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Groundhog Day

"Well, what if there is no tomorrow? There wasn't one today."

                                                -Bill Murray “Phil” in Groundhog Day

 I don’t know about you but it sure seems the world’s inhabitants are living through an almost endless cycle of “bad stuff” - since March of 2020 when Covid-19 first changed things.  It’s way too reminiscent of the movie Groundhog Day where Bill Murray played a newspaper reporter covering Punxsutawney Phil’s annual ascent from his hole – in an endless loop of repeating days.  In the words of my favorite accidental philosopher (Yogi Berra) – “it’s like deja-vu all over again”.

From a global pandemic to widespread rioting to inflation and now Putin attacking Ukraine unprovoked – we’ve experienced a lot in two short years.   While some things we may look wistfully back at ($1/gal gas and cheap cars for a couple months) I’m confident you, like I, will be glad to put this all in the rear-view mirror – permanently.   

Except, maybe we won’t…

I’m an optimist and I believe that “progress” and “good” will ultimately prevail – but I can’t help but think that perhaps a lot of the challenges we’ve been having are not “transient”.  We may need to learn to adjust to a “new normal”.

I’m not making predictions.  I believe that in 30 years the best performing asset class will still likely be stocks – regardless of what happens in the interim.  Let’s take some of the current worldwide trials and address the likely best way to address each challenge as an investor. 

1. Inflation.   Inflation is a unique challenge.   Once it becomes an expectation of consumers and businesses it historically is very difficult to get back under control.  I wrote a column in February of 2021 indicating that I didn’t think inflation would be temporary.  I’m not prescient – but I understood that trillions of new, manufactured dollars would produce inflationary pressures.  The best way to address this challenge is to own stocks – preferably of companies with pricing power.  Precious metals and commodities could also stay even with inflation but will not produce the returns you can expect from stocks.

 2. Pandemics and social unrest.  I’ve been an advisor for twenty-seven years in May.  Both the pandemic and social unrest which played out in 2020 were new experiences for me.  What we can probably take away is that after an initial shock – stocks rose despite the challenges presented.  The natural knee-jerk reaction of investors in times of uncertainty is always to sell “risk assets” like stocks – but those who sold stocks in March of 2020 are now sorry they did.  Perhaps a good lesson for future shocks of this nature.  

 3. Rising interest rates.  The Fed raised rates last week and has been very clear that they intend to continue to raise rates and sell their bond inventory to fight inflation.  The reason that raising rates reduces inflation is that it decreases economic activity by making it more expensive for consumers to buy cars and houses and businesses to finance new initiatives.  This raising of rates hurts the price of existing bonds – by making them less attractive. In addition, the “slowing” of the economy comes with the risk of recession – which generally hurt stock prices in the short run.  The Fed is trying to “thread the needle” by reducing inflation without also producing a recession.  I hope they can. 

 4. Wars and rumors of wars. Surprisingly if you look at the history of worldwide conflicts stock prices generally have gone up after an initial shock reaction.  We don’t know the direction of this Russia/Ukraine conflict will go but if history is our guide war is not an indication of negative returns for stocks in subsequent years.   

It’s important to understand that markets respond quickly to anticipated events.  If it’s “in the news” or even on the radar of potential outcomes it is already being priced into financial assets.  We do not know how geo-politics, social order or for that matter inflation and interest rates will play out over the next 30 years.  We could live through times that could be peaceful, or mirror WWII - or we could live in times which were previously unprecedented.  Buckle up.  The next 30 years (like the last 30) will be a bumpy, interesting, and exciting ride that will try our patience and resolve!