What are my thoughts on the current environment?
A common question I am being asked right now is to share what I’m reading, hearing, and my thoughts about this current environment. My response has been sharing a quote that I read in the recent Nick Murray advisor newsletter. Nick states: “If it takes a recession to break the back of this inflation – and if that recession causes the equity market to sell off further and longer than it already has – a sane long-term investor must not merely endure this but embrace it. This is exactly how Paul Volcker ultimately snuffed out the hyperinflation of 40 years ago. It certainly wasn’t pretty – the fed funds rate shot up over 20%, unemployment soared to near 11%, and the S&P 500 went down 27%. But with inflation dead, the greatest bull market of all time – from August 1982 until March 2000 – ensued.”
Why is that my favorite resource to share with you? Let’s revisit the following graphic to see the time frame Nick Murray references.
I love how this chart can’t be manipulated. We can easily reference previous challenging times and visually see the risk/reward trade-off. What preceded 1982? You may zoom in to see the markets responding to what was the crisis of the day and how the markets responded once that time frame came to a close. What are my thoughts? I am not surprised by this period of higher inflation. The global response to the Covid pandemic was an economic shutdown, while in America the government gave away money to qualified persons and the Fed expanded its balance sheet to historic levels. I don’t know how long this current cycle will last, but as history has taught us – in time this too shall pass. I view this as a buying opportunity and/or harvest losses to offset future gains in which the icing on the cake may just be the next great bull market wave that Nick Murray references.
In closing, I’ll share a stroll I took down memory lane as I read Nick’s quote above. I’ll never forget a response received when I finished reviewing the above SBBI chart with a client. His comment was to the fact that if only we could time the markets, how great would it be to have invested right here (pointing to the 1980’s) and riding that wave? I find it to be an exhilarating thought of potentially riding a new bull market once the issues that created this inflationary environment are resolved and are a part of history.
Please keep in mind these are simply my thoughts. They aren’t predictions. You’re familiar with the infamous compliance disclaimer: Past performance is no indication of future results. I am an optimist and I enjoy looking at historical data as it removes speculation.
I welcome your questions and/or comments and thank you for being our valued client.
