Lorraine’s May Update

By HMA Team on June 15, 2022

Hello friends,

This update is a little behind schedule because, as you can imagine, there has been a lot going on.  May and early June were busy on the home front with high school graduation (two down, one to go) and a quick trip to California to attend a conference.  Kelly and Stephen took a little trip to western Illinois with the dogs and had some downtime – I think we can all agree she has earned it.  Attached are some fun pictures of the dogs frolicking in the pool.  If you accuse me of shamelessly using Coco and McCready as cute distractions from everything else that is going on….you would not be wrong.

But let’s tackle the big stuff:

Inflation:  I think it is safe to say that Jerome Powell’s use of the term ‘transitory’ in describing inflation last year has not aged well.  On Friday, according to U.S. Labor Department inflation hit 8.6% for the 12 months ending May 2022.  The largest increase since December 1981.  We would like to believe that we are near ‘peak’ inflation but the factors feeding this monster are still at large. On the supply side global shortages due to both Chinese Covid policy and the Russia/Ukraine conflict continue to push prices higher.  Meanwhile, on the demand side, the consumer is earning higher wages and continuing to spend on goods and services they were deprived of over the last few years.  Consumer sentiment is extremely negative, but for now they are still spending.

The Fed will aggressively fight inflation with increasing interest rates.  It will be a Peckinpah knock-down drag-out fight that will very likely lead to recession – I do not imagine any other result.

Politics:  Even though remaining politically agnostic is challenging (mostly because political atheism sounds more appealing at this point) we have to acknowledge that the mid-terms look very problematic for the Democrats.  Inflation is both an economic problem and apolitical problem, and continues to be one of the biggest issues for Democrats as they head into the midterms, as history also suggests that the party in power loses an average of 25 House seats and 4 seats in the Senate.  As much as the rhetoric from President Biden indicates an active fight against inflation, the truth is there are very few levers the president (or the administration) can pull that will unwind two massive stimulus packages, global shortages and internal demand (even on the energy stage). 

In summary:  The famous Larry Bird was quoted as saying “I hate to lose more than I like to win”.  If that doesn’t sum up how this market feels I don’t know what does.  We have enjoyed well above average returns over the last 3 (truly 10) years and have become, well, spoiled!  I regularly accuse my kids of being spoiled and my youngest, Mick, always retorts “and whose fault is that”.  This is how we should all view the fiscal and monetary policy and economic conditions of the last decade – spoiled!  It is time to pay the price for our good fortune.  This correction will be temporary just like all the previous ones.  We will use this opportunity to buy with high cash reserves in a measured way, we are leaning towards quality in fully invested portfolios and we are excited for those in the accumulation phase who are adding money every paycheck into their retirement accounts.  What a great time to buy! 

For those among you with the most worries (the retirees) we have planned and prepared for this for years.  We are ready!!!

L