“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” – Sam Ewing

We live in a dangerous and uncertain world. We have recently been reminded of that fact when Russia invaded Ukraine in February. While war is always being waged somewhere in the world, this unprovoked attack by Russia has captivated the world with its audacity and savageness. The most amazing aspect of the war has been how well Ukraine has defended itself. Who knows how long this conflict will last or what the outcome will be, but we do know that it has added an additional layer of uncertainty to our world moving forward.

With uncertainty and danger comes inflation. Due to the massive monetary stimulus and extremely low unemployment due to the pandemic, inflation was already running at a multi-decade high before the Ukraine invasion. With the additional supply pressures that the war has created, we expect inflation to remain elevated. What does that mean for investments? It means that bond values and growth stocks have been dropping, while value stocks have been doing better.

We don’t believe that a recession is upon us. The American consumer is still flush with cash. Inflation will put a damper on expenses in the future, but currently there is too much “pandemic fever” and now that people can get out and spend, they will. Company earnings are expected to exceed records again this year. Part of this is due to inflation, but most of it is due to the extremely low unemployment. Anyone who wants a job in America, can get a job. That is providing spending money to even the lowest paid employee. Since the American consumer is 70% of the economy, for now, we are in good shape.

The stock market has recently experienced a normal correction of between 10-12% (depending on which index you look at). We do not expect to breach the market lows that we saw in March, but there is tough sledding ahead. There are a lot of unknowns. Everything will have to go right (in the Ukraine) for the market to get back to new highs soon. That being said, we think that stocks are the place to be and our covered call strategy should flourish. As inflation persists at these levels, the Federal Reserve will need to continue raising interest rates, which will continue to pressure bonds. As always if you want to discuss your investments, do not hesitate to contact us.

Tax season is upon us. The more information that we have, the better job that we can do for you. If we have not seen your tax return in the past few years, please send us a copy so that we can update your financial profile.

Very truly yours,

Michael Cantlon
Thomas Guyett
Robert Gephart