"Q3 2023 - Tasting Poison"

  • By: Joseph R. Tranchini, CFA, CFP®
  • November 2023












Mithridatism – it’s not a word that you would typically find within the confines of educational material of the finance, investment, or economic variety. No, it’s more like something you would find within a cryptic ‘book of spells’ buried deep within a forgotten library belonging to a civilization long gone. Defined in a straightforward manner, mithridatism is “the practice of protecting oneself against a poison by gradually self-administering non-lethal amounts to oneself”. The practice was invented a very, very long time ago in the B.C. era by a king known as Mithradates VI as an attempt to preemptively seek immunity against poisoning attempts. Although in the modern day this is largely seen as a rather unadvisable and barbaric approach to healthcare, you could argue (and don’t worry I will) that the general concept behind mithridatism is exceptionally relevant to the current state of not only the U.S. Economy, but the financial markets as well. So, no need to fear, you are still in the right place to read about financial topics.

Let’s take a step back in time to directly after the U.S. Economy’s experience with the Global Financial Crisis. Coming out of the Great Recession, the United States was set up with a backdrop of very low interest rates, a long runway ahead of job growth, stable inflation, and the continued burgeoning of the technologies that are so often used today. Financial markets were comparatively cheap, and investors took a rather ‘slow and steady’ approach to things, as is evidenced by the Volatility Index (VIX) being on average 28% lower during the 2012-2017 period relative to the 2018-Present period. On the whole, you could absolutely describe this period of time as being rather ‘copacetic’ – or better yet… free of ‘poisons’ if you will.

Arguably, we ended our ‘poison-free’ era in 2018 by introducing our first real dose of ‘poison’ in the form of the U.S./China Trade War. Financial markets were rocked into Bear Market territory and the Economy had to deal with all the pressures of uncertainty surrounding how supply chains would react to disparate tariffs on many things (from both sides), not to mention this is when the Yield Curve first inverted, sending additional worry through financial markets. As if that wasn’t a high enough dose of ‘poison’, introduce the additional fears of an international growth slowdown, as well as continued Brexit uncertainty – that constitutes a pretty high dose. However, as high of a dose as that may be, in the following months financial markets largely shook off the worries and rallied all the way back, and the Economy hardly skipped a beat. Just like that, markets and the economy handled their first real dose of ‘poison’ in years with a sense of elegant indifference – Mithradates VI would be proud.

In a lot of ways, it might have been good that markets and the economy got their first real taste of ‘poison’ in the aforementioned era, because it set the stage for an even bigger dose in the form of the pandemic and post-pandemic era issues. There isn’t enough air capacity in anyone’s lungs to list all those problems in one breath, but I’ll give it a shot. Forced lockdowns, businesses closures, skyrocketing unemployment, shattered supply-chains, ever-changing non-uniform mandates, transitions to a ‘new normal’ way of life, and that just names a few. Again, that represents a fairly hefty dose of ‘poison’ to try and recover from; but sure enough, markets and the economy not only rebounded back – they did so in a big way. At this point, we were seriously giving Mithradates a run for his money.

Now comes our current slate of ‘poisons’. Persistently higher inflation than expected, labor supply-demand imbalances, restrictively higher interest rates, and not to mention the outbreak of 2 separate wars. Even so, while not quite ‘out of our system’ just yet, considerable progress has been made on the inflation front, while the labor market remains in a favorable state to foster beneficial wage growth – which our research shows is a strong influencer of consumer spending (the largest component of GDP). Our proprietary research also shows a strong momentum effect to consumer spending, which continues to come in at a healthy level. Being the lynchpin of the economy, a favorable backdrop such as this for the consumer likely means a favorable backdrop for most of everything else. While the effects of overseas conflicts are difficult to assess fully – note that the United States possesses the means by which to become energy independent, and that fact may therefore quell at least some of the financial market impact of those situations should further escalation arise. Additionally, future expectations of Federal Reserve policy show a general consensus that interest rates are likely to be lower the further into the future we move – a sign that has traditionally been highly correlated with actual moves in interest rates.

So, although our current slate of ‘poisons’ are still in the process of being…. processed; it is the market and economy’s acquired adaptability to adverse events that has continued to push us forward through even some of the most unthinkable, and unforeseen situations. The economy’s strength lies in the consumer, and the strength of the consumer lies in their adaptability. As far as the investing world is concerned, its unlikely financial markets will ever develop a fully functioning ‘poison resilience’, however that doesn’t mean markets have to ‘stay sick’ for long (they usually don’t). Dose by dose, over the years the world has become more resilient and more adaptive to the various array of ‘poisons’ that exist out there in the mysterious and uncertain labyrinthine of the future – stated differently, at this point, we’re kind of used to it.

Maybe this Mithradates guy was onto something….


[See Below for Disclosures & Annotations]


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

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  2. Bureau of Economic Analysis. “Gross Domestic Product, 3rd Quarter and Year 2023 (Advance Estimate)”. October 26, 2023.
  3. Bureau of Economic Analysis. “Labor Force Statistics from the Current Population Survey”. October 26, 2023.
  4. Bureau of Economic Analysis. “Personal Income”. October 26, 2023.
  5. FRED. “5-Year Breakeven Inflation Rate”. October 26, 2023.
  6. FRED. “10-Year Breakeven Inflation Rate”. October 26, 2023.