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My Crystal Ball is Blurry

My Crystal Ball is Blurry…


“The future ain’t what it used to be…”

                       Yogi Berra

 

 There are plenty of scary and negative headlines referencing multiple economic and geopolitical challenges around the globe and at home.   

 While not an exhaustive list, here are some issues that markets are concerned about: 

  1. Inflation and interest rates have already gone up a lot in the last three months and could go up much more as the Fed attempts to rein-in inflation without creating a recession.  Their success in combating inflation could mean a recession and conversely if they are too slow combating inflation it may get much worse… 
  2. War could get worse and could include other countries besides just Russia and Ukraine.  Putin has been backed into a corner with few attractive alternatives and there are few things more dangerous than a desperate tyrant with nuclear weapons.
  3. Soaring inflation could unleash social unrest. Emerging market economies have billions of citizens who live hand to mouth and spend a very high percentage of their meager incomes on food and fuel. These desperate people’s frustration at once meager but sustainable circumstances getting more dire may inspire revolts against their political leadership and the “rich” in their countries.  Even in the United States, families who spend a large proportion of their incomes on commodities with soaring prices are likely to believe a narrative that political and business “elites” have somehow conspired against them for their own benefit.   
  4. Ever higher interest rates will require a higher amount of debt service (taxes) to pay for the interest on the debt. With a smaller and smaller percentage of the population paying a higher and higher percentage of taxes the potential increase in taxes for this minority could prove problematic if rates go significantly higher.   

 In short, if you are looking for reasons to take your ball and go home this might just be the most tempting time to do so in my 27 years as a financial advisor.  

 So, what hope do you have given all these negative headlines?  One – the fact that there are negative headlines should give you some pause for hope!   Why is that?  It’s because there’s a slew of negative news already out – and markets are typically most hard hit by negative surprises – NOT the news and worries we already are aware of. 

 I confess that my crystal ball is blurry – I don’t know how all the current challenges will play out on the world stage or in client portfolios.  What I do have confidence in is that profitable, lower priced stocks are generally the best place to be during long periods of time which include war, inflation and/or social and political distress and I don’t see any reason that will change this time around. 

 So, hold tight during the challenging times sure to come during our lifetimes and resist the urge to “do something” when political or economic turmoil occurs. As a wise financial advisor once observed “portfolios are like soap – the more you handle it the less you have”.