And as we wind on down the road
Our shadows taller than our soul
There walks a lady we all know
Who shines white light and wants to show
How everything still turns to gold

– Songwriters Robert Plant & James Page, 1971


It’s hard not to envision Robert Plant as the front man for the rock band Led Zeppelin, streaming hair and shirt unbuttoned to his navel. The song Stairway to Heaven brings back memories of junior high dances, clutching a classmate in an embrace as the slow dance melted into a hard rock ending, regretfully separating couples who were surrounded by relieved chaperones. Plant is indeed a legend in music circles. Ask people today about Plant and most would share memories of Led Zeppelin concerts and album releases. It is so easy to imagine Plant in that manner; however, at 73, he is nothing like that. He has expanded his body of work into many new directions. In 2007, he released Raining Sand with Alison Krauss, a blue grass singer with a predilection for the fiddle. The album won a Grammy. Listen to Please Read the Letter, and only as the song ends do you catch hints of Plant as the Zeppelin front man—a few of his improvisations giving him away. Then in 2021 he and Krauss collaborated again in releasing Raising the Roof. In listening to Lucinda Williams’ Can’t Let Go, Zeppelin seems far, far away.

Just as Plant is not the same artist he was in 1971, inflation today is not the same beast we remember in 1980. We are struck at the many analysts comparing today’s inflationary environment with that of Paul Volcker’s era as Federal Reserve Chairman. They are as different as Led Zeppelin and Alison Krauss. To begin with, Volcker was at the helm of the world’s financial hegemon. There were no competitors for the crown of world economic champion; the United States was the undisputed leader in global finance. The dollar reigned and no country dared seriously complain. Today is vastly different. China is a legitimate contender as a world economic champion, and they challenge our country daily. Today, the Federal Reserve must balance this reality carefully in their planning. Chairman Jerome Powell has indicated the Fed will raise rates in 2022. Immediately images of Paul Volcker spring to mind but be careful. This is quite different in many ways. When Chairman Volcker raised interest rates, he had no qualms about what would happen next in Treasury markets. If he deigned rates rise, rise they would. Today, Powell cannot be so sanguine. In a world of negative real interest rates, it is likely that global players in the Treasury market would sweep in and scoop up bonds at what seems to be extremely attractive yields as the United States raises rates trying to quell inflation. This possible global purchasing pressure could cap interest rate rises and could frustrate Powell’s noble intentions. In addition, Volker did not have the stairway to heaven of debt that Powell must navigate. Debt levels are massive today and any rate increases will strain servicing of this debt. Imagine having to watch Congress reduce defense expenditures to accommodate debt service. Again, a steep rate rise is not entirely baked in. This is not a replay of 1980 in our opinion.

Another difference is the size of the Fed balance sheet, now in excess of $8 trillion, coming from the pre-2008 era in the $900 billion range. Fed minutes indicate serious thought into shrinking the balance sheet in addition to raising rates. This is accomplished by selling Treasuries or mortgage-backed securities the Fed has purchased in bulk in past years, otherwise known as quantitative easing. This bond sale process will extract liquidity from the system, call it quantitative tightening; again, not 1980.

We still see a likely scenario where the Federal Reserve will be pressured by China to introduce a Central Bank Digital Currency (CBDC). Unlike other cryptocurrency, such as Bitcoin, CBDC will be centralized. Cryptocurrency is generally de-centralized, not controlled from any central bank or government, but by millions of market participants through the blockchain. With United States backing, this CDBC will be yet another piece of the metaverse’s development. We think you can see the virtual world gaining momentum with each additional e-commerce transaction, with each purchase of the Meta (Facebook) Oculus or Microsoft HoloLens. The Department of Defense is using the HoloLens, allowing military units to see data displayed in their field of vision. For instance, a drone feed of video showing troops what lies behind an upcoming wall. Delta Airlines technicians could gain training on repairing new engine technology virtually without needing to idle equipment to accomplish the task. The applications are endless and are rushing into the marketplace. Retail experiences in the metaverse could be interesting. Imagine sitting at home and entering a virtual world, like Decentraland, seeing a clothing store and entering it. A hologram with your body dimensions could then try on clothing allowing you a firsthand view of how it fits you and whether you like the fashion. You could pay with your CBDC or cryptocurrency and find the clothing delivered to your home the next day. It is difficult to understand the extent to which this will alter our daily lifestyle, but we find the investment potential intriguing. The term Web3.0 is being used to describe this next iteration of internet experiences. As this paper is being finalized Microsoft has announced intentions of purchasing Activision Blizzard. This addition of a gaming giant throws Microsoft further down the metaverse road.

This leads us to companies such as Shopify. This technology company assists companies and small businesses with establishing their online presence, providing the picks and shovels needed for the company to maintain that online capability for reaching global audiences. The Canadian company accounted for almost 9% of 2020 US e-commerce sales when the pandemic helped shine a spotlight on their capabilities. Shopify bought Amazon’s website-building division in 2015 and never looked back. In an excellent Bloomberg article, the writer, Brad Stone, noticed that in February last year Shopify had “replaced the “Ottawa, Canada” dateline that began its press releases and earnings reports with a strange new one: “Internet, Everywhere.” Shopify proceeded to terminate leases on its offices in multiple cities and declared themselves virtual— permanently. Shopify considers itself omnipresent. It seems to us this is a signal of the arrival of Web3.0. Recently the company’s stock has declined with most technology stocks as markets have revalued multiples at which these stocks trade. Even with inevitable future competition, Shopify seems well positioned to further their march in e-commerce in a virtual world. It is worth noting that Shopify has found many of its small businesses negatively impacted by supply chain disruption. This begs the question of whether Shopify will go the next step and create an Amazonlike distribution capability to help merchants fulfill their e-commerce orders. This story is still being told as Shopify boldly goes virtual.

We view recent market corrections in the technology area as healthy. The pandemic-fueled gains and now the recent correction is being digested. These profitable technology companies should grow their global percentage of GDP and conditions appear to be accelerating as cloud development only grows. Data centers, payment systems, and software firms in general, all find themselves in growing sectors. 2022 does not appear to be slowing this down.

Please stay tax conscious as you work with your CPA in this new year. We have taken advantage of some of these stock declines to engage in tax loss harvesting, giving clients some needed losses against sturdy stock gains in the past years. Keep focused on these opportunities in 2022 and we suggest a close eye on Washington and any efforts to pass new tax legislation. In a slight change to Robert Plant’s lyrics, if there is a bustle in your hedgerow, be alarmed now…

E.B. “Chip” Beard
January 22, 2022