from law school which I think can serve as a reminder that new beginnings, and wonderful things are happening in all our lives, all the time.

At times, the goodness that we enjoy is overwhelmed by ‘newsworthy’ sadness.

The business of gloom seeks to provide balance, I suppose.

So proud of her!

While some will lose their jobs, most will not and while some may reduce spending, most daily activity will continue as it always does.

Business will adapt to new realities, and consumers will continue to consume.

Some will retire and, like my daughter, some will begin new careers.

The sun also rises.

There is a cycle to things, and while it is unpredictable as to timing, it always repeats.


Investing cycles can be distilled into periods dominated by one of two emotions: fear or greed.

For reasons that to this day still confuse me, low prices cause fear and soaring prices cause greed.

One would think investors would be excited by cheap prices and sad at unaffordable prices.

Presently, fear is ripping its way into investors hearts.

I get it: if you are a seller, it sucks, but if you are an investor, it spells opportunity.

But still, it takes courage to think for oneself when everyone is yelling ‘FIRE.’

When trying to gauge the future path of despair or euphoria this crafty illustration below is my simple, yet deadly accurate indicator of future returns.

Investors’ emotions can be tracked by their moods.

Are they bullish or bearish?

Are they fully invested or ‘out of the market’?

Whenever the mood swings too far either way, reality sets in.

As a rule, when most everyone is bearish (negative) like they are now, most of the selling has been done.


Future returns are high because valuations are low, and the economic environment inevitably returns to equilibrium (growth).


It always returns to growth.

There is little, short of global annihilation, to argue against the cycle repeating.

Investors are presently MORE negative than in 2009 when the global financial system was on the verge of collapse, and MORE negative than when the global economy shut down in 2020.

That seems a tad pessimistic.

Perhaps the mood trajectory is a little carried away?

The retort is that things may get even worse before they get better.

Factually, no one knows the answer to how much worse the economy will get, but the imagination is increasingly reflected with near record levels of market anxiety.

The arguments that it is too early are many, varied, and as when all the unwelcome news is on the front page and thus known by most, compelling.

So, the question is: if everyone agrees, who is left to sell?

Investors make choices to own a company when they think the returns over reasonable time frames will be attractive.

Investors are usually pleased when they can scoop up bargains.

There are many bargains today.

Speculators may try to time the bottom with the hope of making a fast buck or avoid looking foolish should the bargains become ever greater.

Investors play a different game; they own businesses for their tax-free compounding returns, confident that the business they own will navigate the future like they have in the past.


Warren Buffett must be thrilled today.

Every time that investors have been this negative the future returns in one-to-two years have been extremely attractive.

Every time.

Could it be too soon?


Will it matter?


We have no way of knowing when the current bout of unwelcome news will wane; all we know is the sun also rises.

Related stories: “If You Have Money Put It In the Stock Market”