The stock market’s steady if not spectacular rise from the recession’s low points are easily and understandably overlooked by the many people who weren’t in position to enjoy the ride back up.
For many of us, this turnaround is probably evident in places such as your 401(k), and on a much larger scale, in the University of Virginia’s long-term investment pool – the endowment.
The market rebound helped those investments climb back out of a deep hole over the course of recent months. Two years ago, for example, the endowment value dropped as low as $3.76 billion, raising concerns about its mix of investments and its prospects, at least by some skeptics.
We’re not in any position, nor have we any desire to critique the approach of the brass at the University of Virginia Investment Management Company. Quite literally, that’s why they get the big bucks. Still, we recognize the legitimate worry about the endowment, given its growing importance in serving as a stabilizing force on Grounds.
Its value is now back above $5 billion. That’s unquestionably good.
A glimpse at their first-quarter summary, however, shows that UVIMCO managers are now gauging the threat of inflation on the economic horizon.
“While the Fed’s recent policy choices have substantially reduced the risk of deflation, policymakers will have to be equally creative on the back end to avoid setting off an inflationary spiral similar to what we saw in the 1970s,” UVIMCO’s management writes in the first-quarter commentary. “The economy is like a car stuck on a sheet of ice. The Federal Reserve has the accelerator pedal pressed to the floor and the wheels are spinning furiously, but the car isn’t moving. Should the ice melt suddenly, the tires will grab the pavement and the car will explode forward.”
Endowment managers have taken steps to better position the long-term pool in the case of inflation. Their concern about inflation, however, is one that should register more broadly. Even those who missed out individually on the recent rise of the stock markets will suffer if inflation stops in for an extended visit.
Further evidence that even in “recovery” mode, the economy remains fragile and as uncertain as ever.
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